U.S. 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 MARCH 31, 2004
[_] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
------------------- ---------------------
Commission File No. 0-30584
BLUE MOON GROUP, INC.
---------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 16-1636770
-------- ----------
State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)
4890 GARLAND BRANCH RD., DOVER, FL 33527
----------------------------------------
(Address of Principal Executive Offices)
(813) 223-7788
----------------------------------------
(Issuers Telephone Number, Including Area Code)
N/A
----------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
Common Stock, $.001 par value per share, 20,049,469 shares were issued and
19,184,469 were outstanding at May 10, 2004
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
BLUE MOON GROUP, INC.
INDEX TO FORM 10-QSB
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of March 31, 2004 (unaudited) 4
Statements of Operations for the three months ended March 31, 2004 and 5
March 31, 2003 (unaudited)
Statements of Stockholders Equity for the three months ended March 31, 6
2004 and March 31, 2003 (unaudited)
Statements of Cash Flows for the three months ended March 31, 2004 and 7
March 31, 2003 (unaudited)
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and 12
Results of Operations
Item 3. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submissions of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
2
FORWARD LOOKING STATEMENTS
When used in this report, the words "may, will, expect, anticipate,
continue, estimate project or intend" and similar expressions identify
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E Securities Exchange Act of 1934 regarding events,
conditions and financial trends that may effect our future plan of operation,
business strategy, operating results and financial position. Current
stockholders and prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from those included
within the forward-looking statements as a result of various factors. Such
factors are described under the headings "Business-Certain Considerations,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the financial Statements and their associated notes.
Important factors that may cause actual results to differ from
projections include, for example:
o the success or failure of management's efforts to implement
their business strategy;
o our ability to protect our intellectual property rights;
o our ability to compete with major established companies;
o our ability to attract and retain qualified employees; and
o other risks which may be described in future filings with the
SEC.
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLUE MOON GROUP, INC.
BALANCE SHEET
MARCH 31, 2004
(UNAUDITED)
March 31,
ASSETS 2004
------------
Current Assets
Cash and cash equivalents 106,425
Accounts receivable - trade 32,565
Inventories 42,904
------------
Current Assets 181,894
Property and equipment, net 51,335
Loans receivable - trade 232,300
Goodwill 10,000
Music library (Note 2) 6,105,005
Publishing and copyrights 131,250
------------
Total Assets $ 6,705,587
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 162,008
Accrued expenses 163,907
Judgments payable 92,166
Notes payable - related parties 808,519
------------
Current Liabilities 1,226,600
------------
Total Liabilities 1,226,600
Stockholders' Equity
Preferred stock, .001 par value;
5,000,000 shares authorized, 0 issued and outstanding --
Common stock, .001 par value;
50,000,000 shares authorized, 20,049,469 issued
and 19,184,469 outstanding (Note 5) 19,184
Additional paid-in capital 20,649,342
Retained earnings (15,189,539)
------------
Total Stockholders' Equity 5,478,987
------------
Total Liabilities and Stockholders' Equity $ 6,705,587
============
See the accompanying notes to these unaudited financial statements
4
BLUE MOON GROUP, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
For the three months
ended March 31,
----------------------------
2004 2003
------------ ------------
Revenue
Sales $ -- $ --
------------ ------------
Total Revenue -- --
------------ ------------
Cost of Sales -- --
------------ ------------
Gross profit -- --
------------ ------------
Operating expenses
Administrative expenses 240,820 908,873
Salaries and payroll taxes 68,020 31,250
Professional and outside services 798,997 15,485
Amortization and depreciation 3,494 10,085
------------ ------------
Total Operating Expense 1,111,331 964,893
------------ ------------
Loss from operations (1,111,331) (964,893)
------------ ------------
