----

 

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

AMENDED FORM10-QSB/A-1

 

**
[X]**QUARTERLY REPORT    PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**For the quarterly    period ended March 31, 2005
 
**OR**
 
[_]**TRANSITION REPORT    PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
**For the transitionperiod from                 to                 **
 
**Commission File Number2-80891-NY**
 
**MODERN TECHNOLOGY CORP**
(Exact name ofregistrant as specified in its charter)

 
**Nevada
 **11-2620387
(State or other    jurisdiction of    incorporation or organization)
 
(I.R.S. Employer    Identification No.)
 
**1420 N. Lamar Blvd.Oxford, MS 38655**
(Address of principalexecutive offices)

 

Registrant's telephonenumber, including area code: **(662) 236-5928**
 

Indicate by check mark whether theRegistrant (1) has filed all reports required by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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 [_] 

 

Indicate by check mark whether theregistrant is an accelerated filer (as defined in Rule 12b-2 of the ExchangeAct). Yes [X] No [_] 

  

 

Indicate the number of sharesoutstanding of each of the issuer's classes of common stock, as of the latestpracticable date. 

 
**Class
 **Outstanding at    March 31, 2005
Common stock,    $0.001 par value
 
15,078,631
 

 

 

 

 
**MODERN TECHNOLOGYCORP.**
 
**Table of Contents**
 
**PART I.****FINANCIAL INFORMATION**
   
 Item 1.    Consolidated Financial Statements (unaudited)
  
Consolidated Balance Sheets

  
Consolidated Statements of Operations

  
Consolidated Statements of Cash Flows

  
Notes to Consolidated Financial Statements

 Item 2.Management's Discussion and    Analysis of Financial Condition and Results of Operations
     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
**Item 1.Consolidated Financial Statements (unaudited)**
 
**PART I - FINANCIAL INFORMATION**
 

 

Amended pursuant to changes made to financial statements as aresult of our auditors completing their review of the financial statements.
**MODERN TECHNOLOGYCORP.

NOTESTO THE CONSOLIDATED FINANCIAL STATEMENTS 

MARCH 31, 2005 

(Unaudited)

NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS**
Modern Technology Corp. ("The Registrant") is engaged in aiding bothprivately held and publicly-traded companies in the areas of businessdevelopment, financing, product development, corporate strategy, corporate imageand public relations, product distribution and marketing, and executivemanagement consulting. We refer to our customers and clients as "portfoliocompanies". We charge for our services in cash or equity in the portfoliocompany. We may also exchange our services for revenue sharing of future salesof products or sharing of proceeds from the sale of licenses and technologiesowned by our portfolio companies. Our long-term strategy is to increaseshareholder equity through ownership in many growing companies and build astrong recurring revenue stream earned from agreements with our portfoliocompanies. 

On January 24, 2005, the Company purchased 51% of Sound City, Inc. ("SoundCity"), a consumer electronics company with customers across the U.S. 
**NOTE 2:         SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION**
The consolidated financial statements include the accounts of the Company andall of its subsidiaries in which a controlling interest is maintained. Allinter-company accounts and transactions have been eliminated. The consolidatedfinancial statements have been prepared in United States dollars.     
**CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES**
The preparation of financial statements in accordance with accountingprinciples generally accepted in the United States of America requires theCompany to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses and disclosure of contingent assetsand liabilities. On an ongoing basis, the Company evaluates its estimates andjudgments, including those related to revenue recognition, inventories, adequacyof allowances for doubtful accounts, valuations of long-lived assets andgoodwill, income taxes, litigation and warranties The Company bases itsestimates on historical and anticipated results and trends and on various otherassumptions that the Company believes are reasonable under the circumstances,including assumptions as to future events. The policies discussed below areconsidered by management to be critical to an understanding of the Company'sfinancial statements. These estimates form the basis for making judgments aboutthe carrying values of assets and liabilities that are not readily apparent fromother sources. By their nature, estimates are subject to an inherent degree ofuncertainty. Actual results may differ from those estimates.
**RECLASSIFICATIONS**
Certain items from prior periods within the financial statements have beenreclassified to conform to current period classifications.     
**CASH AND CASH EQUIVALENTS**
Cash Equivalents consist of highly liquid, short-term investments withoriginal maturities of 90 days or less. The carrying amount reported in theaccompanying balance sheets approximates fair value.
**INCOME TAXES**
The company accounts for income taxes in accordance with Statement ofFinancial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes"("SFAS No. 109"). SFAS No. 109 has as its basic objective the recognition ofcurrent and deferred income tax assets and liabilities based upon all eventsthat may have been recognized in the financial statements as measured by theprovisions of the enacted tax laws. 

Valuation allowances are established when necessary to reduce deferred taxassets to the estimated amount to be realized. Income tax expense represents thetax payable for the current period and the change during the period in thedeferred tax assets and liabilities. 
**ACCOUNTS RECEIVABLE**
Accounts receivable are judged as to collectibility and a reserve isestablished as considered necessary. No reserve was established as of March 31,2005.
**INVENTORY**
Inventory is stated at the lower of cost (first-in,first-out) or market (net realizable value) and consists principally of finishedgoods.

