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, 1999 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
14,425,395 Common Stock May 27, 1999
$.001 par value
J-BIRD MUSIC GROUP LTD.
Index
PART I FINANCIAL INFORMATION
Balance sheet March 31, 1999 3
Statements of Operations
Three Months Ended March 31, 1999 and 1998 4
Statements of Cash Flow
Three Months Ended March 31, 1999 and 1998 5
Notes to Unaudited Financial Statements
March 31, 1999 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.
BALANCE SHEET
MARCH 31, 1999
ASSETS
Cash $ -0-
Inventory 201,424
Accounts receivable 60,824
Loans receivable, shareholder 182,000
Recording advances 16,589
Total Current assets 460,837
Fixed assets, net 128,270
Other assets 7,279
Total assets $ 596,386
LIABILITIES AND STOCKHOLDERS' EQUITY
Account payable and accrued expenses $ 184,431
Bank overdraft 48,452
Accrued royalties 129,461
Notes payable 115,000
Total current liabilities 477,344
Due to shareholders and officers 30,330
Due to IMM International, Inc. 57,660
Total Liabilities 565,334
Stockholders' Equity
Common stock $.001 par value 25,000,000 shares
Authorized, 14,325,395 issued and outstanding 14,325
Paid in capital 6,161,186
Deficit (6,144,459)
31,052
Total Liabilities and Equity $ 596,386
3
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,1999 AND 1998
1999 1998
Net sales $ 297,139 $ 116,445
Cost of sales 161,262 70,055
135,877 46,390
Operating expenses:
Advertising and promotion 66,397 51,164
Professional fees 27,313 37,066
Amortization and depreciation 9,132 9,231
Salaries 67,780 51,700
Administrative expenses 63,148 50,927
233,770 200,088
Net (loss) before other income (expenses) (97,893) (153,698)
Other income (expense):
Loss from disposition of assets -0- (173,000)
-0- (173,000)
Net loss $ (97,893) $ (326,698)
Net loss per common share $ (0.01) $ (0.03)
Weighted average common shares outstanding 14,325,395 10,994,795
4
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
1999 1998
Cash flows from (used in) operating activities
Adjustments to reconcile net (loss) to net cash
from (used in) operating activities:
Net (loss) $ ( 97,893) $ (326,698)
Amortization and depreciation 9,132 9,231
Loss on sale of assets -0- 173,000
(Increase) in accounts receivable ( 60,824) ( 96,561)
(Increase) in inventory ( 2,950) (210,219)
Increase in accrued royalties 53,655 -0-
(Decrease) increase in accounts payable (228,277) 301,206
Net cash (used in) operating activities (327,157) (150,041)
Cash flows from (used in) investing activities
Purchase of fixed assets ( 8,900) -
Net cash (used in) investing activities ( 8,900) -
Cash flows from (used in) financing activities
Collection of stock subscriptions 250,000 156,510
Bank overdraft 48,452 -0-
Due from officer and shareholder ( 8,500) ( 550)
(Decrease) in due to IMM ( 55,900) -0-
Increase (decrease) in note payable 100,000 ( 4,000)
Net cash from financing activities 334,052 151,960
Net (decrease) increase in cash ( 2,005) 1,919
Cash, beginning of period 2,005 -
Cash, end of period $ -0- $ 1,919
5
J- Bird Music Group LTD.
Notes to Unaudited Financial Statements March 31, 1999
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. Certain reclassification and
restatements of prior year numbers have been made to conform to
the current year presentations.
On October 7, 1997, Caltron, Inc. entered a stock purchase
agreement with the shareholders of J-Bird Records, Inc. to
purchase their shares of J-Bird Records, Inc. for the equivalent
number of shares of the Company. The total number of Caltron
common shares issued to J-Bird Records, Inc. shareholders in this
transaction was 4,480,000 and was valued at $827,466, the net
assets of Caltron at date of acquisition. The number of shares
issued represents approximately 107% of the outstanding Caltron
shares at October 7, 1997. The 4,000,000 shares received by the
founding shareholders of J-Bird Records, Inc. in connection with
the transaction have been shown as outstanding since the inception
of J-Bird Records, Inc. This transaction is in substance a capital
transaction, accompanied by a recapitalization and has been
accounted for as a reverse merger with J-Bird Records, Inc. being
the acquiring company for accounting purposes. Caltron, Inc. is
the acquiring company for legal purposes. The financial statements
include the operations of Caltron, Inc. since October 7, 1997,
date of acquisition. No goodwill was recorded in this
transaction. On October 8, 1997, Caltron changed its name to J-
Bird Music Group LTD (the "Company"). J-Bird Records, Inc. is a
wholly owned subsidiary of J-Bird Music Group LTD.
J-Bird Records, Inc. is the first World Wide 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.
The Company has experienced operating losses since its inception
and has experienced significant cash flow problems. The Company
is in the processing 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 intercompany balances and transactions have been
eliminated in consolidation.
