U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Form 10-QSB

 

(Mark One)

 

 

Commission File Number: 000-26073

 

Immediatek, Inc.

(Exact name of small business issuer as specified in its charter)

 

 

Registrant’s telephone number, including area code: (972) 852-2876

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934  during the past 12  months  (or 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 ý No o

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDING DURING THE PRECEDING FIVE YEARS

 

Check whether the Registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

 

Yes o No o

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Common Stock, $0.001 par value per share, 500,000,000 shares authorized,  as of March 31, 2004, the issuer had 22,958,218 shares of common stock outstanding.

 

Traditional Small Business Disclosure Format (check one)

 

Yes o No ý

 

 

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Balance Sheet (unaudited)
	Statements of Operations (unaudited)
	Statements of Cash Flows (unaudited)
	Notes to Financial Statements
Item 2.	Management’s Discussion and Analysis of Plan of Operation
Item 3.	Controls and Procedures
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings
Item 2.	Changes in Securities and Use of Proceeds
Item 3.	Defaults upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
Signatures

 

2

 

PART I. FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS AND EXHIBITS

 

Immediatek, Inc

(formerly ModernGroove Entertainment, Inc.)

(a Development Stage Company)

Balance Sheet

 

		March 31, 2004
Assets
Current assets:
Cash		$	126,237
Accounts receivable		1,647
Prepaid rent		5,760
Total current assets		133,644
Fixed assets, net		24,940
Intellectual property		65,601
		$	224,185
Liabilities and Stockholders’ (Deficit)
Current liabilities:
Accounts payable		$	96,731
Accrued liabilities		18,540
Subscriptions payable		305,300
Total current liabilities		420,571
Convertible debt		9,500
Stockholders’ (deficit):
Common stock, $0.001 par value, 500,000,000 shares authorized, 22,958,218 shares issued and outstanding		22,958
Additional paid-in capital		3,621,671
(Deficit) accumulated during development stage		(3,850,515		)
		(205,886		)
		$	224,185

 

The accompanying notes are an integral part of these financial statements.

 

3

 

Immediatek, Inc.

(formerly ModernGroove Entertainment, Inc.)

(a Development Stage Company)

Statements of Operations

 

		Three months ended March 31,
		2004			2003
Revenue, net		$	7,933		$	8,965
Costs and expenses:
Direct cost of services		3,000			—
Network and infrastructure		1,753			—
Research and development		50,000			—
Sales and marketing expenses		58,118			—
Depreciation expense		734			—
General and administrative expenses		108,784			66,773
Non-cash consulting fees		—			68,400
Non-cash compensation expense - related party		—			2,335,080
Administrative salaries		18,900			—
Officer salaries		50,250			5,992
Total expenses		291,539			2,476,245
Net (loss)		$	(283,606	)	$	(2,467,280	)
Weighted average number of common shares outstanding - basic and fully diluted		22,958,218			20,379,997
Net (loss) per share - basic and fully diluted		$	(0.01	)	$	(0.12	)

 

The accompanying notes are an integral part of these financial statements.

 

4

 

Immediatek, Inc.

(formerly ModernGroove Entertainment, Inc.)

(a Development Stage Company)

Statements of Cash Flow

 

		Three months ended March 31,
		2004			2003
Cash flows from operating activities
Net (loss)		$	(283,606	)	$	(2,467,280	)
Adjustments to reconcile net (loss) to net cash (used) by operating activities:
Depreciation		734			—
Shares issued for services		—			68,400
Shares issued as compensation to related parties		—			2,335,080
(Increase) decrease in accounts receivable		—			195
(Decrease) in accounts payable		(14,196		)	(6,189		)
Increase in accrued liabilities		18,540			—
Net cash (used) by operating activities		(278,528		)	(69,794		)
Cash flows from investing activities
Purchase of fixed assets		(19,097		)	—
		(19,097		)	—
Cash flows from financing activities
Payments on notes payable		—			(3,692		)
Proceeds from notes payable		—			72,500
Proceeds from subscriptions payable		305,300			—
Net cash provided by financing activities		305,300			68,808
Net (decrease) in cash		7,675			(986		)
Cash - beginning		118,562			4,845
Cash - ending		$	126,237		$	3,859
Supplemental disclosures:
Interest paid		$	—		$	—
Income taxes paid		$	—		$	—
Number of shares issued for services		—			380,000
Number of shares issued for services to related party		—			—
Number of shares issued as compensation to related parties		—			18,101,397

