SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 31, 1999
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _______________.
Commission File Number 33-40804
MODERN RECORDS, INC.
(Exact Name of Registrant as Specified in its Charter)
California 95-3404374
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
468 North Camden Drive,Third Floor
Beverly Hills, California 90210
(Address of Principal Executive Offices) (Zip Code)
310/ 285-5370
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports to be filed by Section
13 or 15(d) 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 [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at September 10, 1999
-------------------------- ---------------------------------
Common Stock, no par value 24,510,864 shares
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
PART 1
ITEM 1. FINANCIAL INFORMATION
MODERN RECORDS, INC.
BALANCE SHEETS
(Expressed in U.S. Dollars)
(UNAUDITED)
July 31, October 31,
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 123,729 $ 1,656
Advance 10,000 -
Due from related parties 4,438 -
Receivables - 156,140
------------ ------------
TOTAL CURRENT ASSETS 138,167 157,796
DEFERRED RECORD MASTER COST, NET 211,161 184,892
PREPAID ARTISTS ROYALTIES 762,914 -
PROPERTY AND EQUIPMENT, NET 44,341 -
OTHER ASSET 8,486 655
------------ ------------
$ 1,165,069 $ 343,343
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Bank overdraft $ - $ 3,544
Accounts payable and accrued expenses 512,452 299,245
Accrued officer's compensation 450,000 283,333
Due to related parties - 6,823
Deferred revenue 23,599 -
Note payable - 19,705
Recoupable advance - 50,000
------------ ------------
TOTAL CURRENT LIABILITIES 986,051 662,650
LONG-TERM DEBT - RELATED PARTIES 27,193 26,570
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock; authorized - 20,000,000 shares, none issued - -
Common stock, no par value; authorized - 40,000,000 shares;
issued and outstanding - 25,088,087 shares (1999) and
23,297,696 shares (1998) 3,824,907 2,499,370
Accumulated deficit (3,673,082) (2,845,247)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 151,825 (345,877)
------------ ------------
$ 1,165,069 $ 343,343
============ ============
See accompanying notes to financial statements.
MODERN RECORDS, INC.
STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
(UNAUDITED)
Three Months Ended July 31, Nine Months Ended July 31,
------------------------------------ ------------------------------------
1999 1998 1999 1998
---------------- --------------- ---------------- ----------------
REVENUE $ 101,719 $ 124,463 $ 301,494 $ 302,057
COST OF REVENUE - 56,768 - 116,083
GROSS PROFIT 101,719 67,695 301,494 185,974
EXPENSES
Officer's salaries 62,500 60,334 187,500 181,437
Other marketing, general and
administrative expenses 377,007 94,695 941,829 267,368
---------------- ---------------- ---------------- ----------------
439,507 155,029 1,129,329 448,805
---------------- ---------------- ---------------- ----------------
NET LOSS $ (337,788) $ (87,334) $ (827,835) $ (262,831)
================ ================ ================ ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 21,105,713 18,924,282 20,633,608 15,302,233
================ ================ ================ ================
BASIC AND DILUTED LOSS PER SHARE $(0.02) $(0.00) $(0.04) $(0.02)
================ ================ ================ ================
See accompanying notes to financial statements.
MODERN RECORDS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
NINE MONTHS ENDED JULY 31, 1999
(Expressed in U.S. Dollars)
(UNAUDITED)
Preferred Stock Common Stock
--------------------------- ----------------------------- Accumulated
Shares Amount Shares Amount Deficit Total
------------ ------------ ------------- ------------ ----------- ------------
Balance, October 31, 1998 - $ - 23,297,696 $2,499,370 $(2,845,247) $(345,877)
Special warrants (969,100 shares
of common stock and 969,100
warrants issuable upon exercise
plus 44,350 special warrants
to finders) 988,612 988,612
Options exercised 199,718 104,755 104,755
Special warrants exercised 1,013,450
Private placement (600,000 shares
of common stock and 600,000
warrants) 577,223 232,170 232,170
Net loss (827,835) (827,835)
------------ ------------ ------------- ------------ ------------- ---------
Balance, July 31, 1999 - $ - 25,088,087 $ 3,824,907 $ (3,673,082) $ 151,825
============ ============ ============= ============= ============== =========
See accompanying notes to financial statements.
