UNITED STATES
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 September 30, 2000
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|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 000-26169
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Neo Modern Entertainment Corp.
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(Exact name of small business issuer as specified in its charter)
California 95-4627285
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(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
442 N. La Cienega Blvd., Suite 206, West Hollywood, CA, 90048
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(Address of principal executive offices)
310-652-7556
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
The number of shares outstanding of the issuer's common stock, par value $.001
per share, as of November 8, 2000 was 11,235,435.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statement: 3
Balance Sheet as of September 30, 2000 (Unaudited) F-1
Statement of Operations for the Three Months Ended F-2
September 30, 2000 and September 30, 1999 (Unaudited)
Statement of Stockholder's Equity (Unaudited) F-3
Statement of Cash Flows for the Three Months Ended F-4
September 30, 2000 (Unaudited)
Notes to Financial Statements F-5-7
Item 2. Management's Discussion and Analysis Financial 4
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 5
SIGNATURES 6
2
<PAGE>
NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-QSB that
are not statements of historical fact constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These statements involve risks and uncertainties
that may cause actual results to differ materially from those in such
statements.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
The accompanying interim unaudited financial statements have been prepared
in accordance with the instructions to Form 10-QSB and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included, and the disclosures are adequate to make the
information presented not misleading. Operating results for the three months
ended September 30, 2000, are not necessarily indicative of the results that may
be expected for the year ended June 30, 2001. These statements should be read in
conjunction with the financial statements and notes thereto included in the
Annual Report on Form 10-KSB (filed with the Securities and Exchange Commission)
for the year ended June 30, 2000.
3
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
BALANCE SHEET
SEPTEMBER 30,
<TABLE>
<CAPTION>
2000
---------
<S> <C>
ASSETS
Current assets:
Cash $ --
Subscription Recievable
---------
Total Current Assets --
---------
Other assets:
Completed film less accumulated amortization of $365,622
less $90,000 Note to Deluxe (Note 7) 19,626
Organization costs less accumulated amortization of $2,900 1,100
Projects in process (Note 7) 342,046
---------
Total assets $ 362,772
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 75,147
Long term liabilities (Note 10) 215,785
---------
Total Liabilities 290,932
---------
Stockholders' equity:
Common stock $.001 par value; shares authorized 100,000,000 reserved for
stock options 12,276,206, issued and outstanding 11,235,435 11,235
Preferred stock $.001 par value; authorized 20,000,000
shares; none issued and outstanding,
Paid-in capital 220,422
Retained earnings (deficit) (159,817)
---------
Total stockholders' equity 71,840
---------
Total liabilities and stockholders' equity $ 362,772
=========
See accompanying notes to the financial statements.
</TABLE>
F-1
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Net sales (Notes 4 and 10) $ 374
----------- -----------
Costs and expenses:
Amortization 574 200
Administrative and general 5,447 8,260
Interest expense 5,000 4,500
----------- -----------
Total costs and expenses 11,021 12,960
----------- -----------
Loss before income taxes (10,647) (12,960)
Income tax (benefit) (Note 10) -- --
----------- -----------
Net income (loss) $ (10,647) $ (12,960)
=========== ===========
Income (Loss) per share:
Basic (0.001) (0.002)
Number of shares used in the per share calculation:
Basic and diluted 9,658,845 8,082,255
-- --
</TABLE>
See accompanying notes to the financial statements.
