U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2002
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[ ] Transition Report under Section 13 or 15(d)of the Exchange Act For the
Transition Period from ________ to ___________
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Commission File Number: 0-26073
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MODERNGROOVE ENTERTAINMENT, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 86-0881193
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1801 E. Tropicana, Suite 9
Las Vegas, NV 89119
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(Address of principal executive offices)
(604) 742-2000
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(Issuer's telephone number)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months
(or 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the Registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
Yes [ ] No [ ]
1
Common Stock, $0.001 par value per share, 200,000,000 shares authorized,
30,650,700 issued and outstanding as of June 30, 2002. Preferred
Stock, $0.001 par value per share, 5,000,000 shares authorized, no
Preferred Stock issued nor outstanding as of June 30, 2002.
Traditional Small Business Disclosure Format (check one) Yes [ ] No [X]
Copies to:
Thomas C. Cook, Esq.
Thomas C. Cook & Associates, Ltd.
4955 South Durango, Suite 214
Las Vegas, Nevada 89113
Phone: (702) 952-8520
Fax: (702) 952-8521
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................. 4
Consolidated Balance Sheet (unaudited)............... 5
Consolidated Statements of Operations(unaudited)..... 6
Consolidated Statements of Cash Flows (unaudited).... 7
Notes to Consolidated Financial Statements........... 8
Item 2. Management's Plan
of Operation.......................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 13
Item 2. Changes in Securities and Use of Proceeds............ 13
Item 3. Defaults upon Senior Securities...................... 13
Item 4. Submission of Matters to a Vote
of Security Holders.................................. 13
Item 5. Other Information.................................... 13
Item 6. Exhibits and Reports on Form 8-K..................... 14
Signatures..................................................... 15
3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
As prescribed by Item 310 of Regulation S-B, the independent auditor has
reviewed these unaudited interim financial statements of the registrant
for the six months ended June 30, 2002. The financial statements
reflect all adjustments which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented. The
unaudited financial statements of registrant for the six months ended
June 30, 2002, follow.
4
MODERNGROOVE ENTERTAINMENT, INC.
(Formerly Barrington Laboratories, Inc.)
(a Development Stage Company)
CONSOLIDATED BALANCE SHEET
(Expressed in US Dollars)
(Unaudited)
CONSOLIDATED BALANCE SHEET
June 30,
2002
------------------
ASSETS
Current assets:
Cash and equivalents $ -
Receivables 3,992
Prepaid consulting fees 291,499
Prepaid expenses 116,104
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Total current assets 411,595
Property and equipment, net 233,640
Software development costs, net 701,974
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$ 1,347,209
==================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Bank overdraft $ 4,555
Line of credit 186,477
Loan payable - related party 451,995
Accounts payable 307,047
Accrued liabilities 454,488
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Total current liabilities 1,404,562
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Commitments -
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Stockholders' (Deficit):
Common stock, $0.001 par value, 200,000,000 shares
authorized, 30,650,700 shares issued and outstanding 30,651
Additional paid-in capital 3,033,042
Stock subscriptions receivable (120,000)
(Deficit) accumulated during development stage (2,997,617)
Accumulated other comprehensive income -
foreign exchange translation losses (3,429)
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(57,353)
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$ 1,347,209
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5
MODERNGROOVE ENTERTAINMENT, INC.
(Formerly Barrington Laboratories, Inc.)
