ITEM 1. DESCRIPTION OF BUSINESS
Corporate History
Primco Management Inc. (“Primco,” the “Company,” “we,” “us,” or “our”) was incorporated on October 14, 2010, in the State of Delaware as a property management company.
Effective as of January 31, 2013, the Company executed a reverse merger by entering into a 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 a music production and distribution division, and plans 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 acquired Top Sail Productions, LLC (“Top Sail” or “Top Sail Productions”), a California limited liability company and 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 was to continue as Senior Executive Consultant to assist in the operation of Top Sail and other entertainment interests of the Company. The Company purchased the membership interests in Top Sail for a total of $440,000. The initial payment was $75,000 cash and 5,000,000 restricted common shares in the Company. The remaining $350,000 balance was to be paid in installments as follows: $6,250 for 12 months commencing July 1, 2013, $10,417 for 12 months commencing July 1 2014, and $12,500 per month commencing July 1, 2015. As of December 31, 2014, the Company had paid Chuck Gullo a total of $210,483.
On June 1, 2013 the Company 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 shares of the Company’s Series A Preferred Stock and 20,000,000 shares of the Company’s common stock to the sole shareholder of D & B Music, Inc., David Michery, who was appointed as our CEO and director.
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 of and/or entering into joint ventures with third parties involving the planning, staffing, management and operation of legalized medical marijuana dispensing and cultivation.
Amendments to Articles of Incorporation
On or about 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 capital stock from 25,000,000 shares, par value $0.001, to 500,000,000 shares, 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, which corporate actions were subsequently effected. The forward split did not affect the number of authorized common shares or par value.
Effective June 30, 2013, the Company amended its Articles of Incorporation increasing the authorized shares of capital stock from 500,000,000 shares, par value $0.001, to 2,000,000,000 shares, par value $0.00001, with 10,000,000 preferred shares, par value $0.00001, authorized and 4,990,000,000 common shares, par value $ 0.00001, authorized.
On or about August 10, 2013, the Company filed a Certificate of Designation with the State of Delaware designating 10,000,000 shares of preferred stock as “Series A Preferred Stock,” which shares would 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, and with each share of Series A Preferred Stock entitling the holder thereof to 1,000 votes.
Effective November 25, 2013, the Company amended its Articles of Incorporation to increase the Company’s authorized shares of capital stock from 2,000,000,000 shares, par value $0.00001, to 5,000,000,000 shares, par value $0.00001, with 10,000,000 preferred shares, par value $0.00001, authorized and 4,990,000,000 common shares, par value $ 0.00001, authorized.
On September 16, 2014, the Company amended its Articles of Incorporation to increase its authorized capital stock to 9,010,000,000 shares, with 9,000,000,000 common shares, par value $0.00001 par value, authorized and 10,000,000 preferred shares, par value $0.00001, authorized.
Effective March 23, 2015, the Company amended its Articles of Incorporation under the laws of the State of Delaware to effectuate a reverse stock split of its common and preferred stock at a reverse stock ratio of one post-split share of stock for each 1,000 shares of pre-split stock. Pursuant to the amendment, the total authorized capital which the Company shall have the authority to issue was reduced to 2,010,000,000, of which 2,000,000,000 shares shall be common stock, $0.00001 par value per share, and 10,000,000 shares shall be preferred stock, $0.00001 par value per share. The Company did not adjust any financial activity in the audited financial statements included in this Form 10-K to account for the reverse stock split as it was effectuated with the State of Delaware subsequent to December 31, 2014.
Our Business
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 produced only minimal revenues.
New real estate business
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 other real estate investment opportunities (see medical marijuana business).
Entertainment business
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 various music related assets that have been acquired by its wholly-owned subsidiary ESMG Inc. have been financed mainly through convertible debt obtained by the Company.
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 their recorded music with targeted radio promotion and social media marketing; and
(c) to market and distribute existing catalog titles of recorded music 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 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, 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 (which is 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.
Through its acquisition of Top Sail Productions, commencing June 1, 2013, 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 were made primarily through Publishers Clearing House since the sale of CD’s through traditional retail stores has diminished significantly.
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 of 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 raising the necessary financing to enable it to fulfill its co-production obligation to the physical producer Gorilla Pictures, full production of the animated sequel is expected to begin in the second half of 2015. 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 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 dispensary 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 announced that it had 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 announced that it had 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 originally expected to complete the licensing process in a few months, and construction was expected to begin once the Company secured a suitable location. Under the agreement, the Company granted CanMED a 10-year management contract for the operation of the Joint Venture. In 2014, a Canadian court action commenced by 2 licensed medical marijuana patients resulted in 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. The injunction led to a temporary halt on growers which would include our proposed joint venture partner. See Note 12 to our financial statements for further details.
On March 19, 2014 the Company announced that the Company had 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. While the Company made payments to Suzie Q’s and its principal, the Company did not close any purchase agreement with Suzie Q or acquire any of its assets.
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).
As well, there are numerous and significant real estate competitors.
Intellectual Property
We do not own any trademarks. However, we have registered our music rights with the US Copyright Office in Washington, DC.
Research and Development
Research and development expenses incurred during the years ended December 31, 2014 and 2013 were $0.
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) although other states have been resistant to allow the cultivation of marijuana due to resistance from the U.S. Department of Drug Enforcement Agency (DEA) 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 one employee, seven consultants and two officers. Our one employee, Joe Pionkie, manages our recording artists through our wholly owned subsidiary ESMG, Inc. Our seven consultants provide various consulting services ranging from, but not limited to, bookkeeping, promotions and marketing, sales and distribution, general management of ESMG, Inc., social media and real estate development. Only our President and CEO, David Michery, has an employment agreement with the Company. Our employees and officers devote such efforts and spend as much time as is necessary for the Company to conduct its operations. We hire additional consultants solely as needed. All our consultants are engaged on a month-to-month basis as independent contractors.
ITEM 1A.
ITEM 1A. RISK FACTORS
Not applicable to a “smaller reporting company.”
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable to a “smaller reporting company.”
ITEM 2.
ITEM 2. PROPERTIES.
In late 2013, the Company cancelled its lease at 6725 Sunset Boulevard, Suite 420, Hollywood, CA 90028. Subsequently after cancelling the lease, an officer of the Company executed two leases for adjoining commercial office buildings in Orange County, CA where the Company will house ESMG’s music and motion picture operations as well as Top Sail Production operations. The first lease executed on October 24, 2013 is for three year with fixed payment terms of $1,750 a month. The second lease executed on June 13, 2014 is for five years with variable payment terms.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of April 14, 2015, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations, except as follows:
On or about May 12, 2014, we entered into a settlement agreement with WHC Capital, LLC (“WHC”) relating to our inability to issue shares of our common stock in conversion of, and resolving, our convertible notes with WHC in the amount of $50,000 on June 27, 2013, in the amount of $100,000 on August 8, 2013, in the amount of $100,000 on September 8, 2013, in the amount of $50,000 on October 22, 2013, in the amount of $50,000 on November 30, 2013, and in the amount $50,000 on December 27, 2013. On October 2, 2014, we issued 151,677,397 shares of common stock to WHC Capital, LLC, and on October 21, 2014, we issued 128,322,603 shares of common stock to WHC, in full satisfaction of our obligations under the notes and settlement agreement.
