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:
September 30, 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 reports 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
1,720,960 Common Stock September 30, 2001
$.001 par value
J-BIRD MUSIC GROUP LTD.
Index
PART I FINANCIAL INFORMATION
Balance Sheet September 30, 2001 3
Statements of Operations
Nine Months Ended September 30, 2001 and 2000 4
Statements of Cash Flow
Nine Months Ended September 30, 2001 and 2000 5
Notes to Unaudited Financial Statements
September 30, 2001 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II
Other Information 13
Signatures 13
2
J-BIRD MUSIC GROUP LTD.
CONSOLIDATED BALANCE SHEET
September 30, 2001
ASSETS:
Cash $ ( 71)
Inventory 131,363
Due from Navarre 31,660
Due from Employee 1,000
------------
Total Current Assets 163,952
Fixed Assets, Net 453,054
------------
Total Assets $ 617,006
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Account Payable and Accrued Expenses $ 212,633
Accrued Royalties 119,047
Notes Payable (Note 6) 37,050
Due to I.M.M. International-(Note 2) 57,115
Due to DGM 100,226
Mortgage Payable-Current 34,438
------------
Total Current Liabilities 560,509
Mortgage Payable-Long-Term 354,628
------------
Total Liabilities 915,137
------------
Stockholders' Equity
Common Stock $.001 Par Value 50,000,000 Shares
Authorized, 1,720,960 Issued and Outstanding ( Note 4) 45,878
Treasury Stock - 27,500 shares (254,690)
Paid in Capital 11,996,632
Subscription Receivable ( 30,000)
Retained Earnings/(Deficit) (12,055,951)
------------
Total Stockholders' Equity (298,131)
------------
Total Liabilities and Stockholders' Equity $ 617,006
============
3
J-BIRD MUSIC GROUP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000
---- ----
Net Sales $334,408 $538,988
Cost of Sales 365,909 742,480
Operating Expenses:
Advertising and Promotion 16,724 84,877
Professional Fees (Note 5) 107,542 56,211
Amortization and Depreciation 51,008 25,219
Salaries-(Note 3) 116,000 108,155
Administrative Expenses 788,054 1,161,957
Interest Expense 22,759 5,944
---------- ------------
Net (Loss) Before Other Income (Expenses) (1,133,588) (1,645,855)
Other Income/ (Expenses)
Other Income 4,102 0
Loss on Extinguishment of Debt (63,438) 0
Royalties Adjustment (36,390) 0
Investment Advisory Fees 0 (159,500)
Taxes 0 (927)
------------ ------------
Net Loss $ (1,229,314) $ (1,806,282)
============ ============
Net Loss per Common Share $ ( 1.03) $ ( 0.07)
Weighted Average Common Shares Outstanding 1,191,752 28,533,395
(Note 4)
4
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 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) $ (1,229,314) $ (1,806,282)
Amortization and Depreciation 51,008 25,219
(Increase) Decrease in Employee Loan 67,128 0
(Increase) Decrease in Accounts Receivable (14,622) 31,257
(Increase) Decrease in Inventory 30,236 (123,491)
(Increase) Decrease in Security Deposits 978 0
(Decrease) Increase in Accrued Royalties 75,476 83,480
(Decrease) Increase in Accounts Payable (6,215) 312,093
Stock Issued for Services 715,829 852,500
(Decrease) Increase in Payroll Tax Liabilities 54,137 0
(Increase) Decrease in Recording Advance 55,000 96,280
------------ ------------
Net Cash (Used In) Operating Activities (200,359) (528,944)
------------ ------------
Cash Flows from (Used In) Financing Activities
Stock Issued for Cash 110,000 743,231
Increase (Decrease) in Shareholder Loans 100,226 12,828
Increase (Decrease) in Loan Due I.M.M. 57,115 (50,958)
(Decrease) Increase in Mortgage Payable ( 6,878) 0
Investment Advisory Fees 0 (159,500)
(Decrease) Increase in Note Payable ( 12,886) (21,737)
------------ ------------
Net Cash from Financing Activities 247,577 523,864
------------ ------------
Net (Decrease) Increase in Cash 47,218 (5,080)
Cash, Beginning of Period ( 47,289) 16,966
------------ ------------
Cash, End of Period $ ( 71) $ 11,886
============ ============
5
J-BIRD MUSIC GROUP LTD.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 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. Furthermore, the
Company has secured a $100,000 loan from their distributor, Navarre Corporation,
in the fourth quarter of operations.