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
AND FOR THE PERIOD SEPTEMBER 20, 1999 (INCEPTION) TO JUNE 30, 2002
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
September 20,
Three months ended Six months ended 1999
June 30, June 30, (Inception) to
--------------------- --------------------- June 30,
2002 2001 2002 2001 2002
---------- ---------- ---------- ---------- --------------
(cumulative)
Revenue $ - $ - $ - $ - $ -
---------- ---------- ---------- ---------- --------------
Costs of services
and operating
expenses:
Advertising and
promotion - 197,214 - 208,149 243,494
Contractor fees - - - 90,806 342,509
Depreciation and
amortization - 44,047 - 86,311 307,049
Research and
development - - - 40,533 376,136
General and
administrative - 162,957 - 542,501 1,714,358
---------- ---------- ---------- ---------- --------------
- 404,218 - 968,300 2,983,546
---------- ---------- ---------- ---------- --------------
Other (expenses):
Interest expense - (9,554) - (9,554) (9,554)
---------- ---------- ---------- ---------- --------------
- (9,554) - (9,554) (9,554)
---------- ---------- ---------- ---------- --------------
Net (loss) $ - $(413,772) $ - $(977,854) $ (2,993,100)
========== ========== ========== ========== ==============
Weighted average
number of common
shares outstanding-
basic and fully
diluted 30,650,700 30,290,144 30,650,700 30,471,418
========== ========== ========== ==========
Net (loss) per share-
basic and fully
diluted $ 0.00 $ (0.01) $ 0.00 $ (0.03)
========== ========== ========== ==========
6
MODERNGROOVE ENTERTAINMENT, INC.
(Formerly Barrington Laboratories, Inc.)
(a Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
AND FOR THE PERIOD SEPTEMBER 20, 1999 (INCEPTION) TO JUNE 30, 2002
(Expressed in US Dollars)
(Unaudited)
CONSOLIDATED STATEMENT OF CASH FLOWS
September 20,
Six months ended 1999
June 30, (Inception) to
------------------- June 30,
2002 2001 2002
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(cumulative)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ - $(977,854) $ (2,997,617)
Depreciation and amortization expense - 86,311 307,049
Shares issued for consulting services - 194,334 583,000
Adjustments to reconcile net (loss) to
net cash (used) by operating activities:
(Increase) decrease in receivables - 5,312 (3,992)
(Increase) decrease in prepaid expenses - (112,351) (116,104)
Increase (decrease) in accounts payable - 280,646 307,047
Increase (decrease) in other accrued
liabilities - 414,601 454,488
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Net cash (used) by operating activities - (109,001) (1,466,129)
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CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired upon reverse acquisition - 18,923 18,923
Purchase of fixed assets - (12,436) (606,854)
Software development costs - (492,207) (701,974)
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Net cash (used) by investing activities - (485,720) (1,289,905)
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CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock - - 250,000
Contributions of stockholder - - 1,864,195
Bank overdraft - (49,579) 4,555
Line of credit - 298,660 186,477
Loan payable - related party - 249,026 451,995
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Net cash provided by financing activities - 498,107 2,757,222
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Net (decrease) increase in cash - (96,614) 1,188
Foreign exchange effect on cash - (1,281) (1,188)
Cash - beginning - 100,155 -
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Cash - ending $ - $ 2,260 $ -
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Supplemental disclosures:
Interest paid $ - $ - $ -
======= ========== ==============
Income taxes paid $ - $ - $ -
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Non-cash transactions:
Shares issued for prepaid consulting
services less $194,334 charged to
expense during the period $ - $ 388,666 $ 291,499
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7
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MODERNGROOVE ENTERTAINMENT, INC.
(formerly Barrington Laboratories, Inc.)
(A development stage company)
Notes to Consolidated Financial Statements
(Expressed in US Dollars)
June 30, 2002
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BASIS OF PRESENTATION AND ABILITY TO CONTINUE AS A GOING CONCERN
The consolidated interim financial statements included herein, presented in
accordance with United States generally accepted accounting principles and
stated in US dollars, have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate
to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that
these consolidated interim financial statements be read in conjunction with
the financial statements of the Company and Modern Groove Entertainment
International, Inc. for the year ended December 31, 2001 and notes thereto
included in the Company's 10-KSB annual report. The Company follows the same
accounting policies in the preparation of interim reports.
Results of operations for the interim periods are not indicative of annual
results.
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. As at June 30, 2002, the Company
has not recognized revenue to date and has accumulated operating losses of
approximately $2.8 million since inception. The Company's ability to continue
as a going concern is contingent upon the successful completion of additional
financing arrangements, the development of its interactive entertainment
products, and its ability to achieve and maintain profitable operations.
