U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549








(Mark
One)





x
            QUARTERLY  REPORT  PURSUANT  TO  SECTION
      13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT  OF  1934


For
      the quarterly period ended September 30,
  2008





o
            TRANSITION  REPORT  PURSUANT  TO  SECTION
      13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT  OF  1934


For the transition period
      from                                                                
      to











Commission
file number  000-50468








Modern
City Entertainment Inc.





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




Washington
              
              98-0206033(State
      or other jurisdiction of
              
              (IRS
      Employerincorporation
      or organization)
              
              Identification
      No.)


8551
Sunrise Boulevard, Suite 210, Ft. Lauderdale, Florida, 33322





(Address
of principal executive offices)





(305)
970-4898


(Issuer’s
telephone number)








Check  whether  the
issuer (1) filed all reports required to be filed by section
13  or  15(d) of the Exchange Act during the past 12 months
(or for such shorter period  that the registrant was required to file
such reports), and (2) has been
subject  to  such  filing  requirements  for  the  past  90  days.Yes  x    No
o





State the
number of shares outstanding of each of the issuer's classes of common equity as
of the latest practicable date: As of November 10, 2008 23,051,993 Shares of
common stock, $0.0001 par value, were outstanding.




(as
defined in Rule 12b-2 of the Exchange Act): Yes
£  No S





Transitional
Small Business Disclosure Format (check one): Yes £  No
S


-1-





MODERN
CITY ENTERTAINMENT INC.





FORM
10-QSB





September
30, 2008





INDEX





PART
I                      FINANCIAL
INFORMATION





PartI.Financial
      Information
            3Item 1. Condensed
      Consolidated Financial Statements and Notes to Financial
      Statements
            3(a) Condensed
      Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007
      (unaudited)
            4(b) Condensed
      Consolidated Statements of Operations for the Three and Nine Months Ended
      September  30, 2008 and 2007
    (unaudited)
            5(c) Condensed
      Consolidated Statements of Cash Flow for the Nine Months Ended September
      30, 2008 and 2007 (unaudited)
            6(d) Notes to
      Condensed Consolidated Financial Statements
      (unaudited)
            7Item 2. Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            14




Item 3.
      Quantitative and Qualitative Disclosures About Market
      Risk
            15Item 4. Controls
      and Procedures
            15Part II. Other
      Information
            16Item 1. Legal
      Proceedings
            16Item 1A. Risk
      Factors
            16Item 2. Changes in
      Securities and Small Business Issuer Purchases of Equity
      Securities
            19Item 3. Defaults
      Upon Senior Securities
            19Item 4. Submission
      of Matters to a Vote of Security Holders
            19Item 5. Other
      Information
            20Item 6.
      Exhibits
            20Signatures
            21











-2-





PART
1                      FINANCIAL
INFORMATION





General





The accompanying reviewed
condensed consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q. Therefore, they do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flow, and stockholders' equity in
conformity with generally accepted accounting principles. Except as disclosed
herein, there has been no material change in the information disclosed in the
notes to the financial statements included in the Company's registration
statement on Form 10-K for the year ended December 31, 2007 (audited). In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature. Operating
results for the quarter ended September 30, 2008 are not necessarily indicative
of the results that can be expected for the year ending December 31,
2008.






-3-







MODERN
      CITY ENTERTAINMENT LLCBalance SheetSeptember 30,2008
            
            
            December 31, 2007AssetsCurrent
      AssetsCash
            
            $
            484,949
            
            
            $
            757,906Total
      current assets
            
            
            484,949
            
            
            
            757,906Property
      & Equipment, net of accumulateddepreciation
            
            
            1,522
            
            
            
            1,522Other
      Assets
            
            
            55,000
            
            
            
            55,000Total
      Assets
            
            $
            541,471
            
            
            $
            814,428Liabilities
      and Shareholder's EquityCurrent
      LiabilitiesAccounts
      payable and accrued expenses
            
            $
            35,460
            
            
            $
            116,876Due
      to related parties
            
            
            
            
            
            
            12,616Loan
      payable- shareholders
            
            
            
            
            
            
            16,284Total
      current liabilities
            
            
            35,460
            
            
            
            145,776STOCKHOLDERS’ DEFICIENCYPreferred
      Stock, $0.0001 par value20,000,000
      shares authorized; none issued
            
            
            -
            
            
            
            -Common
      stock, $0.0001 par value; 50,000,000 shares authorized
      34,753,439And
      23,051,993 issued and outstanding respectively
            
            
            2,305
            
            
            
            3,475Additional
      paid-in capital
            
            
            1,218,588
            
            
            
            1,093,223Treasury
      Stock
            
            
            (150,000
            )
            
            
            -0-Deficit
      accumulated during the development stage
            
            
            (564,882
            )
            
            
            (428,046
            )506,011
            
            
            
            668,652Total
      Liabilities and Shareholder Equity
            
            $
            541,471
            
            
            $
            814,428






-4-


MODERN
CITY ENTERTAINMENT, INC.