**PROPERTY AND EQUIPMENT**
Property and equipment are recorded at cost. Depreciation ofproperty and equipment is provided using straight-line and accelerated methods.The estimated useful lives are as follows:

Years

Furniture, fixtures and                                    equipment 5 - 7

Transportation equipment                                    5

Leasehold improvements                                    31.5

Buildings 39

Expenditures for major renewals and betterment that extendthe useful lives of property and equipment are capitalized. Expenditures formaintenance and repairs are charged to expense as incurred.

Depreciation expense for Sound City for the three monthsended March 31, 2005 amounted to $7,567. Modern Technology had no depreciationexpense for the nine months ended March 31, 2005.

**MORTGAGE REFINANCING COSTS**
Mortgage refinancing costs are amortized using thestraight-line method over the term of the mortgage. Amortization expense forSound City for the three months ended March 31, 2005 amounted to $306. ModernTechnology had no amortization expense for the nine months ended March 31, 2005.

**REVENUE RECOGNITION**
The Company generally recognizes revenue upon shipment whenthe collectibility of the resulting receivable is reasonably assured. TheCompany allows credit for products returned within its policy terms. Suchreturns are estimated and an allowance for product returns is recorded at thetime of sale, as necessary.

**IMPAIRMENT OF LONG-LIVED ASSETS**
The company regularly reviews long-lived assets forindicators of impairment. Management's judgments regarding the existence ofimpairment indicators are based on performance. Future events could causemanagement to conclude that impairment indicators exist and that the value oflong-lived assets is impaired. When events or circumstances indicate that thecarrying amount of an asset may not be recoverable, the fair value of the assetis compared to its carrying value. Impairment losses are measured as the amountby which the carrying value of an asset exceeds its estimated fair value.

**ADVERTISING**
Advertising costs are expensed as incurred. Advertisingexpense for the three and nine months ended March 31, 2005 was $9,653 and$13,835 respectively.

**SHIPPING AND HANDLING COSTS**
Amounts billed to customers for shipping costs resulting froma sales transaction are included in Revenues while costs incurred by the Companyfor shipping and handling are included in cost of goods sold. 

 

**IMPACT OF NEW ACCOUNTING STANDARDS**
In December 2003, the FASB issued Interpretation No. 46R, "Consolidation ofVariable Interest Entities" (revised December 2003) - an interpretation of ARBNo. 51. A variable interest entity ("VIE") is one where the contractual orownership interest in an entity change with changes in the entity's net assetvalue. This interpretation requires the consolidation of a VIE by the primarybeneficiary, and also requires disclosure about VIEs where an enterprise has asignificant variable interest but is not the primary beneficiary. Sound Cityleases a facility from a Limited Liability Company ("LLC"), owned by theminority shareholders. Under FIN 46R, the LLC is a VIE and the Company hasconsolidated the LLC in its consolidated financial statements. The consolidationof this VIE has added $616,049 of assets and $411,404 of liabilities to ourconsolidated balance sheet as of March 31, 2005.

In December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104,"Revenue Recognition, ("SAB No 104") " which codifies, revises, and rescindscertain sections of SAB No. 101, "Revenue Recognition," in order to make thisinterpretive guidance consistent with current authoritative accounting andauditing guidance and SEC rules and regulations. The changes in SAB No. 104 didnot have a material impact on the Company's financial position or results ofoperations. 

On March 31, 2004, the FASB issued an exposure draft, "Share-Based Payment,an Amendment of SFAS No. 123 and 95." The exposure draft proposes to expense thefair value of share-based payments to employees beginning in 2005. We arecurrently evaluating the impact of this proposed standard on our financialstatements.
**STOCK BASED COMPENSATION**
On April 15, 2003, Pharmavet agreed to pay $10,000 and 10,000 shares ofPharmavet Inc. for legal services provided for filing of Form SB-2. This serviceis valued at fair market value at approximately $15,000. This entire amount wascharged to Deferred Registration Costs. This stock based compensation plan isaccounted for in accordance with SFAS No. 123, "Accounting for Stock-BasedCompensation." During the quarter of December 31, 2003, 10,000 shares werereturned and cancelled. The costs of these shares were credited against DeferredRegistration Costs.