Management plans to raise equity capital to finance the operating and capital
requirements of the Company. It is management's intention to raise new equity
financing. Amounts raised will be used for further development of the
Company's products, to provide financing for marketing and promotion, to secure
additional property and equipment, and for other working capital purposes.
While the Company is expending its best efforts to achieve the above plans,
there is no assurance that any such activity will generate funds that will be
available for operations.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include any
adjustments that might arise from this uncertainty.
BANKRUPTCY PROCEEDINGS
On April 12, 2002, the Canadian Imperial Bank of Commerce, Vancouver, British
Columbia filed against ModernGroove Entertainment, Inc., a petition with the
Supreme Court of British Columbia to be adjudged bankrupt, under Canadian
Bankruptcy Code, British Columbia, Bankruptcy Division, Department of Consumer
and Corporate Affairs, designated with the Vancouver Registry as Case No.
225054VA02. They state in their Bankruptcy Petition that "Moderngroove
Entertainment, Inc., is justly and truly indebted to us in the sum of
$304,482.40 together with interest calculated form February 8, 2002 and costs."
The Canadian corporation has ceased operations in Canada. The U.S. Company
will continue to operate in its ordinary course of business, as it has no
debt. The Company will prepare a plan of reorganization.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
Moderngroove is a Nevada corporation with business offices in Vancouver,
British Columbia. It carried on business through the British Columbia
subsidiary of its wholly-owned subsidiary, Modern Groove Entertainment
Inc., a Nevada corporation which maintained offices in Vancouver, BC.
The Company was formed in Nevada on August 6, 1998 under the name Barrington
Laboratories, Inc. On January 2, 2001, the Company acquired all the issued
and outstanding shares of Modern Groove Entertainment International, Inc.
("International"). In connection with the acquisition, the Company changed
its corporate name to Moderngroove Entertainment Inc. The acquisition was
completed by share exchange reorganization whereby we acquired all the issued
and outstanding shares of International in exchange for the issuance of 26
million shares of our common stock. Moderngroove carried on operations
through its British Columbia subsidiary, Modern Groove Entertainment Inc.
ModernGroove Entertainment, Inc. currently has no revenues from operations.
The company's original business strategy was focused on developing videogames
for next-generation videogame consoles, such as the Sony PlayStation 2.
Based on adverse market conditions and the cost to develop software programs,
the Company ran out of money and the former management did not focus on
completing its original business plan. The Company is currently assessing
various options and other business strategies.
On April 12, 2002, the Canadian Imperial Bank of Commerce, Vancouver, British
Columbia filed against ModernGroove Entertainment, Inc., a petition with the
Supreme Court of British Columbia to be adjudged bankrupt, under Canadian
Bankruptcy Code, British Columbia, Bankruptcy Division, Department of
Consumer and Corporate Affairs, designated with the Vancouver Registry as Case
No. 225054VA02. They state in their Bankruptcy Petition that "Moderngroove
Entertainment, Inc., is justly and truly indebted to us in the sum of
$304,482.40 together with interest calculated form February 8, 2002 and costs."
The Canadian corporation has ceased operations in Canada. The U.S. Company
will continue to operate in its ordinary course of business as it has no debt.
The Canadian Division plans to prepare a plan of reorganization.
Management currently believes the Company needs to identify and complete an
acquisition, merger or other transaction that will enhance shareholder value.
The Company's acting President is investigating potential business
opportunities, as authorized by the Board of Directors. The Board has placed
no limitations on the type of business or industry to consider. Currently,
MODG has no plans, agreements, arrangements or understandings, written or
oral, with respect to any acquisition, merger or similar transaction. No
assurances can be given as to MODG's ability to identify and complete a
transaction by any given date or as to the nature of the business or
profitability of the company if a transaction is completed. A proposed
transaction could be subject to significant regulatory, business, financing
and other contingencies and might require shareholder and other approvals.