MODERN RECORDS, INC.
STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(UNAUDITED)
Nine Months Ended July 31,
---------------------------------------
1999 1998
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (827,835) $ (262,831)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 4,500 -
Amortization of deferred record master cost - 50,000
(Increase) decrease in:
Advances (10,000) -
Receivables 156,140 (94,838)
Other current assets (7,831) (10,654)
Increase (decrease) in:
Accounts payable and accrued expenses 213,207 (148,753)
Accrued interest on note payable 4,000 -
Accrued officer's compensation 166,667 150,000
Recoupable advance (50,000) -
Deferred revenue 23,599 (141,574)
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (327,553) (458,650)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Deferred record master cost (26,269) -
Prepaid artists royalties (762,914) -
Purchase of property and equipment (48,841) -
-------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (838,024) -
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (3,544) 9,477
Advances to related parties, net (34,343) (472,573)
Issuance of common stocks 336,925 882,982
Addition of loan - 25,000
Special warrants sold 988,612 -
-------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,287,650 444,886
-------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 122,073 (13,764)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,656 15,417
-------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 123,729 $ 1,653
============== ============
See accompanying notes to financial statements.
MODERN RECORDS, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED JULY 31, 1999
(UNAUDITED)
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 and
nine months ended July 31, 1999 and 1998, (b) the financial position at
July 31, 1999 and (c) the cash flows for the nine months ended July 31,
1999 and 1998. Interim results are not necessarily indicative of results
for a full year.
The balance sheet presented as of October 31, 1998 has been derived from
the financial statements that have been audited by the Company's
independent auditors. 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.
2. STOCKHOLDERS' EQUITY
Private Placement - On January 28, 1999, the Company arranged a private
-----------------
placement of 969,100 special warrants at a price of $1.52Cdn. per special
warrant for gross proceeds of approximately $1,473,032Cdn. Each special
warrant will permit the holder, without additional payment, to acquire one
common stock and one non-transferable share purchase warrant on or before
the earlier of the day which is four months from the closing date, if the
Company becomes eligible to rely on the British Columbia Securities
Commission's Blanket Order and Ruling #98/7 to issue the underlying
securities subject to a four month hold period in British Columbia, or 330
days from the closing date. If the Company becomes eligible to rely on BOR
#98/7, the special warrants will be deemed to be exercised on the day which
is four months from the closing. Each share purchase warrant will be
exercisable into one additional common stock of the Company for a period of
two years, at a price of $2.25Cdn per share. The special warrants will not
be registered in the United States and will be subject to applicable
restrictions on transfer under United States Securities laws. A finder's
fee, consisting of 44,350 special warrants, is payable in connection with
this private placement. Completion of this private placement is subject to
regulatory approval and the Company finalizing an agreement for recording
an album with the Jacksons. The Company has finalized the agreement with
the Jacksons and has received regulatory approval. As of July 31, 1999
these special warrants have been exercised.
On June 11, 1999 the Company arranged a private placement of 600,000 units
at a price of $.60Cdn per unit with each unit comprised of one share of
Common Stock and one non-transferable share purchase warrant. Each share
purchase warrant will entitle the holder to purchase an additional share of
Common Stock for two years at $.60Cdn per share for the first year, and at
$.75Cdn per share for the second year. The units will not be registered in
the United States and will be subject to regulatory approval. As of July
31, 1999 payments for 577,223 units had been received. These additional
shares were included in calculation of weighted average number of shares
outstanding. Subsequent to the end of the quarter ended July 31, 1999, all
of the units were issued.