6
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-SB filed for the year ended
December 31,1998.
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.
Note 2. Disposition of Long Term Assets and Investments
Rhode Island Renal Institute
On May 3, 1996, the Caltron entered into an agreement with Rhode
Island Renal Institute ("RIRI") and Brooks Porter ("Porter").
RIRI and Porter entered into a development and investment
agreement and pursuant to this agreement, RIRI agreed to provide
financial support, clinical testing facilities and supplies to
Porter to assist his development of the Renal Ozone Sterilization
System ("ROSS:"). Under the agreement with Caltron RIRI and
Porter assigned to Caltron the right to manufacture and distribute
ROSS and any interests created by the development and investment
agreement among Porter and RIRI. In accordance with the
agreement, RIRI received 125,000 shares of restricted common stock
of Caltron.
In December 1997, the ROSS Corporation signed an agreement with
the Company where the ROSS Corporation is going to buy the
Company's interest in the ROSS Project for $500, 000. In
connection with this transaction Caltron wrote down the value of
its investment to $500,000 as of the date of acquisition October
7,1997. The Company as of the date of acquisition recorded a
$500,000 note receivable.
In November 1998 the Company and the ROSS Corporation agreed to
exchange 125,000 shares of the Company's stock owned by ROSS for
the $500,000 note receivable in the accompanying financial
statements. The Company has recorded this transaction as a $500,000
loss on disposition of assets in 1998. The shares have been recorded
as treasury stock.
Applied Advanced Technology
On June 14, 1996, Caltron entered into an Agreement with Applied
Advanced Technologies, Inc. ("AAT") and Tovi Avnery ("Avnery") to
acquire an interest in AAT and for AAT to acquire an equity
interest in Caltron Under the terms of this agreement, Caltron
received an interest in the rights, title and interest in and to
an electron beam technology. Under this Agreement, Caltron was
to advance a total of $300,000 dollars to AAT. AAT received a
total of $350,000. In return, the Company received 114,546 shares
of common stock of AAT, representing 45% ownership in the company.
Avnery also received 130,000 shares of restricted common stock of
the Company.
7
On July 15, 1997, Caltron and AAT entered into a memorandum of
understanding to terminate its relationship whereby AAT will pay
Caltron $350,000 plus interest, not to exceed $500,000, by July
31, 1999. In September 1997, Caltron executed a release and
assignment of interest in AAT; to be held in escrow until said
monies owed to Caltron have been paid in full. Caltron and AAT
entered into a pledge agreement in favor of the Company, wherein
AAT permitted the pledge of all issued and outstanding shares of
capital stock of AAT, as well as its patent/patent pending in a
certain electron beam accelerator, to secure AAT's obligation to
make certain deferred payments to the Company under the $350,000
promissory note. AAT also executed a release and assignment of
interest in Caltron. All shares of common stock of Caltron owned
by AAT or Avnery are to be returned to Caltron and are not
included in the outstanding shares of the Company at December 31,
1997.
In May of 1998, $205,000 was received for full settlement of the
$350,000 note due from AAT. The difference of $145,000 was
recorded as a loss on disposal of assets in the 1998. All shares
issued in this transaction have been returned to the original
issuing parties. The Company's shares have been recorded as
treasury stock.
Note 3 Related Party Transactions
In October 1998 the Company entered into a credit agreement with
IMM International, Inc., a shareholder of the company., whereby
IMM 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 30,2000. At March 31, 1999, the Company had
borrowed $57,760 under this agreement.
Note 4. Common Stock
At March 31, 1999 warrants to purchase 87,140 shares of common
stock exercisable through March 2002 at $.25 per share were
outstanding.
At March 31, 1999, options to purchase $60,000 shares of stock
exercisable through March 2003 at $1 per share were outstanding.
An original J-Bird records Inc. stockholder was granted an option to
purchase shares, under the same terms of future subscription
agreements for stock to be issued under fair market value, to
maintain a 2.3 % ownership percentage of the Company. No options have
been exercised under this agreement. Approximately 30,000 shares may
be issued upon exercise of the option.
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 three months ended March 31, 1999.
The discussion should be read in conjunction with the Company's
consolidated financial statements and accompanying notes.
J-Bird derives its revenues from three principle sources: (i)
sales of compact disks ("CDs") directly to the artists for resale
to consumers, (ii) CD sales on the J-Bird Website; and (iii)
retail CD sales.
J-Bird's strategy to develop products and services for the music
entertainment business was primarily responsible for its net loss
for the three months ended March 31,1999 and the years ended
December 31, 1998 and 1997. The Company has only a limited
operating history in its operations upon which an evaluation of J-
Bird and its prospects can be based. Accordingly, J-Bird believes
that the results of its operations in the past during which time
the Company had minimal revenues, are not meaningful indications
of future performance. J-Bird incurred losses from continuing
operations of $ 97,893 in the three months ended March 31,1999,
$3,756,724 for the year ended December 31, 1998 and $1,929,865 for
the year ended December 31, 1997.