CONSOLIDATED
STATEMENTSOF OPERATIONS


For the
three and nine months ended September 30, 2008 and 2007





Nine
      months ended
            
            
            Three
      months endedSeptember
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2008
            
            2007ExpensesBank charges and
      interest
            
            $
            29
            
            
            $
            132
            
            
            $
            -
            
            $
            88Professional
    fees
            
            
            42,315
            
            
            
            74,069
            
            
            
            10,500
            
            
            36,668Travel,
      meals and entertainment
            
            
            54,147
            
            
            
            1,857
            
            
            
            5,139
            
            
            1,515Payroll
      expenses
            
            
            33,675
            
            
            
            31,144
            
            
            
            11,788
            
            
            4,376Office, telephone and
      miscellaneous
            
            
            6,670
            
            
            
            15,464
            
            
            
            1,371
            
            
            9,711Loss
      before other items
            
            
            (136,836
            )
            
            
            (122,666
            )
            
            
            (28,798
            )
            
            (52,358
            )Other
      items:Write-off of
      equipment
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            -Loss on disposal of
      equipment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            -Interest
      Income
            
            
            
            
            
            
            346
            
            
            
            
            
            
            156Foreign currency
      adjustments
            
            
            -
            
            
            
            -346
            
            
            
            
            
            
            156Net
      loss for the period
            
            $
            (136,836
            )
            
            $
            (122,320
            )
            
            $
            (28,798
            )
            $
            (52,202
            )Basic
      and diluted loss per share
            
            $
            (0.00
            )
            
            $
            (0.02
            )
            
            $
            (0.00
            )
            $
            (0.01
            )Weighted
      average number of shares outstandingfor
      the period
            
            
            31,828,078
            
            
            
            5,576,082
            
            
            
            28,902,716
            
            
            5,576,082




-5-





MODERN
CITY ENTERTAINMENT, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


for the
nine months ended September 30, 2008 and 2007





Nine
      months EndedSeptember
      30,2008
            
            
            2007Cash
      flows used in Operating ActivitiesNet
      loss for the period
            
            $
            (136,836
            )
            
            $
            (122,320
            )Changes
      in non-cash working capital item relatedto
      operations:Accounts payables and accrued
      liabilities
            
            
            (81,416
            )
            
            
            36,580(218,252
            )
            
            
            (85,740
            )Cash
      Flows used in Investing ActivityProceeds
      from common stock subscriptions
            
            
            -
            
            
            
            611,813Purchase
      of property & equipment
            
            
            -
            
            
            
            (1,691
            )Increase
      in additional paid in capital
            
            
            124,195Purchase
      of Stock from Azul Shareholders
            
            
            (150,000
            )
            
            
            -Investment
      in Intangible Assets
            
            
            -
            
            
            
            (55,000
            )(25,805
            )
            
            
            555,122Cash
      Flows provided by Financing ActivitiesDecrease
      in amount due to related party
            
            
            (12,616
            )
            
            
            -Decrease
      in loan payable to stockholders
            
            
            (16,284
            )
            
            
            -(28,900
            )
            
            
            -Increase
      (decrease) in cash during the period
            
            
            (272,957
            )
            
            
            469,382Cash,
      beginning of the period
            
            
            757,906
            
            
            
            325,005Cash,
      end of the period
            
            $
            484,949
            
            
            $
            794,387Supplementary
      disclosure of cash flow informationCash paid for:Interest
            
            $
            -
            
            
            $
            -








-6-


MODERN
CITY ENTERTAINMENT, INC.


NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS


For the
Nine Months Ended September 30, 2008 and 2007








NOTE 1 -
BASIS OF PRESENTATION





The
accompanying unaudited consolidated condensed financial statements, which are
for interim periods, do not include all the information and footnote disclosures
provided in the annual consolidated financial statements. These unaudited
consolidated condensed financial statements should be read in conjunction with
the financial statements and footnotes thereto contained in the Form 10-K for
the year ended December 31, 2007 of Modern City Entertainment, Inc. as filed
with the U.S. Securities and Exchange Commission. The summary December 31, 2007
balance sheet was derived from audited financial statements but does not include
all disclosures required by generally accepted accounting principles at December
31, 2007.





In the
opinion of the Company's management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial statements.
The results for interim periods are not necessarily indicative of the financial
statements.





NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES





ORGANIZATION AND
CAPITALIZATION





Modern
City Entertainment, Inc. (formerly Azul Studios International Inc.) (the
“Company”) was incorporated on September 23, 1996 under the laws of the State of
Texas as Alvin Consulting Inc.  On July 15, 1999, the stockholders of
the Company approved a merger with a newly incorporated company in the State of
Washington and the surviving company, Realty Technologies Inc., operates under
the laws of the State of Washington.  On August 12, 1999 stockholders
of the Company approved an amendment to the articles of the Company changing its
name to Equinta Corp.  On April 10, 2000, the stockholders of the
Company approved a change to the articles of the Company changing its name to
Courier Corps Inc.  On May 16, 2000, the stockholders the Company
approved a change in the name of the Company to eCourierCorps Inc.  On
March 12, 2004, the Company changed its name to Azul Studios International Inc.
and adopted a business plan to develop a group of boutique hotels catering to
the professional photographers and film artists.  In July 2004 the
Company incorporated Azul Studios Properties S.L., in Barcelona, Spain, a
wholly-owned subsidiary.  The Company also incorporated a wholly-owned
corporation, Azul Media Inc., in the State of Washington on March 8,
2005.  The Company intended to develop a group of professional
photographic studios in select locales around the world.  On September
29, 2006, the Company sold all of the issued and outstanding shares of its
wholly-owned subsidiary, Azul Studios Property, S.L..  On February 28,
2007, the Company agreed to acquire Modern City Entertainment LLC (“MCE”), a
Miami based development stage independent movie company, which is in the
business of acquiring, producing and distributing feature films
internationally.  Currently the Company has no revenue.





