SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended October 31, 2000
----------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
000-31117
------------------------
(Commission File Number)
GRAND ENTERTAINMENT & MUSIC (G.E.M), INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Florida 65-0941045
------------------------------- ---------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
Number)
4862 Mayfair Avenue, Montreal, Quebec H4V 2E7
---------------------------------------------
(Address of Principal Executive Offices)
(514) 328-9348
-------------------------------
(Registrant's Telephone Number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's classes
of common stock, as of the latest practicable date.
17,683,000 SHARES OF COMMON STOCK, OF $.001 PAR VALUE WERE ISSUED AT
DECEMBER 19, 2000.
<PAGE>
GRAND ENTERTAINMENT & MUSIC (G.E.M), INC.
INDEX
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Interim Consolidated Balance Sheet - October 31,
2000(Unaudited).
Interim Consolidated Statement of Operations - October 31,
2000 (Unaudited).
Interim Consolidated Statement of Shareholders' Equity -
October 31, 2000 (Unaudited)
Interim Consolidated Statement of Cash Flows - October 31,
2000 (Unaudited).
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securityholders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 2
GRAND ENTERTAINMENT & MUSIC (G.E.M), INC.
PART I - FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
<PAGE> 3
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2000
<PAGE> 4
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
Table of Contents
Exhibit
Review Engagement Report
Interim Consolidated Balance Sheet......................... A
Interim Consolidated Statement of Retained Earnings........ B
Interim Consolidated Statement of Earnings................. C
Interim Consolidated Statement of Cash Flows............... D
Notes to Interim Consolidated Financial Statements
<PAGE> 5
REVIEW ENGAGEMENT REPORT
To the Shareholders of
Grand Entertainment & Music G.E.M. Inc.
We have reviewed the consolidated balance
sheet of Grand Entertainment & Music
G.E.M. Inc. as at October 31, 2000 and
the consolidated statements of retained
earnings, earnings and cash flows for the
period then ended. Our review was made
in accordance with generally accepted
standards in the United Stated of America
for review engagements and accordingly
consisted primarily of enquiry,
analytical procedures and discussion
related to information supplied to us by
the Company.
A review does not constitute an audit and
consequently we do not express an audit
opinion on these consolidated financial
statements.
Based on our review, nothing has come to
our attention that causes us to believe
that these consolidated financial
statements are not, in all material
respects, in accordance with generally
accepted accounting principles in the
United States of America.
Chartered Accountants
Montreal, Quebec
December 15, 2000
- 1 -
<PAGE> 6
Exhibit A
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
INTERIM CONSOLIDATED BALANCE SHEET
As at October 31, 2000
(UNAUDITED)
ASSETS
US Dollars
----------
$
CURRENT
Accounts receivable 141,263
Record masters and preproduction costs
(notes 1 and 2) 714,216
---------
855,479
CAPITAL ASSETS (notes 1 and 3) 150,801
(net of accumulated amortization of $107,796)
WEBSITE DEVELOPMENT COSTS ((note 1) 21,890
---------
1,028,170
=========
LIABILITIES
CURRENT
Bank demand loan (note 4) 47,323
Accounts payable and accrued liabilities 76,176
Current portion of government loan payable 13,702
--------
137,201
GOVERNMENT LOAN PAYABLE (note 1) 67,876
LOAN PAYABLE - OTHERS (note 5) 18,667
FUTURE INCOME TAXES PAYABLE (note 6) 50,481
--------
274,225
SHAREHOLDER'S EQUITY
Common stock, $.001 par value
authorized 50,000,000 shares issued
and outstanding at October 31, 2000
17,683,000 shares 17,683
ADDITIONAL PAID IN CAPITAL 623,249
RETAINED EARNINGS 113,013
753,945
---------
1,028,170
---------
See accompanying notes
Approved on behalf of the board:
_______________________________ Director
<PAGE> 7
Exhibit B
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
INTERIM CONSOLIDATED STATEMENT OF RETAINED EARNINGS
For the period ended October 31, 2000
(UNAUDITED)