During the nine months ended March 31, 2005, the Company issued 735,000shares of Modern Technology Corp. Common Stock for legal and consulting servicesrendered or to be rendered in the coming year. $69,289 was charged to DeferredCompensation relating to these shares. During the nine months ended March 31,2005, the Company issued 13,000,000 shares of Common Stock to Anthony Welchpursuant to the Reorganization Agreement. The compensation portion of thisagreement was valued at $1,300 and charged to expense. This stock basedcompensation is accounted for in accordance with SFAS No. 123. 
**EARNINGS PER SHARE**
The Financial Accounting Standards Board ("FASB") issuedStatement of Financial Accounting Standards No. 128, "Earnings per Share",("SFAS 128"). SFAS 128 replaced the previously reported primary and fullydiluted earnings per share with basic and diluted earnings per share. Unlikeprimary earnings per share, basic earnings per share excludes any dilutiveeffects of options, warrants, and convertible securities. The diluted earningsper share calculation is very similar to the previously utilized fully dilutedearnings per share calculation method. 
**NOTE 3:         CONCENTRATIONS OFCREDIT RISK**
The Company's financial instruments that are exposed to concentrations ofcredit risk consist primarily of cash.
**NOTE 4:         MARKETABLE SECURITIES**
During the year ended June 30, 2003, the investment in 117,250 shares ofcommon stock of MediCor Ltd. was considered a trading security in accordancewith SFAS No. 115, "Accounting for Certain Investments in Debt and EquitySecurities ("SFAS No. 115")" MediCor Ltd. shares are traded on the NASDover-the-counter bulletin board system. The cost of these shares is $82,520. TheCompany sold all the shares of MediCor Ltd. As of March 31, 2004, the Companyrecognized $41,714 realized gain. As of March 31, 2004, the Company hadliquidated all of its marketable securities or written off all securities deemedworthless. During May 2004, Mr. Welch, CEO and President, contributed $57,677 ofmarketable securities investment pursuant to Modern's plan for reorganization.As of June 30, 2004, the Company reported $33,922 unrealized loss. As of March31, 2005, the Company recognized $3,392 unrealized gain. On January 24, 2005,the Company entered into a Purchase Agreement whereby we purchased a $1,500,000DeMarco Convertible Debenture. The Company follows SFAS No. 115 and hasconsidered these securities to be trading securities.
**NOTE 5:         INVESTMENT EQUITYSECURITIES (AT COST)**
During the quarter ended September 30, 2003, the Company recognized anunrealized loss of $1,431 on its investment in Daine Industries. As of June 30,2004, the Company wrote off $1,431 of Daine Common Stock investment of 360,000restricted shares to realized loss. As of June 30, 2004, all shares of Pharmavetwere returned and cancelled. The costs of these shares were credited againstDeferred Registration costs. The Company has established a valuation allowanceof $100,000 against its investment in Interactive Medicine Inc. to reflect theuncertainty of the fair market value of the investment as of March 31, 2005. Thenet investment value in Interactive Medicine Inc. is zero as of March 31, 2005.
**NOTE 6:         ACQUISITIONS

Sound City**
On January 24, 2005, the Company purchased 51% of Sound City for $2,000,000with an option to acquire the remaining 49%. The option is valid throughDecember 31, 2009, and can be exercised for $3,500,000, which is payable incash, stock or a combination of cash or stock. . During the quarter ending March31, 2005, the Company has filed a current report on Form 8-K, containingadditional pro forma, historical financials and other exhibits.

The financial statements reflect various purchase price allocations.  Inaccordance with SFAS No. 141, Business Combinations ("SFAS No. 141"), the totalpurchase price was allocated to the tangible and intangible assets of Sound Citybased upon their estimated fair values at the acquisition date with the excesspurchase price allocated to goodwill. The purchase accounting adjustments madeare based upon currently available information.  Accordingly, the actualadjustment recorded in connection with the final purchase price allocation maybe updated according to SFAS No. 141, and any such changes may be material.

The following table summarizes the components of the total purchase price andthe allocation as of the date of acquisition:

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets ("SFASNo. 142"), goodwill will not be amortized and will be tested for impairment atleast annually.  The amounts contained in the purchase price allocation maychange as additional information becomes available regarding the assets andliabilities acquired.  Any change in the fair value of the net assets willchange the amount of the purchase price allocable to goodwill.

The following adjustments have been reflected in the balance sheet.

(a)    To reflect goodwill.

The following unaudited pro-forma financial information reflects thecondensed consolidated results of operations of the Company as if theacquisition had taken place on July 1, 2003.  The pro-forma financialinformation is not necessarily indicative of the results of operations had thetransaction been effected on July 1, 2003.
**DeMarco Energy Systems of America, Inc.**
On January 24, 2005, the Company purchased an outstandingconvertible debenture in the amount of $1,500,000 issued by DeMarco EnergySystems of America. The debenture is convertible into shares of common stock ofDeMarco. The convertible debentures bear interest at 10%, matured on March 25,2003, and are convertible into shares of Demarco common stock, at the sellingstockholders' option, at the lower of (i) $0.15 or (ii) 60% of the average ofthe three lowest intraday trading prices for the common stock on a principalmarket for the 10 trading days before but not including the conversion date. Asof May 2, 2005, the $1,500,000 convertible debenture was convertible into250,000,000 shares of DeMarco common stock.

 

We have no formal agreements with this portfolio company outside our being aholder of the convertible debenture. We have an informal agreement to assistthem where practicable to further their plans and efforts, although there are nowritten agreements to this effect and we are not obligated to perform anyservices for them
**NOTE 7: LONG-TERM DEBT

Long-term debt consists of the following:                                                                                      March 31, 2005

    Note payable to Kamel Yassin in the 
Original amount    of $400,000 bearing

Interest at a    rate of 5% per annum will

Be due and    payable on December 31, 

2006.                                                                                                                                        $ 400,000

 

Note payable to    Mervet Yassin in the 

Original amount    of $400,000 bearing

Interest at a    rate of 5% per annum will

Be due and    payable on December 31,

2006.                                                                                                                                          400,000

 

Note payable to    Valley National Bank

in the original    amount of $300,000,

payable in    monthly installments of

$5,742.46    including interest at 5.5%.