On or about June 13, 2014, we entered into a settlement agreement with Redwood Fund II, LLC (“Redwood”) relating to our inability to issue shares of our common stock in conversion of, and resolving, our $500,000 8% Convertible Debenture Due 1/29/14, dated April 29, 2013, with Redwood. On September 26, 2014, we issued 474,444,444 shares of common stock to Redwood in full satisfaction of our obligations under the note and settlement agreement.
On or about June 18, 2014, we entered into a settlement agreement with Southridge Partners II, LP (“Southridge”) relating to our inability to repay our Promissory Note in the amount of $100,000, dated September 30, 2013, with Southridge, and our inability to issue shares of our common stock in conversion of our Convertible Note in the amount of $35,000, dated November 20, 2013, with Southridge, resolving both notes. On September 29, 2014, we issued 209,583,076 shares of common stock to Southridge in full satisfaction of our obligations under the note and settlement agreement.
During the three months ended December 31, 2014, Magna Group, LLC, claimed it was owed an additional $50,000 in principal relating to the Company debts it had purchased, to which the Company objected as it believes Magna Group, LLC is not owed any additional principal.
On or about December 5, 2014, we entered into a settlement agreement with Jessica Vance and Suzie Q’s NPO relating to disputes between the parties as to amounts due to Vance under her consulting contract with the Company and Suzie Q NPO’s asset purchase agreement with the Company, as well as a dispute as to the what assets were to be transferred in connection with the asset purchase. Pursuant to the settlement, the parties agreed that the Company’s consulting contract with Ms. Vance was terminated, clarified what assets would be transferred to the Company, and the Company agreed to make a payment of $8,240 and 25,000,000 shares for the assets that would be transferred.
On or about March 10, 2015, we received a notice from the State of Washington Department of Revenue that we were being assessed $676,423.00 for Suzie Q’s NPO unpaid tax liability. The Company retained local tax counsel and appealed the matter on or about March 24, 2015, on the grounds that it is not a successor to Suzie Q’s NPO, had not purchased Suzie Q’s NPO or its assets, had not merged with Suzie Q’s NPO, and was not a guarantor of Suzie Q’s NPO.
On or about April 2, 2015, we received notice that the United States District Court for the Central District of California entered an order in Case Number 2:14-cv-07263-BRO-SH, Amethyst Kelly v. Primco Management, Inc. et al., dismissing the complaint of Amethyst Kelly with prejudice against Primco Management, Inc., ESMG Inc., and Top Sail Productions, LLC.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
PART II
ITEM 5.
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 the OTCBB. Since that date, our common stock is quoted on the OTC Bulletin Board (and OTCMarkets.com) under the symbol “PMCM” (“PMCMD” temporarily post-reverse split until the symbol reverts to “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 have not been adjusted for the Company’s March 2015 reverse stock split, do not include retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions.
Year ended December 31, 2014
b) Holders. At December 31, 2014, the Company had 15 shareholders of record. The Company’s NOBO list as of November 25, 2014, indicates that the Company had 11,111 non-objecting beneficial owners at such time.
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. We have authorized the issuance of 1,350,000 shares of common stock pursuant to the 2014 Legal Expense Stock Issuance Plan, which was adopted by the Company and its majority shareholder on November 28, 2014.
We have authorized the issuance of 7,000,000 shares of common stock pursuant to the 2013 Stock Awards Plan, which was adopted by the Company and its majority shareholder on June 14, 2013, and amended on April 9, 2015.
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
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable
ITEM 7.
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, 2014.
Since our incorporation on October 14, 2010, in 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.
The Company was incorporated on October 14, 2010, under the laws of the State of Delaware. The Company is a real estate management and property development company and, through its wholly-owned subsidiaries, Top Sail Productions, LLC and ESMG, Inc., produces and distributes recorded music and intends to co-produce for distribution lower-budget 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 of and/or entering into joint ventures with third parties involving the planning, staffing, management and operation of legalized medical marijuana dispensing and cultivation.
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, 2014, we had a working capital deficit of $9,779,354 and an accumulated deficit of $12,761,821. The report of our independent registered public accounting firm on our financial statements for fiscal 2014 and 2013 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.
Results of operations for the years ended December 31, 2014 and 2013
For the year ended December 31, 2014, we generated gross revenues of $103,403 compared with revenues of $72,116 for the year ended December 31, 2013, which was an increase of $31,287. In the years ended in December 31, 2014 and 2013, the Company earned the majority of its revenues through its subsidiary Top Sail Production, LLC’s music rights.
Our operating expenses for the year ended December 31, 2014, were $1,317,381, compared to $934,905 for the year ended December 31, 2013, which was an increase of $336,699.
For the year ended December 31, 2014, we had consulting fees of $466,345, compared to $239,500 for the year ended December 31, 2013, which was an increase of $226,845. The increase was due to additional consultants needed to facilitate our planned marijuana operations. We also paid consultants to manage our music distribution operations. Currently, we have 7 consultants who work regularly with the Company. They are all engaged on a month-to-month basis and provide various consulting services ranging from, but not limited to, bookkeeping, promotions and marketing, sales and distribution, general management of ESMG, Inc., social media and real estate development.
For the year ended December 31, 2014, we had general and administrative expenses of $292,002, compared to $277,333 for the year ended December 31, 2013, which was an increase of $14,669. The increase was minimal as the Company’s general and administrative costs stay fairly consistent. They include employee payroll expense, rent, marketing, meals and entertainment, travel, supplies and other operating costs.
For the year ended December 31, 2014, we had wages and officer compensation of $366,268, compared to $374,212 for the year ended December 31, 2013, which was a decrease of $7,944. The decrease was due to our CFO resigning in February 2014. Our President and CEO, David Michery, has an employment agreement with the Company, which is detailed in Note 13 in our footnotes to our financial statements.
For the year ended December 31, 2014, we had professional fees of $192,766 compared to $43,860 for the year ended December 31, 2013, which was an increase of $148,906. The increase was due to additional professional fees needed to execute our planned marijuana operations as well as to execute our convertible notes payable.
For the year ended December 31, 2014, we incurred non-operating expenses totaling $7,666,969 compared to $2,779,401 for the year ended December 31, 2013, which was an increase of $5,065,499.
For the year ended December 31, 2014, we had interest expense of $145,519 compared to $177,931 for the year ended December 31, 2013, which was a decrease of $32,412. The decrease was due to reduced outstanding notes payable balances throughout fiscal 2014.
For the year ended December 31, 2014, we had derivative interest expense of $7,666,969 compared to $2,601,470 for the year ended December 31, 2013, which was an increase of $5,065,499. The increase was due to additional derivative liability being recorded in the year ended December 31, 2014. We calculate our derivative liability using the Black Scholes Model which takes into account variable features in our outstanding convertible debt as well as our ever changing stock price. Our stock price decreased dramatically in the year ended December 31, 2014, which was the major factor in the increased Black Scholes Model calculations of derivative liability.
