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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
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MODERN RECORDS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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CALIFORNIA 95-3404374
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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468 NORTH CAMDEN DRIVE
THIRD FLOOR
BEVERLY HILLS, CALIFORNIA 90210
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE)
(310) 285-5370
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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Indicate by check mark whether the issuer (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 [ ] No [X]
The number of shares outstanding of the issuer's Common Stock, no par
value, as of January 31, 1998 was 14,657,770.
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MODERN RECORDS, INC. QUARTERLY REPORT ON FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION
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PAGE
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Item 1. Financial Statements
Balance Sheets as of January 31, 1998 and October 31,
1997.................................................. 3
Statements of Operations for the three months ended
January 31, 1998 and 1997............................. 4
Statements of Cash Flows for the three months ended
January 31, 1998 and 1997............................. 5
Notes to Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................. 8
Item 2. Changes in Securities and Use of Proceeds......... 8
Item 6. Exhibits and Reports on Form 8-K.................. 8
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PART I.
ITEM 1. FINANCIAL INFORMATION
MODERN RECORDS, INC.
BALANCE SHEETS
JANUARY 31, 1998 AND OCTOBER 31, 1997
(EXPRESSED IN U.S. DOLLARS)
(UNAUDITED -- PREPARED BY MANAGEMENT)
ASSETS
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<CAPTION>
JANUARY 31, OCTOBER 31,
1998 1997
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CURRENT
Cash...................................................... $ 9,566 $ 15,417
Accounts receivable....................................... -- --
----------- -----------
Total current assets.............................. 9,566 15,417
Deferred record master cost, net............................ 225,478 225,478
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$ 235,044 $ 240,895
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LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Bank indebtedness......................................... $ -- $ --
Accounts payable and accrued liabilities.................. 339,868 347,454
Loans payable............................................. 70,713 18,393
Deferred compensation..................................... 150,000 100,000
----------- -----------
Total current liabilities......................... 560,581 465,847
----------- -----------
Loans from related parties, non-interest bearing with no
state terms of repayment.................................. 562,706 525,012
Recoupable advances......................................... 50,000 50,000
Deferred revenue............................................ 71,792 141,574
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Total Liabilities................................. 1,245,079 1,182,433
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SHAREHOLDERS' DEFICIENCY
Capital stock
Authorized: 20,000,000 common shares without par value
Issued: 14,657,770 shares (1998) (1997 -- 14,657,770
shares)................................................ 1,351,342 1,351,342
Accumulated deficit....................................... (2,361,377) (2,292,880)
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(1,010,035) (941,538)
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$ 235,044 $ 240,895
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MODERN RECORDS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
(EXPRESSED IN U.S. DOLLARS)
(UNAUDITED -- PREPARED BY MANAGEMENT)
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1998 1997
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REVENUE
Modern/Atlantic agreement................................. $ 69,782 $ 33,239
Other..................................................... 300 --
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70,082 33,239
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COST OF SALES
Production and packaging costs............................ 25,010 --
Promotion and travel...................................... 3,436 42
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28,446 42
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Gross profit................................................ 41,636 33,197
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EXPENSES
Accounting and legal...................................... 9,335 300
Automobile................................................ 2,071 2,325
Consulting fees........................................... 644 --
Insurance................................................. 1,264 --
Office and miscellaneous.................................. 5,708 717
Rent...................................................... 9,825 1,000
Salaries and employee benefits............................ 60,768 29,968
Security registration and filing costs.................... 675 --
Telephone................................................. 3,787 4,754
Travel and entertainment.................................. 16,056 --
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110,133 39,064
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Loss for the year........................................... $ (68,497) $ (5,867)
=========== ===========
Weighted average number of common shares outstanding........ 11,657,770 11,592,770
=========== ===========
Loss per share.............................................. $ (0.01) $ --
=========== ===========
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MODERN RECORDS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
(UNAUDITED -- PREPARED BY MANAGEMENT)
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1998 1997
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CASH PROVIDED BY (USED FOR)
OPERATIONS
Net income (loss)......................................... $(68,497) $ (5,867)
CHANGES IN NON-CASH OPERATING WORKING CAPITAL
Increase (decrease) in accounts payable and accrued
liabilities............................................ (7,584) --
Increase (decrease) in loans payable...................... 33,925 --
Increase (decrease) in deferred compensation.............. 50,000 (10,147)
Increase (decrease) in deferred revenue................... (69,782) (33,239)
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(61,938) (49,253)
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FINANCING
Increase (decrease) in bank overdraft..................... -- 27,878
Increase (decrease) in dues to/from from related
parties................................................ -- 21,375
Increase (decrease) in notes payable -- related parties... 16,558 --
Increase (decrease) in notes payable -- JCM............... 17,794 --
Increase (decrease) in notes payable -- R. Jackson........ 21,735 --
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56,087 21,375
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Increase (decrease) in cash................................. (5,851) (27,878)
Cash at beginning of period................................. 15,417 --
-------- --------
Cash at end of period....................................... $ 9,566 $ --
======== ========
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MODERN RECORDS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998
1. BASIS OF PRESENTATION
The interim financial statements presented have been prepared by Modern
Records, Inc. (the "Company") without audit and, in the opinion of the
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of (a) the results of operations for the three months ended
January 31, 1998 and 1997, (b) the financial position at January 31, 1998 and
(c) the cash flows for the three months ended January 31, 1998 and 1997. Interim
results are not necessarily indicative of results for a full year.