The loan is    secured by the personal 

Guarantee of the    shareholders and a

mortgage on    property owned by the

shareholders. The note will be fully
paid May, 2008.                                                                                                                       200,553

Note payable to BMW Financial in    the
original amount    of $20,741, payable

in monthly    installments of $419.53 
Including interest at 3.9%. The loan is
secured by    transportation equipment. The

note will be    fully paid May, 2008.                                                                                             15,337
                                                                                                                                             1,015,890

Less: current portion                                                                                                                             65,362

                                                                                                                                                        $ 950,528

                                                                                                                                                        =======
**NOTE 8: CONVERTIBLE NOTES PAYABLE**
 
**NOTE 9: MORTGAGE PAYABLE**** 

NOTE 10: INVENTORY LINE OF CREDIT

As of March 31, 2005, Sound City had a $750,000 InventorySecurity Agreement with GE Capital. Under the Agreement the Company may apply toGE Capital for an extension of credit to purchase inventory. Advances are repaidwithout interest 90 days after the Company receives the funds. Late payments aresubject to finance charges. GE Capital has a security interest in all Companyassets and the personal guarantee of the stockholders. The amount due as ofMarch 31, 2005 was $321,422 and is included in accounts payable. 

As of May 2, 2005 this line of credit has been reduced to$200,000.

 
**NOTE 11: PREFERRED STOCK**
We are authorized to issue up to 20,000,000 shares of Preferred Stock, parvalue $.0001. As of March 31, 2005, there were 1,500 shares of preferred stockissued and outstanding.

*SERIES A CONVERTIBLE PREFERRED STOCK*
To obtain funding for our ongoing operations, we entered into a        Securities Purchase Agreement with four accredited investors on January        24, 2005 for the sale of (i) $2,000,000 in secured convertible notes;        (ii) 1,500 shares of series A convertible preferred stock at $1,000 per        share and (iii) warrants to buy 3,000,000 shares of our common stock.        Each share of series A convertible preferred stock is convertible into        $1,000 of our common stock, at 85% of the average of the three lowest        intraday trading prices for the common stock on a principal market for        the 20 trading days before but not including the conversion date.

The holders of the series A preferred stock are entitled to receive,        when, if and as declared by the Board of Directors, cumulative dividends        in the amount of six percent (6%) per annum, payable quarterly in        arrears. We are obligated to repurchase the shares of series A        convertible preferred stock at 130% of the stated value, plus accrued        but unpaid dividends, upon written notice from the holders of a majority        of the series A convertible preferred stock upon the occurrence of any        of the following events of default: our failure to issue shares of        common stock upon conversion by the holder, our failure to timely file a        registration statement or have such registration statement declared        effective, the assignment or appointment of a receiver to control a        substantial part of our property or business, the commencement of a        bankruptcy, insolvency, reorganization or liquidation proceeding against        our company or the delisting of our common stock, if the default is not        cured with the specified grace period.

All shares of series A convertible preferred stock issued and        outstanding on January 24, 2008 shall automatically convert into shares        of our common stock in accordance with the conversion price calculation.

 
**NOTE 12: SECURITIES PURCHASE AGREEMENT**
On January 24, 2005, the Company entered into a Securities Purchase Agreementwith AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and NewMillennium Capital Partners II, LLC for the sale of (i) $2,000,000 in securedconvertible notes and (ii) warrants to purchase 3,000,000 shares of our commonstock and (iii) entered into a Purchase Agreement whereby we purchased a$1,500,000 DeMarco Convertible Debenture in exchange for 1,500 shares of ourSeries A Convertible Preferred Stock. 

The secured convertible notes bear interest at 8%, mature two years from thedate of issuance, and are convertible into Modern common stock, at theinvestors' option, at the lower of $0.44 or 40% of the average of the threelowest intraday trading prices for the common stock on the Over-The-CounterBulletin Board for the 20 trading days before but not including the conversiondate. The secured convertible notes are secured by the personal guarantee of theshareholder with a collateral of 5.5 million shares of Modern Technology commonstock.

The warrants are exercisable until five years from the date of issuance at apurchase price of $0.40 per share. The investors may exercise the warrants on acashless basis if the shares of common stock underlying the warrants are notthen registered pursuant to an effective registration statement. The fair marketvalue of the warrants on the date of issuance was determined to be $330,000 andis recorded in the consolidated financial statements as a discount on theconvertible notes. The discount will be amortized over the two-year life of thesecured convertible notes. 