US Dollars
May 1, 2000
to
October 31,
2000
-----------
$
Retained earnings - beginning of period 101,928
Net earnings 11,085
-------
RETAINED EARNINGS - END OF PERIOD 113,013
-------
See accompanying notes
<PAGE> 8
Exhibit C
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
INTERIM CONSOLIDATED STATEMENT OF EARNINGS
For the period ended October 31, 2000
(UNAUDITED)
US Dollars
May 1, 2000
to
October 31,
2000
----------
$
REVENUE 45,274
COST OF SALES 9,055
----------
GROSS PROFIT 36,219
----------
EXPENSES
Travel, promotion and advertising 3,494
Office, telephone and rent 8,451
Professional fees 1,149
Interest and bank charges 944
Amortization of capital assets 5,386
----------
19,424
----------
Earnings before provision for income taxes 16,795
PROVISION FOR INCOME TAXES
Future income taxes 5,710
----------
NET EARNINGS FOR THE PERIOD 11,085
==========
NET EARNINGS PER SHARE .00
----------
WEIGHTED AVERAGE SHARES OUTSTANDING 17,683,000
==========
See accompanying notes
<PAGE> 9
Exhibit D
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
For the period ended October 31, 2000
(UNAUDITED)
US Dollars
May 1, 2000
to
October 31,
2000
----------
$
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings for the period 11,085
Add (deduct) non-cash items:
Amortization 10,772
Future income taxes 5,710
Net changes in non-cash working capital:
Accounts receivable 46,285
Record masters and preproduction costs (97,396)
Accounts payable and accrued liabilities (22,226)
----------
Net cash used in operating activities (45,770)
CASH FLOWS FROM FINANCING ACTIVITIES
Loan payable - others 18,667
Decrease in bank demand loan (92,519)
Increase in bank demand loan 119,622
----------
Net cash provided by financing activities 45,770
----------
INCREASE IN CASH -
Cash - beginning of period -
CASH - END OF PERIOD -
==========
See accompanying notes
<PAGE> 10
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
1. ACCOUNTING POLICIES
a) History and Organization of the Company
The Company was organized November 19, 1998, under the Canada
Business Corporations Act.
b) Principle of the Consolidated Financial Statements
The consolidated financial statements include the accounts of:
Grand Entertainment & Music G.E.M. Inc.
160662 Canada Inc. (Hitt Records)
2867-0453 Quebec Inc. (Mint Music International)
3535924 Canada Inc. (Cherry Studio Productions)
All interCompany transactions and accounts have been
eliminated in consolidation.
c) Accounts Receivable
Management believes that all accounts receivable as of
October 31, 2000 were fully collectible; therefore, no
allowance for doubtful accounts were recorded.
d) Revenue Recognition
Revenue is derived from sale of distribution rights,
publishing rights and equity in production and records sales.
Revenue is recognized as earned when the records are completed
and delivered, when amounts are due from the exhibitor and
when a contract is secured that irrevocably transfers
distribution rights, or publishing rights to a licensee or
equity to an investor, and there is reasonable assurance of
collectability of proceeds.
<PAGE> 11
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
1. ACCOUNTING POLICIES (Cont'd)
e) Record Masters and Preproduction Costs
Adaption of Statement of Accounting Standard No. 50
In November 1981, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No.
50, "Financial reporting in the Record and Music Industry"
(SFAS 50). SFAS 50 accounts for record masters and
preproductions costs as follows:
Record masters represents the unamortized costs of the record
masters which have been produced by the Company. Such costs
include all production, print and advertising costs which are
expected to be recovered from future revenues, net of
estimated future liabilities related to the product. The
Company also has interest in record masters that are fully
amortized, the values of which have not been reflected in the
consolidated financial statements.
Amortization is determined based on the ratio of current
revenues earned from the record masters to expected gross
future revenues. Based on management's estimates of gross
future revenues as at October 31, 2000, it is expected that
the record masters will be absorbed principally over the next
ten years.
