U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO 1 TO FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 0-26073
MODERNGROOVE ENTERTAINMENT, INC.
--------------------------------------------
(Name of small business issuer in its charter)
Nevada 86-0881193
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
No.)
1801 E. Tropicana, Suite 9, Las Vegas, Nevada 89119
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(Address of principal executive offices) (Zip Code)
(702) 893-2556
----------------------
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class registered: None Name of each exchange on which
registered: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001
-----------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer is a software development and research company also
concerned with Internet broadcasting.
Based on the average if the closing bid and asked prices of the
issuer's common stock on December 31, 2000, the aggregate market value
of the voting stock held by non-affiliates of the registrant on that
date was $2,269,643.
As of December 31, 2000, the issuer had 4,100,700 shares of common
stock outstanding.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (check one): Yes [ ] No
[X]
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CONTENTS
PAGE
PART I
Item 1. Description of Business......................................3
Item 2. Description of Property.....................................23
Item 3. Legal Proceedings...........................................23
Item 4. Submission of Matters to a Vote of Security Holders.........23
PART II
Item 5. Market for Common Equity and Related Stockholder Matters....24
Item 6. Management's Discussion and Analysis or Plan of Operation...25
Item 7. Financial Statements........................................27
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.........................29
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act..30
Item 10. Executive Compensation......................................32
Item 11. Security Ownership of Certain Beneficial Owners and
Management..................................................32
Item 12. Certain Relationships and Related Transactions..............33
Item 13. Exhibits and Reports on Form 8-K............................34
SIGNATURES...............................................................35
Forward-Looking Statements
This report contains forward-looking statements. The forward-looking
Statements include all statements that are not statements of historical
fact. The forward-looking statements are often identifiable by their use of
words such as "may," "expect," "believe," "anticipate," "intend," "could,"
"estimate," or "continue," "Plans" or the negative or other variations of
those or comparable terms. Our actual results could differ materially from
the anticipated results described in the forward-looking statements. Factors
that could affect our results include, but are not limited to, those
discussed in Item 6, "Management's Discussion and Analysis or Plan of
Operation" and included elsewhere in this report.
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) BUSINESS DEVELOPMENT
(i) Business Development, Organization and Acquisition Activities
moderngroove entertainment Inc, formerly called Barrington Laboratories, Inc.,
a developmental stage company, hereinafter referred to as ("the Company") or
("moderngroove") or ("MODG"), was organized by the filing of Articles of
Incorporation with the Secretary of State of the State of Nevada on August
6, 1998. The original articles of the Company authorized the issuance of
twenty-five million (20,000,000) shares of Common Stock at par value of
$0.001 per share and five million (5,000,000) shares of Preferred Stock at
par value of $0.001.
The Company was issued a permit to sell securities to the public in the
State of Nevada on February 1, 1999 pursuant to Nevada Revised Statues
Chapter 90.490. This offering was made in reliance upon an exemption from
the registration provisions of Section 5 of the Securities Act of 1993, as
amended, pursuant to regulation D, Rule 504 of the Act. On December 15,
1998, founding shareholders purchased 3,000,000 shares of the company's
authorized but unissued treasury stock for cash and assets. Additionally,
the Company sold seven hundred fifty thousand seven hundred (750,700) shares
of the Common Stock of the Company during the Offering to approximately
sixty-seven (67) shareholders in the State of Nevada. The offering was
closed March 1, 1999. On March 1, 1999, the Company had three million
seven hundred fifty thousand seven hundred thousand (3,750,700) shares of
its $0.001 par value common voting stock issued and outstanding which are
held by approximately sixty-eight (68) shareholders of record.
On November 22, 2000, the Company issued 350,000 shares in exchange for
services. The 350,000 shares issued in December, 2000 in connection with a
Form S-8 filed the U.S. Securities and Exchange Commission have been valued
at their fair market value of $306,250.
On December 18, 2000, the company held its annual shareholders' meeting. At
this meeting, the shareholders of the Company approved a company name change
from Barrington Laboratories, Inc., to moderngroove entertainment, Inc. This
name change reflects the board of directors' decision to expand the Company's
business focus. The shareholders also approved an increase in the number of
authorized common shares, from 20,000,000 to 200,000,000 having a par value
of $0.001. The amended Articles to reflect the name change and increase in
authorized shares were filed with the Nevada Secretary of State, on December
18, 2000.
On December 18, 2000, the Company's shareholders approved and the board of
directors announced the Company entered into a Share Exchange agreement with
moderngroove entertainment International, Inc., a separate Nevada Corporation,
whereby all of the issued and outstanding shares of moderngroove entertainment
International, Inc., will be exchanged for 26,000,000 restricted common shares
of the company's stock, effective January 1, 2001.
moderngroove entertainment, Inc. has a studio and development facilities
in Vancouver, British Columbia, Canada, as well as an American headquarters
in Huntington Beach, California. It has been active for approximately two
years and currently has 50 employees. Focusing initially on the production
and delivery of interactive entertainment for personal computers and the
next generation of videogame consoles (like Sony's PlayStation 2 for whom
it is a licensed developer), the company will also operate streaming media
networks for music, video and videogame content.
3
Furthermore, moderngroove is now developing a distributed caching system that
bypasses the overcrowded Internet to deliver content without interruption
even at peak hours, a necessary precondition for the establishment of any
successful web broadcasting enterprise. Based on a system of proprietary
media servers in key markets across the United States, Canada, and Europe,
the technology that has been created and is currently being tested and
refined is potentially a highly lucrative enterprise in and of itself as a
business-to-business service provider. (SEE (x) Research and Development
Activities.)
(ii) Principal Products and Services and Principal Markets
OVERVIEW
moderngroove entertainment, Inc., is building an interactive music and
television network that consumers will access through next-generation
videogame consoles, such as the Sony PlayStation 2.
These consoles are high-powered PCs that sit in the living room and anchor
the home entertainment systems of the future. They have better graphics
than their predecessors, play DVD movies, and access the Internet at high
speed - ultimately making new forms of entertainment possible. Such
consoles are projected to be in 50 million U.S. homes (150 million
worldwide) by 2006.
The company's videogame industry veterans are working with music labels and
entertainment studios to develop brand-lead entertainment titles for next-
generation videogame consoles. Music titles for videogame consoles
constitute a relatively untapped market: less than 10 notable titles
currently exist across all platforms, though recent titles have sold over a
million units each.
Popular titles that are updated and re-released annually are called
franchises, providing videogame developers and publishers with reliable
income streams (e.g. Electronic Arts' Sports "NBA Live" and "NHL" series).
Perpetual market demand for new music will assist moderngroove's development
of initial music titles into franchises.
Most important is the fact that these titles will also have an online
component moderngroove's titles will ship bundled with a net-accessing
device--the "Trojan horse" via which moderngroove will get net-accessing
capability into targeted homes. The install base of these net-accessing
devices is projected to reach one million homes by Q2 2002.
Via these online components, moderngroove will deliver their content partners'
entertainment. Entertainment from partner music labels and entertainment
studios will form a proprietary network. Consumers browse the network using
the net-accessing browser that ships with our packaged product and
entertainment is delivered to the consumer via their next-generation
videogame console's high-speed modem. This will form the basis of an
interactive music and television network.
4
The model here is known in the industry as the "walled garden" approach.
Consumers will be led by the net-accessing browser in the packaged product
to the moderngroove network where they will be able to access additional
content related to packaged product they purchased at retail. Thus the "wall"
of the "walled garden"---consumers are not turned loose on the entire Internet
but remain in the area designed by moderngroove, much as customers of America
Online are initially led into a world of virtual selections that are accessible
only to them. Sophisticated web users find this limiting, but for the needs of
a mass audience it is a very successful approach.
RISK FACTORS
(a) moderngroove entertainment may not be able to find and establish its
market.
Despite moderngroove's strong sense of the ripeness of the market for the
kinds of custom-created products and streaming media services that it is
establishing, there can of course be no assurances that this will result in
its success. The "first wave" of net music consumers is made up of
dilettantes and technically-savvy computer users for whom the hit-and-miss
consistency of this early stage of Internet broadcast and downloading is not
problematic because they will not pay for content in any case. The Company's
target market, the so-called "second wave" of net music consumers is as yet
an unproven phenomenon. Should moderngroove's attempt to isolate, forge and
develop this market prove to be based on faulty projections or incorrect
assumptions, it would follow that the Company's attempts to establish itself
cannot succeed.
(b) Losses must be anticipated for the foreseeable future.
moderngroove has not achieved profitability to date, and may continue to
incur net losses for the foreseeable future. Though its business plan
anticipates the successful introduction of its first store-bought product
for the PlayStation 2 early in 2001 and foresees making a profit with the
introduction of its first net-accessing discs at the end of that calendar
year, the Company cannot of course guarantee these results and may remain in
the red beyond that point.
The Company expects that its operating expenses will increase significantly
during the next several years, in the areas of sales and marketing, and
brand promotion as well as through its attempts to create a broadband
streaming network. Thus, the Company will need to generate increased
revenues to achieve profitability. To the extent that increases in its
operating expenses precede or are not subsequently followed by commensurate
increases in revenues, or that the Company is unable to adjust operating
expense levels accordingly, the Company's business, results of operations
and financial condition would be materially and adversely affected. There
can be no assurances that the Company can achieve or sustain profitability
or that the Company's operating losses will not increase in the future.
5
(c) The lack of market acceptance of Sony's PlayStation 2 and other next-
generation videogame consoles would have a highly negative effect on the
prospects of moderngroove, which has created software and a business plan
that require them.
The first moderngroove product is a jewel case from London's Ministry of Sound
that is designed to be used with the PlayStation 2; it launches moderngroove
entertainment as a profit-making entity and serves as a portal to the company's
website. Versions are being planned for all the major next-generation videogame
consoles including the PlayStation 2, Microsoft Xbox and Nintendo GAMECUBE.
Should these consoles fail to gain market acceptance and end up as write-offs
for their companies of origin, moderngroove would be in the position of the guy
who created 14k gold steering wheels for the Ford Edsel---without the necessary
platform, the jewel case would have no foundation.