 

The accompanying notes are an integral part of these financial statements.

 

5

 

Immediatek, Inc.

(formerly ModernGroove Entertainment, Inc.)

(a Development Stage Company)

Notes

 

Note 1 - Basis of Presentation

 

The consolidated interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein.  It is suggested that these consolidated interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2003 and notes thereto included in the Company’s 10-KSB annual report.  The Company follows the same accounting policies in the preparation of interim reports.

Results of operations for the interim periods are not indicative of annual results.

 

Note 2 - Going concern

 

The Company’s financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  However, the Company has not generated significant revenues.  In order to obtain the necessary capital, the Company has raised funds via private placement offering.  If the securities offering does not provide sufficient capital, some of the shareholders of the Company have agreed to provide sufficient funds as a loan over the next twelve-month period.  However, the Company is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful, without sufficient financing it would be unlikely for the Company to continue as a going concern.

 

Note 3 – Fixed assets

 

The Company purchased $19,097 worth of computer equipment during the three months ended March 31, 2004.  Depreciation expense totaled $734 and $-0- for the three months ended March 31, 2004 and 2003, respectively.

 

Note 4 – Subscriptions payable

 

During the three months ended March 31, 2004, the Company received cash totaling $305,300 from 7 individual investors who subscribed to 1,017,667 shares of the Company’s $0.001 par value common stock.  The share certificates had not been issued to the investors as of March 31, 2004.

 

Note 5 – Stockholders’ equity

 

The Company is authorized to issue 500,000,000 shares of $0.001 par value common stock.

 

There were no issuances of common stock during the three months ended March 31, 2003.

 

Note 6 – Related party transactions

 

Convertible debt

The Company owed $9,500 in convertible debt to a shareholder as of March 31, 2004

 

6

 

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS

 

Immediatek, Inc., formerly called ModernGroove Entertainment, Inc., and originally called Barrington Laboratories, Inc., and, is a developmental stage company, hereinafter referred to as (“the Company”), was organized by the filing of Articles of Incorporation with the Secretary of State of the State of Nevada on August 6, 1998.  The Articles of Incorporation of the Company were amended on December 9, 2002 to officially change the name of the Company to Immediatek, Inc, and increase the number of authorized shares to five hundred million  (500,000,000) shares of common stock having a par value of $0.001.  The Corporation shall have the authority to issue and five million (5,000,000)  shares of preferred stock at a par value of $0.001.

 

Forward-Looking Statements

 

This quarterly report on Form 10-QSB includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by the use of forward-looking terminology such as, “may,” “expect,” “could,” “plan,” “seek,” “anticipate,” “estimate,” or “continue” or the negative thereof or other variations thereon or comparable terminology.

 

These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those referred to in the forward-looking statements and are made pursuant to the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995.  These statements are made based on management’s current expectations or beliefs as well as assumptions made by, and information currently available to, management.

 

A variety of factors could cause actual results to differ materially from those anticipated in the Company’s forward-looking statements, including the following factors: changes from anticipated levels of sales, access to capital, future national or regional economic and competitive conditions, changes in relationships with customers, difficulties in developing and marketing new products, marketing existing products, customer acceptance of existing and new products, validity of patents, technological change, dependence on key personnel, availability of key component parts, dependence on third party manufacturers, vendors, contractors, product liability, casualty to or other disruption of the production facilities, delays and disruptions in the shipment of the Company’s product, and the ability of the Company to meet its stated business goals.  For a detailed discussion of these and other cautionary statements and factors that could cause actual results to differ from the Company’s forward-looking statements, please refer to the Company’s filings with the Securities and Exchange Commission, especially Item 1. Description of Business” (including the “Risk Factors” section of Item 1) and “Item 6. Management’s Discussion and Analysis or Plan of Operation” of the Company’s 2003 Annual Report on Form 10-KSB.

