SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
QUARTERLY REPORT UNDER REGULATION SB OF THE
SECURITIES EXCHANGE ACTS OF 1934
For the Quarter Ended Commission File Number:
March 31, 2001 0-24449
J-BIRD MUSIC GROUP LTD.
(Exact Name of Registrant as specified in its charter)
Pennsylvania 06-1411727
(State or other jurisdiction) (IRS Employer
of incorporation or organization) Identification Number)
396 Danbury Road Wilton, Connecticut 06897
(Address and zip code of principal executive officers)
(203) 761-9393
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reported
required by Regulation SB of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to the filing requirements for
at least the past 90 days. YES (X) NO ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date:
Number of Shares Outstanding Class Date
37,778,295 Common Stock March 31, 2001
$.001 par value
J-BIRD MUSIC GROUP LTD.
Index
PART I FINANCIAL INFORMATION
Balance Sheet March 31, 2001 3
Statements of Operations
Three Months Ended March 31, 2001 and 2000 4
Statements of Cash Flow
Three Months Ended March 31, 2001 and 2000 5
Notes to Unaudited Financial Statements
March 31, 2001 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II
Other Information 12
Signatures 12
2
J-BIRD MUSIC GROUP LTD.
CONSOLIDATED BALANCE SHEET
March 31, 2001
ASSETS:
Cash $ 3,518
Inventory 188,338
Due from Navarre 24,373
Due from Employee 1,000
Recording Advances 55,000
------------
Total Current Assets 272,229
Fixed Assets, Net 493,589
------------
Total Assets $ 765,818
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Account Payable and Accrued Expenses $ 203,752
Accrued Royalties 120,253
Notes Payable 43,653
Due to I.M.M. International-(Note 2) 44,615
Mortgage Payable-Current 48,466
------------
Total Current Liabilities 460,739
Mortgage Payable-Long-Term 347,258
------------
Total Liabilities 807,997
------------
Stockholders' Equity
Common Stock $.001 Par Value 50,000,000 Shares
Authorized, 37,778,295 Issued and Outstanding 37,878
Treasury Stock - 100,000 shares (4,690)
Paid in Capital 11,170,047
Subscription Receivable (250,000)
Retained Earnings/(Deficit) (10,995,414)
------------
Total Stockholders' Equity (42,179)
------------
Total Liabilities and Stockholders' Equity $ 765,818
============
3
J-BIRD MUSIC GROUP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
---- ----
Net Sales $ 143,766 $ 272,793
Cost of Sales 119,254 291,163
Operating Expenses:
Advertising and Promotion 16,969 40,417
Professional Fees 11,486 20,192
Amortization and Depreciation 9,781 8,407
Salaries-(Note 3) 0 57,958
Administrative Expenses 59,326 295,603
------------ ------------
Net (Loss) Before Other Income (Expenses) (73,050) (440,947)
Other Income/ (Expenses)
Other Income 4,100 0
Loss on Extinguishment of Debt (63,438) 0
Royalties Adjustment (36,390) 0
------------ ------------
Net Loss $ (168,778) $ (440,947)
============ ============
Net Loss per Common Share $ (0.005) $ (0.02)
Weighted Average Common Shares Outstanding 30,691,728 23,818,395
4
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
---- ----
Cash Flows from (Used In) Operating Activities
Adjustments to Reconcile Net (Loss) to Net
Cash From (Used In) Operating Activities:
Net (Loss) $(168,778) $(440,947)
Amortization and Depreciation 9,781 8,406
(Increase) in Employee Loan (1,000) 0
(Increase) in Accounts Receivable (7,335) (1,493)
(Increase) in Inventory (26,739) (139,262)
(Decrease) Increase in Accrued Royalties 55,411 (27,575)
(Decrease) Increase in Accounts Payable (7,073) 81,734
(Decrease) Increase in Payroll Liabilities 54,137 0
(Increase) in Recording Advances 0 (21,736)
--------- ---------
Net Cash (Used In) Operating Activities (91,596) (540,873)
--------- ---------
Cash Flows from (Used In) Financing Activities
Stock Issued for Cash 60,000 581,250
Net Increase in Officer and Shareholder Loans 0 36,222
Increase (Decrease) in Loan Due I.M.M 44,615 (55,250)
(Decrease) in Mortgage Payable (3,219) 0
(Decrease) in Note Payable (6,282) (6,565)
--------- ---------
Net Cash from Financing Activities 95,114 546,856
--------- ---------
Net (Decrease) Increase in Cash 3,518 5,983
Cash, Beginning of Period 0 0
--------- ---------
Cash, End of Period $ 3,518 $ 5,983
========= =========
5
J-BIRD MUSIC GROUP LTD.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2001
Note 1. Organization
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the provisions of Regulation SB. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included.