Record masters are written down to the net recoverable amount
if the investment is greater than the net recoverable amount.
Net recoverable amount is defined as the total future revenues
expected to be earned from the record masters net of future
costs.
Preproduction costs represent expenditures made on projects
prior to production. Advances or contributions received from
third parties to assist in development are deducted from these
expenditures. Upon commencement of production, preproduction
costs are charged to production. Preproduction costs which
have not been set for production and are held for more than
five years are ultimately expensed. Preproduction costs are
written off when determined not to be recoverable.
In managements opinion, record masters and preproduction costs
have been classified as a current assets because management
can either sell the distribution rights for a limited period
of time or management can sell over a short period of time
the individual masters.
<PAGE> 12
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
1. ACCOUNTING POLICIES (Cont'd)
f) Government Loans and Incentives Payable
The Company has access to several government programs that
are designed to assist record production and distribution in
Canada and around the world. The Company has two such
programs in operation and are repayable as follows:
$
Government Loan Payable
- repayable starting December 31, 1998 up to
December 31, 2007 at 3% of its worldwide
sales non-interest bearing. 33,068
Government Loan Payable
- repayable as follows:
December 31, 2000 - 20% of the loan
December 31, 2001 - 25% of the loan
December 31, 2002 - 25% of the loan
December 31, 2003 - 30% of the loan
- non-interest bearing 48,510
------
81,578
Less: Current portion (13,702)
------
Long-term portion 67,876
======
Capital repayments over the next five years.
$
April 2001 13,702
April 2002 16,127
April 2003 17,128
April 2004 20,553
April 2005 7,500
g) Capital Assets
Capital assets are carried at cost less accumulated
amortization. Amortization is provided primarily using the
following method and annual rates:
Intangibles - Diminishing balance - 7%
Computer hardware and software - Diminishing balance - 30%
Furniture and fixtures - Diminishing balance - 20%
Production equipment - Diminishing balance - 20%
Leasehold improvements - Straight-line - 5 years
Rolling stock - Diminishing balance - 30%
<PAGE> 13
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
1. ACCOUNTING POLICIES (Cont'd)
h) Website Development Costs
Website development costs are capitalized as incurred and
will be amortized over its expected useful live which
management estimates to be three years. To date all costs
have been capitalized as the website is still under
development and is not available for commercial use yet.
i) Adoption of Statement of Accounting Standard No. 128
In February 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
No. 128. "Earnings per Share" (SFAS 128). SFAS 128 changes
the standards for computing and presenting earnings per share
(EPS) and supersedes Accounting Principles Board Opinion No.
15, "Earnings per Share." SFAS 128 replaces the presentation
of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex
capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the
numerator and denominator the diluted EPS computation. SFAS
128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods.
This Statement requires restatement of all prior-period EPS
data presented.
As it is related to the Company, the principal differences
between the provisions of SFAS 128 and previous authoritative
pronouncements are the exclusion of common stock equivalents
in the determination of Basic Earnings per share and the
market price at which common stock equivalents are calculated
in the determination of Diluted Earnings per share.
Basic earnings per common share is computed using the weighted
average number of shares of common stock outstanding for the
period. Diluted earnings per common share is computed using
the weighted average number of shares of common stock and
dilutive common equivalent shares related to stock options
and warrants outstanding during the period.
For the period ended October 31, 2000, primary earnings per
share was the same as basic earnings per share and fully
diluted earnings per share was the same as diluted earnings
per share.
j) Foreign Exchange
Assets and liabilities of the Company which are denominated in
foreign currencies are translated at exchange rates prevailing
at the balance sheet date. Revenues and expenses are
translated at average rates throughout the year.
<PAGE> 14
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
1. ACCOUNTING POLICIES (Cont'd)
k) Use of 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 dates of the
financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results
could differ from those estimates.
l) Dividend Policy
The Company has not yet adopted any policy regarding payment
of dividends. No dividends have been paid since inception.