Indeed, the business plan that moderngroove has developed is highly dependent
on the next-generation videogame consoles to launch its Internet
broadcasting network as well as to sell its franchises. The failure of these
consoles would be highly disadvantageous, if not disastrous, to the
Company's prospects.
(d) The technical specifications and design of subsequent generations of
videogame consoles are out of the Company's control in ways that may have an
adverse effect on its plans.
There is a built-in insecurity in the fact that the primary platforms upon
which the Company's products are designed to be played are not manufactured
by the Company itself. Thus changes in the design of new generations of
videogame consoles could have an adverse effect on moderngroove's plans for
expansion. If the next generation of console, for example, eliminated one or
more of the functions moderngroove counts on---let's say the ability to
manipulate visuals in conjunction with the music tracks that play on the
store-bought product---a negative effect could result that would depress
moderngroove's sales and limit its future plans.
(e) Without the continued growth and viability of the Internet and its
emergence as the next wave in the entertainment industry, moderngroove's
prospects will be severely limited.
The Company's future success is substantially dependent upon continued
growth in the use of the Internet. For moderngroove entertainment,
Inc., to generate product sales, advertising sales, e-Commerce service fees
and the huge potential revenues that will follow on the development of more
sophisticated systems for the delivery of entertainment product to Internet
users, the Internet's recent and rapid growth must continue, while the
downloading and streaming of audio, video, and videogame product on the
Internet must become widespread.
None of these can be assured. The Internet may not, over time, prove to be
a viable commercial marketplace. Additionally, due to the ability of
consumers to easily compare prices of similar products or services on
competing Web sites, gross margins for e-Commerce transactions may narrow in
the future and, accordingly, the Company's revenues from e-Commerce
6
arrangements may be materially negatively impacted. More important to the
business of moderngroove, the expected development of the Internet as one of
the primary, if not THE primary, way that entertainment product will be
disseminated in the future may not occur. The technical hurdles may prove
too great; the market may fail to develop because of the inherent
conservatism of many consumers and the hesitancy of a large segment of the
market to change its basic habits; unforeseeable geopolitical developments
might negate current projections.
If use of the Internet does not continue to grow, especially as an
entertainment medium, the Company's business, results of operations and
financial condition would be materially and adversely affected.
Additionally, to the extent that the Internet continues to experience
significant growth in the number of users and the level of use, there can be
no assurance that its technical infrastructure will continue to be able to
support the demands placed upon it. The necessary technical infrastructure
for significant increases in e-Commerce, such as a reliable network
backbone, may not be timely and adequately developed. Streaming media
requires enormous bandwidth and many obstacles stand in the way of the
reliability and consistency of transmission, especially during peak hours.
Furthermore, security and authentication concerns with respect to
transmission over the Internet of confidential information, such as credit
card numbers, may remain. Issues like these could stiffen resistance to the
acceptance of the Internet as a viable commercial marketplace. Also, the
Internet could lose its viability due to delays in the development or
adoption of new standards and protocols required to handle increased levels
of activity, or due to increased governmental regulation. Changes in or
insufficient availability of telecommunications services could result in
slower response times and adversely affect usage of the Internet. Demand and
market acceptance for recently introduced services and products over the
Internet are subject to a high level of uncertainty, and there exist few
proven services and products.
Those uncertainties are multiplied many times over when looking specifically
at the use of the Internet relative to the music, video, film and
videogame industries, each of which present specialized difficulties that
relate both to technical issues and to the myriad details of legal and
economic practice that must be recreated to fit the realities of a new modus
operandi. Though many of the Company's best ideas have been developed as
solutions to these difficulties, the failure of the Net to live up to its
promise would have a highly adverse effect on its chances for success.
(f) The Company's strategy of providing an Internet browser in its on-the-
shelf product to generate expanded business and a flow of traffic to its
website may prove to be unsuccessful.
One of the business strategies upon which the Company is most reliant
involves an Internet browser included in its first "jewel case" product that
will direct consumers to the company's website where it
is hoped that they will partake of more of the Company's offerings and
eventually become part of its proprietary web network of streaming audio and
video. This so-called Trojan Horse strategy, however likely it may be to
achieve its purpose, is of course untested at this time and remains
7
theoretical. Should it prove to be less appealing to consumers of the store-
bought product than Company strategists believe it will be, and should the
expanded reach of each sale of a moderngroove "channel" fail to meet
expectations, the Company's chances to establish its proprietary network
would be greatly diminished and the revenue projections presented in this
document far less likely to be realized.
(g) The offerings of moderngroove's proposed proprietary network may not
prove to be commercially viable.
Even if the "Trojan Horse" browser does succeed in bringing consumers to the
Company's website, there are still no assurances that they will like what
they find there enough to bring them back in the regular way the Company
hopes. There may not be enough big-name talent represented there. Consumers
might dislike some of the product that they find, or not like it well enough
to return. Competition from other sites might lure them away, or the tastes
in music that the Company is catering to in the design of its programming
may change so rapidly in this highly-volatile entertainment segment that the
Company will discover that it has hitched its wagon to the wrong star, as it
were. Prospective investors should be aware that if the network fails to
attract a large enough market share, for these or any other reasons,
moderngroove's prospects would be put in grave question.
(h) There is a risk of system failures that could jeopardize the Company's
reliability and therefore its relationship to its customers.
The Company's ability to provide high quality streaming and downloading of
entertainment product, as well as to maintain its website and take advantage
of the business that will flow to it from customers directed there by
moderngroove's jewel case product, depends on the efficient and
uninterrupted operation of its computer and communications systems. These
systems and operations are vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunication failures, break-
ins, sabotage, intentional acts of vandalism and similar events.
In addition, the failure to provide the data communications capacity
required by the Company, as a result of human error, natural disasters or
other operational disruption, could result in interruptions in the Company's
service. Any damage to or failure of the systems of the Company could result
in reductions in, or terminations of, the moderngroove service, which could
have a material adverse effect on the Company's business, results of
operations and financial condition. In the case of frequent or persistent
system failures, the Company's reputation and name brand could be materially
adversely affected.
The Company is also dependent upon third parties to provide potential users
with Web browsers and Internet and online services necessary for access to
the site. In the past, users have occasionally experienced difficulties with
Internet and online services due to system failures, including failures
unrelated to the Company's systems. Any disruption in Internet access
provided by third parties could have a material adverse effect on the
Company's business, results of operations and financial condition.
Furthermore, the Company is dependent on hardware suppliers for prompt
delivery, installation and service of equipment used to deliver the
8
Company's products and services. Although the Company has implemented
certain network security measures, the Company is also vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions,
which could lead to interruptions, delays, or loss of data.. In addition,
although the Company works to prevent unauthorized access to Company data,
it is impossible to eliminate this risk completely. The occurrence of any
and all of these events could have a material adverse effect on the
Company's business, results of operations and financial condition.
(i) Competition from better-financed and more established companies could
make it impossible for moderngroove to establish itself as a serious
contender for market share.
The market for providing high-quality entertainment product for the new
generation of videogame console and to any even greater extent for
providing high-quality downloads and streaming video and audio over the
Internet is relatively new, rapidly evolving, and intensely competitive;
the Company expects competition to intensify further in the future.
Competitive pressures created by any of the Company's competitors could have
a material adverse effect on the Company's business, results of operations,
and financial condition.
The Company believes that the principal competitive factors in its market
are, to name only a few, the quality of the product delivered, name
recognition by consumers of the talent showcased, web site convenience and
accessibility, ability to link the on-shelf product with that website, and
eventually, the ability to deliver high broadcast quality of our streaming
audio and video "channels" despite the many technical challenges to doing
so, as well as the ability to create a system of licensing talent that will
still allow a sufficient margin of profit to build a thriving business.
Some of the Company's potential competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing, technical and other resources than the Company. In
addition, other online entertainment services may be acquired by, receive
investments from or enter into other commercial relationships with larger,
well-established and well-financed companies as use of the Internet for
these purposes increases.
Therefore, certain of the Company's competitors with other revenue sources
may be able to devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing policies and devote substantially
more resources to Web site and systems development than the Company or may
try to attract traffic by offering services for free. Increased competition
may result in reduced operating margins, loss of market share and diminished
value in the Company's efforts. There can be no assurance that the Company
will be able to compete successfully against current and future competitors.
Further, as a strategic response to changes in the competitive environment,
the Company may, from time to time, make certain pricing, service or
marketing decisions or acquisitions that could have a material adverse
effect on its business, results of operations and financial condition. New
technologies and the expansion of existing technologies may increase the
competitive pressures on the Company by enabling the Company's competitors
to offer a lower-cost service. Certain Web-based applications that direct
9
Internet traffic to certain Web sites may channel users to entertainment
services that compete with those of the Company.
Although not exclusively dependent on them, the Company plans to establish
arrangements with online services and search engine companies. There can be
no assurance that these arrangements will be renewed on commercially
reasonable terms or that they will otherwise bring traffic to the
moderngroove network. In addition, companies that control access to
transactions through network access or Web browsers could promote the
Company's competitors or charge the Company substantial fees for inclusion.
Any and all of these events could have a material adverse effect on the
Company's business, results of operations and financial condition.
(j) To fill critical executive and technical positions, moderngroove may be
unable to attract and hold key personnel with the skills necessary for its
success.
As of the filing of this annual report, moderngroove has certain key
executive positions yet to fill, among them CFO and COO; moreover it relies
on the vision and expertise of its three founders and other key personnel.
If it should prove unable to fill the open positions, or to retain the key
management currently in place, the Company's ability to enact its business
plan and to react in a timely and appropriate way to unexpected new
developments would be greatly compromised.
Furthermore, it is a given in a highly technical industry like the one that
the Company is competing within that gifted technical people with the
requisite combination of know-how and imagination are hard to find quickly,
especially because such people tend to work best on their own---making the
building of a cohesive team a difficult task at best. Should the Company
prove unable to find such employees to add to its already highly effective
workforce, its task of providing products and services of innovation and
quality would be greatly complicated, and could even be rendered impossible.