The DeMarco convertible debenture is fully matured and bears interest at arate of 10% per annum with interest payments due quarterly. Modern has theoption to convert any unpaid principal into shares of DeMarco common stock atany time after the original issue date. 
**NOTE 13: STOCK PURCHASE AGREEMENT**
On January 24, 2005, the Company entered into a Stock Purchase Agreement withSound City, Inc. The agreement is to purchase 51% of the issued and outstandingshares of common stock of Sound City, Inc. for an aggregate purchase price of$2,000,000 and to provide $700,000 in funding to Sound City, Inc. As part of theagreement, the Company also issued promissory notes in the amounts of $400,000each to Kamel Yassin, President of Sound City and Mervet Yassin, CFO of SoundCity. The promissory notes bear interest from the date of issuance at the rateof 5% per annum simple interest. Interest accrued to June 30, 2005 will bepayable in full on June 30, 2005. Thereafter, interest accrued on the unpaidprincipal during the calendar quarter will be payable quarterly on the last dayof each calendar quarter during the term of the note, with the first suchquarterly interest payment being payable on September 30, 2005. The principaland accrued interest will be due and payable on December 31, 2006. 
**NOTE 14:         INCOME TAX EXPENSE(BENEFIT)**
                  The provision for income taxes is comprised of thefollowing:

                                                                                   03/31/05                     03/31/04
                           Current                                               $-0-                         $-0-
                           Deferred                                             -0-                         -0-
                                                                                     $-0-                       $-0-
The provision for income taxes differs form the amount computed by    applying the statutory federal income rate as follows:

                                                                                   03/31/05                     03/31/04
                           Expected statutory amount                $ -0-                        $ -0-
                           Net operating loss                                -0-                           -0-
                           State income taxes, net
                           of federal benefit                                 -0-                          -0-
                                                               $ -0-                            $    -0-
 

Deferred income taxes reflect the net tax effects of temporary    differences between the carrying amounts of assets and liabilities or    financial reporting purposes and amounts used for income tax purposes and    the impact of available net operating loss carryforwards.

The tax effects of significant temporary differences, which comprise the    deferred tax assets, are as follows:

 

                                                                                                                03/31/05                                                         06/30/04
Deferred tax assets:             Net operating loss             Carryforwards              $189,814                    $129,070             Gross deferred tax assets   189,814                     129,070             Valuation allowance        (189,814)                   (129,070) 
                                              Net deferred tax                                              $----0----                                                         $----0----         

 

The net operating loss of approximately $345,000 expires in the year    ended June 30, 2024. The tax benefits have been fully reserved due to a lack    of consistent operating profitability.**NOTE 15: EARNINGS PER SHARE**
A reconciliation of weighted average shares outstanding, usedto calculate basic loss per share, to weighted average shares outstandingassuming dilution, used to calculate diluted loss per share, follows:

9,085,193 and 0common equivalent shares have been excluded from the computation of dilutedearnings per share because their effect would be anti-dilutive.

 
**NOTE 16: POSTRETIREMENT BENEFITS**
The Company does not maintain any employee benefits currently. The Companydoes not maintain a plan for any Postretirement employee benefits; therefore, noprovision was made under SFAS No. 106, "Employers' Accounting for PostretirementBenefits Other Than Pensions" and SFAS No. 112, "Employers' Accounting for Postemployment Benefits-an amendment of FASB Statements No.5 and 43."
**NOTE 17:       RELATED PARTY TRANSACTIONS**
Arthur Seidenfeld, President and a director of the Company until March 15,2004, owned 47.9% of the outstanding shares of Modern Technology Corp on June30, 2004. Anne Seidenfeld, Treasurer, Secretary and a director of the Companyuntil March 15, 2004, owned approximately 12% of the outstanding shares ofModern Technology Corp on June 30, 2004. Anne Seidenfeld is Arthur Seidenfeld'smother. There were no related party transactions.

Pharmavet was formed on April 15, 2003 to commercialize the agreement Modernsigned with Centrovet to represent Centrovet as a sales representative. Moderninvested $7,830 and orally agreed to advance up to $100,000 to cover Pharmvet'sworking capital needs for the twelve months through June 30, 2004 and to coverthe costs related to filing of the registration statement. As of December 31,2003 and June 30, 2003, Modern's previous president, Arthur Seidenfeld, who wasalso president of Pharmavet, advanced $2,594 and $1,848 respectively toPharmavet to cover certain operational expenses. For the investment of $7,830,Modern was issued 403,000 shares of Pharmavet. At March 31, 2004, the investmentin Pharmavet was terminated and appropriate write-downs effected.

Robert Church, CFO of the Company, is also a Partner of Church, DeVoe &Associates to which the Company expensed $18,175 in accounting fees during thenine months ended March 31, 2005. 

In February 2005, the Company entered into a lease agreement with AnthonyWelch, CEO of the Company. The lease agreement will terminate on January 31,2006. Rent expense under this related party lease totaled $1,700 for the ninemonths ended March 31, 2005. The Company must pay Mr. Welch a total of $10,200in rent by January 31, 2006.

Sound City leases a facility from its shareholders. The lease expires June30, 2014. Sound City is responsible for taxes and other expenses on an annualbasis.

Rent expense under this related party lease for the ninemonths ended March 31, 2005 totaled $24,000. 