F-2
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30 AND THE PERIOD ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
Restricted Common Stock Common Stock
---------------------------- -----------------------------
Number Number
of Shares Amount of Shares Amount
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, June 30, 1999 4,218,780 $ 4,219 953,445 $ 953
Issuance of restricted shares for cash 20,000 20
Issuance of restriced shares for services 207,234 207
Filmart Stock options excercised 5,160,936 5,161
Stock issuance cost
Net loss for the year ended
June 30, 2000
---------- ----------- ----------- -----------
Balance June 30, 2000 9,606,950 9,607 953,445 953
---------- ----------- ----------- -----------
Issuance of restriced shares for services 24,000 24
Filmart Stock options excercised 651,040 651
Stock issuance cost
Net loss for the period ended
June 30, 2000
---------- ----------- ----------- -----------
Balance September 30, 2000 10,281,990 $ 10,282 953,445 $ 953
========== =========== =========== ===========
<CAPTION>
Convertible Preferred
-----------------------------
Number Paid-In Retained Stockholders'
of Shares Amount Capital Earnings Equity
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, June 30, 1999 -- $ -- $ 261,603 $ (204,670) $ 62,105
Issuance of restricted shares for cash 9,980 10,000
Issuance of restriced shares for services (207) --
Filmart Stock options excercised (5,161) --
Stock issuance cost (51,636) (51,636)
Net loss for the year ended
June 30, 2000 55,500 55,500
----------- ----------- ----------- ----------- -----------
Balance June 30, 2000 -- -- 214,579 (149,170) 75,969
----------- ----------- ----------- ----------- -----------
Issuance of restriced shares for services (24) --
Filmart Stock options excercised 5,967 6,618
Stock issuance cost (100) (100)
Net loss for the period ended
June 30, 2000 (10,647) (10,647)
----------- ----------- ----------- ----------- -----------
Balance September 30, 2000 -- $ -- $ 220,422 $ (159,817) $ 71,840
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED SEPTEMBER 30,
2000
--------
Cash flows from operating activities:
Net income (loss) $(10,647)
Ammortization of Film Cost & Organization Expense 574
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Changes in assets and liabilities:
(Increase) Decrease in subscription recievables 7,000
Trade payables 1,196
--------
Net cash (used in) operating activities (1,877)
--------
Cash flows from investing activities:
Film costs
Stock Issuance Cost (4,068)
Proceeds from issuance of stock 651
--------
Net cash provided by (used in) investing activities (3,417)
--------
Cash flows from financing activities:
Borrowing (repayment) of long-term debt 5000
--------
Net cash provided by (used in) financing activities 5000
Net increase (decrease) in cash and cash equivalents (294)
Cash and cash equivalents at beginning of year 294
--------
Cash and cash equivalents at end of year $ --
========
Supplemental disclosure of cash flow information:
Interest paid $ --
========
Income taxes paid $ --
========
See accompanying notes to the financial statements.
F-4
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
(A Development Stage Company)
Notes to Financial Statements
Note 1 Organization
The company was incorporated on March 19, 1997, under laws of the state of
California. The Company is engaged in the development, production and
distribution of motion pictures.
Note 2 Method of Accounting
Assets, liabilities, revenues and expenses are recorded under the accrual method
of accounting for both financial statements and income tax purposes.
Note 3 Accounting 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, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from those estimates.
Note 4 Film Library and Projects under Development
Film Library and projects in progress are stated at the lower of amortized cost
or market. Upon completion, cost are amortized on an individual production basis
in the proportion of current gross revenues divided by the Management's estimate
of total gross revenues with such estimates being reviewed at least quarterly
pursuant to FASB 53.
Note 5 Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards SFAS) No. 109 "Accounting for Income Taxes". The Statement
employs an asset and liability method of accounting for income taxes. Under the
asset and liability method, deferred income taxes are recognized for tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Under
SFAS No. 109, the effect on deferred income taxes of a change in tax rates is
recognized income in the period that includes the enactment date.
Note 6 Development Stage Company
Since the inception, the Company has been primarily involved in raising capital,
commencing production schedules for various projects under progress, and
acquiring services in the field of legal, financial, and entertainment to
promote the company and develop it's future infrastructure.
The Company has devoted substantially all of its efforts toward establishing the
entity, by developing various projects and operating the day to day activities.
The Company has not generated any significant revenues since its inception. Upon
development, release and distribution of motion pictures, more steady revenue
can be expected. Theses financial statements comply with the reporting
requirements under SFAS No. 7 for Development Stage Companies
F-5
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
(A Development Stage Company)
Notes to Financial Statements
Note 7 Film Library and Projects in Progress
On May 1, 1997 the Company acquired the rights, interests, and titles to certain
feature motion pictures and projects in progress from Filmart, Inc., Rafael
Zelinsky and related companies subject to the related liabilities. The Company
incurred additional costs for Projects in Progress, which were capitalized
pursuant to FASB 53. As of September 30, 2000 the cost for the completed film
"Fun" amounted to $465,248, accumulated amortization was $365,622 for 2000 less
amounts payable from proceeds to Deluxe of $90,000 for 2000, leaving a net
balance of $19,626.