(k) Online commerce entails security risks that could threaten the
establishment of a successful Internet business.
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. moderngroove
entertainment, Inc. plans to accept credit cards for purchases of its
products. The Company will rely on encryption and authentication technology
licensed from third parties to provide the security and authentication
technology to effect secure transmission of confidential information,
including customer credit card numbers. There can be no assurance that
advances in computer capabilities, new discoveries in the field of
cryptography or other events or developments will not result in a compromise
or breach of the technology used by the Company to protect customer
transaction data.
If any such compromise of the Company's security were to occur, it could
have a material adverse effect on the Company's reputation and, therefore,
on its business, results of operations and financial condition. Furthermore,
a party who is able to circumvent the Company's security measures could
misappropriate proprietary information or cause interruptions in the
10
Company's operations. The Company may be required to expend significant
capital and other resources to protect against such security breaches or to
alleviate problems caused by such breaches. Concerns over the security of
transactions conducted on the Internet and other online services and the
privacy of users may also inhibit the growth of the Internet and other
online services generally, and the Web in particular, especially as a means
of conducting commercial transactions. To the extent that activities of the
Company involve the storage and transmission of proprietary information,
such as credit card numbers, security breaches could damage the Company's
reputation and expose the Company to a risk of loss or litigation and
possible liability. There can be no assurance that the Company's security
measures will prevent security breaches or that failure to prevent such
security breaches will not have a material adverse effect on the Company's
business, results of operations and financial condition.
(l) There are risks associated with international operations that could at
some point in the future have a negative effect on the Company's core
business revenues.
A component of the Company's strategy is to offer its products online to
international customers. Expansion into the international markets will
require management attention and resources. The Company has limited
experience in localizing its service, and the Company believes that many of
its competitors are also undertaking expansion into foreign markets. There
can be no assurance that the Company will be successful in expanding into
international markets. In addition to the uncertainty regarding the
Company's ability to generate revenues from foreign operations and expand
its international presence, there are certain risks inherent in doing
business on an international basis, including, among others, regulatory
requirements, legal uncertainty regarding liability, tariffs, and other
trade barriers, difficulties in staffing and managing foreign operations,
longer payment cycles, different accounting practices, problems in
collecting accounts receivable, political instability, seasonal reductions
in business activity and potentially adverse tax consequences, any of which
could adversely affect the success of the Company's international
operations.
To the extent the Company expands its international operations and has
additional portions of its international revenues denominated in foreign
currencies, the Company could become subject to increased risks relating to
foreign currency exchange rate fluctuations. There can be no assurance that
one or more of the factors discussed above will not have a material adverse
effect on the Company's future international operations and, consequently,
on the Company's business, results of operations and financial condition.
(iii) Status of Products and Services
To date, the Company has taken the following initiatives and steps in order
to further its operations and continues to execute its business plan:
a) The Company's website at www.moderngroove.com is up and running
and offers sample experiences of some the products and services
which are to come as more of the business plan is enacted.
11
b) The Company has reached an agreement with SONY to create the first
music title for the PlayStation 2 combining five hours of
original "modern music" (Trance, House, Techno, UK Garage)synched
in real time to user-generated visuals created by a visual mixer.
c) The Company has reached an agreement with a leading British record
label, Ministry of Sound, giving it the rights to use the
Ministry of Sound brand along with exclusive rights to new music
sets produced for the forthcoming PlayStation 2 release. On successful
completion of the first product, moderngroove has the right to produce
other titles under the moderngroove and Ministry of Sound labels.
d) moderngroove is nearing release (late May 2001) of the first of
its so-called "jewel case" packaged retail products--- "moderngroove:
Ministry of Sound Edition" for the Sony PlayStation 2.
e) moderngroove is a licensed developer of entertainment software for the
Sega Dreamcast, the first net-enabled, next generation console. Despite
Sega's plans to cease production of the Dreamcast, its existing 6 (six)
million unit install base warrants inclusion in the Company's future
product development plans.
f) moderngroove is in the process of becoming a licensed software developer
for the Microsoft Xbox system, the next-generation videogame console
with which Microsoft will be entering the console market later this
year. The Xbox platform will be included in future product development
plans.
g) moderngroove has a Renderware license, a product of Criterion LLC.
Renderware is a leader in the field of rendering engines,
the software modules that are capable of drawing the high-detailed
graphics that appear on the screen of a videogame console or personal
computer. By licensing Renderware, moderngroove obtains a highly refined
cross-platform rendering engine, saving development time and allowing it
to focus on the creative aspects of our products.
h) moderngroove is in the process of becoming a licensed software developer
for the Nintendo Gamecube system, a high-powered system similar in
configuration to the Microsoft Xbox and Sony PlayStation 2.
12
i) moderngroove is currently in discussions with several leading music
labels for the rights to new music of all genres for future titles. In
addition, to tracks licensed for titles, discussions include content
for moderngroove's music and television network.
j) moderngroove has developed a relationship with TELUS Corporation, one of
Canada's leading telecommunications companies. Aside from basic
telecommunications needs, TELUS provides broadband solutions for
moderngroove. The developing relationship is part of the Company's
medium range plans for the crafting of the technical architecture of its
proprietary network.
k) The members of the Company's technical development team, responsible for
building the caching engine for moderngroove's network architecture,
have been trained and certified by QNX Software Systems, the company
whose operating system will run the network.
(iv) Industry Background and Current Status
The Industry and Potential Effect on the Company's Plan of Operation
THE INTERNET
The Internet first evolved in the 1960s but remained the domain of "techies"
until the early 1990s when emerging technology and software made it more
accessible to the masses. Since then the statistics have reflected just how
prevalent the Internet has become, particularly in North America. By the end
of 1998, the estimated number of Internet users had swelled to 148 million
worldwide, 52% of them in the United States. Businesses have accepted the
necessity of using the Internet and realized that it can affect their
profitability in a positive way: In 1998, $1.9 billion U.S. was spent on
internet advertising, surpassing for the first time the amount spent on
outdoor advertising by $300 million U.S. worldwide.
Because of the growing number of net users and the sheer amount of data each
user wants to access, the Internet is primarily a text-based medium. The
bandwidth necessary for all users to enjoy a graphics and stream intensive
experience is not yet in place. But as cable modems and X-DSL service are
being found in an increasingly large percentage of homes and offices, one can
already see the shape of the future. Improvements are being made to the
national backbone infrastructure that is increasing the Internet's capacity
to move data and make this upgraded experience commonplace.
TECHNICAL ADVANCES IN THE INTERNET MUSIC MARKET
These advances mean that use of the Internet for entertainment is on the
rise, so much so that established sources such as television are scrambling
for ways to maintain their market positions. Music has become the first of
the data-intensive services to take hold widely. This is because music has
much lower system requirements than video, net telephony, gaming and so on.
The Internet music industry has exploded in the past few years as data-
intensive throughput (that is to say, the capacity of systems to handle the
13
larger files necessary for streaming and downloading music) has become a
possibility. The number of people experiencing near CD quality audio through
the net has jumped from a few hundred thousand in 1997 to many millions
today, with estimates ranging from three to twenty million. This is largely
due to the development of compression formats like MP3 for digital music
downloads, music streaming servers like Shoutcast, and increased numbers of
net users with high-speed links to the Internet. These numbers will continue
to skyrocket as the technology becomes more accessible to an even larger
proportion of consumers in general. Some credible estimates hold that by the
year 2002, two hundred and fifty million consumers will have heard of
Internet based music (as opposed to some sixty million today); sixty million
consumers will have tried to access that music as compared to some ten
million today; and that ten million high-tech music consumers will be using
it regularly as distinct from about one million such users today.
Over time, virtually everyone in North America will have cheap access (via
computer, low-cost computer, Web-TV box, net-enabled gaming console, digital
TV converters, net-enabled TVs) to the high speed Internet (via cable modem,
powerline modem, phone/X-DSL service, wireless, and satellite.)
OVERVIEW OF THE VIDEOGAME, STREAMING AND ENTERTAINMENT INDUSTRIES
Predicted for decades, convergence of the videogame, web-broadcasting and
entertainment industries is finally happening, albeit in a haphazard
fashion. Wireless phones, personal computers and televisions are beginning
to take on one another's functions. All forms of digital entertainment will
eventually morph into one big stream of data.
Three big areas are coming together to form the foundation of this
convergence:
* Content (music, movies and information)
* Platforms (PC, TV, videogame console)
* Distribution (how the content gets to your platform)
THE VIDEOGAME INDUSTRY
The latest generation of videogame consoles such as the Sony PlayStation 2
have a lot of features in common with high-powered home PC's. They have
powerful graphics and high fidelity digital audio capabilities, state-of
the-art, high-speed microprocessors, Internet accessing capabilities and the
capacity to play Digital Video Disks. These new console systems are designed
to anchor home entertainment systems, tying together videogame capability,
music, television, and high-speed Internet access. This makes possible
entirely new categories of home entertainment.
Based upon historical videogame sales figures, it is reasonable to project
that by 2006 these consoles will be in 50 million U.S. homes and 150 million
homes worldwide. To validate this aggressive prediction, one needn't look
further than the online auction house eBay where recently the PlayStation 2
was listing at over US$1,000 - more than three times the $US299 retail
price.
14
REVENUES
Historical Sales Figures
* $6.1 billion in U.S. entertainment software sales in 1999.
* $5.5 billion in U.S. entertainment software sales in 1998.
* $4.4 billion in entertainment software sales in 1997.
* $3.7 billion in entertainment software sales in 1996.
* $3.2 billion in U.S. entertainment software sales in 1995.
GROWTH
1999 saw the fourth consecutive year of double-digit growth for the
industry, and an increase of more than 100% since 1996. In 1999, unit sales
were up 19% over 1998 levels. 215 million games were sold in the U.S. in
1999, about two for every household in America. On a dollar basis, U.S.
entertainment software sales topped $6.1 billion (USD) in 1999, an increase of
11 percent from 1998 levels. Another $880 million came from game rentals in
1999. The computer and video games industry is the fastest growing segment
of the U.S. entertainment industry.