                                               Future minimum annual rent is as follows:
2005                                                    $ 168,000

2006                                                       192,000

2007                                                       197,760

2008                                                       203,693

2009                                                       209,804

            Thereafter                                             1,147,292
                                                         $ 2,118,549
 

At March 31, 2005, Sound City had a Demand Promissory Note (the "Note")payable to its shareholders in the amount of $1,126,798. The note is unsecured,subordinated, non-interest bearing and is payable upon demand. Sound City alsohad loans payable to related parties in the amount of $91,314. These loans areunsecured, subordinated, non-interest bearing and are payable demand. The loanspayable to related parties are classified as non-current in the Balance Sheet atMarch 31, 2005, because repayment is not anticipated during the next year.
In the normal course of business, Sound City purchases from and sells toSammans Electronics Inc (Sammans). Sammans is owned by a relative of SoundCity's shareholders. For the three months ended March 31, 2005, purchases toSammans totaled $5,370. For the three months ended March 31, 2005, sales toSammans Electronics Inc. totaled $13,941.

Pursuant to the stock sale agreement dated January 24, 2005, Sound Cityentered into an employment agreement with Kamel Yassin, President andShareholder of Sound City, for a $200,000 annual salary for a five-year term.
**NOTE 18: COMMITMENTS AND CONTINGENCIES

Sound City guarantees the mortgage debt of Yassin & Company,LLC, a real estate holding company owned by the stockholders. The amount ofoutstanding mortgage debt at March 31, 2005 was $411,404.

In addition, Sound City also guarantees the mortgage debt of Kamel Yassin,President and Shareholder of Sound City, and Mervet Yassin, CFO and Shareholderof Sound City, on commercial property owned by them. The amount of outstandingmortgage at March 31, 2005 was $354,470.
**NOTE 19: LETTER OF AGREEMENT**
On March 10, 2004, prior management through its desire and plan to providecontinuing value and future growth to shareholders executed a plan ofreorganization. The Company entered into a Letter of Agreement with currentPresident and CEO, Anthony Welch, wherein the Company's plans for reorganizationand ongoing plans for operations would be realized through the subsequentactions of new management. The terms of this Agreement provided for theappointment of a new Board of Directors, marketable securities to be depositedin the Company's brokerage account, a Reverse split of the Company's CommonStock, an application for OTCBB listing, issuance of shares to Mr. Welch, andongoing acquisitions and business development to pursue growth.

In March 2004 as part of our plan of reorganization and ongoing plan foroperations we applied for listing of our Common Stock on theover-the-counter-bulletin board. We received approval on July 19, 2004 and tradeunder the symbol MOTG.

On July 31, 2004 as part of our plan of reorganization and ongoing plan foroperations we effected a Reverse Split of the Company's Common Stock on a 1 for15 Basis. The effect of the Reverse Stock Split is reflected in the change inthe number of shares outstanding, retroactively within these financialstatements.

On August 17, 2004, 13 million common shares were issued to Anthony Welch.
**NOTE 20: OPERATIONS AND LIQUIDITY**
The Company has incurred substantial losses in 2004 and 2003. Until such timethat the Company's products and services can be successfully marketed, theCompany will continue to need to fulfill working capital requirements throughthe sale of stock and/or the issuance of debt. The inability of the Company tocontinue its operations as a going concern would impact the recoverability andclassification of recorded asset amounts. 

The ability of the company to continue in existence is dependent on itshaving sufficient financial resources to bring products and services to marketfor marketplace acceptance. As a result of its significant losses, negative cashflows from operations, and accumulated deficits for the periods ending March 31,2005, there is doubt about the Company's ability to continue as a going concern.

Management believes that its current available working capital, anticipatedrevenues, further planned reductions in operating expenses, and subsequent salesof stock and/or placement of debt instruments will be sufficient to meet itsprojected expenditures for a period of at least twelve months from March 31,2005.
**NOTE 21: INTERIM REPORTING**
The accompanying unaudited consolidated financial statement for the ninemonths ended March 31, 2005 and March 31, 2004 have been prepared in accordancewith the accounting principles generally accepted in the United States forinterim financial information and with instructions to Form 10-QSB and Item 310of Regulation S-B. Accordingly, they do not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates for complete financial statements. In the opinion of management, alladjustments (consisting only of normal recurring accruals, unless otherwiseindicated) considered necessary for a fair presentation of the results ofoperations for the indicated periods have been included. Certain amountsrecorded for the nine months ended March 31, 2005 are not necessarily indicativeof the results for the full fiscal year.
**Item 2. Management's Discussion and Analysis ofFinancial Condition and Results of Operations***This Report contains forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended, including, without limitation,statements regarding the Company's expectations, beliefs, intentions or futurestrategies that are signified by the words "expects," "anticipates," "intends,""believes," or similar language. These forward-looking statements, includingthose with respect to our operating results for 2004, are based upon currentexpectations and beliefs of the Company's management and are subject to risksand uncertainties that could cause results to differ materially from thoseindicated in the forward-looking statements. Some, but not all, of the factors,which could cause actual results to differ materially include those set forth inthe risks discussed below under the subheading "Risk Factors" and elsewhere inthis report. The Company undertakes no obligation to revise or publicly releasethe results of any revision to these forward-looking statements, or to explainwhy actual results differ. Readers should carefully review the risk factorsdescribed in this section below and in any reports subsequently filed with theSecurities and Exchange Commission.*
 