Stock Options - On December 17, 1998, the Company granted incentive stock
-------------
options to purchase common shares to Mr. Johan Grandin (125,000 options),
Mr. Kendrik Packer (125,000 options) and Mr. Wayne Smith (75,000 options).
The options are exercisable for a period of 5 years, commencing on December
17, 1998 at $2.30Cdn. per share. Mr. Grandin is a director of the Company.
Mr. Smith is a consultant to the Company. Mr. Packer was a director of the
Company at the grant date.
On June 11, 1999 the Company engaged the services of Roland Perry of Perry
& Co., an investor and public relations firm specializing in the Internet,
restaurant and the entertainment industries. As compensation for his
services, Mr. Perry received options to purchase 200,000 shares of the
Company's Common Stock at C$0.82 per share (approximately US$.54 as at
July 31, 1999). The options will expire two years from the date of
issuance.
On February 5, 1999, Mr. R. Jackson exercised his options to acquire
199,718 shares of common stock at a total purchase price of $155,780Cdn.
3. OFFICER'S COMPENSATION
Effective November 1, 1998, the compensation of Mr. R. Jackson, the
Company's President and Chief Executive Officer was increased to $250,000
per year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Modern Records, Inc. (the "Company" or the "Registrant") produces,
licenses, acquires, markets and distributes high quality recorded music for a
variety of musical formats.
In May of 1997, Mr. Randy Jackson acquired a controlling interest in
the Company with the intent of repositioning the Company as an independent label
in the recording industry.
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 almost all of the Company's revenue; in April 1999 her three
CD box set "Enchanted" Album achieved Gold status with sales in excess of
167,000 albums.
In March 1999, the Company announced the signing of The Jacksons on
the Modern Records label. Work has begun on the project and it is expected that
the album will be released in the spring of 2000. The Jacksons' recording
contract (the "Jacksons' Agreement") requires the Company to make advances
totaling $2,000,000 to The Jacksons upon commencement of recording and
completion of The Jacksons' album, which advances are recoupable against The
Jacksons' share of royalties. The Company has already paid $1,000,000 of the
advances out of funds raised through its private placements. Randy Jackson,
Chairman, Chief Executive Officer and President of the Company and Jackie
Jackson, a director of the Company, are members of The Jacksons. (See
"Liquidity and Capital Resources," below)
Subsequent to the end of the third quarter, effective August 8, 1999, the
Company entered into an agreement with MCY.com for the distribution of the
Company's catalogue in digital form directly from the MCY.com website. MCY.com
acquired the global digital distribution rights of the Company's current and
future artists catalogue. The Company believes that MCY.com's proprietary
NETrax(TM) distribution technology prevents piracy, which has been the primary
concern with the more prevalent, and less secure, MP3 format of downloading
musical tracks from the Internet. NETrax (TM) is designed to prevent the
subsequent re-copying of downloaded tracks by the customer and to prevent
illegal downloading. MCY.com shoppers can
purchase digital tracks from the Company's catalogue ranging in price from US
$0.99 to $1.99 per track of which the Company will receive 60% and MCY.com will
receive 40%.
The Company also announced in August 1999 the launch of its website which
provides information for investors and allows direct sales of albums of Stevie
Nicks, the Jackson 5, Michael Jackson, Janet Jackson, and 3T.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1999 COMPARED TO THREE MONTHS ENDED JULY 31, 1998
Gross revenues decreased $22,744 or 18.3% to $101,719 for the three months
ended July 31, 1999 compared to the same period in 1998. This decrease reflects
primarily the fact that more revenue from sales of Stevie Nicks' "Enchanted"
album were generated in 1998, closer in time to the album's release in April
1998.
Cost of revenues decreased $56,768 or 100% to $0 for the three months ended
July 31, 1999 compared to the same period in 1998. This decrease is due to no
production activity during this period.
Gross profit increased $34,024 or 50.3% to $101,719 for the three months
ended July 31, 1999. This increase is due to no production costs in the three-
month period ended July 31, 1999.
