Form 10-Q for PRIMCO MANAGEMENT INC.
19-Nov-2014
Quarterly Report
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earning, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions of performance; and statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: our ability to raise capital and the terms thereof; ability to gain an adequate player base to generate the expected revenue; competition with established gaming websites; adverse changes in government regulations or polices; and other factors referenced in this Form 10-Q.
The use in this Form 10-Q of such words as “believes”, “plans”, “anticipates”, “expects”, “intends”, and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements present the Company’s estimates and assumptions only as of the date of this Report. Except for the Company’s ongoing obligation to disclose material information as required by the federal securities laws, the Company does not intend, and undertakes no obligation, to update any forward-looking statements.
Although the Company believes that the expectations reflected in any of the forward-looking statements are reasonable, actual results could differ materially from those projected or assumed or any of the Company’s forward-looking statements. The Company’s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.
PLAN OF OPERATIONS
Overview
Since our incorporation on October 14, 2010, in the State of Delaware we have been a development stage company. We began by offering a general array of real estate management services, which continued until January 31, 2013. We then redirected our real estate focus to seeking out properties which had obtained the necessary building permits but which needed finance to start construction. In addition, as of January 31, 2013, with our acquisition of ESMG, Inc., we added an entertainment-related business segment. Our performance can be significantly affected by changes in general economic conditions and, specifically, shifts in consumer confidence and spending. Additionally, our performance can be affected by competition. Management believes that, as both industries continue to consolidate, competition with respect to pricing will intensify. Such a heightened competitive pricing environment will make it increasingly important for us to successfully distinguish ourselves from competitors based on quality and superior service and content and on our operating efficiency. We are currently not aware of any other known material trends, demands, commitments, events or uncertainties that will have, or are reasonable likely to have, a material impact on our financial condition, operating performance, revenues and/or income, or results in our liquidity decreasing or increasing in any material way.
Results of Operations for the three months ended September 30, 2014
For the three months ended September 30, 2014 we generated gross revenues of $46,289 compared to revenues of $29,635 for the three months ended September 30, 2013, an increase of $16,654. Our cost of services was $6,418 during the three months ended September 30, 2014, resulting in a gross margin of $39,871. Our cost of services was $18,787 during the three months ended September 30, 2013, resulting in a gross margin of $10,848.
Our operating expenses for the three months ended September 30, 2014 totaled $372,115, compared to $334,152 for the three months ended September 30, 2013. By comparison, our operating expenses increased by $27,963 due to additional consulting and legal fees from increased operating activities.
For the three months ended September 30, 2014 we incurred non-operating expenses totaling $9,146,214 as compared to $1,320,699 for the three months ended September 30, 2013. By comparison, the increase of $7,825,515 was due to additional derivative interest recorded which was attributable to the outstanding convertible debt.
Our operating expenses consisted mainly of developing and rolling out our business plans and the cost of our convertible debt financing arrangements, as well as the cost of management, consultants, accountants, lawyers and office operations.
Results of Operations for the nine months ended September 30, 2014
For the nine months ended September 30, 2014 we generated gross revenues of $103,403 compared to revenues of $43,550 for the nine months ended September 30, 2013. We had a cost of services of $30,471 for the nine months ended September 30, 2014, resulting in a gross margin of $72,932. Comparatively, we had a cost of services of $29,130 for the nine months ended September 30, 2013, resulting in a gross margin of $14,420.
Our operating expenses for the nine months ended September 30, 2014 totaled $916,090, compared to $532,614 for the nine months ended September 30, 2013. By comparison, our operating expenses increased by $369,056 due to additional consulting and legal fees from increased operating activities.
For the nine months ended September 30, 2014 we incurred non-operating expenses totaling $12,243,810 as compared to $2,121,672 for the nine months ended September 30, 2013. By comparison, the increase of $10,122,138 was due to additional derivative interest recorded which was attributable to the outstanding convertible debt.
Our operating expenses consisted mainly of developing and rolling out our business plans and the cost of our convertible debt financing arrangements, as well as the cost of management, consultants, accountants, lawyers and office operations.
Liquidity and Capital Resources
As of September 30, 2014, the Company has a working capital deficit of $14,038,596 compared to a working capital deficit as of December 31, 2013 of $1,943,029. The working capital deficit increased by $12,095,567 primarily due to the increase in convertible debt and derivative liability associated with said convertible debt.
For the nine months ended September 30, 2014, our cash used in operating activities was $1,128,363 compared to cash used in operating activities of $329,831 for the nine months ended September 30, 2013.
For the nine months ended September 30, 2014, our cash used in investing activities was $32,500 compared to cash used in operating activities of $9,163 for the nine months ended September 30, 2013. The increase was due to our investment in Suzie Q’s and Seattle Green Care.
For the nine months ended September 30, 2014, our cash provided by financing activities was $1,429,363 which consisted of $1,055,000 in proceeds from convertible notes payable and $374,363 in proceeds from sale of stock subscriptions. For the nine months ended September 30, 2013, our cash provided by financing activities was $454,317 which consisted of $454,317 in proceeds from convertible notes payable
We have had no off balance sheet arrangements since inception through September 30, 2014.
The Company has generated minimal and insufficient revenues 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.
Seasonality
We do not anticipate that our business will be affected by seasonal factors.
Impact of Inflation
General inflation in the economy has driven the operating expenses of many businesses higher. We will continuously seek methods of reducing costs and streamlining operations while maximizing efficiency through improved internal operating procedures and controls. While we are subject to inflation as described above, our management believes that inflation currently does not have a material effect on our operating results. However, inflation may become a factor in the future.
Critical Accounting Policies
Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenue, and expenses.
These estimates and assumptions are affected by management’s application of accounting policies. Critical accounting policies include revenue recognition and impairment of long-lived assets.
We recognize revenue in accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” Sales are recorded when products are shipped to customers. Provisions for discounts and rebates to customers, estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded.
We evaluate our long-lived assets for financial impairment on a regular basis in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” which evaluates the recoverability of long-lived assets not held for sale by measuring the carrying amount of the assets against the estimated discounted future cash flows associated with them. At the time such evaluations indicate that the future discounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values.