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. At
September 30, 2001, I.M.M. International had advanced $57,115 to the Company.
Note 3. Salaries
On March 1, 2001 four employees entered into a restricted stock purchase
agreement whereas the employees received the right to purchase 800,000 shares
(20,000 shares post split) resulting in 200,000 shares (5,000 shares post split)
per employee. The issue price of the common stock on March 1, 2001 was $0.0825
per share ( $3.40 per share post split) with a cumulative value of $68,000
($17,000 per employee). An additional 60,000 shares were issued to three
employees ( 20,000 shares per employee) on August 3, 2001 at an issue price of
$0.80 per share of common stock for a cumulative total of $48,000 ( $16,000 per
employee).
Note 4. Stock Split
On May 24, 2001 the Board of Directors of J Bird Music Group, LTD approved a
reverse split of 1:40 effective June 1, 2001. As a result of the split, the
total shares authorized remained at 50,000,000 shares while the total number of
shares outstanding have been adjusted to reflect the reverse split.
Additionally, the weighted average common stock shares in 2001 reflect the
reverse split.
Note 5. Professional Services
On May 21, 2001 12,500 shares (post split) were issued in lieu of past legal
services performed. The stock was valued for the past invoice of $10,730. An
additional 20,000 shares were issued on August 3, 2001 in lieu of legal services
performed through the third quarter of 2001. The cumulative value of the shares
issued in August was $10,385.
Note 6. Note Payable
The Company borrowed $100,000 under its line of credit with a bank. As of
September 30, 2001 the full amount of $37,050 is due pursuant to a court order
dated July 31, 2001. The Company expects a settlement agreement to be reached
before the Company's year end.
7
Note 7. Consultants
In the second quarter of 2001 the Company issued 4,060,000 shares (101,500 post
split) in lieu of past consulting services performed for the Company. The total
shares issued in the second quarter resulted in a cumulative value of $203,000.
On August 3, 2001 260,000 shares were issued in lieu of past and future
consulting services performed for the Company. The issue price of the common
stock on August 3, 2001 was $0.87 per share resulting in a cumulative value of
$226,200.
8
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 nine
months ended September 30, 2001. 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, Boy George, the Guess Who, Impulse
Ride, Jimmie Van Zant, Lee Rocker, The Rembrants 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 future years.
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
9
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.
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 years ahead.
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 July 31, 2001 a
court order was brought against the Company for full payment of the $37,050. The
Company expects a settlement agreement to be reached before the Company's year
end.
The Company is currently pursuing long term financing for its operating
activities and a potential acquisition. The only source of financing that has
occurred to date is in the fourth quarter of the Company's year. The Company
obtained a loan from Navarre Corporation in the amount of $100,000. However,
there can be no assurance that further 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 - Nine months ended September 30, 2001 compared to nine
months ended September 30, 2000
2001 2000
---- ----
Net Sales $334,408 $538,988
------------
Cost of Sales $365,909 $742,480
The decrease in net sales for 2001 is a result of an increasing number of
returns which occurred in the second quarter regardless of the Company's
acquiring contracts with additional artists. The Company currently has over 350
artists under agreements at September 30, 2001 compared to 262 at September 30,
2000.
10
2001 2000
---- ----
Advertising and Promotion Expenses $ 16,724 $ 84,877
----------------------------------
The decrease in advertising and promotion is due to the level of operations of
the Company.
Professional Fees $ 107,542 $ 56,211
-----------------
The increase in professional fees is due to the higher level of legal and
consulting fees of the Company.
Salaries $ 116,000 $ 108,155
--------
There was no salary expense in the first quarter of 2001. On March 1, 2001 four
employees of the Company entered into a restricted stock purchase agreement
whereas the employees received the right to purchase 800,000 shares ( 20,000
shares post split) resulting in 200,000 shares (5,000 shares post split) per
employee. The issue price of the common stock on March 1, 2001 was $0.0825 per
share ($3.40 per share post split) for a cumulative value of $68,000 ($17,000
per employee). An additional 60,000 shares were issued to three employees (
20,000 shares per employee) on August 3, 2001 at an issue price of $0.80 per
share of common stock for a cumulative value of $48,000 ( $16,000 per employee).
Administrative Expenses $ 788,054 $ 1,161,957
-----------------------
The decrease in administrative expenses is due to the decreased 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 2,500 shares (post split) of
common stock with a value of $4,690 reflected as a treasury stock transaction.
11
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.
12
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Form 8-K filed 07/16/01
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: Nov 26,2001 By: Hope D. Trowbridge
President
13