Liquidity and Capital Resources
Our cash resources totaled $196,993 at December 31, 2014, compared to $64,771 as of December 31, 2013. We have a working capital deficit of $9,786,854 at December 31, 2014. Our working capital deficit is mainly due to the outstanding derivative liability of $7,811,895. Without factoring in the derivative liability, we have a working capital deficit of $1,975,486. We believe we will need an infusion of capital from third-party sources as our operations are not profitable.
In the year ended December 31, 2014, we had net cash used in operating activities of $1,472,141, compared to $1,478,481 in the year ended December 31, 2013.
In the year ended December 31, 2014, we had net cash used in investing activities of $32,500, which consisted of a $12,500 investment in Seattle Green Care and $20,000 in Suzie Q’s NPO. In the year ended December 31, 2013, we had net cash used in investing activities of $9,412, which consisted of purchased of furniture and equipment.
In the year ended December 31, 2014, we had net cash used in financing activities of $1,636,863, which consisted of $1,262,500 of proceeds from convertible notes payable and $374,363 in proceeds from the issuance of our stock. In the year ended December 31, 2013, we had net cash used in financing activities of $1,552,664, which was entirely from proceeds from convertible notes payable.
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.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable for smaller reporting companies.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PRIMCO MANAGEMENT INC.
(A Development Stage Company)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and shareholders of
Primco Management Inc.
Seattle, WA
I have audited the accompanying consolidated balance sheets of Primco Management Inc. and its subsidiaries (the “Company”) as of December 31, 2014 and 2013 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years ended December 31, 2014 and 2013. 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, 2014 and 2013 and the consolidated results of its operations and its cash flows for the years ended December 31, 2014 and 2013, 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, 2014, 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 12, 2015
The accompanying notes are an integral part of these audited financial statements.
The accompanying notes are an integral part of these audited financial statements.
The accompanying notes are an integral part of theses financial statements.
The accompanying notes are an integral part of these audited financial statements.
Primco Management Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2014 and December 31, 2013
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of operations
The Company was incorporated on October 14, 2010, under the laws of the State of Delaware. The Company is a real estate management and property development company and., through its wholly-owned subsidiary, Top Sail Productions, LLC, 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 of and/or entering into joint ventures with third parties involving the planning, staffing, management and operation of legalized medical marijuana dispensing and cultivation.
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, LLC (“Top Sail” or “Top Sail Productions”), a California limited liability company and 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 cash and 5,000,000 restricted common shares in the Company. The remaining $350,000 balance is being paid in installments as follows; $6,250 for 12 months commencing July 1, 2013, $10,417 for 12 months commencing July 1 2014, $12,500 per month commencing July 1, 2015. As of December 31, 2014, the Company paid Chuck Gullo a total of $210,483 which is in accordance with the payment plan.
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 whereby the Company was the only surviving entity. 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 is the CEO and director of the Company.
Suzie Q’s NPO
On July 22, 2014, the Company executed an amendment to the Asset Purchase Agreement, (the “Agreement”), with Jessica Vance, the owner of Suzie Q’s NPO, (“Suzie Q’s”), dated March 7, 2014. Pursuant to the Agreement, the Company acquired the business operations of Suzie Q’s, minimal equipment and furniture to operate the business, the customer/patient list and the exclusive rights to use the name “Suzie Q.” Suzie Q’s is a Washington state non-profit corporation. The Company paid a total of $20,000 cash pursuant to the acquisition of Suzie Q’s. The Company did not take over the lease on the location. The equipment and furniture had an approximate historical cost of $7,760 and a net book value of $0 as of the date of the Agreement. The Company recorded the excess consideration paid of $20,000 as goodwill.
On December 5, 2014, the Company and Jessica Vance entered into a Mutual Settlement and Release of Claims Agreement, (“MSRCA”), which superseded all prior agreements between the parties. Pursuant to the MSRCA, the Company and Jessica Vance agreed to the following
1.The Company will relinquish all rights to the furniture and equipment obtained which had a cost basis of $7,600 and a net book value of $0.
2.The consulting agreement dated July 22, 2014, with Jessica Vance was terminated.
3.The Company will make an additional payment of $8,240 and 25,000,000 shares of common stock for other assets such as the exclusive rights to the Suzie Q brand name, business goodwill, intellectual property relating to the business licenses, copyrights, trademarks, physical customer files, business telephone number, facebook, and email address.
Subsequent to the year ended December 31, 2014, the Company decided not to make any additional payments relating to Suzie Q’s and decided that it would not proceed with purchasing Suzie Q’s assets in light of significant unresolved tax liability associated with Suzie Q’s and its assets (see Note 14).
Seattle Green Care
On August 3, 2014, the Company entered into an asset purchase agreement with Seattle Green Care whereby the Company acquired the domain name registration for SeattleGreenCare.com, the phone number for Seattle Green Care, the WordPress files for SeattleGreenCare.com, the vendor list, Seattle Green Care logo, Seattle Green Care customer list and other forms of minor business operations for a total consideration of $12,500 cash. As of December 31, 2014, the Company has paid Seattle Green Care the total consideration of $12,500 and has recorded the balance as goodwill.
Basis of presentation
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Development stage enterprise
The Company is currently a development stage enterprise reporting under the provisions of FASB ASC Topic 915, Development Stage Entity. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
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
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.
Research and development
The Company records research and development expense as incurred.
Net loss per common share
The Company adopted FASB ASC Topic 260, Earnings Per Share. Basic earnings per share is based on the weighted effect of all common shares issued and outstanding and is calculated by dividing net income (loss) available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares, if any, that would be issued assuming conversion of all potentially dilutive securities outstanding. For all periods diluted earnings per share is not presented, as potentially issuable securities are anti-dilutive.
As of December 31, 2014, there are 27,183,682,796 potentially dilutive shares of common stock outstanding all of which are derived from our outstanding convertible promissory notes. At December 31, 2014, the Company has 10,000,000 shares of Series A preferred stock outstanding of which after twelve months can be convertible at the option of the holder into one hundred (100) common shares per one share of Series A preferred stock. Of the 10,000,000 shares of Series A preferred stock outstanding as of December 31, 2014, 7,000,000 have been outstanding for over one (1) year. Therefor there are an additional 700,000,000 potentially dilutive shares of common stock outstanding if the holder of shares of Series A preferred stock were to convert.
As of December 31, 2014, combined the Company has 727,183,682,796 potentially dilutive shares of common stock outstanding.
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, 2014 and December 31, 2013, 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, 2014 and December 31, 2013, 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 construction 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 as well as development of its future planned marijuana operations. 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, 2014 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 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, 2014 and 2013, 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 - 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
Jesse Scott
V.I.C.
Hurricane Chris
Tion Phipps
Choo Biggz
Bruce-E-Bee
Downtown Attraction
Kamp Hustle
Bungle Knot Dred
Other various Hip Hop catalog artists
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 4 - ACQUISITIONS & GOODWILL
D & B MUSIC, INC.
On June 30, 2013, the Company entered into an asset purchase agreement with D & B Music, Inc. (formerly D & B Records, Inc.) which has the worldwide rights to reproduce and distribute 41 fully produced titles.