The cost of the film in progress "Bohemia" is $342,046 with an estimated cost to
complete of $200,000 ($100,000 for the completion of principal photography and
$100,000 for post production).
Note 8 Organization Cost
Organization cost is amortized ratably over a 60 months period.
Note 9 Accounts Payable
Account payable includes project development costs, which consists of expenses
incurred but not paid. The accounts payable includes liabilities and obligation
acquired as part of the agreement with Filmart, Inc., as explained in Note 7, in
addition to the Company's current payable.
Note 10 Long Term Payable
Long term debt consist of the following as of September 30, 2000:
2000
-------
Rafael Zelinsky & Filmart Inc.
including interest @ prime plus one 176,585
Other plus interest @
prime plus one 39,200
-------
Total Long Term Liabilities 215,785
Note 11 Capital Stock
Due to limited cash resources, the Company engaged various individuals or
entities to provide legal, financial, creative, script writing and
administrative services by issuing common stock.
Note 12 Compensation
On October 31, 1999 the Board of Directors ratified an employment contract to
the President/CEO for a term of seven years starting from March 21, 1997 calling
for the issuance of 18,088,182 in stock options at par value exercisable
5,811,976 shares by September 30, (which were exercised), the balance
exercisable every 90 days incrementally through March 21, 2004. The contract
also calls for compensation starting March 21, 1997, of $2,000 per month
increasing by 25% each year for seven years to be paid plus 10% simple interest
when funds are available in excess of operating needs as approved by the Board
of Directors. No salary has been paid to date. In addition the other 2 members
of Board of Directors will receive 8000 shares per month until November 2000.
F-6
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
(A Development Stage Company)
Notes to Financial Statements
Note 13 Commitment & Contingencies
Compensation owed to the President/CEO due to date is $116,240 plus interest.
This will be paid by Board approval (see Note 12).
Note 14 Subsequent Events
Subsequent to the end of the fiscal quarter, Neo Modern Entertainment Corp. and
a privately-held entity in the early stages of e-commerce on the internet
entered into a memorandum of understanding whereby the later would merge into
Neo Modern Entertainment Corp. Although Neo Modern Entertainment Corp. would be
the surviving corporation, the number of shares to be issued to the shareholders
of the other company would result in control passing and accordingly, this would
be regarded as a "reverse acquisition" of Neo Modern by the other entity. The
acquiring entity shall pay to Neo Modern sums necessary to satisfy amounts due
to outside creditors. The transaction is subject to the execution and
implementation of legally binding formal agreements.
F-7
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operation:
We have had a limited operational history over our last three-and-a-half
years with no appreciable revenues and may be regarded as a development stage
company. We have completed partial principal photography on our first low-budget
feature film tentatively entitled "Bohemia", and our plan calls for finishing
the film if and when we have raised sufficient capital for "Bohemia" as well as
one or more of the micro-budget films. The modest revenues received by us so far
have been from the exploitation of our film library and are utilized towards
operating costs and to pay down a portion of the debt against the film library.
We are continuing to seek sources of financing and will also consider
possible business combinations. See Note 14 to our Financial Statements.
Liquidity & Capital Resources:
We have historically raised capital to fund our operations by the sale of
our common stock. For the immediately foreseeable future, we will be required to
sell common stock or other equity securities to raise capital to fund our
operations. There can be no assurance that such capital investment will be
available on terms that will be acceptable to us. Furthermore, the sale of such
capital will further dilute the interest of current stockholders. Other capital
may also be raised through loans, deferments of goods and services, pre-sales of
rights and/or co-financing with other entities.
Year 2000 Issues:
We have reviewed and tested our internal software programs and computer
systems. We have determined that there are no significant Year 2000 issues
within our programs and systems. We are not aware of any material problems with
our vendors or suppliers. We do not anticipate incurring material expenses or
experiencing any material operational disruptions as a consequence of Year 2000
issues.
4
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(1) Calculation of Earnings Per Share - Exhibit 11
(2) EDGAR Financial Data Schedule - Exhibit 27
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September
30, 2000.
5
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 9, 2000 Neo Modern Entertainment Corp.
------------------------------
(Registrant)
By: /s/ Rafal Zielinski
-------------------------------
Rafal Zielinski, President
(principal executive officer and
financial and accounting officer)
6