On April
27, 2007, the Company changed its name to Modern City Entertainment,
Inc.





The
financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States of
America.  Because a precise determination of many assets and
liabilities is dependent upon future events, the preparation of financial
statements for a period necessarily involves the use of estimates which have
been made using careful judgement.  Actual results may vary from these
estimates.





The
financial statements have, in management’s opinion, been properly prepared
within the framework of the significant accounting policies summarized
below:








-7-








MODERN
CITY ENTERTAINMENT, INC.


NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS


For the
Nine Months Ended September 30, 2008 and 2007








Principles of
Consolidation





The
consolidated financial statements included the accounts of the Company and its
wholly-owned subsidiary, Azul Media Inc.  All significant
inter-company transactions and balances have been eliminated on
consolidation.





USE OF ESTIMATES





The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reported period. Actual results could differ
from those estimates.





Impairment of Long-lived
Assets





The
Company reports the impairment of long-lived assets and certain identifiable
intangibles in accordance with FAS No. 144, “Accounting for the Impairment of
Long-lived Assets”.  Certain long-lived assets held by the Company are
reviewed for impairment whenever assets or changes in circumstances indicate the
carrying amount of an asset may not be recoverable.  Accordingly, an
impairment loss is recognized in the year it is determined.





PROPERTY AND
EQUIPMENT





Property and equipment are stated at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Expenditures for major betterments and additions are
capitalized, while replacement, maintenance and repairs, which do not extend the
lives of the respective assets are charged to expense currently. Any gain or
loss on disposition of assets is recognized currently in the statement ofoperations.




INCOME TAXES





The Company accounts for income taxes
using SFAS No. 109, "Accounting for Income Taxes," which requires recognition of
deferred tax liabilities and assets for expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is recorded for
deferred tax assets if it is more likely than not that some portion or all of
the deferred tax assets will not be realized.




EARNINGS (LOSS) PER
SHARE




Earnings (loss) per share is computed in
accordance with SFAS No. 128, "Earnings per Share". Basic earnings (loss) per
share is computed by dividing net income (loss), after deducting preferred stock
dividends accumulated during the period, by the weighted-average number of
shares of common stock outstanding during each period. Diluted earnings per
share is computed by dividing net income by the weighted-average number of
shares of common stock, common




-8-





MODERN
CITY ENTERTAINMENT, INC.


NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS


For the
Nine Months Ended September 30, 2008 and 2007





stock equivalents and other potentially
dilutive securities outstanding during the period. The outstanding warrants atSeptember 30, 2008 and 2007, respectively are
anti-dilutive and therefore are not included in earnings (loss) per
share.





ACCOUNTING FOR STOCK-BASED
COMPENSATION




The Company adopted SFAS No. 123R,
"Accounting for Stock-Based Compensation". This statement requires a public
entity to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award
(with limited exceptions). That cost will be recognized over the period during
which an employee is required to provide service.




In addition, a public entity is required
to measure the cost of employee services received in exchange for an award of
liability instruments based on its current fair value. The fair value of that
award has been remeasured subsequently at each reporting date through the
settlement date. Changes in fair value during the requisite service period will
be recognized as compensation cost over that period.





NOTE 3 - RECENT ACCOUNTING
PRONOUNCEMENTS





In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.
SFAS No. 159 permits entities to choose to measure eligible financial
instruments at fair value. The unrealized gains and losses on items for which
the fair value option has been elected should be reported in earnings. The
decision to elect the fair value options is determined on an instrument by
instrument basis, it should be applied to an entire instrument, and it is
irrevocable. Assets and liabilities measured at fair value pursuant to the fair
value option should be reported separately in the balance sheet from those
instruments measured using another measurement attribute. SFAS No. 159 is
effective as ofthe beginning of the first fiscal year
that begins after November 15, 2007. The Companyhas adaptedSFAS No. 159 to its financial
statements. The adoption of this standard has no material effect on the
Company’s consolidated financial statements.





In December 2007, the FASB issued
SFAS No. 141(R),“Business
Combinations,”which replaces SFAS
No. 141,“ Business
Combinations,”which, among other things,
establishes principles and requirements for how an acquirer entity recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed (including intangibles) and any noncontrolling interests in
the acquired entity. SFAS No. 141(R) applies prospectively to
business


combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008. We are currently evaluating what impact our
adoption of SFAS No. 141(R) will have on our financial
statements.





In December 2007, the FASB issued
SFAS No. 160, “Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB
No. 51.”SFAS No. 160 amends ARB
51 to establish accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. It also
amends certain of ARB 51’s consolidation procedures for consistency with the
requirements of SFAS No. 141(R). SFAS No. 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. We are currently evaluating what impact our adoption of
SFAS No. 160 will have on our financial statements.





In December 2007, the Securities
and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 110. This guidance allows companies, in certain
circumstances, to utilize a simplified method in determining the expected term
of stock option grants when calculating the compensation expense to be recorded
under Statement of Financial Accounting Standards
(SFAS) No. 123(R),Share-Based
Payment. The
simplified method can be used after December 31, 2007 only if a company’s
stock option exercise experience does not provide a reasonable basis upon which
to estimate the expected option term. Through 2007, we utilized the simplified
method to determine the expected





-9-





MODERN
CITY ENTERTAINMENT, INC.


NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS


For the
Nine Months Ended September 30, 2008 and 2007





option term, based upon the vesting and
original contractual terms of the option. On January 1, 2008, we began
calculating the expected option term based on our historical option exercise
data. This change did not have a significant impact on the compensation expense
recognized for stock options granted in 2008.





In March 2008, the FASB issued SFAS
No. 161, "Disclosures about Derivative Instruments and Hedging Activities"
("SFAS No. 161"). SFAS No. 161 amends and expands the disclosure
requirement for FASB Statement No. 133, "Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). It requires enhanced disclosure about
(i) how and why an entity uses derivative instruments, (ii) how
derivative instruments and related hedged items are accounted for under SFAS
No. 133 and its related interpretations, and (iii) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. SFAS No. 161 is effective
for the Company as of January 1, 2009.





In April 2008, FASB Staff Position
No. 142-3, Determination of the Useful Life of Intangible Assets (FSP
142-3) was issued. This standard amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under FASB Statement No. 142, Goodwill and
Other Intangible Assets. FSP 142-3 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. Early adoption is prohibited. The Company has not
determined the impact on its financial statements of this accounting
standard.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. The adoption of FASB 162 is not expected
to have a material impact on the Company’s consolidated financial position and
results of operations.





In May,
2008 the FASB issued FASB Staff Position (FSP) APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement).” APB 14-1 requires the issuer to separately account for the
liability and equity components of convertible debt instruments in a manner that
reflects the issuer’s nonconvertible debt borrowing rate. The guidance will
result in companies recognizing higher interest expense in the statement of
operations due to amortization of the discount that results from separating the
liability and equity components. APB 14-1 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The Company is currently evaluating
the impact of adopting APB 14-1 on its consolidated financial
statements.





Other accounting standards that have
been issued or proposed by the FASB or other standards-setting bodies that do
not require adoption until a future date are not expected to have a material
impact on the consolidated financial statements upon
adoption.





Cash and
Cash Equivalents





The Company considers all highly
liquid debt instruments and other short-term investments with an initial
maturity of three months or less to be cash equivalents.







-10-


MODERN
CITY ENTERTAINMENT, INC.


NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS


For the
Nine Months Ended September 30, 2008 and 2007





The Company maintains cash and
cash equivalent balances at several financial institutions that are insured by
the Federal Deposit Insurance Corporation up to $100,000.





Fixed
Assets





Fixed assets are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful life of the assets.





Furniture and
fixtures                                        
5 to7 Years


Computer Software and
Equipment                  3
to 5 Years





Income
Taxes





Deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax basis of assets and liabilities and their financial reporting amounts at
each year-end based on enacted tax laws and statutory tax
rates.





Segment
Information





The Company follows the provisions
of SFAS No. 131,Disclosures about
Segments of an Enterprise and Related Information. This standard requires that companies
disclose operating segments based on the manner in which management
disaggregates the Company in making internal operating
decisions.





Goodwill and
Other Intangible Assets





In June 2001, the FASB issued
Statement No. 142 Goodwill and Other Intangible Assets. This statement addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses how
intangible assets that are acquired individually or with a group of other assets
(but not those acquired in a business combination) should be accounted for in
financial statements upon their acquisition. This Statement also addresses how
goodwill and other intangible assets should be accounted for after they have
been initially recognized in the financial statements. The Company tests for
impairment of the goodwill at least annually, if not more depending upon
substantial changes in the Company that may lead to a change in the goodwill
during interim periods.





The company has not obtained any
intangible assets in the current quarter and no impairment review is
necessary.





Software
Development Costs





Internal use software costs are
recorded in accordance with Statement of Position (SOP) No. 98-1,"Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use".  Qualifying
costs incurred during the application development stage, which consist primarily
of outside services are capitalized and amortized over the estimated useful life
of the asset. All other costs are expensed as incurred. The Company has
determined that all costs for the nine months ended September 30, 2008 and 2007
do not relate to the application development stage and therefore have expensed
these costs as they were incurred.


-11-


MODERN
CITY ENTERTAINMENT, INC.


NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS


For the
Nine Months Ended September 30, 2008 and 2007





Reclassifications





Certain amounts for the nine
months ended September 30, 2007 have been reclassified to conform to the
presentation of the September 30, 2008 amounts. The reclassifications have no
effect on net income for the nine months ended September 30,
2007.





Fair Value
of Financial Instruments





The carrying amount reported in theconsolidated condensed
balance sheet for cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and notes payable approximate fair value because of
the immediate or short-term maturity of these financial
instruments.





Note
4                 Loan Payable to
Stockholders





On
January 23, 2006 the Company borrowed $5,875 from a shareholder of the
Company.  The Company has agreed that when the loan is repaid that an
interest amount equal to 100% of the loan proceeds will be paid.  The
repayment term is not fixed.  The loan is further secured by other
shareholders of the Company to be paid from any proceeds that they receive upon
the sale of their shares.   On June 12, 2006, the Company
borrowed an additional $10,240 from the same shareholder under the same terms.
Loan was repaid as of September 30, 2008.





Note
5 Stock
Option Plan and Stock-based Compensation





On May
18, 2007, the Board of Directors, Compensation committee approved a stock option
plan for the Company which provides for the allocation of options to purchase up
to 2,100,000 common shares of the Company.  The Board of Directors
also approved the issuance of options to two directors and one consultant to
acquire, in aggregate up to 1,000,000 common shares of the Company at $0.25 per
share.  The options have a term of five years expiring in May
2012.  The option plan is subject to approval by the directors and
stockholders of the Company.