In 1998 the Company signed a distribution agreement with Navarre
Corporation which provides the Company with a national presence in
approximately 52,000 traditional retail establishments. This
agreement also provides the Company with a national sales force
that has existing relationships with the major retail outlets in
the country. As a start-up entity in 1997 the Company sold
directly to retail markets with minimal results. In the second
half of 1997 the Company was able to obtain two distribution
agreements with regional distributors. This enabled the Company to
establish a regional presence and provided credentials that
assisted in signing the distribution agreement with Navarre
Corporation.
The Company currently intends to increase substantially its
operating expenses to (a) fund increased sales and marketing,
enhance its existing website and to complete strategic
relationships important to the success of the Company. To the
extent that such expenses precede or are not subsequently followed
by increased revenues, the Company's business, results of
operations and financial condition will be materially adversely
affected. There can be no assurance that the Company will be able
to generate sufficient revenues from the sale of music recordings,
related merchandise, advertising and sponsorship programs to
achieve or maintain profitability on a quarterly or annual basis
in the future. The Company expects negative cash flow from
operations to continue for the foreseeable future as it continues
to develop and market its business.
Liquidity and Capital Resources
The Company has financed its operations and capital expenditures
primarily from equity financing and loans from shareholders and a
bank. At March 31,1999, the Company had a bank overdraft of
9
$48,452. The Company collected $250,000 of the subscription
agreements that were outstanding at December 31, 1998. The Company
borrowed $100,000 under its line of credit agreement with a bank.
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 IMM International Inc. a shareholder of the company. The
Company had borrowed $ 57,660 under this agreement as of March
31,1999.
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, 1999 compared
to three months ended March 31, 1998
1999 1998
----------- ----------
Net Sales $297,139 $116,445
- ------------
Cost of Sales $161,262 $70,055
- ---------------
In addition to obtaining the distribution agreement with Navarre
1999, sales increased due to the increasing number of artists and
bands signed by the Company including three nationally recognized
performers. The Company has 252 artists under agreements at March
31, 1999 compared to 230 at March 31, 1998.
Cost of sales in 1999 has increased in accordance with the
increase in sales.
1999 1998
------------ -----------
Advertising and Promotion Expenses $66,397 $51,164
- --------------------------------------------
The increase in advertising and promotion is due to the higher
level of operations of the Company.
Professional Fees $27,313 $37,066
- ----------------
The decrease in professional fees is due to the lower level of
legal and consulting fees of the Company.
10
1999 1998
------- -------
Salaries $67,780 $51,700
- ---------
The increase in salaries expense is due to the increased number of
employees, six in 1999 compared to five in 1998 of the Company.
Loss on Sale of Assets $-0- $173,000
- ----------------------
Loss on sale of assets consists of $ 145,000 loss on the note
receivable from ATT and the write down of $ 28,000 of other
investments.
Administrative Expenses $63,148 $50,927
- -----------------------
The increase in administrative expenses is due to the increased of
operations of the Company. Printing and stationary, registration
fees, insurance, postage and general office expenses increased by
approximately $4,000. Travel and entertainment increased by
approximately $9,000.
Results of Operations- Three months ended March 31, 1999 compared
to three months ended March 31, 1998
1999 1998
----------- ----------
Net Sales $297,139 $116,445
- ------------
Cost of Sales $161,262 $ 70,055
- ---------------
In 1998, the Company signed a distribution agreement with Navarre
Corporation, which provides the Company with a national presence
in approximately 52,000 traditional retail establishments. This
agreement also provides the Company with a national sales force
that has existing relationships with the major retail outlets in
the country. As a start-up entity in 1997, the Company sold
directly to retail markets with minimal results. In the second
half of 1997, the Company was able to obtain two distribution
agreements with regional distributors. This enabled the Company to
establish a regional presence and provided credentials that
assisted in signing the distribution agreement with Navarre
Corporation, which accounts for the increase in sales.
11
The Company has 230 artists under agreements at March 31, 1999.
Cost of sales in 1999 has increased in accordance with the
increase in sales.
1998 1997
------------ -----------
Advertising and Promotion Expenses $66,397 $51,164
- ----------------------------------
The increase in advertising and promotion is due to the higher
level of operations of the Company.
Professional Fees
- ----------------- $27,313 $37,066
The decrease in professional fees is due to the lower level of
legal, accounting and consulting fees of the Company.
Salaries $67,780 $51,700
- ---------
The increase in salaries expense is due to the increased wages paid in
1999.
Loss on Sale of Assets $ -0- $173,000
- ----------------------
Loss on sale of assets consists of $ 145,000 loss on the note
receivable from ATT and the write down of $ 28,000 of other
investments.
Administrative Expenses $63,148 $50,927
- ------------------------------
The increase in administrative expenses is due to the increased
operations of the Company.
12
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULT UPON SENIOR SECUITIES
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 27, 1999 By: /s/ John J. Barbieri
President
13