Twenty-two percent (22%) of the U.S. population plans to buy a new gaming
console such as the Sony PlayStation 2, Nintendo GAMECUBE or Microsoft Xbox.
Videogame hardware and software sales are forecast to grow 20% in 2001, to
$US8.2 billion, and another 19% in 2002, according to Edward Williams, an
interactive-entertainment analyst at Gerard Klauer Mattison.
PENETRATION
A new survey by the nationally recognized polling firm of Peter D. Hart &
Associates finds that 60% of all Americans play computer and video games -
this translates into 145 million Americans.
* The average age of these 145 million game players is 28 years old.
* 37% are under 17
* 61% are 18 and over
* 43% are female.
* The original Sony PlayStation has sold 70 million units worldwide
* 98% of American households have a color television
* 25% have a PlayStation
* PlayStation is the third biggest youth brand in the United States
TRENDS
(a) Casual Gaming
The preceding numbers confirm the emergence of the casual game segment of
the market, one of the most important developments in the history of this
industry. As home PCs have become more ubiquitous, and as consoles have
spread into millions of new homes, the user base has broadened to include
those who play games only occasionally -- moms and dads, husbands and wives,
brothers and sisters, friends and neighbors. Accordingly, demand has surged
for a wider range of games, especially ones that don't require advanced
degrees in computer science to master and the leisure time of a college
15
student to play. At the recent E3, the major video gaming trade show, the
400 exhibitors reported that of the 2,400 titles recently brought to market,
63% are targeted at the casual game audience. Clearly, this niche of the
market offers the opportunity to develop lower cost and lower risk games
that in turn can be sold at lower prices and in higher volumes.
(b) Dance/Rhythm Music Games
Recent dance and music games such as MTV Music Generator, Parappa the
Rapper, Um Jammer Lammy, Bust-A-Groove 1 & 2, Stepping Selection and Space
Channel 5 have sold millions of units and dominated the sales charts for
weeks on end.
Developed by Sony Music, "Parappa the Rapper" was launched in Japan in the
fall of 1996. The game was a surprise hit among consumers in their twenties.
It spent a year among the country's top 10 titles and had sold more than
700,000 copies by August 1997, less than one year later. "Parappa" has gone
on to sell more than one million copies.
Music videogames are an emergent and relatively untapped market, with less
than 10 notable titles currently available. Importantly, recent titles have
enjoyed sales of over a million units apiece.
(c) Licensed Music in Games
The amount of licensed music used in videogames has been on the rise since
CDROM-based console gaming technology made it widely possible seven years
ago. Multi-platinum products such as EA's Road Rash and Sony's Wipeout XL
(both for the original Sony PlayStation) pioneered the use of entire albums
worth of licensed pop music. Today, licensed music is used in the majority
of videogame products.
(d) Online Video-gaming
With the simultaneous growth of both the Internet and gaming industries,
online gaming has taken off. Games such as "Ultima Online", a multiplayer
videogame released by Electronic Arts in September of 1997, has sold more
than 125,000 copies at $49.95 a copy. With gamers paying an additional $9.95
per month to play the online-only game, "Ultima Online" represents a
potential $1.25 million in MONTHLY revenues -- on top of the actual unit
profits. And EA has already released an expansion package, "Ultima Online:
The Second Age," for $39.95. - Source: Patrick Dent Online Journalism Review
Doug Lowenstein, president of the Interactive Digital Software Association
(IDSA), puts the online industry's 1999 contribution to sales of retail and
computer video games at $US500 million, in addition to the industry's $US6.1
billion total in the United States.
THE STREAMING MEDIA INDUSTRY
The main barrier for broadcasters (and the infrastructure industry) to
overcome, is the economic concept of webcasting. Broadcasting has high fixed
costs, and low variable costs. Webcasting is the exact opposite. This means
that barriers to market entry are low, but serving big audiences means
16
additional per viewer costs. For the industry to flourish, bandwidth costs
will need to be reduced and, almost certainly, pay services will need to be
introduced.
BROADBAND ENVIRONMENT
Vision said it believes that the office broadband environment will provide
an ideal premium advertising market, and this will assist streaming media
achieve premium advertising rates, such as those realized by business media
such as the Wall Street Journal, Der Spiegel and Financial Times.
GROWTH
Users are an increasingly international group, with approximately one third
of downloads/registrations now originating outside North America. Fifty
percent of U.S. streaming media users are expected to have broadband access
by 2002 either at home or in the office, and European businesses will need
to roll out broadband access to compete. Industry statistics underline the
facts behind the growth.
TV Webcasters
There are currently more than 4 million people with digital music players,
up 400 percent up in a 12 month period, representing 100 percent audience
growth in 4 months.
Some substantial numbers of video streams have been served in the past year,
with leading sites achieving monthly video streams of 3 to 4 million. In
Europe, in August 1999, BBC Online's European solar eclipse microsite was
estimated to have served a million streams in a day. A significant factor is
the rate of market growth: the BBC estimates that its streaming audience
size is growing exponentially by 100 percent every 4 months. It currently
reaches an audience of 1 million a month.
PENETRATION
Vision Consultant Group's report estimates that one-third of US Internet
users -- 30 million people -- now tune into Internet radio, and that the
world monthly market is approximately 45 million streamers.
There are:
* 45,000 hours of live content broadcast each week
* More than 400,000 streaming pages
* 3,000 radio stations forecast to be Webcasting by the end of 1999
* 58 U.S. television stations Webcasting live, 34 on demand, plus 69
International
TRENDS
(a) Pay-Per-View
High-speed, always-on, broadband Internet access will provide a prime medium
17
for streaming media via ADSL, cable modems, and other interactive services
such as wireless and Ka-band satellites. Once the consumer has invested in
high-speed Internet access, with its relatively high installation and
monthly costs, they will expect high-quality, high value added services, and
will use the services proportionately more in line with the value of the
investment. This will create an ideal environment for premium advertising
rates, and pay and Pay-Per-View services.
THE MUSIC INDUSTRY
Five recording and distribution companies dominate the global music
industry. Together, they manufacture and distribute over two hundred record
labels, supplying music wholesalers and retailers with about 80% of the U.S.
market. They are: Universal Music Group, Warner-Elektra-Atlantic (WEA), BMG
Distribution, Sony Music Entertainment, and EMI.
On the other side of the coin are over 2,500 "indie" labels, distributed by
nearly 300 independent record distributors and accounting for most of the
remaining 20% of recorded music sales (small by comparison, but still over
$2 billion per year). These figures, of course, do not include the thousands
of new releases by artists not affiliated with any distributor but who want
to record and release their own music.
RECORDING INDUSTUSRY GROWTH
The recording industry is expected to grow 3.9 percent over the next five
years.
PENETRATION
TRENDS
(a)Net-delivered music
According to two recent global studies conducted by the Angus Reid Group
Inc., 36% of all adult Internet users and 41% of teens and young adult
Internet users have downloaded music from the Web in MP3 or similar formats.
According to Reid, the digital magazine Webnoise estimates that some 1.75
billion songs were downloaded over the Internet in November alone, which is
more than the billion-plus CDs sold each year.
(v) Raw Materials and Suppliers
The Company combines the creation of product for videogame consoles with an
Internet business. As such it is not involved with raw materials or
suppliers.
18
(vi) Customers
The target market for moderngroove, casting the widest net, is people
born after 1965, initially those who relate to the broad category called
modern music: featuring European club music comprising House, Techno/Trance,
and HipHop.
More specifically, moderngroove is targeting existing game-console owners.
This group of affluent consumers represents an attractive demographic; 78%
are between the ages of 18-44; 83% are male; and 42% are college students;
32% earn over $60,000 a year annually.
Geographically, the company is focusing on North America, Europe & Japan
with other parts of Asia and the world to follow. The target market will
evolve as broadband and next-generation videogame consoles penetrate the
mainstream consumer
(vii) Patents, Trademarks, Licenses, Franchises, Concessions, Royalty
Agreements, or Labor Contracts
The Company regards substantial elements of its future Web site and
underlying infrastructure and technology as proprietary and attempts to
protect them by relying on trademark, service mark, copyright and trade
secret laws and restrictions on disclosure and transferring title and other
methods. The Company plans to enter into confidentiality agreements with
its future employees, future suppliers and future consultants and in
connection with its license agreements with third parties and generally
seeks to control access to and distribution of its technology, documentation
and other proprietary information. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use the Company's
proprietary information without authorization or to develop similar
technology independently.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any of the Company's proprietary rights. There can be
no assurance that the steps taken by the Company will prevent
misappropriation or infringement of its proprietary information, which could
have a material adverse effect on the Company's business, results of
operations and financial condition. Litigation may be necessary in the
future to enforce the Company's intellectual property rights, to protect the
Company's trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation might result in substantial
costs and diversion of resources and management attention. Furthermore,
there can be no assurance that the Company's business activities will not
infringe upon the proprietary rights of others, or that other parties will
not assert infringement claims against the Company, including claims that by
directly or indirectly providing hyperlink text links to Web sites operated
by third parties. Moreover, from time to time, the Company may be subject
to claims of alleged infringement by the Company or service marks and other
intellectual property rights of third parties. Such claims and any
resultant litigation, should it occur, might subject the Company to
significant liability for damages, might result in invalidation of the
19
Company's proprietary rights and, even if not meritorious, could result in
substantial costs and diversion of resources and management attention and
could have a material adverse effect on the Company's business, results of
operations and financial condition.
(viii) Regulation
There exists no need for any government approval of moderngroove's principal
products or services. The only possible areas where regulation might be an
issue are discussed in section ix, below.
(ix) Effect of Existing or Probable Government Regulations
Currently there is no absolute standard of government regulation that would
effect moderngroove's business; however, the issues raised by copyrights,
royalties, and the controversies that have amassed around Napster and the
exchange of MP3 files may result in such regulations and must be addressed
by any company seriously considering the future of the industry.