The
Company does not record compensation expense on the granting of stock options to
employees.  In accordance with FAS No. 123R “Share-Based Payment”,
disclosure of pro forma net loss and net loss per share is required and is
calculated by determining the fair value of the options using fair value option
pricing models.  The Company has determined the fair value of vested
employee stock options using the fair value method.





Share Purchase
Warrants





At
September 30, 2008, 312,715 share purchase warrants are
outstanding.  Each warrant entitles the holder to purchase an
additional common share of the Company at $0.50 per share until September 30,
2008.


-12-
 MODERN
CITY ENTERTAINMENT, INC.
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 For the
Nine Months Ended September 30, 2008 and 2007


Note
6                 Income
Taxes





The
      following table summarizes the significant components of the Company’s
      future tax assets:





2008
            
            
            2007Future
      tax assetsNon-capital loss
      carry-forward
            
            $
            550,290
            
            
            $
            512,320Valuation
      allowance for deferred tax asset
            
            
            (550,290
            )
            
            
            (512,320
            )$
            -
            
            
            $
            -




The
Company accounts for income taxes using SFAS No. 109, “Accounting for Income
Taxes,” Which requires recognition of deferred tax liabilities and assets for
expected future tax consequences of events that have been included in the
financial statements or tax returns.  Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to
reverse.  A valuation allowance is recorded for deferred tax assets if
it is more likely that not that some portion or all of the deferred tax assets
will not be realized.






Effective
December 31, 2006, we adopted FIN 48, “Accounting for Uncertainty in Income
Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in financial statements in accordance with SFAS No. 109, “Accounting
for Income Taxes.” FIN48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.  FIN 48
requires that we determine whether the benefit of our tax positions is more
likely than not to be sustained upon audit, based on the technical merits of the
tax position.  For tax positions that are more likely than not to be
sustained upon audit, we recognize the greatest amount of the benefit that is
more likely than not to be sustained in our consolidated condensed financial
statements.  For tax positions that are not more likely than not to be
sustained upon audit, we do not recognize any portion of the benefit in our
condensed consolidated financial statements.  The provisions of FIN48
also provide guidance on derecognition, classification, interest and penalties,
accounting in interim periods, and disclosure.  Our policy for
interest and penalties under FIN 48, related to income tax exposures was not
impacted as a result of the adoption of the recognition and measurement
provisions of FIN 48.  Therefore, we continue to recognize interest
and penalties as incurred within “income taxes” in our condensed consolidated
statements of operations, when applicable.  There was no change to our
accumulated deficit as of December 31, 2006 as a result of the adoption of the
recognition and measurement provisions of FIN 48.  We did identify
certain potential liabilities that would have met the pre FIN 48 accruals
criteria, discussed above, and therefore recorded the adjustment through our
income tax provision in the current period, as it was not material to any
periods impacted.




As of
September 30, 2008, the Company has accumulated non-capital losses totaling
approximately $365,000, which are available to reduce taxable income in future
taxation years.  These losses expire beginning in 2017.  The
potential benefit of these losses, if any, has not been recorded in the
financial statements.




Note
7                    
Purchase of Common Stock from
Shareholders and Settlement Agreement





The
Company purchased 11,766,446 shares of common stock from sixteen former
shareholders of Azul Entertainment, Inc effective June 2008.  Total
purchase price was $150,000. The agreement contains standard representations and
warranties and mutual releases for all parties involved. The shareholders in
exchange for payments and releases agree not to purchase directly or indirectly
any interest in Modern City Entertainment, Inc. for a period of five
years.





The
Company put the money in escrow in the previous quarter and the shares were
repurchased in June 2008.


-13-





ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATION


Certain
statements contained in this Quarterly Report on Form 10-Q, including, without
limitation, statements containing the words "believes, " “anticipates,"
"estimates," "expects," and words of similar import, constitute "forward looking
statements." You should not place undue reliance on these forward- looking
statements. Our actual results could differ materially from those anticipated in
these forward- looking statements for many reasons, including the risks faced by
us described in this Quarterly Report and in other documents we file with the
Securities and Exchange Commission.





BUSINESS  DEVELOPMENT





During
the quarter and to date the Company has continued to devote its efforts into
establishing a new business for the Company.  As noted herein the
Company entered into an agreement with Modern City Entertainment LLC unit
holders to acquire that entity and to continue to progress that Companies
developments as an independent movie Company. This acquisition represents a
change in the Company’s focus in the media industry from that of a service
Company, providing facilities for photography and film production, to the active
acquisition and development of feature film.   The Company's
operations to date have consumed substantial amounts of cash.  The
Company's negative cash flow from operations is expected to continue and to
accelerate in the foreseeable future as the Company secures and develops it’s
developing slate of films.  Cash flows generated from financing
activities are the current focus of the Company’s efforts.





During
the quarter ended September 30, 2008 and to date, the primary source of capital
has been private placements from new and existing shareholders. It is
management’s intention to secure additional equity financings primarily through
private placements of the Company’s common stock.





The
Company's continued existence as a going concern is ultimately dependent upon
its ability to secure funding on an ongoing basis.  The funding will
be required at accelerating rates once the Company commences production of it’s
initial film. There can be no assurance that such additional funding will be
available on acceptable terms, if at all.