9
The Company has a limited operating history upon which an evaluation of
the Company, its current business and its prospects can be based, each of
which must be considered in light of the risks, expenses and problems
frequently encountered by all companies in the early stages of development,
and particularly by such companies entering new and rapidly developing
markets. The Company's prospects must be considered in light of the risks,
uncertainties, expenses and difficulties frequently encountered by companies
in their early stages of development. Such risks include, without imitation,
the lack of broad acceptance of the company's products and the inability of
the Company to generate revenues, the company's inability to anticipate and
adapt to a developing market, the failure of the company's infrastructure,
changes in laws that adversely affect the company's business, the ability
of the Company to manage its operations, including the amount and timing of
capital expenditures and other costs relating to the expansion of the
company's operations, the introduction and development of different or more
extensive communities by direct and indirect competitors of the Company,
including those with greater financial, technical and marketing resources,
the inability of the Company to attract, retain and motivate qualified
personnel and general economic conditions.
Going Concern - As at June 30, 2002, the Company has not recognized revenue
to date and has accumulated operating losses of approximately $2,993,100 since
inception. The Company's ability to continue as a going concern is contingent
upon the successful completion of additional financing arrangements and its
ability to achieve and maintain profitable operations. Management plans to
raise equity capital to finance the operating and capital requirements of the
Company. There is no assurance that any such activity initiated by the Company
will generate funds that will be available for operations. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern.
The Company had no dilutive common stock equivalents such as stock options or
warrants as of June 30, 2002.
Results of Operations
---------------------
The following is a limited discussion of the results of operations for the
six months ended June 30, 2002 as the company is currently inactive. As
a developmental stage Company, the Company has yet to generate any revenues.
In addition, the Company does not expect to generate any revenues in the
foreseeable future. During the six month period ended, June 30, 2002,
the Company had no revenues nor expenses, this compares to no revenues and
$977,854 in expenses for the same period last year. The Company has an
accumulated net loss of $2,993,100 since its inception on September 20, 1999.
As stated, during the Second Quarter of this calendar year the Company has
been inactive. Miscellaneous expenses to keep the Company active were
covered by the acting President of the Company, who does not expect
reimbursement for said expenses. The Company does not have any material
commitments for capital expenditures.
10
Plan of Operation
-----------------
Without any operating business or material assets, the Company will remain
inactive until such time as management identifies strategic opportunities,
finds additional funding, completes an acquisition of, or merger with an
operating company. No assurances can be given as to Company's ability to
identify and complete a transaction by any given date or as to the nature of
the business or profitability of the company if a transaction is completed.
A proposed transaction could be subject to significant regulatory, business,
financing and other contingencies and might require shareholder and other
approvals.
Liquidity and Capital Resources
-------------------------------
At June 30, 2002, the Company had no working capital. It is currently
solely dependent on its acting president who advanced the Company funding
during its software development stage.
The Company believes that any available cash or available borrowings which
may be available or obtained through credit facility or from individuals, may
not be sufficient to meet operating needs and capital expenditure requirements
in the immediate future.
Going forward, significant cash flow will be needed to pay the restructuring
costs to implement any proposed business plan and to fund losses until the
Company can become profitable. While there is no assurance that funding will
be available to execute any proposed plan, the Company is continuing to seek
financing to support its turnaround efforts.
The Company's independent public accountants have included a "going concern"
emphasis paragraph in their audit report accompanying the December 31, 2001,
financial statements. The paragraph states that the Company's recurring
losses and its inability to secure working capital financing raise substantial
doubt about the Company's ability to continue as a going concern and cautions
that the financial statements do not include adjustments that might result
from the outcome of this uncertainty.
Existing cash flow is not expected to be sufficient to cover liquidity
requirements after June 30, 2002, and the Company is currently does not have
adequate funds to operate its business. There can be no assurance that any
long-term restructuring alternative can be successfully initiated or
implemented during this calendar year.
11
Market For Company's Common Stock
---------------------------------
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 on December 18, 2000, 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.
Dividend Policy
---------------
The Company has never paid or declared any dividend on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future.