The sole shareholder of D & B Music, Inc at the time of asset purchase agreement 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
(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.
The Company has begun to compile and re-release 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.
Top Sail Productions, LLC
On May 30, 2013, the Company completed and funded the acquisition of Top Sail Productions, LLC (“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 cash and 5,000,000 restricted common shares in the Company. The remaining $350,000 balance is being paid in installments as follows; $6,250 for 12 months commencing July 1, 2013, $10,417 for 12 months commencing July 1 2014, $12,500 per month commencing July 1, 2015. As of December 31, 2014, the Company paid Chuck Gullo a total of $210,483 which is in accordance with the payment plan.
Suzie Q’s NPO
On July 22, 2014, the Company executed an amendment to the Asset Purchase Agreement, (the “Agreement”), with Jessica Vance, the owner of Suzie Q’s NPO, (“Suzie Q’s”), dated March 7, 2014. Pursuant to the Agreement, the Company acquired the business operations of Suzie Q’s, minimal equipment and furniture to operate the business, the customer/patient list and the exclusive rights to use the name “Suzie Q.” Suzie Q’s is a Washington state non-profit corporation. The Company paid a total of $20,000 cash pursuant to the acquisition of Suzie Q’s. The Company did not take over the lease on the location. The equipment and furniture had an approximate historical cost of $7,760 and a net book value of $0 as of the date of the Agreement. The Company recorded the excess consideration paid of $20,000 as goodwill.
On December 5, 2014, the Company and Jessica Vance entered into a Mutual Settlement and Release of Claims Agreement, (“MSRCA”), which superseded all prior agreements between the parties. Pursuant to the MSRCA, the Company and Jessica Vance agreed to the following
1.The Company will relinquish all rights to the furniture and equipment obtained which had a cost basis of $7,600 and a net book value of $0.
2.The consulting agreement dated July 22, 2014, with Jessica Vance was terminated.
3.The Company will make an additional payment of $8,240 and 25,000,000 shares of common stock for other assets such as the exclusive rights to the Suzie Q brand name, business goodwill, intellectual property relating to the business licenses, copyrights, trademarks, physical customer files, business telephone number, facebook account, and email address.
Subsequent to the year ended December 31, 2014, the Company decided not to make any additional payments relating to Suzie Q’s and decided that it would not proceed with purchasing Suzie Q’s assets in light of significant unresolved tax liability associated with Suzie Q’s and its assets (see Note 14).
Seattle Green Care
On August 3, 2014, the Company entered into an asset purchase agreement with Seattle Green Care whereby the Company acquired the domain name registration for SeattleGreenCare.com, the phone number for Seattle Green Care, the WordPress files for SeattleGreenCare.com, the vendor list, Seattle Green Care logo, Seattle Green Care customer list and other forms of minor business operations for a total consideration of $12,500 cash. As of December 31, 2014, the Company has paid Seattle Green Care the total consideration of $12,500 and has recorded the balance as goodwill.
NOTE 5 - 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. As of December 31, 2014 and December 31, 2013, the Company had accounts receivable balances net of allowance for doubtful accounts of $11,044 and $26,026.
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, 2014 and December 31, 2013, the Company had net inventory balances of $42,684 and $70,528.
NOTE 6 - PREPAID EXPENSES
In early May of 2014, the Company began to proceed to terminate the Equity Purchase Agreement with Southridge Partners II, LLC (Southridge”) on September 30, 2013. As previously disclosed in the Form 10-K financials and footnotes, the Company recorded a prepaid expense in the amount of $135,000 for fees incurred with Southridge Partners II, LLC in connection with the Equity Purchase Agreement entered into by the Company whereby Southridge has undertaken to purchase up to $ 10 million of the Company’s issued common stock 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 was 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.
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.
As of December 31, 2014 and 2013, the Company had a prepaids balance of $0 and $20,000.
NOTE 7 - FIXED ASSETS: PROPERTY & EQUIPMENT
Property and equipment consists of the following at December 31, 2014 and December 31, 2013:
Depreciation expense for the years ended December 31, 2014 and 2013 was $2,953 and $1,527.
NOTE 8 - ACCRUED LIABILITIES
Accrued liabilities at December 31, 2014 and December 31, 2013 represent the following:
As of December 31, 2014 and December 31, 2013, the Company had an accrued salary liability to its CEO, David Michery, in the amount of $27,743 and $83,808. As of December 31, 2014 and December 31, 2013, the Company had an accrued salary liability to its former CFO, Alan Bailey, in the amount of $24,404 and $41,904.
NOTE 9 - NOTES PAYABLE
GGAG, Inc.
On May 21, 2013, ESMG, Inc. entered into a $250,000 promissory note with GGAG, Inc. On November 25, 2013, GGAG executed a debt and assignment agreement with Magna Group, LLC whereby GGAG assigned $50,000 of principal debt. On January 3, 2014, GGAG executed another debt and assignment agreement with Magna Group, LLC whereby GGAG assigned $50,000 of principal debt. In connection with the two debt and assignment agreements, the Company issued a convertible promissory note to Magna Group, LLC in the said amounts which are convertible at a 45% discount to the lowest trading price in the ten (10) days prior to conversion. In the year ended December 31, 2014, Magna Group, LLC converted the entire $100,000 of principal convertible debt into 1,369,851,114 shares of common stock in the Company.
Pegasus Group, Inc.
Pursuant to the acquisition of D&B Music, Inc. by the Company, the Company assumed the debt of D&B Music, Inc. which included a promissory note to Pegasus Capital, Inc. (formerly Pegasus Group, Inc.) in the principal amount of $242,000. On August 10, 2013, Pegasus Capital, Inc. assigned $30,000 of principal debt to Sherry Harden who in turn converted that debt into 30,000,000 free trading shares of common stock in the Company.
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 December 31, 2014, Mrs. Harden converted the entire $5,000 of principal 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 December 31, 2014, SFH Capital, LLC converted the entire $5,000 of principal 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 $22,500 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 a convertible debenture for that $22,500 portion of debt assigned to SFH Capital, LLC. As of December 31, 2014, SFH Capital, LLC converted the entire $22,500 of principal into 225,154,110 unrestricted common shares of the Company.
On February 28, 2014, SFH Capital, LLC entered into a debt purchase agreement with Pegasus Capital, Inc. for a $90,000 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 $90,000 portion of debt assigned to SFH Capital, LLC. As of December 31, 2014, SFH Capital, LLC has converted $5,000 of principal debt into 100,000,000 shares of common stock in the Company.
Southridge Partners II, LP
On June 18, 2014, the Company and Southridge Partners II, LP (“Southridge”) entered into a settlement agreement concerning the complete settlement and disposition of all claims by Southridge which include a convertible note issued by the Company to Southridge on September 30, 2013 and due on June 30, 2014 in the amount of $35,000. In the year ended December 31, 2014, the Company executed the settlement agreement by issuing Southridge 209,583,076 share of common stock as full consideration for payment of said convertible note.
Gorilla Pictures
On January 31, 2013, the Company executed a stock purchase agreement with ESMG, Inc. which was treated as a reverse merger. Moreover, the Company assumed a $275,000 promissory note originally issued to Gorilla Pictures on November 6, 2012.