FINANCIAL
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER  30, 2008 and SEPTEMBER
30, 2007





During
the nine months ended September 30, 2008 the Company incurred a loss from
operations of $136,836, which includes professional fees and payroll of $75,990
and travel costs of $54,147.  This compares with a loss of $122,666
for the corresponding period of the prior fiscal year.  This increase
in the net loss reflects primarily the Company’s costs associated with travel
related costs for the production of its movies that are in process.





FINANCIAL
RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER  30, 2008 and SEPTEMBER
30, 2007





During
the three months ended September 30, 2008 the Company incurred a loss from
operations of $28,798, which includes professional fees and payroll of
$22,288.  This compares with a loss of $52,202 for the corresponding
period of the prior fiscal year.  This decrease in the net loss
reflects primarily the Company’s costs associated with professional fees under
prior management and Azul, Inc..




LIQUIDITY  AND  CAPITAL  RESOURCES





As at
September 30, 2008 the Company had a cash balance of $484,949, as compared with
$794,387 in cash at September 30, 2007. At September 30, 2008, the Company had
working capital of $449,489.


-14-





ITEM 3. QUANTITATIVE
AND QUALITATIVEDISCLOSURES ABOUT MARKET
RISK





We do not hold any derivative
instruments and do not engage in any hedging activities





ITEM 4. CONTROLS AND
PROCEDURES





Evaluation of Disclosure Controls and Procedures.As of the end
of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our President of our disclosure
controls and procedures (as defined inRule
13a-15(e)andRule
15d-15(e)of the
Exchange Act). Based upon this evaluation our President concluded that, at
September 30, 2008, our disclosure controls and procedures are not effective to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission’s rules and forms.
And (ii) accumulated and communicated to our management, including our
President, as appropriate to allow timely decisions regarding disclosure. The
Companyintends to
remedy the effectiveness of its internal control immediately. The registrant’s
intends to hire third parties to review its financial reporting process. The
consultant’s first tasks will be to serve as a second reviewer for all filings
and also to assist the registrant’s to be current with its filings during the
year ended December 31, 2008.A controls
system cannot provide absolute assurance, however, that the objectives of the
controls system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.




Management’s
Report on Internal Control over Financial Reporting.Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(e) under the
Exchange Act). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in theUnited
States.




Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance of achieving their control objectives.
Furthermore, smaller reporting companies face additional limitations.
 Smaller reporting companies employ fewer individuals and find it difficult
to properly segregate duties.  Often, one or two individuals control every
aspect of the Company’s operation and are in a position to override any system
of internal control.  Additionally, smaller reporting companies tend to
utilize general accounting software packages that lack a rigorous set of
software controls.




Our management, with the participation
of thePresident, evaluated the effectiveness of the
Company’s internal control over financial reporting as ofSeptember 30, 2008.  In making this assessment,
our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control —
Integrated Framework.  Based on this evaluation, our management, with the
participation of the President, concluded that, as ofSeptember 30, 2008, our internal control over
financial reporting wasnoteffective.The Companyintends to remedy the effectiveness of
its internal control immediately. The registrant intends to hire third parties
to review its financial reporting process. The consultant first task will be to
serve as a internal second reviewer for all filings and also to assist the
registrant to become current with its filings during the year ended December 31,
2008.




Changes in Internal
Control over Financial Reporting.There were no changes in our
internal control over financial reporting, as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, during our
most recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.




-15-





PART II OTHER INFORMATION








ITEM 1.LEGAL
PROCEEDINGS





The Company is not a party to any
litigation and, to its knowledge, no action, suit or proceeding has been
threatened against the Company.





ITEM 1A -RISK FACTORS




POSSIBLE “PENNY STOCK”
REGULATION




Any trading of our common stock in the
Pink Sheets or on the OTC Bulletin Board may be subject to certain provisions of
the Securities Exchange Act of 1934, commonly referred to as the “penny stock”
rule.




Our common stock is deemed to be “penny
stock” as that term is defined in Rule 3a51-1 promulgated under the Securities
Exchange Act of 1934. Penny stocks are stock:




·
            With a price of less than $5.00
      per share;




·
            That are not traded on a
      “recognized” national
exchange;




·
            Whose prices are not quoted on the
      Nasdaq automated quotation system (Nasdaq listed stock must still have a
      price of not less than $5.00 per share);
  or




·
            In issuers with net tangible
      assets less than $2.0 million (if the issuer has been in continuous
      operation for at least three years) or $5.0 million (if in continuous
      operation for less than three years), or with average revenues of less
      than $6.0 million for the last three
  years.




Broker/dealers dealing in penny stocks
are required to provide potential investors with a document disclosing the risks
of penny stocks. Moreover, broker/dealers are required to determine whether an
investment in a penny stock is a suitable investment for a prospective investor.
These requirements may reduce the potential market for our common stock by
reducing the number of potential investors. This may make it more difficult for
investors in our common stock to sell shares to third parties or to otherwise
dispose of them. This could cause our stock price to
decline.




BECAUSE WE ARE QUOTED ON THE OTCBB
INSTEAD OF AN EXCHANGE OR NATIONAL QUOTATION SYSTEM, OUR INVESTORS MAY HAVE A
TOUGHER TIME SELLING THEIR STOCK OR EXPERIENCE NEGATIVE VOLATILITY ON THE MARKET
PRICE OF OUR STOCK.