Other expense
Interest and financing expense 468,010 13,737
------------ ------------
Loss before extraordinary expense and income taxes (1,579,341) 13,737
Provision (benefit) of income taxes -- --
Loss before extraordinary expense (1,579,341) (978,630)
------------
Extraordinary expense - Casualty loss (266,813)
------------ ------------
Net loss $ (1,846,154) $ (978,630)
============ ============
Loss per common share - basic and diluted (Note 6)
Loss before extraordinary expense $ (0.09) $ (0.17)
============ ============
Extraordinary expense $ (.02) $ --
============ ============
Net loss per common share $ (0.11) $ (.17)
============ ============
Weighted average shares outstanding - basic and diluted 17,546,887 5,894,772
============ ============
See the accompanying notes to these unaudited financial statements
5
BLUE MOON GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
Common Stock
--------------------------- Paid in Accumulated
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2002* 5,718,948 $ 5,719 $ 13,328,366 $ (6,209,657) $ 7,124,428
Issuance of Stock* 504,999 505 484,266 -- 484,771
Net Loss -- -- -- (978,630) (978,630)
------------ ------------ ------------ ------------ ------------
Balance at March 31, 2003* 6,223,947 $ 6,224 $ 13,812,632 $ (7,188,287) $ 6,630,569
============ ============ ============ ============ ============
Balance at December 31, 2003 17,214,469 $ 17,214 $ 18,781,612 $(13,343,385) $ 5,455,441
Issuance of stock for services,
salaries, and debt 1,970,000 1,970 1,867,730 -- 1,869,700
Net Loss -- -- -- (1,846,154) (1,846,154)
------------ ------------ ------------ ------------ ------------
Balance at March 31, 2004 19,184,469 $ 19,184 $ 20,649,342 $(15,189,539) $ 5,478,987
============ ============ ============ ============ ============
* adjusted for a forward split of 3 shares for 1 on December 15, 2003
See the accompanying notes to these unaudited financial statements
6
BLUE MOON GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three months
ended March 31,
--------------------------
2004 2003
----------- -----------
Cash Flows From Operating Activities
Net income (loss) $(1,846,154) $ (978,630)
Adjustments to reconcile net loss to net
Cash used by operating activities
Amortization and depreciation 3,494 10,085
Casualty loss (266,813) --
Issuance of common stock for induced conversion of debt 447,912 --
Issuance of common stock for accrued interest 14,588 --
Issuance of stock for services, salaries, and accounts payable 1,157,200 484,771
Changes in operating assets and liabilities
(net of effects from acquisition of business):
Accounts receivable 28,000 --
Inventory (3,724) (4,533)
Prepaid expenses -- 354,187
Accounts payable (227,391) 62,397
Accrued expenses (132,147) 44,987
----------- -----------
Net cash flow used by operating activities (291,409) (26,736)
----------- -----------
Cash flows from investing activities
Acquisition of property, plant and equipment (49,156) --
Loans receivable - trade (20,800) (44,500)
Intellectual assets -- (2,500)
----------- -----------
Net cash used by investing activities (69,956) (47,000)
----------- -----------
Cash flows from financing activities
Proceeds from issuance of debt 385,000 73,736
Payments on notes payable (38,784) --
----------- -----------
Net cash provided by financing activities 346,216 73,736
----------- -----------
Net decrease in cash and cash equivalents (15,149) --
Cash at beginning of period 121,574 --
----------- -----------
Cash at end of period $ 106,425 $ --
=========== ===========
Non-cash transactions
Issuance of common stock for services, salaries,
and accounts payable 1,157,200 484,771
Issuance of common stock for debt 250,000 --
Issuance of common stock for induced conversion
of debt 447,912 --
Issuance of common stock for accrued interest 14,588 --
See the accompanying notes to these unaudited financial statements
7
BLUE MOON GROUP, INC.
Notes to Financial Statements
for the three months ended March 31, 2004 and 2003
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and the instructions
to Form 10-QSB. Accordingly, certain information and footnote disclosures
normally included in financial statements have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, the condensed consolidated financial statements for the periods
presented include all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation.. For further
information, refer to the Company's financial statements, and footnotes thereto,
for the fiscal year ended December 31, 2003, included in its Form 10-KSB for
such fiscal period.