 

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. The Company does not undertake any obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission.

 

Recent Developments:  Going Concern and Liquidity Problems

 

Our auditors have included an explanatory paragraph in their audit opinion with respect to our consolidated financial statements at December 31, 2003. The paragraph states that our recurring losses from operations and resulting continued dependence on access to external financing raise substantial doubts about our ability to continue as a going concern. Furthermore, the factors leading to and the existence of the explanatory paragraph may adversely affect our relationship with customers and suppliers and have an adverse effect on our ability to obtain financing.

 

7

 

We do not have sufficient working capital to sustain our operations.  We have been unable to generate sufficient revenues to sustain our operations. We will have to obtain funds to meet our cash requirements through business alliances, such as strategic or financial transactions with third parties, the sale of securities or other financing arrangements, or we may be required to curtail our operations, seek a merger partner, or seek protection under federal bankruptcy laws. Any of the foregoing may be on terms that are unfavorable to us or disadvantageous to existing stockholders. In addition, no assurance may be given that we will be successful in raising additional funds or entering into business alliances.

 

Liquidity and Capital Resources

 

Since inception, we have utilized the proceeds from a number of private sales of our equity securities, the exercise of options and warrants to meet our working capital requirements. At March 31, 2004, we had working capital of $126,237.

 

Our operations generated losses in 2003 and continue to generate losses in 2004. Our cash increased $7,675 during the three months ended March 31, 2004 with operating activities using $278,528 of cash. We funded operations primarily through cash on hand from borrowings and equity offerings over the last couple of years.  No assurance can be given that such activities will continue to be available to provide funding to us.  Our business plan for 2004 is predicated principally upon the successful marketing of our music software products and sales of concert CD’s from our new wholly owned subsidiary, DiscLive, Inc.. We anticipate that our existing working capital resources and revenues from operations will not be adequate to satisfy our funding requirements in 2004.

 

Our working capital requirements will depend upon many factors, including the extent and timing of our product sales, our operating results, the status of competitive products, and actual expenditures and revenues compared to our business plan. We are currently experiencing declining liquidity, losses from operations and negative cash flows, which make it difficult for us to meet our current cash requirements, including payments to vendors, and may jeopardize our ability to continue as a going concern. We intend to address our liquidity problems by controlling costs, seeking additional funding (through capital raising transactions and business alliances) and maintaining focus on revenues and collections.

 

If our losses continue, we will have to obtain funds to meet our cash requirements through business alliances, such as strategic or financial transactions with third parties, the sale of securities or other financing arrangements, or we may be required to curtail our operations, seek a merger partner, or seek protection under federal bankruptcy laws. Any of the foregoing may be on terms that are unfavorable to us or disadvantageous to existing stockholders. In addition, no assurance may be given that we will be successful in raising additional funds or entering into business alliances.

 

Results of Operations

 

During the three months ended March 31, 2004, the Company generated $ 7,933 in revenues, this compares to  $8,965 in revenues for the same period last year.  In its most recent three month operating period ended March 31, 2004, the Company experienced a net loss of $283,606 versus a net loss of $2,467,280 for

 

8

 

the same period last year.  The bulk of this loss came from general and administrative expenses of $108,784; sales and marketing expenses of $58,118 and research and development of $50,000. During the first three months, the Company continued to seek new strategies for marketing its business plan.

 

For the quarter ended March 31, 2004, approximately 42% of sales were derived from one customer, SOLD-RITE, LLC.