Internet sites are shut down on a regular basis because of their failure to
obtain proper licensing arrangements with the artists whose work they are
distributing. This contributes to time wasted searching for product and the
general frustration with the current online companies, not to mention the
legitimate grievances of the artists. Some sites do choose to license
artists, negating the risk of legal action but therefore limiting the
product selection of the site.
moderngroove is developing a methodology for licensing all music that will
appear on its site. The key initiative here is the creation of a floating-
price rights-clearing mechanism and a media rights-clearing network
established to administer payment for the use of artistic works in
moderngroove products. It will take delivery of media streams on consignment
and forward them to pre-qualified Content Service Providers (CSPs), which will
in turn sell them to the public at floating prices. The CSPs then remit a
certain percentage of the revenue to moderngroove which keeps a transaction
fee and sends the royalty payment to the holders of the rights of the artistic
product in question.
This will allow the company to offer a variety of music to the user while
negating the risk of legal action that currently plagues the industry as a
whole. Eventually, it is hoped that this division can spin off into an
independent business whose services will be used by other web broadcasting
and distribution companies seeking to resell the market's audio and video
media products.
Beyond this issue of copyrights and royalties to artists/distributors, some
government legislation has been proposed that imposes liability for or
prohibits the transmission over the Internet of certain types of
information. The imposition upon the Company and other online providers of
potential liability for information carried on or disseminated through their
services could require the Company to implement measures to reduce its
20
exposure to such liability, which may require the Company to expend
substantial resources and/or to discontinue certain service offerings. In
addition, the increased attention focused upon liability issues as a result
of these lawsuits and legislative proposals could impact the growth of
Internet use.
The Company does not believe that such regulations, which were adopted prior
to the advent of the Internet, govern the operations of the Company's
business nor have any claims been filed by any state implying that the
Company is subject to such legislation. There can be no assurance, however,
that State government will not attempt to impose these regulations upon the
Company in the future or that such imposition will not have a material
adverse effect on the Company's business, results of operations and
financial condition. Several states have also proposed legislation that
would limit the uses of personal user information gathered online or require
online services to establish privacy policies. The Federal Trade Commission
has also recently settled a proceeding with one online service regarding the
manner in which personal information is collected from users and provided to
third parties. Changes to existing laws or the passage of new legislation,
could create uncertainty in the marketplace that could reduce demand for the
services of the Company or increase the cost of doing business as a result
of litigation costs or increased service delivery costs, or could in some
other manner have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, because the
Company's services are accessible worldwide, and the Company may facilitate
sales of goods to users worldwide, other jurisdictions may claim that the
Company is required to qualify to do business as foreign corporation in
particular state or foreign country.
Due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be
adopted with respect to the Internet or other online services covering
issues such as user privacy, freedom of expression, pricing, content and
quality of products and services, taxation, advertising, intellectual
property rights and information security. Any new legislation or regulation,
or the application of laws or regulations from jurisdictions whose laws do not
currently apply to the Company's business, for third-party activities and
jurisdiction. The adoption of new laws or the application of existing laws
may decrease the growth in the use of the Internet, which could in turn
decrease the demand for the Company's services, increase the Company's cost
of doing business or otherwise have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company does not believe that such regulations, which were adopted prior
to the advent of the Internet, govern the operations of the Company's
business nor have any claims been filed by any state implying that the
21
Company is subject to such legislation. There can be no assurance, however,
that State government will not attempt to impose these regulations upon the
Company in the future or that such imposition will not have a material
adverse effect on the Company's business, results of operations and
financial condition.
(x) Research and Development Activities
Streaming technologies are notoriously unreliable, especially during peak
hours. Whoever finds the technical solution to this structural problem will
emerge as the leading company in the enormous industry now on the verge of
coming into being.
During the peak "rush hours" of Internet activity (5-10pm EST), streaming is
virtually impossible, even for people with cable modems or other high-speed
net access. The site on which a song is stored may be geographically located
far from the place where the end-user resides. Many hops through the public
backbone must be accomplished before it arrives at the user's PC or (as time
goes by) his or her high resolution living room video receiver.
During the evening hours, the U. S. average for data through-put---that is
to say, the speed at which the data flows through the phone or cable
lines--has been clocked at 44kb/sec., and as slow as 30kb/sec. This is
absolutely not going to do if a user is trying to receive a song or the
weekend hockey highlights in a media stream of 192kb/sec. The stream will
"break" right away. When one considers the greater requirements of a feature
film, let's say, it is easy to see that such a rate of transfer is entirely
unacceptable. The problem is not between the consumer's home and his or her
ISP, which usually maintains a more than adequate throughput of 1+ Mb/sec.
The problem is getting the data from the server to where it is stored to the
local ISPs.
moderngroove's solution to this problem is under development in a division
of the company responsible for creating a distributed caching system. It is
the first of several projected systems that have the ability to enhance
significantly the quality of streaming media through the Internet. It is
tailored for what the company thinks of as 'the ten-foot Internet,' as
opposed to 'the two-foot Internet'now in common use; that is to say, the
Internet as a vehicle for content that will be viewed in the end-user's
living room on a television receiver via set-top boxes and videogame
terminals.
Specifically, it is a system for bypassing the congestion that plagues the
Internet during peak hours, rendering even the most expensive streaming
solutions (like RealNetworks and Microsoft's Windows Media System)
inconsistent and unable to guarantee a level of service that will be
competitive with traditional broadcasting technology.
moderngroove's caching system will store content on co-located servers at
the largest Internet Service Providers in the 30 largest cities in North
America. This will resolve the problem that currently obtains: the long
distances content is required to travel, often routed in tortuous ways
due to clogged fiberoptic lines and downed servers, will be eliminated by
the caching of digital information in these locations because users will
22
be only "one hop away" from the content. moderngroove's distributed caching
system will thus make possible stereo-quality sound even over a 56k modem.
(xi) Impact of Environmental Laws
The Company is not aware of any federal, state or local environmental laws
that would effect is operations.
(xii) Employees
Based on the acquisition of moderngroove entertainment International, Inc,
the Company will have a core of fifty (50) employees, eighty-five percent of
whom are dedicated to product development.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's corporate headquarters are located at: 1685 W. 5th Ave.,
Vancouver, British Columbia, Canada V6J 1N5 with a U.S. based office at 1801
E. Tropicana, Suite 9, Las Vegas, NV 89119. Web site: www.moderngroove.com.
.
ITEM 3. LEGAL PROCEEDINGS.
As of the date hereof, moderngroove entertainment, Inc. is not a party to
any material legal proceedings, and none are known to be contemplated
against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 18, 2000, the company held its annual shareholders' meeting. At
this meeting, the shareholders of the Company approved a company name change
from Barrington Laboratories, Inc., to moderngroove entertainment, Inc. This
name change reflects the board of directors' decision to expand the
Company's business focus. The shareholders also approved an increase in the
number of authorized common shares, from 20,000,000 to 200,000,000 having a
par value of $0.001. The amended Articles to reflect the name change and
increase in authorized shares were filed with the Nevada Secretary of State,
on December 18, 2000. The shareholders also approved the Share Exchange
Agreement for Modern Groove Entertainment International, Inc. This Share
Exchange Agreement was filed with a Current Report with the SEC on December
19, 2000. And, finally, the shareholder's ratified the appointment of the
Company's Independent auditor.
23
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
------------------
Until September 14, 1999, there was no public trading market for the
Company's stock. On that day the Company's common stock was cleared for
trading on the OTC Bulletin Board system under the symbol BRRT. At the
Company's annual shareholder meeting, the shareholders approved a name
change for the Company to moderngroove entertainment, Inc., and the Company
subsequently changed its name and trading symbol to: MODG. A limited
market exists for the trading of the Company's common stock.
The table below sets forth the high and low bid prices of our common stock
for each quarter shown, as provided by the Nasdaq Trading and Market
Services Research Unit. Quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
FISCAL 1999 HIGH LOW
-------------------------------- ---- ----
Quarter Ended March 31, 1999 N/A N/A
Quarter Ended June 30, 1999 N/A N/A
Quarter Ended September 30, 1999 N/A N/A
Quarter ended December 31, 1999 0.50 0.25
FISCAL 2000 HIGH LOW
-------------------------------- ---- ----
Quarter Ended March 31, 2000 10.25 1.62
Quarter Ended June 30, 2000 3.00 0.75
Quarter Ended September 30, 2000 1.74 0.37
Quarter ended December 31, 2000 2.25 0.47
Holders
-------
The approximate number of holders of record of common stock as of December
31, 2000 was 88.
24
Dividends
---------
Holders of common stock are entitled to receive such dividends as the board
of directors may from time to time declare out of funds legally available
for the payment of dividends. No dividends have been paid on our common
stock, and we do not anticipate paying any dividends on our common stock in
the foreseeable future.
Recent Sales of Unregistered Securities
---------------------------------------
The Company was issued a permit to sell securities to the public in the
State of Nevada on February 9, 1999 pursuant to Nevada Revised Statues
Chapter 90.490. This offering (hereinafter referred to as the "Offering")
was made in reliance upon an exemption from the registration provisions of
Section 5 of the Securities Act of 1933 (the "Act"), as amended, pursuant to
regulation D, Rule 504, of the Act. The Company sold seven hundred fifty
thousand seven hundred (750,700) shares of the Common Stock of the Company
during the Offering to approximately sixty-seven (67) shareholders in the
State of Nevada. The Offering was closed February 28, 1999. The Company
filed an original Form D with the Securities and Exchange Commission on or
about March 12, 1999. On March 1, 1999, the Company had three million
seven hundred fifty thousand seven hundred (3,750,700) shares of its $0.001
par value common voting stock issued and outstanding which are held by
approximately sixty-eight (68) shareholders of record.
On November 22, 2000, the Company issued 350,000 shares in exchange for
services. The 350,000 shares issued in December, 2000 in connection with a
Form S-8 filed the U.S. Securities and Exchange Commission have been valued
at their fair market value of $306,250.
