----

 

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-QSB

 

**[X]**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE    SECURITIES EXCHANGE ACT OF 1934**For the quarterly period ended 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 the Registrant (1) has filed all reportsrequired by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days: Yes [X]   No [_] 

Indicate by check mark whether the registrant is an accelerated filer (asdefined in Rule 12b-2 of the Exchange Act). Yes [X] No [_] 

  Indicate the number of shares outstanding of each of the issuer'sclasses of common stock, as of the latest practicable date. 

 
**Class
 **Outstanding at February 17, 2005
Common stock, $0.001 par value 
15,078,631
 

 
**MODERN TECHNOLOGY CORP.****Table of Contents**
 
**PART I.****FINANCIAL INFORMATION**
   
 Item 1.Consolidated Financial    Statements (unaudited)
  
Consolidated Balance Sheet 

  
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 FinancialStatements (unaudited)**
 
**PART I -- FINANCIAL INFORMATION**
 

 

 

MODERN TECHNOLOGY CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

FOR THE NINE MONTHS ENDED MARCH 31, 2005 AND MARCH 31, 2004

(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.

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. Certain priorperiod amounts in previously issued financial statements have been reclassifiedto conform to the current period presentation. The consolidated financialstatements 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 109 has as its basic objective the recognition of current and deferredincome tax assets and liabilities based upon all events that may have beenrecognized in the financial statements as measured by the provisions of theenacted 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 the three months ended March 31,2005 amounted to $ 7,567.

MORTGAGE REFINANCING COSTS

Mortgage refinancing costs are amortized using the straightline method over the term of the mortgage. Amortization expense for the threemonths ended March 31, 2005 amounted to $306.

REVENUE RECOGNITION

The Company generally recognizes revenue at point of sale orupon shipment when the collectibility of the resulting receivable is reasonablyassured. The Company allows credit for products returned within its policyterms. Such returns are estimated and an allowance for product returns isrecorded at the time of sale, as necessary.

IMPAIRMENT OF LONG-LIVED ASSETS

The company regularly reviews long-lived assets forindicators of impairment. Managements 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 was $9,653 for the three months ended March 31, 2005.

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 January 2003, the FASB issued Interpretation No. 46, "Consolidation ofVariable Interest Entities". A variable interest entity ("VIE") is one where thecontractual or ownership interest in an entity change with changes in theentity's net asset value. This interpretation requires the consolidation of aVIE by the primary beneficiary, and also requires disclosure about VIEs where anenterprise has a significant variable interest but is not the primarybeneficiary. At the effective date, the Company has not entered into any VIEs.

In December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104,"Revenue Recognition," which codifies, revises, and rescinds certain sections ofSAB No. 101, "Revenue Recognition," in order to make this interpretive guidanceconsistent with current authoritative accounting and auditing guidance and SECrules and regulations. The changes in SAB No. 104 did not have a material impacton the Company's financial position or results of operations. 

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. 

NOTE 3:         CONCENTRATIONS OFCREDIT RISK

The Company's financial instruments that are exposed to        concentrations of credit 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 Financial Accounting Standard (FAS) 115, "Accounting for CertainInvestments in Debt and Equity Securities." MediCor Ltd. shares are traded onthe NASD over-the-counter bulletin board system. The cost of these shares is$82,520. The Company sold all the shares of MediCor Ltd. As of March 31, 2004,the Company recognized $41,714 realized gain. As of March 31, 2004 the Companyhad liquidated all of its marketable securities or written off all securitiesdeemed worthless. During May 2004, Mr. Welch, CEO and President, contributed$57,677 of marketable securities investment pursuant to Modern's plan forreorganization. As of June 30, 2004, the Company reported $33,922 unrealizedloss. As of March 31, 2005, the Company recognized $3,392 unrealized gain. OnJanuary 24, 2005, the Company entered into a Purchase Agreement whereby wepurchased a $1,500,000 DeMarco Convertible Debenture. The Company follows SFAS115 and has considered 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 ($5,000) were creditedagainst Deferred Registration costs. The Company has established a valuationallowance of $100,000 against its investment in Interactive Medicine Inc. toreflect the uncertainty of the fair market value of the investment as of June30, 2003. The net investment value in Interactive Medicine Inc. is zero as ofMarch 31, 2005.