Operating results for the three-month period ended March 31, 2004, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2004.
Note 2 - Organization
In October 2002, the Company reincorporated in the State of Delaware and changed
its name to Blue Moon Group, Inc. The predecessor, Open Door Records, Inc.
("Open Door") was incorporated in the State of Rhode Island on November 20,
1997. In September 1999, Open Door merged with Genesis Media Group, Inc., a New
Jersey corporation. The surviving entity of this merger was renamed Open Door
Online, Inc., a New Jersey corporation. In October 2002, the Company acquired
Nebulous Records, Inc., a Florida corporation formed in February 2002.
Note 3 - Summary of Significant Accounting Policies
The summary of significant accounting policies of Blue Moon Group, Inc. is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management.
Management is responsible for their integrity. The accounting policies conform
to generally accepted accounting principles and have been consistently applied
in the preparation of the financial statements. The results of operations for
the interim periods shown in this report are not necessarily indicative of
results to be expected for the fiscal year ending December 31, 2004.
Line of Business
- ------------------
Blue Moon Group, Inc. is an entity designed to provide traditional sales of
recorded music from artists who have contracted the Company to provide
distribution. The Company will also generate revenue from promotions, artist
recording sessions and the sales of other prerecorded music.
Revenue Recognition
- ---------------------
Revenue is recognized when product is shipped with an offset for possible
returns. Additional revenue is recorded when recording or promotional contracts
are billed upon completion of the services.
8
BLUE MOON GROUP, Inc.
Notes to Financial Statements
for the three months ended March 31, 2004 and 2003
Note 3 - Summary of Significant Accounting Policies (continued)
Equipment and Depreciation
- --------------------------
Depreciation has been provided on a straight-line basis for financial accounting
purposes using the straight-line method over the shorter of the asset's
estimated life or the lease term. The estimated useful lives of the assets are
as follows:
Record and production equipment 5-7 Years
Website development 5-7 Years
Leasehold improvements 3-10 Years
GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company has incurred losses
from operations over the years and anticipates additional losses in fiscal year
2004. In addition, the Company has negative working capital of ($1,044,706).
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not incloude any
adjustments relating to the recoverability and classifications of carrying
amounts that might result should the Company be unable to continue as a going
concern.
Impairment
- --------------
The Company has adopted SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" which requires
that long-lived assets to be held and used be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
In September 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This statement establishes accounting and reporting standards for
goodwill and intangibles for years commencing after December 15, 2001. Whether
already acquired or subsequently acquired after the effective date, companies
are required to identify intangibles with finite lives and those with indefinite
lives. Those intangibles with finite lives are to be amortized over the
estimated useful lives of the assets while those with indefinite lives are not
to be amortized. Each intangible or goodwill asset should be analyzed at least
annually for impairment where the carrying value is in excess of the fair value
of the intangibles and in excess of the implied fair value in the case of
goodwill assets. The asset's carrying value is to be reduced by a charge to
income if the fair value is lower than the carrying value. The Company has not
determined the effect of this new standard.
Master Music Library
- --------------------
The master music library consists of original and digitized masters of
well-known artists. The Company has the right to produce, sell, distribute or
otherwise profit from its utilization of this library subject to industry
standard royalty fees to be paid to artists as copies of the product are sold or
distributed. The Company will amortize the library on a unit sold basis in
accordance with SFAS 50 that relates the capitalized costs to estimated net
revenue to be realized. When anticipated sales appear to be insufficient to
fully recover the basis, a provision against current operations will be made for
anticipated losses. To date the Company has not utilized the library.
9
BLUE MOON GROUP, Inc.
Notes to Financial Statements
for the three months ended March 31, 2004 and 2003
Note 3 - Summary of Significant Accounting Policies (continued)
Comprehensive Net Loss
- ----------------------
There is no difference between the Company's net loss as reported for any of the
periods reported herein and the Company's comprehensive loss, as defined by the
Statement of Financial Accounting Standards No. 130.