On December 18, 2000, the Company entered into a Share Exchange agreement
with moderngroove Entertainment International, Inc., a separate Nevada
Corporation, whereby all of the issued and outstanding shares of moderngroove
entertainment International, Inc., were exchanged for 26,000,000 restricted
common shares of the company's stock, effective January 1, 2001.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
-------
The current core business of moderngroove entertainment, Inc. is to develop
entertainment titles for next-generation videogame consoles like the Sony
PlayStation 2. These titles, sold in retail outlets, will include a net-
accessing device that will steer consumers to an interactive music and
television network being created by moderngroove.
Music product related to the company's pre-mixed offerings will be available
on the network. The initial television offerings will provide customized
sports and newscasts to consumers and special Pay-Per-View editions of
popular television programs with whom moderngroove has developed agreements.
moderngroove's first packaged product, "moderngroove: Ministry of Sound
Edition," will be released in May of 2001. It is a stand-alone product
without the net-accessing feature. In September, a working beta of the
interactive music and television network will be unveiled at a trade show in
London, England. The first title with net-access will be released in
November with another due the following March, in 2002. moderngroove
anticipates that month-over-month profitability will occur once these latter
titles have been released. However, there are no assurances nor guarantees
that this will happen.
25
Results of Operations
---------------------
As a development stage Company, the Company has yet to generate any revenues.
In addition, the Company does not expect to generate any revenues until the
Second Quarter in Year 2001. During calendar year ended December 31, 2000,
the Company experienced net losses $310,763. The Company incurred general
and administrative expenses, including consulting and professional fees of
$306,230 shares of the Company's common stock to an unrelated third party for
assistance in identifying business opportunities. This loss compares to a
loss of $4,513 for 1999. The Company's overall loss from operations increased
from ($14,951) to ($310,763), primarily due to the consulting fees identified
above. The basic loss per share for the year ending December 31, 2000 is
($0.083) compared to ($0.004) per share in calendar year 1999. The Company
does not have any material commitments for capital expenditures.
Liquidity and Capital Resources
-------------------------------
The Company's primary sources of liquidity since its inception have been the
sale of shares of common stock from shareholders, which were used during the
period from inception through December 31, 2000. An original stock offering
was made pursuant to Nevada Revised Statues Chapter 90.490 (hereinafter
referred to as the "Offering"). This Offering was made in reliance upon an
exemption from the registration provisions of Section 5 of the Securities Act
of 1993 (the "Act"), as amended, pursuant to Regulation D, Rule 504 of the
Act. On August 7, 1998, founding shareholders purchased three million
(3,000,000) shares of the Company's authorized but unissued treasury stock for
cash. Additionally, the Company sold seven hundred fifty thousand seven
hundred (750,700) shares of Common Stock of the Company during the Offering to
approximately sixty-seven (67) shareholders in the State of Nevada. The
offering was closed February 28, 1999. As of December 31, 1999, the Company
had three million seven hundred fifty thousand seven hundred (3,750,700)
shares of its $0.001 par value common voting stock issued and outstanding
which are held by approximately sixty-eight (68) shareholders of record,
including the Company's founder.
On November 22, 2000, the Company issued 350,000 shares in exchange for
services. The 350,000 shares issued in December, 2000 in connection with a
Form S-8 filed the U.S. Securities and Exchange Commission have been valued
at their fair market value of $306,250.
On December 18, 2000, the Company entered into a Share Exchange agreement with
moderngroove Entertainment International, Inc., a separate Nevada Corporation,
whereby all of the issued and outstanding shares of moderngroove International,
Inc., were exchanged for 26,000,000 restricted common shares of the
company's stock, effective January 1, 2001.
26
ITEM 7. FINANCIAL STATEMENTS.
Special Note
------------
The Company filed a Current Report the United Stated Securities and Exchange
Commission on March 2, 2001 which provides audited financials for moderngroove
Entertainment International, Inc. as of December 31, 2000 and December
31, 1999; and, Pro Forma Consolidated Financial Information reflects financial
information which gives effect to the acquisition of the 20,000,000 outstanding
common shares of moderngroove entertainment international, Inc.
("moderngroove")in exchange for 26,000,000 shares of common stock of the
Registrant. Since moderngroove entertainment did not effect the acquisition of
moderngroove Entertainment International, Inc., until January, 2001, here
follows the audited financials for moderngroove entertainment, Inc.
FINANCIAL STATEMENTS.
MODERNGROOVE ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
--------------------
December 31, 1999
December 31, 2000
27
TABLE OF CONTENTS
-----------------
PAGE
----
INDEPENDENT AUDITORS REPORT F-1
ASSETS F-2
LIABILITIES AND STOCKHOLDERS' EQUITY F-3
STATEMENT OF OPERATIONS F-4
STATEMENT OF STOCKHOLDERS' EQUITY F-5
STATEMENT OF CASH FLOWS F-6
NOTES TO FINANCIAL STATEMENTS F-7-11
28
BARRY L. FRIEDMAN, P.C.
Certified Public Accountant
1582 Tulita Drive OFFICE (702) 361-8414
Las Vegas, NV 89123 FAX NO (702) 896-0278
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors January 17, 2001
moderngroove entertainment, Inc.
Las Vegas, Nevada
I have audited the accompanying Balance Sheets of moderngroove
Entertainment, Inc. (A Development Stage Company), as of December 31,
2000, and the related statements of operations, stockholders' equity,
and cash flows for the period August 6, 1998, (inception), to December
31, 2000. These financial statements are the responsibility of the
Company 's management. My responsibility is to express an opinion on
these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion. In
my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of moderngroove
Entertainment (A Development Stage Company), as of December 31, 2000,
and the results of its operations, stockholders' equity, and cash flows
for the period August 6, 1998, (inception), to December 31, 2000, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note #5 to
the financial statements, the Company has no established source of
revenue. This raises substantial doubt about its ability to continue
as a going concern. Management's plan in regard to these matters is
described in Note #5. These financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Barry L. Friedman
------------------------------
Barry L. Friedman
Certified Public Accountant
F-1
MODERNGROOVE ENTERTAINMENT, INC.
(A Development Stage Company)
ASSETS
BALANCE SHEET
-------------
ASSETS
------
December December
31, 2000 31, 1999
CURRENT ASSETS:
CASH $ 16,715 $ 26,744
-------- --------
TOTAL CURRENT ASSETS: $ 16,715 $ 26,744
-------- ---------
OTHER ASSETS:
Organization Costs (Net) $ 0 $ 0
Research & Development (Note #8) 11,716 6,200
-------- ---------
TOTAL OTHER ASSETS: $ 11,716 $ 6,200
-------- ---------
TOTAL ASSETS $ 28,431 $ 32,944
======== =========
See accompanying notes to financial statements & audit report
F-2
MODERNGROOVE ENTERTAINMENT, Inc.
(A Development Stage Company)
LIABILITIES AND STOCKHOLDERS' EQUITY
BALANCE SHEET
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Officers' Advances (Note #6) $ 360 $ 360
-------- ----------
TOTAL CURRENT LIABILITIES: $ 360 $ 360
STOCKHOLDERS' EQUITY: (Note #4)
Preferred stock, $0.001 par value,
Authorized 5,000,000 shares;
Issued and outstanding at
December 31, 1999 - None $ 0 $ 0
Common stock, $0.001 par value,
Authorized 20,000,000 shares;
Issued and outstanding at
December 31, 1999
3,750,700 shares $ 3,751
December 31, 2000
4,100,700 4,101
Additional Paid-In Capital 349,684 43,784
Deficit accumulated during
The development stage -325,714 -14,951
--------- ----------
TOTAL STOCKHOLDERS' EQUITY $ 28,071 $ 32,584
--------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY: $ 28,431 $ 32,944
========= ==========
See accompanying notes to financial statements & audit report
F-3
MODERNGROOVE ENTERTAINMENT, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
STATEMENT OF OPERATIONS
------------------------
Jan. 1 Aug. 6, Aug. 6, 1998
2000, to 1998, to (Inception)
Dec. 31, Dec. 31, to Feb. 29,
2000 1999 2000
INCOME
Revenue $ 0 $ 0 $ 0
EXPENSES
General, Selling
and Administrative $ 4,513 $ 14,591 $ 19,104
Amortization 0 360 360
Consulting and
Professional Fees 306,250 0 306,250
-------- -------- ---------
Total Expenses $ 310,763 $ 14,951 $ 325,714
--------- --------- ---------
NET PROFIT/LOSS (-) $-310,763 $ -14,951 $-325,714
========= ========= =========
Net Profit/Loss(-)
Per weighted share
(Note #1) $ -.083 $ -.004 $ -.091
======== ======== ========
Weighted average
Number of common
shares outstanding 3,750,700 3,449,688 3,587,180
========= ========= =========
See accompanying notes to financial statements & audit report
F-4
MODERNGROOVE ENTERTAINMENT, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------
Deficit
accumulated
Common Stock Additional during
------------ paid-in development
Shares Amount capital stage
------ ------ ---------- ----------
August 6, 1998
issued for cash 3,000,000 $ 3,000 $ 7,000 $ 0
Net loss,
August 6, 1998
(inception) to
December 31, 1998 -7,536
--------------------------------------------------
Balance,
Dec. 31, 1998 3,000,000 $ 3,000 $ 7,000 -7,536
Feb 28, 1999
issued from
sale of
public offering 750,700 751 36,784
Net loss,
January 1, to
December 31, 1999 -7,415
------------------------------------------------
Balance,
December 31, 1999 3,750,700 $ 3,751 $ 43,784 $ -14,951
Dec, 2000
issued for
services 350,000 350 350,900 -306,250
Net loss,
January 1, to
December 31, 2000 -4,513
================================================
Balance,
December 31, 2000 4,100,700 $ 4,101 $349,684 $-325,714
See accompanying notes to financial statements & audit report
F-5
MODERNGROOVE ENTERTAINMENT, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
STATEMENT OF CASH FLOWS
-----------------------
Jan. 1, Aug. 6, 1998 Aug 6, 1998
2000, to (Inception) (Inception)
Dec. 31, to Dec. 31, to Dec. 31,
2000 1999 2000
Cash Flows from
Operating Activities
Net Loss $-310,763 $ -14,951 $-325,714
Adjustment to
reconcile net loss
to net cash provided
by Operating
Activities:
Amortization +360 +360
Stock issued for services 306,250 306,250
Changes in assets and
Liabilities:
Research & Development -5,516 -6,200 - 11,716
Organization Costs 0 -360 -360
Officers' Advances 0 +360 +360
-------- --------- --------
Net cash used in
Operating activities: $-10,029 $-20,791 $-30,820
Cash Flows from
Investing Activities 0 0 0
Cash Flows from
Financing Activities:
Issuance of Common
Stock for cash 0 +47,535 +47,535
-------------------------------------
Net Increase (decrease) $+10,029 $+26,744 +16,715
Cash,
Beginning of period: $ 26,744 0 0
--------------------------------------
Cash, End of Period: $ 16,715 $ 26,744 $ 16,715
Supplemental Disclosure of Non-Cash Operating and Financing Activities:
During the year ended December 31, 2000, the Company issued 350,000
shares in exchange for services. The 350,000 shares issued in November,
2000 in connection with a Form S-8 filed the U.S. Securities and
Exchange Commission have been valued at their fair market value of
$306,250.
