UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q


(MarkOne)


x
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended June 30, 2010o
Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from                 to





Commission File Number: 000-50468





Modern City Entertainment, Inc.


(Exact name of registrant as specified in its charter)





Washington

98-0206033(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)





1815 Griffin Road, Suite 207, Fort Lauderdale, Florida

33004(Address of principal executive offices)

(Zip Code)





305-970-4898


(Registrant’s telephone number, including area code)





(Former name, former address and former fiscal year, if changed since last report)





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.





Large accelerated filer    o
Accelerated filer      oNon-accelerated filer      o
Smaller reporting company     x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes  o   No x





Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.





Class

Outstanding at August 5, 2010Common stock, $0.001 par value

23,051,993





-1-





PART I – FINANCIAL INFORMATION





Item 1.  Financial Statements





MODERN CITY ENTERTAINMENT INC.Condensed Consolidated Balance SheetsJune 30, 2010 and December 31, 2009June 30,


December 31,2010


2009ASSETSCurrent AssetsCash

$
349,434


$
430,959Total current assets


349,434



430,959Property & equipment, net of accumulateddepreciation


804



884Prepaid production costs


40,000



96,363Total Assets

$
390,238


$
527,736LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent LiabilitiesAccounts payable and accrued expenses

$
21,013


$
111,801Total current liabilities


21,013



111,801Stockholders’ EquityPreferred Stock, $0.0001 par value20,000,000 shares authorized; none issued


-



-Common stock, $0.0001 par value; 50,000,000 shares authorizedand

23,051,993  and34,753,428 issued and outstanding respectively


2,298



2,298Additional paid-in capital


1,057,762



1,057,762Accumulated Deficit


(139,427)



(102,717)Deficit accumulated during the development stage


(551,408)



(541,408
)Total stockholders’ equity


369,225



415,935Total Liabilities and Stockholders’ Equity

$
390,238


$
527,736The accompanying notes are an integral part of these financial statements








-2-





MODERN CITY ENTERTAINMENT INC.Condensed Consolidated Statements of OperationsFor the six and three months ended June 30, 2010 and 2009Six months ended


Three months endedJune 30,


June 30,2010


2009


2010


2009ExpensesBank charges

$
2


$
15


$
1


$
15Professional fees


7,788



6,250



4,600



2,500Depreciation expense


-



170



-



85Travel, meals and entertainment


3,253



450



-



450Payroll expenses


23,902



23,631



11,928



11,787Office, telephone and miscellaneous


12,994



3,815



12,279



2,451Total Expenses


47,937



34,331



28,808



(17,288
)Loss before other items


(47,937
)


(34,331
)


(28,808
)


(17,288
)Other income(expense)Interest income


1,268



6,167



226



2,134Net loss

$
(46,669
)

$
(28,164
)

$
(28,582
)

$
(15,154
)Loss per share –basic and diluted

$
(0.00
)

$
(0.00
)

$
(0.00
)

$
(0.00
)Weighted average number of shares outstandingfor the period


23,051,993



23,051,993



23,051,993



23,051,993
  The accompanying notes are an integral part of these financial statements





-3-


MODERN CITY ENTERTAINMENT, INC.


Condensed Consolidated Statements of Cash Flows


For the six months ended June 30,





2010


2009Cash flows used in operating activitiesNet loss

$
(46,669)


$
(28,164)Add items not involving cash:Depreciation


-



170Changes in non-cash working capital item related

to operations:Reduction of Production costs


10,000Accounts payable and accrued expenses


(44,856)



(28,812)Net cash used in operating activities


(81,525)



(56,806)Cash flows used in investing activitiesNet cash used in investing activities


-



-Cash flows provided by financing activities(Decrease) in amount due to related party


-



-(Decrease) in loan payable to stockholders


-



-Net cash used in financing activities


-



-(Decrease) increase in cash during the period


(81,525)



(56,806)Cash, beginning of the period


430,959



486,972Cash, end of the period

$
349,434


$
430,166Supplementary disclosure of cash flow informationCash paid for:Interest

$
-


$
-The accompanying notes are an integral part of these financial statements







-4-





MODERN CITY ENTERTAINMENT, INC.