Our common stock is traded on the OTCBB.
The OTCBB is often highly illiquid, in part because it does not have a national
quotation system by which potential investors can follow the market price of
shares except through information received and generated by a limited number of
broker-dealers that make markets in particular stocks. There is a greater chance
of volatility for securities that trade on the OTCBB as compared to a national
exchange or quotation system. This volatility may be caused by a variety of
factors, including the lack of readily available price quotations, the absence
of consistent administrative supervision of bid and ask quotations, lower
trading volume, and market conditions. Investors in our common stock may
experience high fluctuations in the market price and volume of the trading
market for our securities. These fluctuations, when they occur, have a negative
effect on the market price for our securities. Accordingly, our stockholders may
not be able to realize a fair price from their shares when they determine to
sell them or may have to hold them for a substantial period of time until the
market for our common stock improves.


-16-





RISKS RELATING TO OWNERSHIP OF OUR
COMMON STOCK




Although there is presently a market for
our common stock, the price of our common stack may be extremely volatile and
investors may not be able to sell their shares at or above their purchase price,
or at all. We anticipate that the market may be potentially highly volatile and
may fluctuate substantially because of:




·
            Actual or anticipated fluctuations
      in our future business and operating
  results;




·
            Changes in or failure to meet
      market expectations;




·
            Fluctuations in stock market price
      and volume




WE DO NOT INTEND TO PAY
DIVIDENDS




We do not anticipate paying cash
dividends on our common stock in the foreseeable future. We may not have
sufficient funds to legally pay dividends. Even if funds are legally available
to pay dividends, we may nevertheless decide in our sole discretion not to pay
dividends. The declaration, payment and amount of any future dividends will be
made at the discretion of the board of directors, and will depend upon, among
other things, the results of our operations, cash flows and financial condition,
operating and capital requirements, and other factors our board of directors may
consider relevant. There is no assurance that we will pay any dividends in the
future, and, if dividends are rapid, there is no assurance with respect to the
amount of any such dividend.





FAILURE TO ACHIEVE AND MAINTAIN
EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITHSECTION 404OF THE SARBANES-OXLEY ACT COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATING
RESULTS.





It may be time consuming, difficult and
costly for us to develop and implement the additional internal controls,
processes and reporting procedures required by the Sarbanes-Oxley Act. We may
need to hire additional financial reporting, internal auditing and other finance
staff in order to develop and implement appropriate additional internal
controls, processes and reporting procedures. If we are unable to comply with
these requirements of the Sarbanes-Oxley Act, we may not be able to obtain the
independent accountant certifications that the Sarbanes-Oxley Act requires of
publicly traded companies.





If we fail to comply in a timely manner
with the requirements ofSection 404of the Sarbanes-Oxley Act regarding
internal control over financial reporting or to remedy any material weaknesses
in our internal controls that we may identify, such failure could result in
material misstatements in our financial statements, cause investors to lose
confidence in our reported financial information and have a negative effect on
the trading price of our common stock.





Pursuant toSection 404of the Sarbanes-Oxley Act and current
SEC regulations, beginning with our annual report on Form 10-K for our fiscal
period ending December 31, 2007, we will be required to prepare assessments
regarding internal controls over financial reporting and beginning with our
annual report on Form 10-K for our fiscal period ending December 31, 2008,
furnish a report by our management on our internal control over financial
reporting. We have begun the process of documenting and testing our internal
control procedures in order to satisfy these requirements, which is likely to
result in increased general and administrative expenses and may shift management
time and attention from revenue-generating activities to compliance activities.
While our management is expending significant resources in an effort to complete
this important project, there can be no assurance that we will be able to
achieve our objective on a timely basis. There also can be no assurance that our
auditors will be able to issue an unqualified opinion on management's assessment
of the effectiveness of our internal control over financial reporting. Failure
to achieve and maintain an effective internal control environment or complete
ourSection 404certifications could have a
material adverse effect on our stock price.


-17-




In addition, in connection with our
on-going assessment of the effectiveness of our internal control over financial
reporting, we may discover “material weaknesses” in our internal controls as
defined in standards established by the Public Company Accounting Oversight
Board, or the PCAOB. A material weakness is a significant deficiency, or
combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. The PCAOB defines “significant
deficiency” as a deficiency that results in more than a remote likelihood
that a misstatement of the financial statements that is more than
inconsequential will not be prevented or detected.





In the event that a material weakness is
identified, we will employ qualified personnel and adopt and implement policies
and procedures to address any material weaknesses that we identify. However, the
process of designing and implementing effective internal controls is a
continuous effort that requires us to anticipate and react to changes in our
business and the economic and regulatory environments and to expend significant
resources to maintain a system of internal controls that is adequate to satisfy
our reporting obligations as a public company. We cannot assure you that the
measures we will take will remediate any material weaknesses that we may
identify or that we will implement and maintain adequate controls over our
financial process and reporting in the future.





Any failure to complete our assessment
of our internal control over financial reporting, to remediate any material
weaknesses that we may identify or to implement new or improved controls, or
difficulties encountered in their implementation, could harm our operating
results, cause us to fail to meet our reporting obligations or result in
material misstatements in our financial statements. Any such failure could also
adversely affect the results of the periodic management evaluations of our
internal controls and, in the case of a failure to remediate any material
weaknesses that we may identify, would adversely affect the annual auditor
attestation reports regarding the effectiveness of our internal control over
financial reporting that are required underSection 404of the Sarbanes-Oxley Act. Inadequate
internal controls could also cause investors to lose confidence in our reported
financial information, which could have a negative effect on the trading price
of our common stock.