Note 4 - Property and Equipment
Depreciation and amortization for the three months ended March 31, 2004 and 2003
were $3,494 and $10,085, respectively. Depreciation was reduced by the total
loss of all equipment in a fire that consumed the studios leaving only vehicles
and amortizable intangible assets.
Property plant and equipment consist of the following:
March 31,
2004 2003
--------- ---------
Production equipment $ 0 $ 216,000
Vehicles 48,000 0
Office equipment, furniture and fixtures 6,535 36,792
--------- ---------
54,535 252,792
Less accumulated depreciation (3,200) (14,983)
--------- ---------
$ 51,335 $ 237,809
========= =========
Note 5 - Transactions - Related Party
During 2003 and 2004, the President of the Company has been a lender of funds to
the Company. As of December 31, 2003 and March 31, 2004, the outstanding
balances due him are $96,613 and $442,849. The interest rate is 7% per annum.
In March 2004, the President of the Company received 300,000 shares of
restricted common stock in payment of $178,750 of accrued salary and repayment
of accounts payable in the amount of $109,250.
In March 2004, the Company issued 250,000 restricted common stock shares for a
consulting contract with a company that the President of Blue Moon Group is a
minority shareholder.
Note 6 - Recent Sales of Unregistered Securities
In January 2004, the Company issued 100,000 for a consulting contract valued at
$94,505.
In March 2004, the Company issued 650,000 restricted common shares for
consulting contracts valued at $952,500.
In March 2004, the Company issued 125,211 shares of restricted common stock in
payment of $120,203 accounts payable for services and an additional 44,789
restricted common shares valued at $42,997.
In March 2004, the Company issued 750,000 shares of restricted common stock for
he induced conversion of a note payable in the amount of $250,000 plus accrued
interest of $14,588. The Company recorded finance charges of $447,912 in
relation to this conversion.
10
BLUE MOON GROUP, Inc.
Notes to Financial Statements
for the three months ended March 31, 2004 and 2003
Note 7 - Common Stock
The outstanding stock of the Company, as adjusted for a 3 for 1 forward stock
split on December 15, 2003, was 19,184,469 shares and 6,223,947 shares at March
31, 2004 and 2003, respectively.
Note 8 - Loss per Common Share
Loss per share of common stock have been computed based on the weighted average
number of shares outstanding. The weighted average number of shares used to
compute the earnings per share at March 31, 2004 and 2003 was 17,546,887 and
5,894,772, respectively.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE THREE MONTH'S ENDED MARCH 31, 2004 AND MARCH 31, 2003
SALES
Sales recorded for the quarter ending at March 31, 2004 totaled $0. No
sales were reported in the quarterly period ended March 31, 2003. Product has
been assigned to various warehouses for distribution.
COST OF SALES
Costs of sales are normally primarily represented by costs for
recordings, promotions and CD fulfillment operations and royalties. Cost of
sales recorded for the quarter ending at March 31, 2004 totaled $0. No cost of
sales was reported in the quarterly period ended March 31, 2003.
SALES AND MARKETING EXPENSE
Sales and marketing expense consists primarily of direct marketing
expenses, promotional activities, salaries and costs related to website
maintenance and development. We anticipate that overall sales and marketing
costs will increase significantly in the future; however, sales and marketing
expense as a percentage of net revenue may fluctuate depending on the timing of
new marketing programs and addition of sales and marketing personnel.
Expenses of $ 8,370 were incurred for the quarter ended March 31, 2004
and $0 for the quarter ended March 31, 2003.
GENERAL AND ADMINISTRATIVE
General and administrative expense consists primarily of legal and
other administrative costs, fees for outside consultants, and other overhead.
General and administrative expenses were $1,220,825 for the quarter ended March
31, 2004, an increase of $283,239 from $937,586 for the quarter ended March 31,
2003. The increase is attributable to payroll and bonuses of $170,770, travel,
entertainment and meals increased $54,075 with the remainder of the increase
from miscellaneous other expenses. These increases were directly related to the
increased activity in preparation of additional artists for release and
distribution.