See accompanying notes to financial statements & audit report
F-6
MODERNGROOVE ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
December 31, 2000, and December 31, 1999
NOTE #1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized August 6, 1998, under the laws of the State of
Nevada, as BARRINGTON LABORATORIES, INC. On December 18, 2000, the Company
amended its Articles of Incorporation to rename the Company, MODERNGROOVE
ENTERTAINMENT, INC. The Company currently has no operations and, in
accordance with SFAS #7, is considered a development stage company.
NOTE #2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Method
-----------------
The Company records income and expenses on the accrual method.
Estimates
---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and equivalents
--------------------
The Company maintains a cash balance in a non-interest-bearing bank that
currently does not exceed federally insured limits. For the purpose of the
statements of cash flows, all highly liquid investments with the maturity of
three months or less are considered to be cash equivalents. There are no cash
equivalents as of December 31, 1999, or December 31, 2000.
Income Taxes
------------
Income taxes are provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS
#109) "Accounting for Income Taxes". A deferred tax asset or liability is
recorded for all temporary difference between financial and tax reporting.
deferred tax expense (benefit) results from the net change during the year of
deferred tax assets and liabilities.
F-7
MODERNGROOVE ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
December 31, 2000, and December 31, 1999
NOTE #2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reporting on Costs of Start-Up Activities
-----------------------------------------
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up
Activities" which provides guidance on the financial reporting of start-up
costs and organization costs. It requires most costs of start-up activities
and organization costs to be expensed as incurred. SOP 98-5 is effective for
fiscal years beginning after December 15, 1998. With the adoption of SOP 98-5,
there has been little or no effect on the company's financial statements.
Loss Per Share
--------------
Net loss per share is provided in accordance with Statement of Financial
Accounting Standards No. 128 (SFAS #128) "Earnings Per Share". Basic loss per
share is computed by dividing losses available to common stockholders by the
weighted average number of common shares outstanding during the period.
Diluted loss per share reflects per share amounts that would have resulted if
dilative common stock equivalents had been converted to common stock. As of
December 31, 2000, the Company had no dilutive common stock equivalents such
as stock options.
Year End
--------
The Company has selected December 31st as its year-end.
Year 2000 Disclosure
--------------------
The Y2K issued had no effect on this Company.
NOTE #3 - INCOME TAXES
There is no provision for income taxes for the period ended December 31,
2000. The Company's total deferred tax asset as of December 31, 2000, is
as follows:
Net operation loss carry-forward $ 325,714
Valuation allowance $ 325,714
Net deferred tax asset $ 0
F-8
MODERNGROOVE ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
December 31, 2000, and December 31, 1999
NOTE #3 - INCOME TAXES (CONTINUED)
The federal net operating loss carry forward will expire between 2018 and
2019.
This carry-forward may be limited upon the consummation of a business
combination under IRC Section 381.
NOTE #4 - STOCKHOLDERS' EQUITY
Common Stock
------------
The authorized common stock of MODERNGROOVE ENTERTAINMENT, INC. consists of
200,000,000 shares, with a par value of $0.001 per share.
Preferred Stock
---------------
The authorized preferred stock of MODERNGROOVE ENTERTAINMENT, INC. consists of
5,000,000 shares, with a par value of $0.001 per share.
On August 7, 1998, the Company issued 3,000,000 shares of its $0.001 par value
common stock, in consideration of $10,000 in cash to a director.
On February 28, 1999, the Company completed a public offering that was
offered, without registration, under the Securities Act of 1933, as amended
(The "Act"), in reliance upon the exemption from registration afforded by
Sections 4(2) and 3(b) of the Securities Act and Regulation D, promulgated
thereunder. The Company sold 750,700 shares of common stock at a price of
$0.05 per share, for a total amount raised of $37,535.
On November 22, 2000, the Company issued 350,000 shares in exchange for
services. The 350,000 shares issued in December, 2000 in connection with a
Form S-8 filed the U.S. Securities and Exchange Commission have been valued
at their fair market value of $306,250.
NOTE #5 - GOING CONCERN
The Company's Financial Statements are prepared using generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company does not have significant cash or other
material assets, nor does it have an established source of revenues sufficient
to cover its operating costs and to allow it to continue as a going concern.
It is the intent of the Company to seek to raise additional capital via a
private placement offering, pursuant to Regulation D Rule 505/506, once the
company is trading on the OTC-BB. Until that time, the stockholders/officers
and or directors have committed to advancing the operating costs of the
Company, interest free.
F-8
MODERNGROOVE ENTERTAINMENT, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
December 31, 2000, and December 31, 1999
NOTE #6 - RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real or personal property. An officer
of the corporation provides office services without charge. Such costs are
immaterial to the financial statements and accordingly, have not been
reflected therein. The officers and directors of the Company are involved in
other business activities and may, in the future, become involved in other
business opportunities. If a specific business opportunity becomes available,
such persons may face a conflict in selecting between the Company and their
other business interests. The Company has not formulated a policy for the
resolution of such conflicts.
NOTE #7 - WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional shares
of common or preferred stock.
NOTE #8 - RESEARCH AND DEVELOPMENT
In December 1998, the Company signed a contract with a pharmaceutical contract
manufacturer, to produce a generic pharmaceutical product. The manufacturer
requested chemical and analytical data concerning the raw materials and the
manufacturer process of this project, before they could begin the project.
In order to provide this data, outside services were paid to research the
information requested. If the manufacturer is unable to proceed with this
project, the research obtained could be utilized with other contract
pharmaceutical manufacturers. The president of the company paid his former
associates to research and obtain this data. This is company proprietary data,
which is needed to produce this generic product and, hopefully, produce
revenues for the Company.
F-10
--------------------------------------------------------------------------------
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Pursuant to Section 31(a)(1) the Investment Company Act of 1940 "Accountants
and Auditors," due to the death of the Company's auditor, the Company's board
of directors held a special meeting and voted to replace its auditor, until
the Company's new auditor can be ratified by the majority of the Company's
shareholders. The Company filed a Current Report with the SEC on March 7,
to Change Auditors for the coming fiscal year.
Barry L. Friedman, CPA, was the Company's original auditor, and has been the
Company's auditor since the Company was founded on August 6, 1998 through
December 31, 2000. Mr. Friedman died on January 27, 2001.
In connection with its audit for the most recent fiscal years and through
December 31, 2000, there has been no disagreements with Barry L. Friedman,
CPA, 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 Barry L. Friedman, CPA would have caused him
to make reference thereto in his report on the financial statements for such
years.
29
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth the current officers and directors of
moderngroove entertainment, Inc.
Name Age Title
John Stroppa 33 President/CEO/Director
Steven Zur 37 Corporate Secretary, Chief
Information Officer/Director
Adrian Crook 25 Executive Producer
Justin Halowaty 25 Controller/Director
Duties, Responsibilities and Experience:
John Stroppa, President/CEO/Chairman of the Board
John Stroppa, born in Seattle, WA, in 1968 and moved to Vancouver, B.C. with
his Canadian parents in 1970.
1992-1993 - Gold Merchant Management, currency trader
1993-1994 - Xerox Canada, Sales
1995-1996 - Axion Internet, Inc., Canada, sales coordination
1997-1998 - Hitmen-Pioneer Studio at Electronic Arts (Canada), Inc.,
Assistant Producer
1998-1999 - Radical Entertainment Limited, Project Manager, Producer, Director
of Business Development. Radical Entertainment Limited is the
largest privately owned developers of interactive entertainment
titles and 3D graphics software
1999- Pres. - Founder/President, of moderngroove entertainment, Inc.
In 1990, he received his Bachelor of Arts in Economics from University of
Waterloo, and, in 1992, he received his Master of Arts in Economics from
Queen's University at Kingston.
Steven Zur, Corporate Secretary and Chief Information Officer (CIO)/ Director
Steven Zur is a former Director of the Internet Sports Network, a provider
of enhanced content, applications and support service for commercial portal
sites. Mr. Zur is a technological innovator who developed, implemented and
managed ticket processing for the 1988 Winter Olympics and developed all
technical aspects of delivering online gaming pools for the Internet Sports
Network. Mr. Zur's technical expertise and innovation are complimented by his
experience integrating UNIX, Macintoshes and PCs into unified networks, as
well as the critical role he played in integrating Ticketmaster's operations
across Canada. Education: BSc; Zoology, University of Alberta.
30
Adrian Crook, Executive Producer
Adrian Crook is a former Producer from Electronic Arts, the world's largest
independent developer, publisher and distributor of videogame products for
personal computers and videogame consoles. Mr. Crook has a proven ability to
conceive and produce world-class entertainment. Mr. Crook capped off his
five-year tenure at Electronic Arts with the production of Sled Storm, a
snowmobile racing game for the Sony PlayStation that marked Electronic Arts
Canada's first wholly original, unlicensed, internally developed project.