NOTES TO FINANCIAL STATEMENTS








Note 1       Nature and Continuance of Operations





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 June 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 Company was a development stage company as defined under Statement of Financial Accounting Standards (“FAS”) No. 7 through the year ended December 31, 2007.  Prior to April 1, 2000, the Company developed and sold the rights to a web based internet application in the real estate industry.  During 2008, the company commenced incurring production costs related to the production of the aforementioned screenplay.





These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year.  Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.  At June 30, 2010, the Company had not yet achieved profitable operations, has accumulated losses of approximately $500,000 since its recapitalization, and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern.  The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.  Management considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available.





Note 2       Summary of Significant Accounting Policies





BASIS OF PRESENTATION





The accompanying unaudited interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q of Regulation S-K.  They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements.  However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2009included in the Company’s Annual Report on Form 10-K filed with the United States


-5-


MODERN CITY ENTERTAINMENT, INC.


NOTES TO FINANCIAL STATEMENTS





Securities and Exchange Commission.  The unaudited interim consolidated financial statements should be read in conjunction with those financial statements included in the Form 10-K.  In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal and recurring adjustments have been made.  Operating results for the three months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2010.





CASH AND CASH EQUIVALENTS





The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents. At June 30, 2010 and December 31, 2009, the Company had cash equivalents in the amount of approximately $350,000, and $431,000, respectively, all in low risk investments.





CONCENTRATION OF CREDIT RISK





Financial   instruments   that   potentially   subject   the   Company  to concentrations of credit risk consist principally of cash. The Company maintains  cash  balances  at one financial institution, which is t insured by the Federal Deposit Insurance Corporation (“FDIC”). The FDIC insured institution insures up to $250,000 on account balances. The amounts that are not insured by FDIC limitations are held in short-term liquid securities. As of June 30, 2010 and December 31, 2009 there were approximately $350,000 and $431,000, respectively of cash and cash equivalents held by the Company.The company has not experienced any losses in such accounts.





ACCOUNTS RECEIVABLE





The Company conducts business and extends credit based on the evaluation of its customers' financial condition. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. Recoveries of accounts previously written off are recognized as income in the periods in which the recoveries are made. The Company had no accounts receivable at June 30, 2010 and December 31, 2009.





IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF





The Company accounts for the impairment of long-lived assets in accordance with ASC Topic 360, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (“ACS Topic 360”) requires write-downs to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount.





If the long-lived assets are identified as being planned for disposal or sale, they would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. As of December 31, 2009 this does not apply.





GOODWILL AND OTHER INTANGIBLE ASSETS





ASC Topic 350, “Intangibles – Goodwill and Other statement addresses financial accounting and reporting for acquired goodwill and other 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.





Goodwill and intangible assets with indefinite useful lives are not amortized. Intangible assets with finite useful lives are amortized generally on a straight-line basis over the periods benefited, with a weighted average useful life of 15 years.





-6-


MODERN CITY ENTERTAINMENT, INC.


NOTES TO FINANCIAL STATEMENTS





In performing this assessment, management uses the income approach and the similar transactions method of the market approach to develop the fair value of the acquisition in order to assess its potential impairment of goodwill. The income approach is based on a discounted cash flow model which relies on a number of factors, including operating results, business plans, economic projections and anticipated future cash flows. Rates used to discount future cash flows are dependent upon interest rates and the cost of capital at a point in time. The similar transactions method is a market approach methodology in which the fair value of a business is estimated by analyzing the prices at which companies similar to the subject, which are used as guidelines, have sold in controlling interest transactions (mergers and acquisitions). Target companies are compared to the subject company, and multiples paid in transactions are analyzed and applied to subject company data, resulting in value indications. Comparability can be affected by, among other things, the product or service produced or sold, geographic markets served, competitive position, profitability, growth expectations, size, risk perception, and capital structure. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment. It is possible that assumptions underlying the impairment analysis will change in such a manner that impairment in value may occur in the future.