Selling, marketing and general administrative expenses increased in 1999
over the corresponding third quarter of 1998 by $282,312 to $377,007 reflecting
the costs associated with the signing of The Jacksons, ongoing work with new
artist Abel Mason whose first album is expected be released in the next several
months, legal and accounting services required to gain new financing for the
Company and infrastructure including payroll, rent, and communications.
The net loss from continuing operations for the three months ended July 31,
1999 totaled $337,768 compared to $87,334 for the same period the prior year.
NINE MONTHS ENDED JULY 31, 1999 COMPARED TO NINE MONTHS ENDED JULY 31, 1998
Gross revenues for the nine months ended July 31, 1999 were flat compared
to the same period in 1998. This was due primarily to the fact that (i) the
nine-month period ended July 31, 1999 reflected greater revenue from sales of
Stevie Nicks' "Enchanted" album, which was released in April 1998, compared to
the comparable period ended July 31, 1998, while (ii) catalogue sales in the
nine month period ended July 31, 1998 were greater than they were in the
comparable period ended July 31, 1999.
Cost of revenues decreased $116,083 or 100% to $0 for the nine months ended
July 31, 1999 compared to the same period in 1998. This decrease is due to no
production activity during the nine-month period ended July 31, 1999.
Gross profit increased $115,520 or 62.6% to $301,494 for the nine months
ended July 31, 1999. This increase is due to no production costs in the
nine-month period ended July 31, 1999.
Selling, marketing and general administrative expenses increased in 1999
over the corresponding period of 1998 by $674,461 to $941,829 reflecting the
costs associated with the signing of The Jacksons, ongoing work with new artist
Abel Mason whose first album is expected be released in the next several months,
legal and accounting services required to gain new financing for the Company and
infrastructure including payroll, rent, and communications.
The net loss from continuing operations for the nine months ended July 31,
1999 totaled $827,835 compared to $282,831 for the same period the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current revenue stream is derived in large part from sales of
Stevie Nicks' albums. In fiscal 1998, the Company realized $241,462 gross profit
from sales of Stevie Nicks' albums. The Company's current management, headed by
Mr. Randy Jackson, who acquired a 47% equity interest in the Company in 1997,
intends to pursue a growth strategy that is centered on signing additional
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
executives with experience in the entertainment industry. Revenues from the
Company's existing products are insufficient to fund this strategy since the
strategy requires significant expenditures before additional revenues are
generated.
In the last two fiscal years, the Company has financed its growth strategy
primarily from sales of the Company's no par value common stock ("Common Stock")
to a limited number of investors, including officers and directors of the
Company. In fiscal 1998, the Company raised approximately C$1.7 million
(approximately US$1,148,028) from placements of its Common Stock to a limited
number of investors and from the exercise of stock options by officers and
directors of the Company. More recently, in March 1999, the Company completed a
private placement of special warrants in which it received net proceeds of
C$1.47 million (approximately US$988,612). The proceeds from this private
placement were applied to the advance owed to The Jacksons for their forthcoming
album. In August 1999 the
Company completed a private placement of units consisting of Common Stock and
share purchase warrants in which it received net proceeds of C$360,000
(approximately US$240,040 as at July 31, 1999).
The Company's implementation of its growth strategy is dependent on the
Company's ability to obtain additional debt, equity and other financing,
particularly during the period before the Company releases, and begins to derive
revenues from, albums with its existing artists such as The Jacksons and Abel
Mason. There can be no assurance that such financing will be available to the
Company on favorable terms, if at all.
At July 31, 1999, the Company had a working capital deficit of $847,884,
which amount includes $450,000 of accrued compensation to Mr. Randy Jackson. In
addition, the Company is required to pay The Jacksons the $1,000,000 balance of
their advance on completion of their album. The Company does not currently have
these funds available and does not expect that sales of its existing products
will produce enough funds to pay the balance of the advance. To obtain funds
for payment of the advance, the Company is currently engaged in discussions with
a number of lenders with respect to the possibility of obtaining long term debt
financing in the future. Such discussions are in the preliminary stages. The
Company is also exploring alternative sources of financing. There can be no
assurance that such financing will be available to the Company on favorable
terms, if at all. In the event that the Company is unable to obtain the
necessary funds to pay the advance, it may default in its obligations under the
terms of the Jacksons' Agreement.