2. RECORD MASTERS AND PREPRODUCTION COSTS
$
Record masters, net of amortization 554,945
Record masters and preproduction costs in
progress 159,271
-------
714,216
=======
3. CAPITAL ASSETS
Cost Amortization Net
------- ------------ ----
$ $ $
Rolling stock 2,056 667 1,389
Furniture and fixtures 16,381 8,712 7,669
Computer hardware and software 49,772 36,641 13,131
Production equipment 173,717 55,421 118,296
Intangibles 13,113 3,516 9,597
Leasehold improvements 3,558 2,839 719
------- ------- -------
258,597 107,796 150,801
======= ======= =======
4. BANK DEMAND LOAN
The bank demand loan is secured by the personal guarantee of a
director and shareholder and a pledge on the accounts receivable
and a lien on the equipment.
5. LOAN PAYABLE - OTHERS
The loan payable - others is non-interest bearing and has no fixed
repayment terms.
<PAGE> 15
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
6. FUTURE INCOME TAXES PAYABLE
Future income taxes payable arise as a result of timing differences
occurring when amortization of record masters and preproduction costs
differ from amortization rates prescribed for income tax purposes.
For the period from May 1, 2000 to October 31, 2000, the amount of
future income taxes payable recorded in the accounts were $5,710.
7. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional (Deficit)
Common Stock paid-in Retained
Shares Amount Capital Earnings
------ ------ --------- ---------
$ $ $
<S> <C> <C> <C> <C>
November 19, 1998
issued 16,000,000 16,000 191,289 -
Net earnings, November
19, 1998 to April 30,
1999 - - - 38,929
---------- ------ ------- ------
Balance,
April 30, 1999 16,000,000 16,000 191,289 38,929
February 21, 2000
- issued shares in
exchange of 100% of
Grand Entertainment
& Music G.E.M. Inc.
(Canada) 1,683,000 1,683 431,960 -
---------- ------ ------- ------
Balance,
February 21, 2000 17,683,000 17,683 623,249 38,929
Net earnings
May 1, 1999 to
April 30, 2000 - - - 62,999
---------- ------ ------- ------
Balance,
April 30, 2000 17,683,000 17,683 623,249 101,928
Net earnings
May 1, 2000 to
October 31, 2000 - - - 11,085
---------- ------ ------- ------
Balance,
October 31, 2000 17,683,000 17,683 623,249 113,013
========== ====== ======= =======
</TABLE>
<PAGE> 16
GRAND ENTERTAINMENT & MUSIC G.E.M. INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at October 31, 2000
(UNAUDITED)
8. COMMITMENTS
The Company leases premises under leases expiring in May 2001 and
July 2001. Minimum lease payments over the balance of the leases
are as follows:
$
April 2001 21,975
April 2002 3,970
9. FINANCIAL INSTRUMENTS AND RISKS MANAGEMENT
In conducting its business, the Company used various instruments to
manage the risks arising from fluctuations in exchange rates. All
instruments are used for risk management purposes only.
a) Concentration of Credit Risk
The Company's exposure to concentration of credit risk is
limited due to the large number of customers comprising the
Company's customer base and their dispersion across many
geographic locations.
b) Fair Value of Financial Instruments
The fair value of current monetary assets and liabilities
approximates their carrying values as reported in the
consolidated balance sheet due to the relatively short
period to maturity of the instruments.
Due to its floating rate nature, the carrying amount of the
bank term loan approximates its fair value.
10. DILUTIVE FACTORS
The Company has neither debt obligations nor senior equity securities
in circulation having conversion privileges into common stock. There
are no options, warrants, or similar instruments outstanding which
could cause an increase in common stock outstanding. Furthermore,
the Company has not adopted a stock option plan for its directors or
employees which would cause an increase in common stock outstanding.
<PAGE> 17
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-----------------------------------------------------------
INTRODUCTION
The following discussion and analysis includes financial information
from, provides information supplementary and should be read in
conjunction with the Company's Consolidated Financial Statements for the
period of May 1, 2000 to October 31, 2000.