REVENUE RECOGNITION





The Company recognizes revenue in accordance with the Securities and Exchange Commission, Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition” (“SAB No. 104”). SAB 104 clarifies application of generally accepted accounting principles related to revenue transactions. The Company also follows the guidance in FASB Accounting Standards Codification (ASC) Topic 605-25, Revenue Arrangements with Multiple Deliverables (formally "EITF Issue No. 00-08-1"), in arrangements with multiple deliverables.





The Company recognizes revenues when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured.





In certain cases, the Company enters into agreements with customers that involve the delivery of more than one product or service.  Revenue for such arrangements is allocated to the separate units of accounting using the relative fair value method in accordance with ASC Topic No. 605-25. The delivered item(s) is considered a separate unit of accounting if all of the following criteria are met: (1) the delivered item(s) has value to the customer on a standalone basis, (2) there is objective and reliable evidence of the fair value of the undelivered item(s) and (3) if the arrangement includes a general right of return, delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the vendor. If all the conditions above are met and there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on their relative fair values.





Explicit return rights are not offered to customers; however, the Company may accept returns in limited circumstances. There have been no returns through December 31, 2009.   Therefore, a sales return allowance has not been established since management believes returns will be insignificant.





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 currently charged to expense.  Any gain or loss on  disposition of assets is recognized currently in the statement of income.




-7-


MODERN CITY ENTERTAINMENT, INC.


NOTES TO FINANCIAL STATEMENTS





FAIR VALUE OF FINANCIAL INSTRUMENTS





The Company's  financial  instruments  consist primarily of cash, accounts  payable and  accrued  expenses,  and debt.  The  carrying  amounts of such  financial  instruments  approximate their respective  estimated fair value due to the short-term  maturities and approximate market interest rates of  these instruments.  The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current  market  exchange or from future earnings or cash flows.





EARNINGS (LOSS) PER SHARE





Earnings (loss) per share is computed in accordance with ASC Topic 260, "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 stock equivalents and other potentially dilutive securities outstanding during the period. The outstanding warrants for June 30, 2010 and  December, 31, 2009, are anti-dilutive and therefore are not included in earnings (loss) per share.





ACCOUNTING FOR STOCK-BASED COMPENSATION





The Company applies ASC Topic 718 “Share-Based Payments” (“ASC Topic 718”) to share-based compensation, which requires the measurement of the cost of services received in exchange for an award of an equity instrument based on the grant-date fair value of the award.  Compensation cost is recognized when the event occurs.  The Black-Scholes option-pricing model is used to estimate the fair value of options granted.





For the year ended December 31, 2009 and the six months  ended June 30, 2010, the Company did not grant any stock options.





NON-EMPLOYEE STOCK BASED COMPENSATION





The cost of stock based compensation awards issued to non-employees for services are recorded, in accordance with ASC Topic 505- 50 “Equity-Based Payments to Non-Employees,” at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines.





COMMON STOCK PURCHASE WARRANTS





The Company accounts for common stock purchase warrants in accordance ASC Topic 815 “Derivatives and Hedging”. The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement, or (ii) gives the company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement).  The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the company), or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).


-8-





MODERN CITY ENTERTAINMENT, INC.


NOTES TO FINANCIAL STATEMENTS





INCOME TAXES





Deferred income taxes are provided based on the provisions of ASC Topic 740, "Accounting for Income Taxes", to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.





The Company adopted the provisions of ASC Topic 740; "Accounting For Uncertainty In Income Taxes-An Interpretation Of ASC Topic 740 ("Topic 740").  Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions.  The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement.  The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments. At December 31, 2009 and 2008, the Company did not record any liabilities for uncertain tax positions. operations, or cash flows.





NOTE 2 - RECENT  ISSUED ACCOUNTING PRONOUNCEMENTS





Recently Adopted Accounting Pronouncements





In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures,” which amends the disclosure requirements related to recurring and nonrecurring fair value measurements.  The guidance requires disclosure of transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons and the timing of the transfers and information on purchases, sales, issuance, and settlements on a gross basis in the reconciliation of the assets and liabilities measured under Level 3 of the fair value measurement hierarchy. The guidance is effective for annual and interim reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual and interim periods beginning after December 15, 2010. The Company adopted these amendments in the first quarter of 2010 and the adoption did not have a material impact on the disclosures in the Company’s consolidated financial statements.