 

The major components to expenses faced by the company in its day-to-day operations includes auditor fees, legal fees, developing software, databases, marketing its internet site, and general administrative expenses.  If the Company becomes profitable, the company will access salaries and adding additional personnel to the payroll.  Management intends to continue minimize costs until such a time in its discretion it believes expansion would be prudent.  One element in making this determination is positive cash flow on a quarterly basis.  If or when the company is successful in achieving this quarterly positive cash flow, it is likely that the company will consider expanding its personnel which will increase costs.

 

Plan of Operation

 

Management does not believe that the Company will be able to generate significant profit during the coming year, unless the company can expand its customer base for its NetBurn (tm) products and it can operate its new wholly owned subsidiary, DiscLive, Inc. at a profit.  NetBurn (tm) is a patent- pending digital delivery system which allows web and NetBurn Station(tm) users to download and burn fully licensed music tracks by utilizing a simple “one- click” interface, while at the same time protecting the copyright holders who own the material. DiscLive is a company which records live concerts, manufactures and sell CD recordings of the event within minutes of the concert’s ending. Management does not believe the company will generate any significant profit in the near future, as developmental and marketing costs will most likely exceed any anticipated revenues.

 

Liquidity and Capital Resources

 

During the first quarter, the Company sold 1,017,667 shares of its $0.001 par value common stock to seven accredited investors for the sum of $305,300.  The shares will be issued in the second quarter.

 

The Company could be required to secure additional financing to fully implement its entire business plan.  There are no guarantees that such financing will be available to the Company, or if available, will be on terms and conditions satisfactory to management.

 

The Company has no current commitments or other long-term debt.  Additionally,  the Company has and may in the future invest in short-term investments from time to time.  There can be no assurance that these investments will result in profit or loss.

 

9

 

Employees

 

The Company currently has nine full time employees and three part time employees. The Company has no material commitments for capital expenditures nor does it foresee the need for such expenditures over the next year.

 

Market For Company’s Common Stock

 

Market Information

 

On September 14, 1999, the Company’s common stock was initially cleared for trading on the OTC Bulletin Board system under the symbol BRRT.  The Company subsequently changed its name to ModernGroove Entertainment, Inc., and its trading symbol to:  MODG.  On January 7, 2003, the Company changed its name to Immediatek, Inc. and its trading symbol to IMDK.  On February 25, 2003, the Company initiated a 1 for 250 reverse stock split and changed it trading symbol to ITEK.  A very limited market exists for the trading of the Company’s common stock.

 

As of March 31, 2004 there were approximately 4,556,698 warrants to purchase the Company’s common stock. The following chart reflects the number of warrants, exercise price and expiration date for the warrants outstanding

 

# of Warrants			Exercise Price			Expiration
3,002,302			$	020		March 22, 2007
300,230			$	0.20		March 22, 2007
200,000			$	1.00		March 20, 2005
166,667			$	0.30		February 19, 2006
270,833			$	0.15		April 30, 2004
145,833			$	0.15		April 30, 2004
20,833			$	0.15		April 30, 2004
450,000			$	0.65		April 14, 2006

 

All warrants set to expire on April 30, 2004 have been exercised and certificates will be issued by the Company shortly. The Warrants may not be sold or transferred without complying with Rule 144 in the absence of an effective registration or other compliance under the Securities Act.  There is currently no Common Stock, which is subject to outstanding options to purchase, or securities convertible into, the Company’s common stock.

 

Other than affiliates, there is currently no common stock of the Company which could be sold under Rule 144 under the Securities Act of 1933 as amended.

 

Dividends

 

Holders of common stock are entitled to receive such dividends as the board of directors may from time to time declare out of funds legally available for the payment of dividends. No dividends have been paid on our common stock, and we do not anticipate paying any dividends on our common stock in the foreseeable future.