YEAR 2000 ISSUES
This discussion for "Year 2000" (or "Y2K") relates to the possible
inability of computers, hardware or software to perform properly because they
are unable to interpret date information correctly after December 31, 1999, and
includes all of the associated consequences of such failures on the Company's
operations. If not corrected, such situations could result in a number of
things, including computer-system failure.
The Company's plan to address the Year 2000 problem involved two phases:
assessment of risks and remediation. The Company has completed both phases and
believes that all primary software applications and hardware being used within
the Company are Year 2000 compliant and that any Y2K problems of its vendors or
suppliers will not materially adversely effect the Company's business.
The Company is not currently producing or shipping new product and does not
anticipate doing so until after the year 2000 has started. The number of
vendors and suppliers on which it is dependent is, therefore, considerably
reduced. The Company has inquired of those vendors and suppliers with whom it
is currently doing business and they have given assurances that they are Y2K
compliant.
The Company has not incurred any significant costs in association with
its remediation program. The Company believes software and hardware components
currently owned by the Company contain sufficient upgrade capability to operate
after December 31, 1999.
The Company's only contingency plan is the saving of information and
recordings on separate back-up disks and tapes. The Company does not have and
does not plan to devise any other contingency plan for a Year 2000 problem. The
Company believes its operations will not be materially adversely affected upon
the occurrence of a hardware or software failure. In the event of a computer
failure, the Company plans to purchase the new software or hardware needed in
order to repair or replace the affected hardware or software.
Although the Company believes that it has assessed and remedied all of
its Y2K problems and that any Y2K problems of its vendors and suppliers will not
cause material adverse disruptions in the Company's operations, the Company
cannot be sure that it has identified all of its Y2K problems and that will not
suffer business interruptions because of its own Y2K problems or those of its
vendors or suppliers whose Year 2000 problems may make it difficult or
impossible for them to fulfill their commitments to the Company. If the Company
has failed to satisfactorily resolve Year 2000 issues in a timely manner, it
could have a material adverse effect on the Company's business and could expose
the Company to liability to third parties.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to Part II, Item 1 of the Company's Quarterly Report on
Form 10-QSB for the quarter ending April 30, 1999, for a description of the
default judgment in the amount of $1.3 million which had been entered against
Mr. Randy Jackson and others in a bankruptcy proceeding. At a hearing held on
July 15, 1999, the judge in the matter voided and vacated the default judgment
against Mr. Randy Jackson, relieving him from any further liability to the
plaintiff.
ITEM 2. CHANGES IN SECURITIES.
UNREGISTERED SECURITIES
On June 11, 1999, the Company engaged the services of Roland Perry of Perry
& Co., an investor and public relations firm specializing in the Internet,
restaurant and the entertainment industries. As compensation for his services,
Mr. Perry received options to purchase 200,000 shares of the Company's Common
Stock at C$0.82 per share (approximately US$.54 as at July 31, 1999). The
options will expire two years from the date of issuance. In addition, Mr. Perry
subscribed for 100,000 units in the private placement completed on August 20,
1999 which is described immediately below. The Company believes that the
issuance of the options to Mr. Perry was exempt from the registration
requirements of the Securities Act of 1933, as amended
(the "Securities Act") under Section 4(2) of the Securities Act because the
issuance of the options did not involve a public offering.