On October 6, 2014, Firehole River Capital, LLC (the “Assignee”) entered into a purchase and assignment agreement with Gorilla Pictures (the “Assignor”) whereby a portion of $75,000 from an original note issued to the Assignor on November 6, 2012, was purchased by the Assignee. The new convertible note issued by the Company to the Assignee has a conversion rate equal to 50% of the lowest closing price of the Company’s common stock for the last 10 trading days prior to conversion. As of December 31, 2014, Firehole River Capital, LLC has converted $42,500 of principal leaving a balance of $40,000 on this note.
Note payable short-term debt balances as of December 31, 2014 and December 31, 2013 are made up of the following:
Short Term Notes Payable in Default
As of December 31, 2014, the Company has approximately $429,500 of short term notes payable in default.
NOTE 10 - 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.
Redwood Fund II
On June 18, 2014, the Company and Redwood Fund II (“Redwood”) entered into a settlement agreement concerning the complete settlement and disposition of all claims by Redwood which include a convertible note issued by the Company to Redwood on April 29, 2013 and due on January 29, 2014. In the year ended December 31, 2014, the Company executed the settlement agreement by issuing Redwood 474,444,444 share of common stock as full consideration for payment of said convertible note.
WHC Capital, LLC (“WHC”)
On May 12, 2014, the Company and WHC Capital, LLC (“WHC”) entered into a settlement agreement concerning the complete settlement and disposition of all claims by WHC which include convertible notes issued by the Company to WHC on (i) June 27, 2013 for $100,000, (ii) June 27, 2013 for $50,000, (iii) August 8, 2013 for $100,000, (iv) September 8, 2013 for $100,000, (v) October 22, 2013 for $50,000, (vi) November 30, 2013 for $50,000, and (vii) December 27, 2013 for $50,000. Pursuant to the settlement agreement, the Company will pay WHC $150,000 cash as well as issue a total of 280,000,000 shares of common stock to settle the seven (7) convertible notes in full. As of December 31, 2014, WHC has been paid $150,000 cash and been issued 280,000,000 shares of common stock in full consideration of all outstanding convertible notes payable, leaving a balance owed to WHC of $0.
LG Capital Funding, LLC
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. As of December 31, 2014, LG Capital Funding, LLC has converted $50,000 of principal and $471 of accrued interest into 609,725,000 shares of common stock, leaving a $0 principal balance on this note.
On April 1, 2014, the Company issued a convertible note of $100,000 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 April 1, 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. As of December 31, 2014, LG Capital Funding, LLC has converted $6,625 of principal into 139,963,600 shares of common stock, leaving a balance $93,375 on this note.
On October 14, 2014, the Company received $95,000 pursuant to a back end convertible note of $100,000 dated April 1, 2014 with 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 April 1, 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.
Inter-Mountain Capital Corp.
On April 21, 2014, the Company entered into a collateralized secured convertible promissory note with Inter-Mountain Capital Corp ("Inter-Mountain"), a Delaware corporation, for an 9% convertible promissory note with an aggregate principal amount of $2,207,500, of which the company is to assume $200,000 in original interest discount ("OID") and legal fees and other expenses of Inter-Mountain totaling $10,000, which together with any unpaid accrued interest is due on March 21, 2016. The note is to be issued in tranches with an initial tranche of $557,500, of which $500,000 was received on April 22, 2014, assuming $57,500 in OID. The Company received a second tranche of $110,000, of which the Company received $100,000 on August 8, 2014, assuming $10,000 of OID. The Company received a third tranche of $27,500, of which the Company received $25,000 on November 13, 2014, assuming $2,500 of OID. This convertible note together with any unpaid accrued interest is convertible into shares of common stock at a fixed conversion price of $0.0075. The remaining tranches of $275,000 of funding to the Company under the note will consist of $250,000 in principal and the $25,000 in OID, which have not yet been funded. As of December 31, 2014, Inter-Mountain Capital Corp has converted $59,400 of principal debt into 495,000,000 shares of common stock in the Company.
Adar Bays, LLC
On May 27, 2014, the Company issued a convertible note of $75,000 to Adar Bays, 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 May 27, 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. As of December 31, 2014, Adar Bays, LLC has not converted any debt.
SFH Capital, LLC
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 Capital, LLC. As of December 31, 2014, SFH Capital, LLC converted the entire $5,000 of principal 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 $22,500 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 a convertible debenture for that $22,500 portion of debt assigned to SFH Capital, LLC. As of December 31, 2014, SFH Capital, LLC converted the entire $22,500 of principal into 225,154,110 unrestricted common shares of the Company.
On February 28, 2014, SFH Capital, LLC entered into a debt purchase agreement with Pegasus Capital, Inc. for a $90,000 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 $90,000 portion of debt assigned to SFH Capital, LLC. As of December 31, 2014, SFH Capital, LLC has converted $5,000 of principal debt into 100,000,000 shares of common stock in the Company.
On June 27, 2014, the Company executed a convertible promissory note with SFH Capital, LLC in the amount of $50,000 bearing interest of 10% per annum and maturing on June 27, 2015. The $50,000 was wired directly to WHC Capital, LLC whom is another note holder of the Company. 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 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. As of December 31, 2014, SFH Capital, LLC has not converted any of this debt.
On August 5, 2014, the Company executed a convertible promissory note with SFH Capital, LLC in the amount of $50,000 bearing interest of 10% per annum and maturing on August 5, 2015. The $50,000 was wired directly to WHC Capital, LLC whom is another note holder of the Company. 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 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. As of December 31, 2014, SFH Capital, LLC has not converted any of this debt.
Beaufort Capital Partners, LLC
On June 30, 2014, the Company executed a convertible note agreement with Beaufort Capital Partners, LLC in the amount of $100,000, interest of 12% per annum, payable by December 30, 2014 and convertible into common shares of the Company at a 38% discount to market based on the (3) three lowest closing prices within (10) ten trading days prior to conversion. As of December 31, 2014, Beaufort Capital Partners, LLC has not converted any of this debt.
Eastmore Capital, LLC
On August 13, 2014, the Company executed a convertible note agreement with Eastmore Capital, LLC in the amount of $110,000, interest of 12% per annum, payable by August 12, 2015 and convertible into common shares of the Company at a 40% discount to market based on the lowest closing prices within (10) ten consecutive trading days prior to conversion. As of December 31, 2014, Eastmore Capital, LLC has not converted any of this debt.
Left Coast Pictures, Inc.
On July 7, 2014, the Company executed a convertible note agreement with Left Coast Pictures, Inc. in the amount of $25,000, interest of 5% per annum, payable by January 7, 2015 and convertible into common shares of the Company at a 50% discount to market based on the lowest closing prices within (10) ten trading days prior to conversion. As of December 31, 2014, Left Coast Pictures, Inc. has not converted any of this debt.
Firehole River Capital, LLC
On October 2, 2014, the Company issued a convertible note and securities purchase agreement to Firehole River Capital, LLC in the amount of $82,500 of which $75,000 was received net of legal fees. The convertible note bears interest of 12%, matures on June 2, 2015, and is convertible into shares of the Company’s stock at a conversion rate of 50% of the lowest trading price during the 10 days prior to conversion. As of December 31, 2014, Firehole River Capital, LLC has not converted any of this debt.