**Overview**
We were incorporated in Nevada in 1982 as a for-profitcorporation. We have never experienced any bankruptcy or similar proceeding. Weare engaged in aiding both private and public companies in the areas of businessdevelopment, financing, product development, corporate strategy, corporate imageand public relations, product distribution and marketing, and executivemanagement consulting. We collectively refer to companies in which we own anequity position as well as our customers and clients as "portfolio companies".We charge for our services in cash or equity in the portfolio company. We mayalso exchange our services for revenue sharing of future sales of products orsharing of proceeds from the sale of licenses and technologies owned by ourportfolio companies. We seek to grow through strategic acquisitions in additionto generating income from our services.

Our sources of revenue are primarily from:

* Consolidated revenues of      our portfolio companies which we own in majority;

* Management and consulting      fees we may charge our portfolio companies;

* Revenue sharing agreements      we may have with our portfolio companies;

* Royalty and licensing      proceeds from the sale of technology rights we may own in whole or in part      with our portfolio companies;

* Proceeds from the sale of      securities we may own in our portfolio companies;

* Proceeds from the interest      and payment of debt we may hold in our portfolio companies; and

* Proceeds from the      conversion of debt we may hold in our portfolio companies into marketable      securities and subsequent sale of same.
** 

OUR PORTFOLIO COMPANIES

Sound City**
We presently own 51% of Sound City with an option to acquirethe remaining 49%. The option is valid through December 31, 2009, and can beexercised for $3,500,000, which is payable in cash, stock or a combination ofcash or stock. Sound City, Inc. is a consumer electronics company with customersacross the U.S. Sound City markets audio and video solutions for home and mobileenvironments, including the HD-TV, Plasma TV and LCD TV market segments. As afull service dealer, Sound City provides a wide range of custom homeinstallations addressing numerous applications. With a customer base of over900,000 customers, Sound City is a large electronics mail order companies in theU.S., who distributes its products and solutions through its direct mail and Website channels. Consumers can also find the latest audio, video, car stereo andhome theatre products in Sound City's retail locations, including 12 customshowrooms. Sound City operates a web site at the following address: http://www.soundcity.com.**DeMarco Energy Systems of America, Inc.**
We are the holder of an outstanding convertible debenture inthe amount of $1,500,000 issued by DeMarco Energy Systems of America. Thedebenture is convertible into shares of common stock of DeMarco. The convertibledebentures bear interest at 10%, matured on March 25, 2003, and are convertibleinto shares of Demarco common stock, at the selling stockholders' option, at thelower of (i) $0.15 or (ii) 60% of the average of the three lowest intradaytrading prices for the common stock on a principal market for the 10 tradingdays before but not including the conversion date. As of May 2, 2005, the$1,500,000 convertible debenture was convertible into 250,000,000 shares ofDeMarco common stock.

We have no formal agreements with this portfolio companyoutside our being a holder of the convertible debenture. We have an informalagreement to assist them where practicable to further their plans and efforts,although there are no written agreements to this effect and we are not obligatedto perform any services for them.

DeMarco Energy's primary mission is to provide energyefficient technologies to commercial and institutional markets through theapplication of the DeMarco 'Systems' patent. The company owns a systems patentthat was granted on September 3, 1985, known as the Energy Miser System. Thecompany is primarily focusing on providing heating and air conditioning poweredby the thermal properties of managed water systems, which include gray-water,re-use water and potable water systems. DeMarco has exclusive rights to thepatented technology.
**Selecting Portfolio Companies**
We may purchase an equity position, whether minority ormajority, in various companies from time to time. We offer our services to newcustomers, also referred to as portfolio companies, for cash payment. We mayelect to take equity in the portfolio company as payment for our services.

We also seek to grow our revenues and assets by acquisitions.We seek to obtain a majority equity position in any company we acquire. If weacquire a minority position in a company, we will seek to enter into agreementwith that company whereby we will generate income from our services. If weacquire a minority position in a company, we value that equity using agood-faith estimation of its value based on generally accepted accountingprinciples combined with our internal judgment based on industry and economicfactors not encompassed by traditional accounting principles.

We acquire majority or minority equity positions in portfoliocompanies by purchasing the equity with cash, debt, or purchasing the equity byissuing stock in our company. We may pay for the equity position with acombination of both cash and stock and debt.

When presented with a prospective acquisition, we make agood-faith valuation for the business to be acquired and its future prospects.If the assessment of the prospective acquisition appears to offer a good orreasonable chance to increase our revenues and assets both in the short-term andthe long-term, we will seek to acquire the prospective company.