The balance sheet presented as of October 31, 1997 has been derived from
the financial statements that have been audited by the Company's independent
public accountants. The financial statements and notes are condensed as
permitted by Form 10-QSB and do not contain certain information included in the
annual financial statements and notes of the Company. The financial statements
and notes included herein should be read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form 10-KSB.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Modern Records, Inc. (the "Company" or "Modern") produces, licenses,
acquires, markets and distributes high quality recorded music for a variety of
musical formats.
In May of 1997, Stephen Randall ("Randy") Jackson acquired a controlling
interest in the Company with the intent of repositioning the Company as a
forward thinking, dynamic independent label in the recording industry. During
the remainder of 1997, the Company focused on establishing a more solid
financial base while developing strategic initiatives capable of realizing the
Company's objectives.
The primary source of revenue to the Company has been the production and
release of recorded music. The Company has been closely associated with the work
of recording artist Stevie Nicks, who was one of the Company's founders.
Although Ms. Nicks is no longer under contract with the Company, her works
continue to provide the dominant source of revenue.
During the period, the Company produced and released Jeffrey Osborne's
"Something Warm For Christmas" album. Currently, the album has sold in excess of
18,000 units.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1998 COMPARED TO THREE MONTHS ENDED JANUARY
31, 1997
Gross revenues increased $36,843 or 110% to $70,082 for the three months
ended January 31, 1998 compared to the same period in 1997. This increase
reflects continuing sales activity of S. Nicks product, together with initial
results of the J. Osborne's Christmas album.
Cost of revenues increased $28,404 to $28,446 for the three months ended
January 31, 1998 compared to the same period in 1997. This increase is due to
the holiday release of Mr. Osborne's album. Gross profit improved $8,439 or
25.4% to $41,636 for the three months ended January 31, 1998 reflecting the flow
through of profit from the Atlantic agreement with Stevie Nicks.
Selling, marketing and general administrative expenses increased in 1998 by
$71,069 to $110,133 compared to the corresponding first quarter of 1997
reflecting the costs associated with the Jeffrey Osborne's Christmas release.
The net loss from continuing operations for the three months ended January
31, 1998 totaled $68,497 compared to $5,867 for the same period the prior year.
This increase is due to the significant expenditures associated with the release
of the J. Osborne's album.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current revenue stream is derived in large part from sales of
Stevie Nicks' albums. The Company's current management, headed by Mr. R. Jackson
who acquired a 47% equity interest in the Company in 1997, intends to pursue a
growth strategy that is centered on signing artists to the Modern label,
advancing funds for production of new albums, marketing albums released on the
Modern label and retaining a team of talented executive officers with experience
in the entertainment industry. Revenues from the Company's existing product are
insufficient to fund this strategy since the strategy will require significant
expenditures before additional revenues are generated. The Company's
implementation of its growth strategy is dependent on the Company's ability to
obtain additional debt, equity and other financing. There can be no assurance
that such financing will be available to the Company on favorable terms, if at
all.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
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3.1 Articles of Incorporation of the Company, as amended.*