 

Item 3. Controls and Procedures

 

Within the 90 days prior to the date of this report, we carried out an evaluation,  under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Securities Exchange Act Rule  13a-14.  Based upon that evaluation,  our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries)  required to be included in our periodic SEC filings.  There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

10

 

PART II OTHER INFORMATION

 

ITEM 1.  Legal Proceedings

 

The Company as plaintiff initiated a lawsuit in Texas State District Court on October 2,2003 against FRANK MERHIB, SCOTT WILDING,JENNIFER MERHIB, J & SON CONSULTING, a Florida Corporation, and RESEARCH INVESTMENT GROUP, a Florida Corporation alleging that the aforementioned defendants engaged jointly and severally in activity amounting to, among other causes of action, business disparagement of Immediatek and its president, Zach Bair. The lawsuit has demanded certain damages from the defendants and the court has granted temporary injunctions against the several defendants. The parties have entered into settlement discussions.

 

ITEM 2.  Changes in Securities and Use of Proceeds

 

We have initiated a Regulation D, Rule 506 private placement whereby the company is offering up to 2,000,000 shares of its common stock at $0.30 per share for a total offering of up to $600,000. As of March 31, 2004 we have sold 1,017,667 shares for the sum of $305,300.

 

ITEM 3.  Defaults upon Senior Securities

 

None.

 

ITEM 4.  Submission of Matters to a Vote of Security Holders

 

During the quarter ended March 31, 2004, no matters were submitted to the Company’s security holders.

 

ITEM 5.  Other Information

 

On April 9^, 2004 Immediatek, Inc. entered into an Acquisition Agreement to acquire all of the issued and outstanding capital stock of DiscLive, Inc., a Delaware corporation. In exchange for the DiscLive capital stock we gave each of the DiscLive stockholders their pro rata share of 1,666,667 shares of our common stock. The agreement provides that delivery of the Immediatek common stock and DiscLive capital stock will be delayed for a period of six (6) months to provide for adjustments or an unwinding if certain circumstances, as described in the agreement, occur or fail to occur. Upon completion of the transaction DiscLive will become a wholly owned subsidiary of Immediatek.

 

DiscLive provides a service to concert goers whereby DiscLive contracts with an artist or recording company, records a live concert and then offers for sale limited addition recordings of the concert within minutes after the

 

11

 

concert has ended.

 

We have recently completed a round of exempt financing including certain venture capital purchases of our common stock and completion of a Regulation D, Rule 506 private placement offering.  The largest single investment was by Jess Morgan & Co., Inc. in the amount of approximately $600,000 which resulted in the issuance to Jess Morgan of approximately 2,000,000 shares of our common stock. Our financing activities have raised a total of approximately $1,095,860 and resulted in our issuance of 3,652,866 shares of our common stock and 3,669,199 warrants. The warrants expire at various times with an average exercise price of $0.27 per share.

 

ITEM 6.  Exhibits and Reports on Form 8-K

 

(a)  Exhibits

 

Exhibit Number		Title of Document
31.1		Chief Executive Officer-Section 302 Certification pursuant to Section 302 Sarbanes-Oxley Act.
31.2		Chief Financial Officer Section 302 Certification pursuant to Section 302 Sarbanes-Oxley Act
32.1		Chief Executive Officer-Section 906 Certification pursuant to Section 902 Sarbane-Oxley Act.
32.2		Chief Financial Officer Section 906 Certification pursuant to Section 902 of the Sarbanes-Oxley Act

 

(b)  Reports on Form 8-K

 

1. Report on Form 8K filed with the Commission on April 20, 2004 concerning items 2,5 and 7.

 

12

 

SIGNATURES

 

In accordance with Section 12 of the Securities Exchange Act of 1934,  the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	Immediatek, Inc.
	(Registrant)
Dated: May 14, 2004	By:  /s/ Zach Bair
	Zach Bair
	Chairman of the Board
	President, Secretary
	Chief Executive Officer

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

 

	IMMEDIATEK, INC.
Date: May 14, 2004	By:  /s/ Zach Bair
	Zach Bair
	Chief Executive Officer

 

13