In June 2009, the FASB issued ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, which changes various aspects of accounting for and disclosures of interests in variable interest entities. ASU 2009-17 is effective for interim and annual periods beginning after November 15, 2009. The Company adopted these amendments in the first quarter of 2010 and the adoption did not have a material impact on the Company’s consolidated financial statements.




In June 2009, the Financial Accounting Standards Board ("FASB") issued authoritative guidance on accounting for transfers of financial assets.  This guidance was issued to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement, if any, in transferred financial assets.  This guidance is effective for fiscal years and interim periods beginning after November 15, 2009.  The adoption of this statement did not have a material effect on the Company's consolidated financial statements.


-9-
 
 MODERN CITY ENTERTAINMENT, INC.
 NOTES TO FINANCIAL STATEMENTS


Recently Issued Accounting Pronouncements Not Yet Adopted





In July 2010, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance that will require additional disclosures about the credit quality of loans, lease receivables and other long-term receivables and the related allowance for credit losses. Certain additional disclosures in this new accounting guidance will be effective for the Company on December 31, 2010 with certain other additional disclosures that will be effective on March 31, 2011. The Company does not expect the adoption of this new accounting guidance to have a material impact on its consolidated financial statements.




In April 2010, the FASB issued ASU 2010-13, “Compensation — Stock Compensation (Topic 718) — Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades.” ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010 and are not expected to have a significant impact on the Company’s consolidated financial statements.





In March 2010, the FASB issued ASU No. 2010-11, “Derivatives and Hedging (Topic 815) — Scope Exception Related to Embedded Credit Derivatives.”  ASU 2010-11 clarifies that the only form of an embedded credit derivative that is exempt from embedded derivative bifurcation requirements are those that relate to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The provisions of ASU 2010-11 will be effective on July 1, 2010 and are not expected to have a significant impact on the Company’s consolidated financial statements.





In October 2009, the FASB issued ASU No. 2009-14, “Software (Topic 985) — Certain Revenue Arrangements That Include Software Elements (A Consensus of the FASB Emerging Issues Task Force)”. ASU 2009-14 requires tangible products that contain software and non-software elements that work together to deliver the products essential functionality to be evaluated under the accounting standard regarding multiple deliverable arrangements. This standard update is effective January 1, 2011 and may be adopted prospectively for revenue arrangements entered into or materially modified after the date of adoption or retrospectively for all revenue arrangements for all periods presented. The Company does not expect that this standard update will have a significant impact on its consolidated financial statements.





In September 2009, the FASB issued certain amendments as codified in ASC Topic 605-25, “Revenue Recognition; Multiple-Element Arrangements.”  These amendments provide clarification on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated.  An entity is required to allocate revenue in an arrangement using estimated selling prices of deliverables in the absence of vendor-specific objective evidence or third-party evidence of selling price. These amendments also eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.  The amendments significantly expand the disclosure requirements for multiple-deliverable revenue arrangements.  These provisions are to be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted.  The Company will adopt the provisions of these amendments in its fiscal year 2011 and is currently evaluating the impact of these amendments to its consolidated financial statements. -10-
 
 MODERN CITY ENTERTAINMENT, INC.
 NOTES TO 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.





NOTE 3 - RECLASSIFICATIONS





Certain prior periods' balances have been reclassified to conform to the current period's financial statement presentation. These reclassifications had no impact on previously reported results of operations or stockholders' equity.





Note 4      Property and Equipment





The Company’s property and equipment are as follows


June 30, 2010AccumulatedCost


Depreciation


NetComputer equipment

$
1,690


$
886


$
804





December 31, 2009AccumulatedCost


Depreciation


NetComputer equipment

$
1,690


$
806


$
884


Depreciation expense for the six months ended June 30, 2010 and 2009 was $0 and $85, respectively.







-11-





MODERN CITY ENTERTAINMENT, INC.