3.2 By-laws of the Company, as amended.**
3.3 Certificate of Amendment of Articles of Incorporation.**
10.1 Agreement between Company and Atlantic Recording Corporation
dated July 1, 1979, as amended September 10, 1979, April 30,
1983, May 1, 1983, August 1, 1983, March 27, 1987, December
20, 1988, June 29, 1989 and April 22, 1990.*
10.2 Recording agreement between the Company and Stephanie Nicks
dated December 4, 1978, as amended December 11, 1978, April
26, 1979, May 31, 1979, June 27, 1979 and April 26, 1988.*
10.3 Distribution Agreement between the Company and EMI Records
Limited dated April 15, 1985, as amended by undated
amendment and April 6, 1989.*
10.4 Recording agreement between the Company and Mark Lennon et
al., dba "Venice", dated June 29, 1989.*
10.5 Recording agreement between the Company and Thomas J.
Henrickson et al., dba "Big Trouble", dated November 22,
1989.*
10.6 Recording agreement between the Company and Rick Vito dated
April 22, 1990.*
10.7 Share Purchase Option Agreement with Paul E. Fishkin, dated
November 2, 1990.*
10.8 Share Purchase Option Agreement with John G. Proust and
Jeffrey C. Ingber, dated January 2, 1991.*
10.9 Pooling Agreement dated June 26, 1990 among Paul E. Fishkin,
Stephanie Nicks, Pacific Corporate Services Limited and the
Company.*
10.10 Pooling Agreement dated June 26, 1990 among certain
non-affiliated shareholders, the Company and Pacific
Corporate Services Limited.*
10.11 Pooling Agreement dated June 26, 1990 among J. Proust and
Associates, Inc., Pacific Corporate Services Limited and the
Company.*
10.12 Pooling Agreement dated July 5, 1990 among Howard Rosen,
Pacific Corporate Services Limited and the Company.*
10.13 Pooling Agreement dated November 2, 1990 among Douglas
Bleeck, Pacific Corporate Services Limited and the Company.*
10.14 Management Agreement dated June 26, 1989 between the Company
and J. Proust and Associates, Inc.*
10.15 Escrow Agreement dated June 26, 1990 among the Company, Paul
E. Fishkin, Stephanie Nicks and Pacific Corporate Services
Limited.*
10.16 Option to purchase 265,000 shares of Common Stock of the
Company issued to Randy Jackson, dated July 10, 1998.**
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10.17 Option to purchase 200,000 shares of Common Stock of the
Company issued to Jackie Jackson, dated July 10, 1998.**
10.18 Option to purchase 400,000 shares of Common Stock of the
Company issued to Lawrence W. Gallo, dated July 10, 1998.**
10.19 Option to purchase 125,000 shares of Common Stock of the
Company issued to Johan Grandin, dated December 17, 1998.**
10.20 Option to purchase 125,000 shares of Common Stock of the
Company issued to Kendrik Packer, dated December 17, 1998.**
10.21 Loan Agreement dated March 16, 1998 between the Company,
Randy Jackson and Kendrik Packer.**
10.22 Employment Agreement dated May 15, 1997 between the Company
and Randy Jackson.**
10.23 Recording agreement dated March 1, 1999 between the Company
and The Jacksons.**
27.1 Financial Data Schedule.
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* Incorporated herein by reference to exhibits of the same number in the
Company's S-1 Registration Statement dated September 9, 1991 (33-40804).
** Incorporated herein by reference to exhibits of the same number in the
Company's Report on Form 10-KSB for the fiscal year ended October 31, 1998.
(B) REPORTS ON FORM 8-K
None.
Items 3, 4 and 5 are not applicable and have been omitted.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Modern
Records, Inc. has duly caused this report to be signed by the undersigned
thereunto duly authorized.
MODERN RECORDS, INC.
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Date: April 20, 1999 /s/ STEPHEN RANDALL JACKSON
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Stephen Randall Jackson
Chairman of the Board, President
and Chief Executive Officer
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JANUARY 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 9,566
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,566
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 235,044
<CURRENT-LIABILITIES> 560,581
<BONDS> 0
0
0
<COMMON> 1,351,342
<OTHER-SE> (2,361,377)
<TOTAL-LIABILITY-AND-EQUITY> 235,044
<SALES> 0
<TOTAL-REVENUES> 70,082
<CGS> 0
<TOTAL-COSTS> 138,579
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (68,497)
<INCOME-TAX> 0
<INCOME-CONTINUING> (68,497)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (68,497)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