J-Bird Records, Inc. is the first WorldWide Web Recording Label ((TM)). The
Company was officially launched on November 1, 1996 to market, distribute and
sell music via a new medium - the Internet. At its Website, located at
http://www.j-birdrecords.com, the Company attracts and signs recording artists
through its on-line office and promotes, markets and sells their recordings
through its on-line record store. J-Bird Records is a wholly owned subsidiary of
J-Bird Music Group LTD.
The Company has experienced operating losses since its inception and has
experienced significant cash flow problems. The Company is in the process of
raising capital through various sources to fund its operations and has
implemented certain operating strategies to obtain profitably.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, J-Bird Records, Inc. Material inter-company
balances and transactions have been eliminated in consolidation.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. The accompanying
financial statements should be read in conjunction with the Company's Form
10-KSB filed for the year ended December 31, 2000.
Earnings (loss) per share are based on the weighted average number of shares
outstanding. Common stock equivalents have not been considered as their effect
would be anti-dilutive.
6
Note 2. Related Party Transactions
In October 1998, the Company entered into a credit agreement with I.M.M.
International, Inc., a shareholder of the company, whereby I.M.M. will provide
up to $500,000 in financing to the Company for working capital purposes. The
agreement expired on March 31, 1999. Amounts outstanding under this agreement
bear interest at 8% and are due on June 30, 2001. At March 31, 2001, I.M.M.
Interntational had advanced $44,515 to the Company.
Note 3. Common Stock
On March 1, 2001 four employees entered into a restricted stock purchase
agreement with the Company receiving the right to purchase 800,000 shares of
common stock for a price of $0.0825 per share.
7
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of J-Bird Music Group
LTD's, consolidated results of operations and financial condition for the three
months ended March 31, 2000. The discussion should be read in conjunction with
the Company's consolidated financial statements and accompanying notes.
J-Bird Records began in 1996 as "The First World Wide Web Recording Label"
(jbirdrecords.com), signing, promoting and selling its artists' CDs exclusively
online. The company quickly developed a traditional brick and mortar presence to
enhance its efforts, thereby creating a hybrid label combining the best of both
offline and online worlds. J-Bird Records is an independent label with a roster
of over 350 artists including Rockapella, John Entwistle, the Guess Who, Mitch
Ryder, Jimmie Van Zant, Lee Rocker, Billy Squier and more. The label utilizes
traditional and online marketing and distribution methods for the promotion of
its artists. The Navarre Corporation is the label's exclusive North American
distributor to retail accounts. Navarre is the leading independent distributor
of music and music-related products throughout North America.
J-Bird Records' business model combines sustained profitability in the
traditional retail marketplace along with the online world, thus enabling it to
withstand the dot-com fallout as compared to exclusive online music-related
companies, who have not. As a result, the company has emerged as a strong
industry competitor, anticipating profitability in 2001.
J-Bird Records attracts a wide array of established and emerging talent by
offering artists a greater level of creative control and involvement. J-Bird
Records offers recording contracts which allow artists to exercise a large
amount of self-direction in their career planning, while driving those careers
toward a successful future. In addition to its expanding talent list, J-Bird is
also building its base of assets by acquiring existing libraries of recordings
including collections of music from Duke Ellington and Bing Crosby.