Forward-Looking Statements
--------------------------
This Form 10-QSB includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in
this Form 10-QSB which address activities, events or developments which the
Company expects or anticipates will or may occur in the future, including
such things as future capital expenditures (including the amount and nature
thereof), finding suitable merger or acquisition candidates, expansion and
growth of the Company's business and operations, and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and its
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate in the
circumstances. However, whether actual results or developments will conform
with the Company's expectations and predictions is subject to a number of
risks and uncertainties, general economic market and business conditions;
the business opportunities (or lack thereof) that may be presented to and
pursued by the Company; changes in laws or regulation; and other factors,
most of which are beyond the control of the Company.
Consequently, all of the forward-looking statements made in this Form 10-QSB
are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have the
expected consequence to or effects on the Company or its business or
operations. The Company assumes no obligations to update any such forward-
looking statements.
12
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
On April 12, 2002, the Canadian Imperial Bank of Commerce, Vancouver, British
Columbia filed against ModernGroove Entertainment, Inc., a petition with the
Supreme Court of British Columbia to be adjudged bankrupt, under Canadian
Bankruptcy Code, British Columbia, Bankruptcy Division. They state in their
Bankruptcy Petition that "Moderngroove Entertainment, Inc., is justly and
truly indebted to us in the sum of $304,482.40 together with interest
calculated form February 8, 2002 and costs."
The Company from time to time may be involved in litigation incident to the
conduct of its business. Certain litigation with third parties and
present and former shareholders of the Company are routine and incidental.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Defaults upon Senior Securities
On April 12, 2002, the Canadian Imperial Bank of Commerce, Vancouver, British
Columbia filed against ModernGroove Entertainment, Inc., a petition with the
Supreme Court of British Columbia to be adjudged bankrupt, under Canadian
Bankruptcy Code, British Columbia, Bankruptcy Division, Department of
Consumer and Corporate Affairs, designated with the Vancouver Registry as Case
No. 225054VA02. They state in their Bankruptcy Petition that "Moderngroove
Entertainment, Inc., is justly and truly indebted to us in the sum of
$304,482.40 together with interest calculated form February 8, 2002 and
costs." The Canadian corporation has ceased operations in Canada.
ITEM 4. Submission of Matters to a Vote of Security Holders
During the quarter ended June 30, 2002, no matters were submitted to the
Company's security holders.
ITEM 5. Other Information
On April 19, 2002, shareholders representing in excess of fifty-one (51)
percent of the common stock voted to remove Mr. John Stroppa, as President
and Director of the Company. He was removed due to his failure to follow
the company's original business plan, which was prepared and presented by
John Stroppa to individuals who invested funds in the Company with the belief
the business plan would be executed. The special shareholder meeting was
organized by Mr. Arthur W. Skagen, solicitor, shareholder and largest
unsecured creditor to the Company. Additionally, under Nevada law, NRS
78.335(5) the shareholders voted to fill the Director vacancy with Mr.
Arthur W. Skagen. He will hold office for the unexpired term of his
predecessor and/or until his successor is elected and qualified.
13
ITEM 6. 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
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(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)
(13) Annual or Quarterly Reports - Form 10-Q, incorporated herein by
reference.
----------
(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) Previously filed as an exhibit to our amended annual report on
Form 10KSB/A, which was filed on April 10, 2001, and incorporated
herein by reference.
(b) REPORTS ON FORM 8-K
Moderngroove filed a Current Report dated April 12, 2002, on Form 8-K
containing information pursuant to Item 1 ("Changes in Control of Registrant")
entitled, "Change of officers;" Item 3 ("Bankruptcy or Receivership"); Item 6
("Resignations of Registrant's Directors"), entitled "Newly appointed director
to fill vacancy"; and Item 7 ("Canadian Bankruptcy Petition and Notice of
Hearing of Petition.")
14
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: July 24, 2002 Moderngroove Entertainment, Inc.
--------------------------------
Registrant
By: /s/ Arthur W. Skagen
-----------------------
Arthur W. Skagen
Acting President/Secretary
15