On October 6, 2014, Firehole River Capital, LLC (the “Assignee”) entered into a purchase and assignment agreement with Gorilla Pictures (the “Assignor”) relating to the purchase of a portion of the Company’s note issued to the Assignor, and the Company issued Assignee a convertible note for the portion of the debt purchased by Assignee in the amount of $75,000. As of December 31, 2014, Firehole River Capital, LLC has converted $42,500 of principal leaving a balance of $32,500 on the note.
Short-term convertible debt at December 31, 2014 and December 31, 2013, represents the following:
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.
The derivative liability at December 31, 2014 and December 31, 2013 related to the following convertible notes,
The following is the range of variables used in revaluing the derivative liabilities at December 31, 2014 and December 31, 2013:
NOTE 11 - 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.
On November 11, 2014, the Company issued 3,000,000 shares of preferred stock to its chief executive officer for services rendered. The Company valued the preferred share at par $0.00001 which resulted in an expense of $30.
As of December 31, 2014 and 2013 the Company has 10,000,000 and 7,000,000 shares of preferred stock outstanding.
Authorized Common Stock
On or about 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 capital stock from 25,000,000 shares, par value $0.001, to 500,000,000 shares, 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, which corporate actions were subsequently effected. The forward split did not affect the number of authorized common shares or par value.
Effective June 30, 2013, the Company amended its Articles of Incorporation increasing the authorized shares of capital stock from 500,000,000 shares, par value $0.001, to 2,000,000,000 shares, par value $0.00001, with 10,000,000 preferred shares, par value $0.00001, authorized and 4,990,000,000 common shares, par value $ 0.00001, authorized.
On or about August 10, 2013, the Company filed a Certificate of Designation with the State of Delaware designating 10,000,000 shares of preferred stock as “Series A Preferred Stock,” which shares would 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, and with each share of Series A Preferred Stock entitling the holder thereof to 1,000 votes.
Effective November 25, 2013, the Company amended its Articles of Incorporation to increase the Company’s authorized shares of capital stock from 2,000,000,000 shares, par value $0.00001, to 5,000,000,000 shares, par value $0.00001, with 10,000,000 preferred shares, par value $0.00001, authorized and 4,990,000,000 common shares, par value $ 0.00001, authorized.
On September 16, 2014, the Company amended its Articles of Incorporation to increase its authorized capital stock to 9,010,000,000 shares, with 9,000,000,000 common shares, par value $0.00001 par value, authorized and 10,000,000 preferred shares, par value $0.00001, authorized.
Effective March 23, 2015, the Company amended its Articles of Incorporation under the laws of the State of Delaware to effectuate a reverse stock split of its common and preferred stock at a reverse stock ratio of one post-split share of stock for each 1,000 shares of pre-split stock. Pursuant to the amendment, the total authorized capital which the Company shall have the authority to issue was reduced to 2,010,000,000, of which 2,000,000,000 shares shall be common stock, $0.00001 par value per share, and 10,000,000 shares shall be preferred stock, $0.00001 par value per share. The Company did not adjust any financial activity in the audited financial statements included in this Form 10-K to account for the reverse stock split as it was effectuated with the State of Delaware subsequent to December 31, 2014.
Common Stock Issuances
In the year ended December 31, 2013, the Company issued 1,798,090,181 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 and 1,663,090,181 shares were for the reduction of $824,640 in convertible debt.
In the year ended December 31, 2014, the Company issued 7,259,656,818 shares of common stock of which 372,218,912 shares were for $374,363 cash and 6,887,437,906 shares for the reduction of $878,223 in convertible debt. The Company also 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 in early 2014. The Company has since increased its authorized shares of common stock.
Stock Payable
As of December 31, 2014 and 2013, the Company had a stock payable balance of $7,500 and $0. The Company executed a consulting agreement in October of 2014 whereby the Company is to issue 25,000,000 shares of common stock for services rendered. The Company valued the shares at the trading price on the date of issuance which resulted in a consulting expense of $7,500. As of December 31, 2014, the Company has yet to issue the shares and therefor recorded a stock payable of $7,500.
Warrants
On June 30, 2014, the Company issued to Beaufort Capital Partners LLC warrants to purchase 67,000,000 shares of common stock of the Company at an exercise price of $.0015 per share. The warrants were issued to the Beaufort Capital Partners LLC pursuant to a convertible note dated June 30, 2014 in the amount of $100,000.
During the years ended December 31, 2014, no warrants were exercised. The following table summarizes the outstanding warrants.
NOTE 12 - COMMITMENTS & CONTINGENCIES
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.
As of December 31, 2014, the Company has not made any payments or advanced any assets pursuant to the joint venture agreement with CanMEd.
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.
Office lease
In late 2013, the Company cancelled its lease at 6725 Sunset Boulevard, Suite 420, Hollywood, CA 90028. Subsequently after cancelling the lease, an officer of the Company executed two leases for adjoining commercial office buildings in Orange County, CA where the Company will house ESMG’s music and motion picture operations as well as Top Sail Production operations. The first lease executed on October 24, 2013 is for three year with fixed payment terms of $1,750 a month. The second lease executed on June 13, 2014 is for five years with variable payment terms. The lease payments are $1,750 a month until August 31, 2014. The monthly lease payments then increase September 1, 2014 through June 14, 2015 to $3,500. The monthly lease payments then increase June 15, 2015 through June 14, 2016 to $4,000. The monthly lease payments then increase June 15, 2016 through June 14, 2017 to $4,120. The monthly lease payments then increase June 15, 2017 through June 14, 2018 to $4,243. The monthly lease payments then increase June 15, 2018 through June 14, 2019 to $4,370. Both leases were originally executed in the name of an officer of the Company. In July of 2014, the Company was assigned the lease from the respective officer of the Company.
Minimum future rental payments under the agreement are as follows:
NOTE 13 - RELATED PARTY TRANSACTIONS
Due from related party
On December 8, 2013, the Company executed a line of credit agreement with Mullen Motors Company, (“Mullen”), a private company owned by our CEO, David Michery, in the amount up to $150,000 at zero percent interest until December 31, 2014 and payable in full by December 31, 2015. Starting January 1, 2015, the line of credit will accrue interest at 4% per annum. As of December 31, 2014 and 2013, the Company had a due from related party balance relating to advances to Mullen in the amounts of $104,915 and $0.
Due to related party
The Company was advanced money from its CEO for working capital purposes at zero percent interest and payable on demand. As of December 31, 2014 and 2013, the Company had a due to related party balance relating to the advances from our CEO in the amounts of $19,348 and $13,928.