Conceived and produced by Mr. Crook, Sled Storm was completed in less than one
year and has gone on to sell more than 1,000,000 units (over $30 million)
since its launch in August of 1999.
Justin Halowaty, Controller, Director
Mr. Halowaty is currently the controller of moderngroove entertainment, Inc.
Prior to this he was the controller of Coast Mountain Hardwoods, Inc., a
hardwood mill, with 1999 gross revenue of $40 million up over 30% from 1998.
The company was recently acquired by Northwest Hardwoods, Inc. a Weyerhaeuser
business. Mr. Halowaty has a Bachelor of commerce from the University of
British Columbia and received his professional accounting designation (CMA)
in November 1999.
DIRECTOR COMPENSATION
Directors shall receive no cash compensation for their services to
Mercado as directors, but are reimbursed for expenses actually incurred
in connection with attending meetings of the Board of Directors.
Directors are elected in accordance with our bylaws to serve until the next
annual stockholders meeting. moderngroove entertainment does not currently pay
compensation to directors for services in that capacity.
Officers are elected by the board of directors and hold office until their
successors are chosen and qualified, until their death or until they resign or
have been removed from office. All corporate officers serve at the discretion
of the board of directors. There are no family relationships between any
director or executive officer and any other director or executive officer of
moderngroove entertainment, Inc.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who beneficially own more than ten percent of a
registered class of our equity securities (referred to as "reporting persons"),
to file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of common stock and other equity securities.
Reporting persons are required by Commission regulations to furnish us with
copies of all Section 16(a) forms they file.
To the Company's knowledge, all Section 16(a) filing requirements applicable
to our directors, executive officers and greater than ten percent beneficial
owners during such period were satisfied.
31
ITEM 10. EXECUTIVE COMPENSATION.
As a result of the Company's current limited available cash, the sole
Company officer/director did not receive any compensation during the fiscal
year ended December 31, 2000.
Summary Compensation Table
Name and Principal Position -- Annual Compensation
--------------------------- --------------------
Number of Shares
Underlying
Name Position Salary Bonus Options (#)
---- -------- -------- ----------------------
John Stroppa President None None None
Steven Zur Chief Information Officer $48,000 None None
Adrian Crook Executive Producer $48,000 None None
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the beneficial
ownership of our outstanding common stock as of December 31, 2000, by each
person known by the Company to own beneficially more than 5% of the
outstanding common stock, by each of our directors and officer and by
all of our directors and officers as a group. Unless otherwise indicated
below, all persons listed below have sole voting and investment power with
respect to their shares of common stock.
Amount
Title Name and Address of shares Percent
of of Beneficial held by of
Class Owner of Shares Position Owner Class
----------------------------------------------------------------------------
Common T. J. Jesky (1) Former CEO/CFO 3,000,000 73.2%
Common Arthur Skagen (2) Stockholder 350,000 8.5%
----------------------------------------------------------------------
TOTALS: 3,350,000 81.7%
All Executive Officers and
Directors as a Group (1 person) 3,000,000 73.2%
(1) T. J. Jesky, 1801 E. Tropicana, Suite 9, Las Vegas, NV.
(2) Arthur W. Skagen, 15127 - 100th Avenue, Surrey, B.C., Canada
32
The following table sets forth certain information concerning the beneficial
ownership of our outstanding common stock after the Company issues 26,000,000
restricted common shares to acquire the assets of moderngroove entertainment
International, Inc. in January 2001, by each person known by moderngroove to
own beneficially more than 5% of the outstanding common stock, by each of our
directors and officer and by all of our directors and officers as a group.
Unless otherwise indicated below, all persons listed below have sole voting
and investment power with respect to their shares of common stock.
Amount of Common Percent of
Stock Common Stock
Beneficially Beneficially
Name (1) Owned Owned (2)
----------------------------------------------------------------------
John Stroppa - President/CEO/Director (2) 8,686,000 28.9
Keith Laker (3) 3,126,903 10.4
Moderngroove Entertainment, Inc.
Employee Stock Fund (4) 2,685,000 9.0
Arthur W. Skagen (5) 2,445,000 8.1
Adrian Crook, Executive Producer (6) 1,600,000 5.3
Steven Zur, CIO / Director (7) 1,600,000 5.3
Bill Macklem, Stockholder (8) 1,500,000 4.9
Skagen-Danielson Family Trust (9) 1,000,000 3.3
Justin Halowaty - Director (10) 450,000 1.5
T. J. Jesky, Former Officer (11) 3,000,000 9.9
---------- ----
TOTALS: 26,092,903 86.6
All Executive Officers and
Directors as a Group (4 persons) 12,336,000 40.9%
(1) The percentages listed in this column are based upon 30,100,700
outstanding shares of common stock, which will be the number of
outstanding shares of Common Stock as of the Effective Date.
(2) John Stroppa, 303-280 Nelson Street, Vancouver, B.C.
(3) The 2,685,000 shares of Common Stock beneficially owned by Willow
Trust, 1 Pier Steps St., Peter Port, Guernsey, UK, are controlled by
Keith Laker.
(4) Moderngroove Entertainment, Inc., 1685 West 5th Avenue, Vancouver, B.C.
(5) Arthur W. Skagen, 15127 - 100th Avenue, Surrey, B.C. This includes
the 1,500,000 shares of Common Stock beneficially owned by Lafoten
Capital Corporation, which is controlled by Mr. Skagen, and also
includes 500,000 shares of Common Stock beneficially owned by Cashcom
Services, Inc., which is controlled by Mr. Skagen.
(6) Adrian Crook, 2302, 1008 Cambie Street, Vancouver, B.C.
(7) Steven Zur, 507, 610 Jervis Street, Vancouver, B.C.
(8) Mr. Bill Macklem, 100-5000 Bridge Street, Delta, B.C., Canada. This
includes 1,500,000 shares of Common Stock beneficially owned by Visions
West, Ltd.
(9) Skagen-Danielson Family Trust, 15007-75th Avenue, Surrey, B.C., Canada.
Mr. Art Skagen disclaims beneficial ownership of any shares of Common
Stock owned by Skagen-Danielson Family Trust.
(10) Justin Halowaty, 3281 W. 21st Avenue, Vancouver, B.C.
(11) T. J. Jesky, 1801 E. Tropicana, Suite 9, Las Vegas, NV. Mr. Jesky,
former Officer/Director of the Company owned 3,000,000 common shares
prior to the Share Exchange Agreement and did not receive any additional
shares subsequent to the Share Exchange Agreement.
Note: The first nine names on the above chart, (reference number 2 through
10) represent the individuals/entities who were issued 23,092,903 common
shares out of the 26,000,000 common shares subsequent to the Share Exchange
Agreement. The remaining 2,907,097 restricted Common Shares (i.e. 26,000,000
minus 23,092,903), where issued on a pro-rata basis to the remaining 60
shareholders of Modern Groove Entertainment International, Inc.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Through a Board Resolution and ratification of the shareholders, the Company
hired the professional services of Barry Friedman, Certified Public
Accountant, to perform audited financials for the Company. Mr. Friedman owned
no stock in the Company. The company has no formal contracts with its
accountant, he is paid on a fee for service basis.
Mr. Barry Friedman died on January 27, 2001. On March 7, 2001, the Company
filed a Current Report, that through a Board Resolution, the Company hired
the professional services of G. Brad Beckstead, Certified Public Accountant,
to perform audited financials for the Company. Mr. Beckstead owns no stock
in the Company.
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
The following documents are included or incorporated by reference as exhibits to
this report:
EXHIBIT
NO. DOCUMENT DESCRIPTION
------- -----------------------------------------------------------------------
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Articles of Incorporation of the Company Filed August 6, 1998(1)
3.2 By-Laws of the Company adopted September 23, 1998(1)
3.3 Amendment to Articles of Incorporation Filed December 18, 2000(3)
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
4.1 Facsimile of specimen common stock certificate (2)
(23) CONSENT OF EXPERTS AND COUNSEL
23.1 Letter of Consent from Barry L. Friedman, CPA (1)
23.2 Letter of Consent from Barry L. Friedman, CPA (3)
(27) FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule
(29) ADDITIONAL EXHIBITS -- State Registration Statements
29.1 Agent of the Issuer Registration(1)
29.2 Notice of Effectiveness(1)
----------
(1) Previously filed as an exhibit to our registration statement on Form 10-SB
(the "Registration Statement"), which was filed on May 14, 1999, and
incorporated herein by reference.
(2) Previously filed as an exhibit to our annual report on Form 10KSB,
which was filed on March 8, 2000, and incorporated herein by reference.
(3) Filed herewith.
(b) REPORTS ON FORM 8-K
moderngroove filed one Current Report during the fiscal year ended December 31,
2000, dated December 19, 2000, on Form 8-K containing information pursuant to
Item 5 ("Other Materially Important Events"); Item 6 ("Resignations of
Registrant's Directors"); and Item 7 ("Financial Statements and Exhibits")
entitled "Share Exchange Agreement."
Subsequently, moderngroove filed two additional Current Reports, the first
was dated March 2, 2001, on Form 8-K containing information pursuant to Item 1
("Changes in Control of Registrant"); Item 2 ("Acquisition or Disposition of
Assets"); Item 6 ("Resignations of Registrant's Directors"); and Item 7
("Financial Statements") entitled "moderngroove entertainment International,
Inc. Audited Consolidated Financial Statements and Unaudited Pro Forma
Consolidated Financial Information."
The next Current Report was filed on March 7, 2001, on Form 8-K containing
information pursuant to Item 4 ("Changes in Accountants") entitled "Changes
in Registrant's Certifying Account." (See Item 8 above, entitled, "Changes in
and Disagreements with Accountants on Accounting and Financial Disclosure."
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: April 8, 2001 moderngroove entertainment, Inc.
--------------------------------
Registrant
By: /s/ John Stroppa
-----------------------
John Stroppa
President, Chief Executive Officer
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: April 9, 2001 moderngroove entertainment, Inc.
--------------------------------
Registrant
By: /s/ Steven Zur
-----------------------
Steven Zur
Corporate Secretary
35