Subsequent to the end of the third quarter, on August 20, 1999, the Company
completed a private placement offering of units. The Company raised C$360,000
(approximately US$240,040 at July 31, 1999) from its private placement of
600,000 units at a price of C$.60 per unit (approximately US$.40 as at July 31,
1999). Each unit consisted of one share of Common Stock and one non-
transferable share purchase warrant. Each share purchase warrant entitles the
holder to purchase an additional share of Common Stock for two years at C$.60
(approximately US$.40 as at July 31, 1999) for the first year, and at C$.75
(approximately US$.50 as at July 31, 1999) for the second year. The Company
believes that the sales of units were exempt from the registration requirements
of the Securities Act under Section 4(2) of the Securities Act because the
transaction did not involve a public offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders on May 3, 1999, the following actions
were taken:
1. Election of Directors
Name For Withheld
---- --- --------
Stephen Randall (Randy) Jackson 14,285,459 0
Stig Hans Johan Grandin 14,285,459 0
Sigmund (Jackie) Jackson 14,285,459 0
Kendrik Packer 14,285,459 0
Lawrence Gallo 14,285,459 0
There were no broker non-votes.
2. Appointment of Hollander, Lumer and Co., LLP as the Company's independent
auditors to serve until the next annual meeting of shareholders
For 14,285,459
Against 0
Abstain 0
There were no broker non-votes.
3. Ratification of the appointment of Hollander, Lumer and Co., LLP as the
Company's independent auditors for fiscal year ended October 31, 1998
For 14,285,459
Against 0
Abstain 0
There were no broker non-votes.
4. Ratification of shareholders' and directors' actions in furtherance of
prior amendments of the Articles of Incorporation and Bylaws of the Company
For 14,285,459
Against 0
Abstain 0
There were no broker non-votes.
5. Approval of a resolution authorizing the Company's directors to grant stock
options to directors, officers, employees and other "insiders" of the Company
(as the term "insider" is defined in the British Columbia Securities Act) and to
amend such options from time to time as required
For 14,285,459
Against 0
Abstain 0
There were no broker non-votes.
ITEM 5. OTHER INFORMATION.
On June 15, 1999 the Company announced that it had engaged the services of
Roland Perry of Perry & Co., an investor and public relations firm specializing
in the Internet, restaurant and entertainment industries. The Company will
additionally be utilizing Perry & Co.'s recently formed Internet Consulting
division, which helps public and private corporations identify e-commerce
opportunities within their stated field of expertise. Mr. Perry will assist the
Company in developing an Internet strategy intended to strengthen the Company's
brand identification with both trade and consumer audiences and to assist in
identifying acquisition candidates and joint venture partners within the rapidly
expanding Internet-based music industry. The agreement is for an initial term
of two years and provides that Mr. Perry will receive, as sole compensation for
his services, options to purchase 200,000 shares of the Company's Common Stock
at C$0.82 per share (approximately US$.54 as at July 31, 1999). The options
are for a term of two years. Additionally, Mr. Perry subscribed for 100,000
units in the Company's private placement which was completed on August 20, 1999.
(See PART II, ITEM 2, above.)
EVENTS OCCURRING SUBSEQUENT TO THE END OF THE THIRD QUARTER
The Company announced on August 6, 1999 that Russ Regan had become a
consultant to the Company. Mr. Regan, a former President of Quality Records, is
consulting with the officers and employees of the Company on administration,
marketing, distribution, A&R (artists and repertoire) and promotion matters.
Russ Regan has played a major role in the careers of many recording artists
including Frank Sinatra, Elton John, Olivia Newton-John, Neil Diamond, Barry
White, the Beach Boys, Marvin Gaye, Smokey Robinson, The Supremes and The
Miracles.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.01 Employment Agreement dated May 17, 1999 between the Company and
Henley "Jr." Regisford.
10.02 Agreement dated June 11, 1999 between the Company and Roland
Perry.
10.03 Incentive Stock Option Agreement dated June 15, 1999 between the
Company and Roland Perry.
10.04 Agreement dated August 8, 1999 between the Company and MCY Music
World, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MODERN RECORDS, INC.
Date: September 17, 1999 /s/ Stephen Randall Jackson
--------------------------------
Stephen Randall Jackson
Chairman of the Board, President
and Chief Executive Officer