NOTES TO FINANCIAL STATEMENTS








Note 5   Income Taxes





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


June 30


December 31,2010


2009Future tax assetsNon-capital loss carry-forward

$
595,800


$
580,378Valuation allowance for deferred tax asset


(595,800
))


(580,378
)$
-


$
-





The amount taken into income as future tax assets must reflect that portion of the income tax loss carry-forwards that is more likely-than-not to be realized from future operations.  The Company has chosen to provide an allowance of 100% against all available income tax loss carry-forwards, regardless of their time of expiry.





As at June 30, 2010 and December 31, 2009, the Company has accumulated non-capital losses totaling approximately $1,590,000 and $1,544,000, respectively, 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 6 Accounts payable and Accrued expenses





The Company has elected to reduce outstanding accounts payable and accrued expenses due to third parties prior to its reverse merger in 2007. The Company believes these liabilities are no longer due and should be eliminated. The balance of accounts payable and accruals as of June 30, 2010 is approximately $5,000 which consists of amounts due within the last year.


-12-





Item 2.  Management’s Discussion and Analysis or Plan of Operation





Overview




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 June 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.





FOR THE THREE MONTHS ENDED JUNE 30, 2010 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2009





The Company‘s net loss from operations increased approximately 82% from $15,154 during the three months ended June 30, 2009 as compared to $28,582 for the three months ended June 30, 2010.  The primary reason for this was due to the increase in professional fees .





FOR THE SIX MONTHS ENDED JUNE 30, 2010 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2009





The Company‘s net loss from operations increased approximately 65% from $28,164 during the six months ended June 30, 2009 as compared to $46,669 for the six months ended June 30, 2010.  The primary reason for this was due to the increase in professional fees .





LIQUIDITY AND CAPITAL RESOURCES





Net cash used in operating activities was $81,525 for the six months ended June 30, 2010 compared to $86,806 for the six months ended June 30, 2009, due to a increase in net loss for the period and reduction of accounts payable.





FORWARD LOOKING STATEMENTS





There are statements in this registration statement that are not historical facts. These “forward-looking statements” can be identified by use of terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control.  For a discussion of these risks, you should read this entire Registration Statement carefully.  Although management believes that the assumptions underlying the forward looking statements included in this Registration Statement are reasonable, they do not guarantee our future performance, and actual results could differ from those contemplated by these forward looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements.  In the light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Registration Statement will in fact transpire. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We do not undertake any obligation to update or revise any forward-looking statements.





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Item 3. Quantitative and Qualitative Disclosures About Market Risk.





Not applicable.





Item 4A.  Controls and Procedures.





An evaluation was conducted by the registrant’s president of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of June 30, 2010. Based on that evaluation, the president concluded that the registrant’s controls and procedures were effective as of such date to ensure that information required to be disclosed in the reports that the registrant files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. If the registrant develops new business or engages or hires a chief financial officer or similar financial expert, the registrant intends to review its disclosure controls and procedures.





Management is aware that there is a lack of segregation of duties due to the small number of employees dealing with general administrative and financial matters. However, at this time management has decided that considering the abilities of the employees now involved and the control procedures in place, the risk associated with such lack of segregation is low and the potential benefits of adding employees to clearly segregate duties do not justify the substantial expenses associated with such increases. Management may reevaluate this situation as circumstances dictate.





The was no change in the registrant's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a–15 or Rule 15d–15 under the Securities Exchange Act of 1934 that occurred during the registrant's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.





Item 4T. Controls and Procedures.





Reference is made to the response to Item 4 above.








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PART II- OTHER INFORMATION





Item 1.                      Legal Proceedings.





None





Item 1A.                     Risk Factors.





There are no material changes to the Company’s risk factors as previously reflected in the form 10-K that was filed on April 15, 2010.





Item 2.                      Unregistered Sales of Equity Securities and Use of Proceeds.





a.
N/Ab.
N/A





c.
N/A





Item 3.                      Defaults upon Senior Securities.





N/A





Item 4.                      Submission of Matters to Vote of Security Holders.





None





Item 5.                      Other Information.





Joseph Greco has resigned from the Company’s board of directors effective May 10, 2010. Mr. Greco will remain with the Company as a consultant and continue to focus on the creative side of the business





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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: August 5, 2010
By:
/s/ William ErfurthWilliam ErfurthPresident and Director








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