NOTE 6: LONG-TERM DEBT

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

      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
  
215,890

      Less: current portion  
65,362

  
$ 150,528
NOTE 7: MORTGAGE PAYABLE

Mortgages payable consist of the      following:  
March 31, 2005
Mortgage payable to Valley National Bank      in the original amount of $535,000 payable in monthly installments of      $4,993.21 including interest at 5.5%.  Pursuant to the loan agreement      the interest rate may change on November 1, 2008.  The loan is      secured by Sound City's guarantee and the personal guarantee of the      members of Yassin & Company and a mortgage on property owned by the      members. The note will be fully paid on November 1, 2009.
 
$ 411,404

      Less: current portion
 
37,000

 
 
$ 374,404
NOTE 8: INVENTORY LINE OF CREDIT

As of December 31, 2004, the Company 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 ofDecember 31, 2004 was $451,507 and is included in accounts payable. 

At March 31, 2005 this line of credit has been reduced to$200,000.

NOTE 9: 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 10: 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 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 11: 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 12:         INCOME TAX EXPENSE(BENEFIT)

                       The provision for income taxes is comprised of the following:

                                                                             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 applyingthe 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 assets                 $----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 13: 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 FAS's 106, "Employers' Accounting for PostretirementBenefits Other Than Pensions" and 112, "Employers' Accounting for Postemployment Benefits-an amendment of FASB Statements No.5 and 43."

NOTE 14:       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.

The Company leases a facility from the Company's shareholders. The leaseexpires June 30, 2014. The Company is responsible for taxes and other expenseson an annual basis.

Rent expense under this related party lease for 2004 and 2003totaled $171,082 and $144,000, respectively.

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 December 31, 2004, the Company had a Demand Promissory Note (the "Note")payable to its shareholders in the amount of $1,128,626. The note is unsecured,subordinated, non-interest bearing and is payable upon demand. The Company 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 atDecember 31, 2004, because repayment is not anticipated during the next year.

In the normal course of business, the Company purchases from and sells toSammans Electronics Inc (Sammans). Sammans is owned by a relative of theCompany's shareholders. For the years ended December 31, 2004 and 2003,purchases to Sammans totaled $15,106 and $33,119, respectively. For the yearsended December 31, 2004 and 2003, sales to Sammans Electronics Inc. totaled$16,596 and $77,416, respectively.

Pursuant to the stock sale agreement dated January 24, 2005, Sound Cityentered into an employment agreement with Kamel Yassin for a $200,000 annualsalary for a five year term. 

NOTE 15: COMMITMENTS AND CONTINGENCIES

The Company guarantees the mortgage debt of Yassin & Company,LLC, a real estate holding company owned by the stockholders. The amount ofoutstanding mortgage debt at December 31, 2004 was $420,234.

In addition, the Company also guarantees the mortgage debt of Kamel Yassin,President and Shareholder and Mervet Yassin, CFO and Shareholder on commercialproperty owned by them. The amount of outstanding mortgage at December 31, 2004was $375,180.

NOTE 16: 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 retroactive effect of the Reverse Stock Split is reflected in thechange in the number of shares outstanding on July 1, 2003.

On August 17, 2004, 13 million shares were issued to Anthony Welch and hebecame a 90.6% shareholder.

NOTE 17: 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 18: 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 Discussionand Analysis of Financial 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 a 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 loss of$330,932, as compared with $70,970 for the nine months ended March 31, 2004. 

For the nine months ended March 31, 2005, the Registrant had total revenuesof $542,543 as compared with revenues of $1,170 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 $870,083,attributable mainly to general and administrative expenses of $485-676 andofficers' salaries of $370,838. For the nine months ended March 31, 2004,expenses amounted to $86,412 consisting of general and administrative expenses.General and administrative expenses can be attributed primarily to legal andaccounting fees.
**Liquidity and Capital Resources**
The Registrant had a cash balance of $262,609 at March 31, 2005.  Thecash and cash equivalent balance of the Registrant was $5,878 as of March 31,2004.
**Item 3.  Controls and Procedures****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 ofEquity 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 Upon SeniorSecurities**
None. 
**Item 4. Submission of Matters to aVote of Security Holders**
None. 
**Item 5. Other Information 

None. 
**Item 6. Exhibits and Reports onForm 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: May 20, 2005 Anthony K. Welch    Chairman and Chief Executive Officer     By:***/s/ Robert Church***Dated: May 20, 2005 Robert Church    Director and Chief Accounting Officer
 

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