The Company has already begun positioning itself to take advantage of the new
opportunities for promotion and revenue growth from online sources. According to
Jupiter Communications, US online music sales are expected to reach $5.4 billion
in the year 2005, up from $387 million in 1999. These numbers are based on
combined digital music downloads and physical product sold via online resources.
Online music is expected to secure approximately one fourth of the total US
market sales in 4 years, with digitally distributed products representing 28% of
total online dollars (or $1.5 billion by 2005). With peer-to-peer file sharing
(such as Napster) coming under fire for not allowing the artist to be
compensated for sharing of digital music files, the distribution of digital
music appears ready to move to subscriptions to digital music services that will
allow the consumer access to music files and reward the artist and label as
well.
8
The Company is poised to take advantage of the financial and promotional
opportunities presented to it by aligning itself with third-party digital music
providers by licensing its catalog and marketing its services to media and
commerce partners, already established as destination sites for music, who
provide networked sharing subscription services and digital downloads. These
services, industry-wide, are expected to reach approximately $1 billion in 2005,
and music downloads will grow to $530 million in the same timeframe. Physical
music products (CDs) purchased online are expected to grow from $380 million in
1999 to $3.8 billion in 2005.
In addition to the above strategies, J-Bird has recently streamlined operating
costs, reduced overhead and consolidated inventory, all helping to reduce the
company's breakeven point. These combined factors are designed to enable the
Company to achieve profitability in the year 2001.
Liquidity and Capital Resources
The Company has financed its operations and capital expenditures primarily from
equity financing and loans from shareholders and a bank. The Company borrowed
$100,000 under its line of credit agreement with a bank. As of March 31, 2001,
the principle balance owed is $43,653. The Company expects negative cash flow
from operations to continue for the foreseeable future, as it continues to
develop and market its operations. Inflation has not had any material impact on
the Company's operations. In addition to the bank loan, the Company is presently
funding its operating deficit through a credit agreement with I.M.M.
International, Inc., a shareholder of the company.
The Company is currently pursuing long term financing for its operating
activities and a potential acquisition. No source of financing has occurred to
date and there can be no assurance that financing will be available, or if
available, that it will be on acceptable terms. The ability to finance existing
and future operations will be dependent upon external sources.
Results of Operations - Three months ended March 31, 2001 compared to three
months ended March 31, 2000
2001 2000
---- ----
Net Sales $143,766 $272,793
Cost of Sales $119,254 $291,163
9
In addition to obtaining the distribution agreement with Navarre, 2001 sales
decreased due to the increasing number of returns even though the Company has
signed on more artists, including three nationally recognized performers. The
Company has over 350 artists under agreements at March 31, 2001 compared to 262
at March 31, 2000.
2001 2000
Advertising and Promotion Expenses $ 16,969 $ 40,417
The decrease in advertising and promotion is due to the level of operations of
the Company.
Professional Fees $ 11,486 $ 20,192
The decrease in professional fees is due to the lower level of legal and
consulting fees of the Company.
Salaries $ 0 $ 57,958
There was no salary expense in the first quarter of 2001. All employees of the
Company received a restricted stock option for 800,000 shares of common stock
with an exercise price of $0.0825 per share for a cumulative value of $68,000
($17,000 per employee) for past services rendered.
Administrative Expenses $ 59,326 $295,603
The decrease in administrative expenses is due to the decreased of operations of
the Company.
Other Expenses
Bad Debt $ 63,438 $ 0
This represents a write off of the net amount due from the former President of
the Company per agreement. The Company received 100,000 shares of common stock
with a value of $4,690 reflected as a treasury stock transaction.
10
Other Expenses (cont.)
Royalty Adjustment $ 36,390 $ 0
This represents an agreement with one artist for royalties due for the year 1999
as a result of the company misinterpreting the recording contract.
11
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Default upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Not applicable
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.
J-Bird Music Group LTD.
(Registrant)
Dated: May 15, 2001 By: Hope D. Trowbridge
President
12