OVERVIEW
The Company was incorporated as Future Projects II Corp. under the laws
of the state of Florida on June 3, 1997. On February 21, 2000, The
Company exchanged 16,000,000 shares of its common stock for 100% of the
issued and outstanding shares of Grand Entertainment and Music (G.E.M.),
Inc. (The "Original GEM") effectuating a merger and change of control
such that the Original GEM is a wholly-owned subsidiary of the Company.
The original GEM was incorporated on November 19, 1998 in Canada under
the Canada Business Corporations Act. On February 24, 2000, the Company
amended its Articles of Incorporation to officially change its name from
Future Projects II Corp. to Grand Entertainment & Music (G.E.M.) Inc.
("GEM" or the "Company".)
The Company is an independent music producer, which produces, promotes
and markets music recordings (CD's and Cassettes). The Company's
copyright library consists of a repertoire of over 5,000 titles covering
the field of music; children's songs, pop, urban, rock, and classical
titles. Additionally, the Company's studio produces voice-over
commercials for radio and television. Its business operations consist of
three wholly owned subsidiaries: 160662 Canada Inc. (Hitt Records); 2867-
0453 Quebec Inc. (Mint Music International); 3535924 Canada Inc. (Cherry
Studio Productions).
RESULTS OF OPERATIONS
The financial results of the Company are for the six-month period from
May 1, 2000 to October 31, 2000. The following table sets forth
certain financial data for the periods indicated:
<TABLE>
<CAPTION>
Unaudited
Financials Q1 (3 % of Q2 (3 % of Q1&Q2 (6 % of
US Dollars months) Sales months) Sales months Sales
---------- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 14,337 $ 30,937 $ 45,274
Cost of Sales 2,867 20.0% 6,188 20.0% 9,055 20.0%
General &
Administrative 11,027 76.9% 8,397 27.1% 19,424 42.9%
-------- ----- -------- ----- -------- -----
Total SGA 13,894 96.9% 14,585 47.1% 28,479 62.9%
---------- -------- ----- -------- ----- -------- -----
Operating Income 443 3.1% 16,352 52.9% 16,795 37.1%
======== ===== ======== ===== ======== =====
</TABLE>
CONSOLIDATED REVENUES
For the three and six months ended October 31, 2000, the Company's
revenues were nominal. During the current fiscal year the company has
been focusing its operations in developing new product to launch in
2001. The company has also been negotiating the acquisition of
catalogues, corporate financing and its Internet strategy.
OPERATING COSTS AND EXPENSES
Total costs of sales have been consistent at 20% of sales for the 3
month and 6 month period. General and Administrative expenses for the
quarter have decreased from $11,027 to $8,397 compared from Q1 and Q2.
Higher costs in Q1 are associated to its negotiations and agreements
<PAGE> 18
with MP3.com Inc..
OPERATING PROFIT
Profit for Q2 was $16,352 versus $443 in Q1. The Company had limited
product released in Q1. The new product released in Q2 is being ramped
up for marketing and sales into 2001.
LIQUIDITY AND CAPITAL RESOURCES
The company at the end of Q2 has little or no cash to fund operations.
The company's operations are financed from cash flow of current sales
and loans from management to the corporation. The company is
continuing its efforts to arrange loans and equity infusion through
private placements, offering memorandums or secondary offerings.
YEAR 2000 IMPLICATIONS
Based on operations since January 1, 2000, the Company does not expect
any significant impact to its ongoing operations as a result of the
year 2000 issues.
RISK FACTORS
See form 10-SB section titled "Risk Factors"
<PAGE> 19
GRAND ENTERTAINMENT & MUSIC (G.E.M), INC.
PART II - OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
--------------------------------------------------
NONE
ITEM 5. - OTHER INFORMATION
-----------------
NONE
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
The Registrant has not filed any Current Reports on Form 8-K
during this reporting period.
27 Summary Financial Data Schedule
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
GRAND ENTERTAINMENT & MUSIC (G.E.M),
INC.
Date: December 19, 2000 By: /s/Fred Berlin
--------------------------------
Fred Berlin, President
<PAGE> 21