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 with CEO and former CFO
On February 7, 2013, the Company executed an employment agreement with its CEO, David Michery and its former CFO, Alan Bailey. The employment agreement with Mr. Michery is for two years with an annual salary of $240,000. The employment agreement with Mr. Bailey is for two years with an annual salary of $120,000. On February 14, 2014, Mr. Bailey resigned as CFO of the Company and his employment agreement was terminated. As of December 31, 2014 and December 31, 2013, the Company had an accrued salary liability to its CEO, David Michery, in the amount of $27,723 and $83,808. As of December 31, 2014 and December 31, 2013, the Company had an accrued salary liability to its former CFO, Alan Bailey, in the amount of $24,404 and $41,904. In the years ended December 31, 2014 and 2013, the Company paid $301,065 and $130,000 in cash payments to Mr. Michery pursuant to his employment agreement. In the year ended December 31, 2014, the Company paid $17,500 in cash payments to Mr. Bailey pursuant to his outstanding salary liability. It should be noted that Mr. Michery was not paid in excess of his employment agreement in fiscal year 2014 as he accrued approximately $110,000 in accrued salary in fiscal year 2013, and the accrued salary balance carried forward into 2014.
NOTE 14 - SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that other than listed below, no other material subsequent events exist.
1.Effective March 23, 2015, the Company amended its Articles of Incorporation under the laws of the State of Delaware to effectuate a reverse stock split of its common and preferred stock at a reverse stock ratio of one post-split share of stock for each 1,000 shares of pre-split stock. Pursuant to the amendment, the total authorized capital which the Company shall have the authority to issue was reduced to 2,010,000,000, of which 2,000,000,000 shares shall be common stock, $0.00001 par value per share, and 10,000,000 shares shall be preferred stock, $0.00001 par value per share. As the effective date of the reverse stock split was subsequent to the financial statement end date, the Company did not adjust any financial activity in the audit period to account for the reverse stock split.
2.From January 1, 2015 to the date of this filing, the Company issued 4,749,429 post reverse split shares of common stock, 1,400,000 shares were for consulting services and 3,349,429 shares were for the reductions of $43,253 of principal convertible debt and $162 of accrued interest.
3.On April 1, 2015, the Company issued 3,000,000 post reverse split shares of Series A Preferred Stock to its CEO, David Michery, for services rendered to the Company.
4.On or about December 5, 2014, the Company entered into a settlement agreement with Jessica Vance and Suzie Q’s NPO relating to disputes between the parties as to amounts due to Vance under her consulting contract with the Company and Suzie Q NPO’s asset purchase agreement with the Company, as well as a dispute as to the what assets were to be transferred in connection with the asset purchase. Pursuant to the settlement, the parties agreed that the Company’s consulting contract with Ms. Vance was terminated, clarified what assets would be transferred to the Company, and the Company agreed to make a payment of $8,240 and 25,000,000 shares for the assets that would be transferred. On or about March 10, 2015, the Company received a notice from the State of Washington Department of Revenue that it was being assessed $676,423.00 for Suzie Q’s NPO unpaid tax liability. The Company retained local tax counsel and appealed the matter on or about March 24, 2015, on the grounds that it is not a successor to Suzie Q’s NPO, had not purchased Suzie Q’s NPO or its assets, had not merged with Suzie Q’s NPO, and was not a guarantor of Suzie Q’s NPO. Because of the unresolved tax liability associated with Suzie Q’s NPO, the Company will not be purchasing any assets from Suzie Q’s NPO or its principal.
5.The Company issued the following convertible promissory notes as follows;
a.On January 2, 2015, the Company executed a convertible promissory note and securities purchase agreement with EMA Financial, LLC in the amount of $27,500, with legal fees of $2,500, interest of 12% per annum, due January 1, 2016 and convertible into shares of common stock at a discount of 50% of the lowest closing bid price for fifteen (15) prior trading days.
b.On January 6, 2015, the Company executed a convertible promissory note and securities purchase agreement with LG Capital, LLC in the amount of $45,500, with original issue discount of $10,500, legal fees of $1,750, interest of 8% per annum, due January 6, 2016 and convertible into shares of common stock at a discount of 50% of the lowest closing bid price for twenty (20) prior trading days.
c.On January 6, 2015, the Company executed a convertible promissory note and securities purchase agreement with Adar Bay, LLC in the amount of $19,500, with original issue discount of $4,500, legal fees of $1,500, interest of 8% per annum, due January 6, 2016 and convertible into shares of common stock at a discount of 50% of the lowest closing bid price for twenty (20) prior trading days.
d.Pursuant to the convertible promissory note with Inter-Mountain Capital Corp dated April 21, 2014, on February 24, 2015, the Company was funded an additional tranche of $27,500 which includes $2,500 of original issue discount.
e.On March 9, 2015, the Company executed a convertible promissory note and securities purchase agreement with Blue and Gold Ventures, LLC in the amount of $50,000, interest of 12% per annum, due November 9, 2016 and convertible into shares of common stock at a discount of 50% of the lowest closing bid price for three (3) prior trading days.
NOTE 15 - RESTATEMENT OF DECEMBER 31, 2013 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.
PRIMCO MANAGEMENT INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these unaudited financial statements.
PRIMCO MANAGEMENTS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these unaudited financial statements.
PRIMCO MANAGEMENTS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these unaudited financial statements.
PRIMCO MANAGEMENT INC.
(A Development-Stage Company)
Consolidated Statements of Stockholders’ Deficit
(Restated)
The accompanying notes are an integral part of these unaudited financial statements.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On June 25, 2013, the registrant dismissed Gumbiner Savett Inc. (“Gumbiner”) as their registered independent public accountant. On June 25, 2013, the registrant engaged Patrick Rodgers, CPA, PA (“Rodgers”) as its new registered independent public accountant.
On June 25, 2013, the registrant engaged Patrick Rodgers, CPA, PA as its new registered independent public accountant. During the year ended December 31, 2012 and 2011 and prior to June 25, 2013 (the date of the new engagement), we did not consult with Rodgers regarding (i) the application of accounting principles to a specified transaction, (ii) the type of audit opinion that might be rendered on the Registrant’s financial statements by Rodgers, in either case where written or oral advice provided by Rodgers would be an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issues or (iii) any other matter that was the subject of a disagreement between us and our former auditor or was a reportable event (as described in Items 304(a)(1)(iv) or Item 304(a)(1)(v) of Regulation S-K, respectively).
On March 6, 2014, we were advised that the registration of the registrant’s registered independent public accountant, Patrick Rodgers, CPA, PA (“Rodgers”) had been revoked by the PCAOB (the Public Company Accounting Oversight Board - please refer to www.PCAOBUS.org). On March 7, 2014, the registrant engaged Terry L. Johnson CPA (“Johnson”) as its new registered independent public accountant.
For the year ended December 31, 2013, and for the interim period through March 6, 2014, Rodgers’s report did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to audit scope or accounting principles, except that the reports contained an explanatory paragraph stating that there was substantial doubt about the registrant’s ability to continue as a going concern.
Through the period covered by the financial audit for the years ended December 31, 2013, and for the interim period through March 6, 2014, there have been no disagreements with Rodgers on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Rodgers would have caused them to make reference thereto in their report on the financial statements.