We find new customers and prospective companies to acquirethrough out network of relationships within the business community.
**EMPLOYEES**
We currently have three full time employees and threepart-time employees, including two in management, two in business development,one in business advisory and one administrative position. In our subsidiary,Sound City, we currently have 33 full time and 2 part time employees, includingeight in management three in administrative, 10 in sales, three in advertising,five in warehousing and six in installations. There exist no organized laboragreements or union agreements between our employees and us. We believe that ourrelations with our employees are good.
**Results of Operations:**
During the nine months ended March 31, 2005, the Registrant had net lossapplicable to common shareholders of $572,869, as compared with $70,665 for thenine months ended March 31, 2004. 

For the nine months ended March 31, 2005, the Registrant had total revenuesof $1,547,793 as compared with no revenues for the nine months period endedMarch 31, 2004.The net loss for the nine months ended March 31, 2005 isattributable primarily to expenses incurred as part of our reorganizationefforts and activities related to locating and securing new portfolio companies.
During the nine months ended March 31, 2005, expenses amounted to $893,671,attributable mainly to general and administrative expenses of $507,533 andofficers' salaries of $386,138. For the nine months ended March 31, 2004,expenses amounted to $105,719 consisting of general and administrative expensesof $81,355 and officers' salaries of $24,364. General and administrativeexpenses for the nine months ended March 31, 2004 can be attributed primarily tolegal and accounting fees.
**Liquidity and Capital Resources**
The cash and cash equivalent balance of the Registrant was $262,609 and$8,082 as of March 31, 2005 and June 30, 2004, respectively.

The Company has incurred substantial losses through March 31, 2005. Untilsuch time that the Company's products and services can be successfully marketed,the Company will continue to need to fulfill working capital requirementsthrough the sale of stock and/or the issuance of debt. The inability of theCompany to continue its operations as a going concern would impact therecoverability and classification of recorded asset amounts. 

The ability of the company to continue in existence is dependent on itshaving sufficient financial resources to bring products and services to marketfor marketplace acceptance. As a result of its significant losses, negative cashflows from operations, and accumulated deficits for the periods ending March 31,2005, there is doubt about the Company's ability to continue as a going concern.

Management believes that its current available working capital, anticipatedrevenues, further planned reductions in operating expenses, and subsequent salesof stock and/or placement of debt instruments will be sufficient to meet itsprojected expenditures for a period of at least twelve months from March 31,2005.
**Item 3.  Controls andProcedures****Disclosure Controls and Procedures.  The Company's management, withthe participation of the Company's Chief Executive Officer and Chief FinancialOfficer, has evaluated the effectiveness of the Company's disclosure controlsand procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of theend of the period covered by this report.  Based on such evaluation, theCompany's Chief Executive Officer and Chief Financial Officer have concludedthat, as of the end of such period, the Company's disclosure controls andprocedures are effective in recording, processing, summarizing and reporting, ona timely basis, information required to be disclosed by the Company in thereports that it files or submits under the Exchange Act.
**Internal Control Over Financial Reporting.  There have not been anychanges in the Company's internal control over financial reporting (as such termis defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during themost recent fiscal quarter that have materially affected, or are reasonablylikely to materially affect, the Company's internal control over financialreporting.
**PART II-OTHER INFORMATION

Item 1. Legal Proceedings**
From time to time, we may become involved in various lawsuitsand legal proceedings which arise in the ordinary course of business. However,litigation is subject to inherent uncertainties, and an adverse result in theseor other matters may arise from time to time that may harm our business. We arecurrently not aware of any such legal proceedings or claims that we believe willhave, individually or in the aggregate, a material adverse affect on ourbusiness, financial condition or operating results.
**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds**
To obtain funding for our ongoing operations, we entered into a SecuritiesPurchase Agreement with four accredited investors on January 24, 2005 for thesale of (i) $2,000,000 in secured convertible notes; (ii) 1,500 shares of seriesA convertible preferred stock at $1,000 per share and (iii) warrants to buy3,000,000 shares of our common stock. 
**Item 3. Defaults UponSenior Securities**
None. 
**Item 4.Submission of Matters to a Vote of Security Holders**
None. 
**Item 5. Other Information**
None. 
**Item 6. Exhibits andReports on Form 8-K**
a.                                              Exhibits are incorporated herein by reference or        are filed with this report as indicated below: 
 
**Exhibit    Number**
 **Description   31.1* Certificate of Chief Executive    Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as    Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated May    19, 2005.31.2* Certificate of Chief Financial    Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as    Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated May    19, 2005.32* Certificate of Chief Executive    Officer and Chief Financial Officer pursuant to section 18 U.S.C.    section 1350 dated May 19, 2004.
*                                        Filed herewith. 
 

 

b.                                             Reports on Form 8-K: 
                                            On January 31, 2005, and amended April 11, 2005, the Company filed a    Current Report on Form 8-K

 
**Signatures**
In accordance with the requirements of the Exchange Act, the Registrant hascaused this report to be signed on its behalf by the undersigned, thereunto dulyauthorized. 

 
 MODERN TECHNOLOGY    CORP.    By:***/s/ Anthony K. Welch***Dated: June 27, 2005 Anthony K. Welch    Chairman and Chief Executive Officer     By:***/s/ Anthony K. Welch***Dated: June 27, 2005 Robert Church    Director and Chief Accounting Officer
 

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