DEPRECIATION EXPENSE
Depreciation and amortization expenses decreased to $3,494 from $10,085
in the quarters ended March 31, 2004 and March 31, 2003, respectively. The
decrease is attributed to the casualty loss of all equipment in a fire that
destroyed the Company office and recording studio.
12
INTEREST EXPENSE
Net interest expense for the quarter ended March 31, 2004 was $468,010.
Comparable interest costs for the corresponding quarter ended 2003 was $13,736.
This increase was caused by the increase in outstanding short-term debt and the
finance cost associated with the induced conversion of a note payable for stock
that added $447,912 as a one time cost.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2004 we had $106,425 in cash. Sufficient cash to
finance operations for the short term is required. Historically, we have
financed our operations with short-term convertible debt or through the issuance
of equity in the form of our common stock. During the current period ended March
31, 2004, we issued net new debt for cash of approximately $385,000 and
$166,878, respectively. Significant increases in capital will be required to
fund our aggressive business plan and support the manufacturing and distribution
requirements of our current artist distribution contracts. While there is no
assurance that we will be successful in raising the required capital all
indications through our current financing negotiations suggest that we will
receive substantial capital.
ACCOUNTS RECEIVABLE
As of March 31, 2004 we had receivables of $32,565 from sales.
RECOUPABLE ARTIST ADVANCES
Our distribution agreements with artists require us to pay certain
costs up front for the artist. These costs, depending on the contract, may
include promotion, production, manufacturing, advertising, travel, etc. All of
these advances are to be received from the sales of the artist recordings before
any payment to the artist is made. In some instances the artist is to receive
50% of the net wholesale price we receive, in others only 25% goes to the
artist. We have no reason to believe that these recoupable costs will not be
received. In the event that the artist's music does not sell successfully to
recoup these costs within six months of the release of the recording we will
take a charge to earnings for these costs. This account contains four artists at
this time. At no time will the Company advance costs that exceed the amount
recoupable from the pre-orders plus $20,000. This method is in compliance with
FASB 50 paragraph 10 relating advances against future royalties.
OPERATIONS
Blue Moon Group, Inc. has completed a total restructuring of its
operations and has changed its product and business mix. The Company is actively
pursuing acquisition and joint ventures with companies having recording artists
under contract for distribution, promotion and concert dates.
FUTURE PLAN OF OPERATION
Blue Moon Group, Inc. has embarked on a search to find various
entertainment companies whose acquisition would be synergistic with current
operations. The signing of artists to recording and distribution contracts is a
key focus for the immediate revenue generating capacity of the Company.
13
ITEM 3. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this quarterly report, we
carried out an evaluation, under the supervision and with the participation of
our management of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, our management concluded that our disclosure controls and
procedures are effective and timely alerting them to material information
relating to the Company required to be included in our periodic SEC filings.
There were no significant changes in our internal controls or other factors that
could significantly affect these controls subsequent to the date of their
evaluation and there were no corrective actions with regard to significant
deficiencies or material weaknesses.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation incidental to
its business. Management believes that the outcome of current litigation will
not have a material adverse effect upon the operations or financial condition of
the Company and will not disrupt the normal operations of the Company.
ITEM 2. CHANGES IN SECURITIES
During the quarter ended March 31, 2004 Blue Moon Group, Inc. issued
1,970,000 restricted common shares. These shares were issued for the following
schedule of items:
Consulting $616,000
Payment of accruals 262,703
Note Conversion 250,000
Payment of Expenses 293,085
Additional Note Costs 447,912
These shares were issued with reliance on an exemption from
registration requirements provided in Section 4(2) of the Securities Act of
1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 31.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
A Form 8K was filed on May 17, 2004 advising of the change of auditors
because the previous auditors are no longer authorized to do auditing
for public companies.
14
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BLUE MOON GROUP, INC.
---------------------
(Registrant)
/s/ Michael Muzio
-----------------
Dated: May 17, 2004 Michael Muzio
President
15