During the year ended December 31, 2013, and for the interim period through March 6, 2014, there have been no reportable events between the registrant and Rodgers as set forth in Item 304(a)(1)(v) of Regulation S-K. The registrant provided a copy of the foregoing disclosures to Rodgers prior to the date of the filing of this report and requested that Rodgers furnish it with a letter addressed to the Securities & Exchange Commission stating whether or not it agrees with the statements in this report. A copy of this letter is filed as Exhibit 16.1 to this Form 8-K.
New Independent Auditor
On March 6, 2014, the registrant engaged Terry L. Johnson CPA as its new registered independent public auditor. During the year ended December 31, 2013, and prior to March 7, 2014 (the date of the new engagement), we did not consult with Johnson regarding (i) the application of accounting principles to a specified transaction, (ii) the type of audit opinion that might be rendered on the registrant’s financial statements by Johnson, in either case where written or oral advice provided by Johnson would be an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issues or (iii) any other matter that was the subject of a disagreement between us and our former auditor or was a reportable event (as described in Items 304(a)(1)(iv) or Item 304(a)(1)(v) of Regulation S-K, respectively).
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
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, 2014. 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, 2014 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, 2014 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, 2014, 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.
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, 2014. 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, 2014, 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.
ITEM 9B. OTHER INFORMATION.
None
PART III
ITEM 10.
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:
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 and accountant 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.
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, 2014.
Code of Ethics Policy
We do not currently have a Code of Ethics that applies to all employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We plan to adopt a Code of Ethics.
Corporate Governance
Committees
Our board of directors does not currently have a compensation committee or nominating and corporate governance committee because, due to the board of director’s composition and our relatively limited operations, the board of directors believes it is able to effectively manage the issues normally considered by such committees. Our board of directors may undertake a review of the need for these committees in the future.
Family Relationships
None
Change-In-Control Arrangements
There is currently one executed employment agreement with an officer and director which is referenced in our footnotes 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
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.
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, 2014 and December 31, 2013.
(1) David Michery; President, CEO, Director February 7, 2013 to present
(2) Steven J. Corso; Current CFO February 18, 2014 to present
(3) Alan J. Bailey; Former CFO, Secretary, Director February 7, 2013 to February 14, 2014
Employment agreements to CEO and former CFO
On February 7, 2013, the Company executed an employment agreement with its CEO, David Michery and its former CFO, Alan Bailey. The employment agreement with Mr. Michery is for two years with an annual salary of $240,000. The employment agreement with Mr. Bailey is for two years with an annual salary of $120,000. On February 14, 2014, Mr. Bailey resigned as CFO of the Company and his employment agreement was terminated. As of December 31, 2014 and December 31, 2013, the Company had an accrued salary liability to its CEO, David Michery, in the amount of $27,723 and $83,808. As of December 31, 2014 and December 31, 2013, the Company had an accrued salary liability to its former CFO, Alan Bailey, in the amount of $24,404 and $41,904. In the years ended December 31, 2014 and 2013, the Company paid $301,065 and $130,000 in cash payments to Mr. Michery pursuant to his employment agreement. In the year ended December 31, 2014, the Company paid $17,500 in cash payments to Mr. Bailey pursuant to his outstanding salary liability. It should be noted that Mr. Michery was not paid in excess of his employment agreement in fiscal year 2014 as he accrued approximately $110,000 in accrued salary in fiscal year 2013, and the accrued salary balance carried forward into 2014.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of April 14, 2015, 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.
1.Unless otherwise indicated, the address of each person listed is that of the Company’s at 2211 Elliott Ave., Suite 200, Seattle, WA 98121
2.Effective March 23, 2015, the Company amended its articles of incorporation under the laws of the State of Delaware to effectuate a reverse stock split of 1 post-split share of common and preferred stock for each 1,000 shares of common and preferred stock outstanding immediately prior to the effective date.
3.Based on 10,083,785 post reverse split shares of common stock issued and outstanding common and 3,010,000 post reverse split shares of Series A preferred stock issued and outstanding as of April 14, 2015. Each Series A share of preferred stock is 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.
4.Percent of outstanding voting shares is based on a total of 3,020,083,785 total votes, which includes 10,083,785 shares of issued and outstanding common stock (1 vote per share) as well as 3,010,000 shares of Series A preferred stock (1,000 votes per share).
Securities authorized for issuance under equity compensation plans.
We have authorized the issuance of 1,350,000 shares of common stock pursuant to the 2014 Legal Expense Stock Issuance Plan, which was adopted by the Company and its majority shareholder on November 28, 2014.
We have authorized the issuance of 7,000,000 shares of common stock pursuant to the 2013 Stock Awards Plan, which was adopted by the Company and its majority shareholder on June 14, 2013, and amended on April 9, 2015.
ITEM 13.
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, 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 agreement to CEO and former CFO
On February 7, 2013, the Company executed an employment agreement with its CEO, David Michery and its former CFO, Alan Bailey. The employment agreement with Mr. Michery is for two years with an annual salary of $240,000. The employment agreement with Mr. Bailey is for two years with an annual salary of $120,000. On February 14, 2014, Mr. Bailey resigned as CFO of the Company and his employment agreement was terminated. As of December 31, 2014 and December 31, 2013, the Company had an accrued salary liability to its CEO, David Michery, in the amount of $27,723 and $83,808. As of December 31, 2014 and December 31, 2013, the Company had an accrued salary liability to its former CFO, Alan Bailey, in the amount of $24,404 and $41,904. In the years ended December 31, 2014 and 2013, the Company paid $301,065 and $130,000 in cash payments to Mr. Michery pursuant to his employment agreement. In the year ended December 31, 2014, the Company paid $17,500 in cash payments to Mr. Bailey pursuant to his outstanding salary liability. It should be noted that Mr. Michery was not paid in excess of his employment agreement in fiscal year 2014 as he accrued approximated $110,000 in accrued salary in fiscal year 2013, and the accrued salary balance carried forward into 2014.
Due from related party
On December 8, 2013, the Company executed a line of credit agreement with Mullen Motors Company, (“Mullen”), a private company owned by our CEO, David Michery, in the amount up to $150,000 at zero percent interest until December 31, 2014 and payable in full by December 31, 2015. Starting January 1, 2015, the line of credit will accrue interest at 4% per annum. As of December 31, 2014 and 2013, the Company had a due from related party balance relating to advances to Mullen in the amounts of $104,915 and $0.
Due to related party
The Company was advanced money from its CEO for working capital purposes at zero percent interest and payable on demand. As of December 31, 2014 and 2013, the Company had a due to related party balance relating to the advances from our CEO in the amounts of $19,348 and $13,928.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees. In the years ended December 31, 2014 and 2013, we incurred audit fees totaling $10,500 and $6,041. 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 Terry L. Johnson, CPA during the fiscal years ended 2014 and 2013.
All of the services described above for fiscal years 2014 and 2013 were approved by the Board of Directors pursuant to its policies and procedures. On March 6, 2014 we appointed Terry L. Johnson, CPA as the Company’s auditor to replace Patrick Rogers, CPA. We intend to continue using Terry L Johnson, CPA solely for audit and audit-related services.
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
* In accordance with Regulation S-T, the XBRL-related information on Exhibit No. 101 to this Annual Report on Form 10-K shall be deemed “furnished” herewith and not “filed.”
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.