THE MARKET PRICE FOR OUR COMMON SHARES
IS PARTICULARLY VOLATILE GIVEN OUR STATUS AS A RELATIVELY UNKNOWN COMPANY WITH A
SMALL AND THINLY TRADED PUBLIC FLOAT, LIMITED OPERATING HISTORY AND LACK OF
PROFITS WHICH COULD LEAD TO WIDE FLUCTUATIONS IN OUR SHARE
PRICE.




The market for our common shares is
characterized by significant price volatility when compared to seasoned issuers,
and we expect that our share price will continue to be more volatile than a
seasoned issuer for the indefinite future. The volatility in our share price is
attributable to a number of factors. First, as noted above, our common shares
are sporadically and thinly traded. As a consequence of this lack of liquidity,
the trading of relatively small quantities of shares by our shareholders may
disproportionately influence the price of those shares in either direction. The
price for our shares could, for example, decline precipitously in the event that
a large number of our common shares are sold on the market without commensurate
demand, as compared to a seasoned issuer which could better absorb those sales
without adverse impact on its share price. Secondly, we are a speculative or
“risky” investment due to our limited operating history and lack of profits to
date, and uncertainty of future market acceptance for our potential products. As
a consequence of this enhanced risk, more risk-adverse investors may, under the
fear of losing all or most of their investment in the event of negative news or
lack of progress, be more inclined to sell their shares on the market more
quickly and at greater discounts than would be the case with the stock of a
seasoned issuer. Many of these factors are beyond our control and may decrease
the market price of our common shares, regardless of our operating performance.
We cannot make any predictions or projections as to what the prevailing market
price for our common shares will be at any time, including as to whether our
common shares will sustain their current market prices, or as to what effect
that the sale of shares or the availability of common shares for sale at any
time will have on the prevailing market price.


-18-




Shareholders should be aware that,
according to SEC Release No. 34-29093, the market for penny stocks has
suffered in recent years from patterns of fraud and abuse. Such patterns include
(1) control of the market for the security by one or a few broker-dealers
that are often related to the promoter or issuer; (2) manipulation of
prices through prearranged matching of purchases and sales and false and
misleading press releases; (3) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (4) excessive and undisclosed bid-ask differential and
markups by selling broker-dealers; and (5) the wholesale dumping of the
same securities by promoters and broker-dealers after prices have been
manipulated to a desired level, along with the resulting inevitable collapse of
those prices and with consequent investor losses. Our management is aware of the
abuses that have occurred historically in the penny stock market. Although we do
not expect to be in a position to dictate the behavior of the market or of
broker-dealers who participate in the market, management will strive within the
confines of practical limitations to prevent the described patterns from being
established with respect to our securities. The occurrence of these patterns or
practices could increase the volatility of our share price.




VOLATILITY IN OUR COMMON SHARE PRICE MAY
SUBJECT US TO SECURITIES LITIGATION, THEREBY DIVERTING OUR RESOURCES THAT MAY
HAVE A MATERIAL EFFECT ON OUR PROFITABILITY AND RESULTS OF
OPERATIONS.




As discussed in the preceding risk
factors, the market for our common shares is characterized by significant price
volatility when compared to seasoned issuers, and we expect that our share price
will continue to be more volatile than a seasoned issuer for the indefinite
future. In the past, plaintiffs have often initiated securities class action
litigation against a company following periods of volatility in the market price
of its securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and liabilities and
could divert management’s attention and resources.




OUR BUSINESS PLAN CALLS FOR EXTENSIVE
AMOUNTS OF FUNDING AND WE MAY NOT BE ABLE TO OBTAIN SUCH FUNDING WHICH COULD
ADVERSELY AFFECT OUR BUSINESS, OPERATIONS AND FINANCIAL
CONDITION.




We will be relying on additional
financing and funding. We are currently in discussions with potential sources of
financing but no definitive agreements are in place. If we cannot achieve the
requisite financing or complete the projects as anticipated, this could
adversely affect our business, the results of our operations, prospects and
financial condition.





SHOULD ONE OR MORE OF THE FOREGOING
RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED,
BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.




ITEM 2.CHANGES IN SECURITIES
AND REGISTRANT PURCHASES OF EQUITY
SECURITIES





None





ITEM 3. DEFAULTS UPON SENIOR
SECURITIES




There were no defaults upon senior
securities during the period ended September 30, 2008.




ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS





There were no matters submitted to the
vote of securities holders during the period ended September 30,
2008.


-19-




ITEM 5. OTHER
INFORMATION





None.




ITEM
6. EXHIBITS AND REPORTS ON FORM 8-K


None





A.
Exhibits





Exhibit
No.                                Descriptions





31.1
            Certification of Chief Executive officer pursuant to
      Section 302 of the Sarbanes-Oxley Act of
  2002





32.1
            Certification of Chief Financial Officer Pursuant to
      Section 906 of the Sarbanes-Oxley Act of
  2002





B.
Reports on Form 8-K





None





-20-





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.




Modern City
      Entertainment Inc.Date:
      November
      10, 2008
              By:
              /s/ William
      ErfurthWilliam
      ErfurthPresident
      and Director


-21-