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, 2000 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 32,678,295 Common Stock September 30, 2000 $.001 par value J-BIRD MUSIC GROUP LTD. Index PART I FINANCIAL INFORMATION Balance Sheet September 30, 2000 3 Statements of Operations Nine Months Ended September 30, 2000 and 1999 4 Statements of Cash Flow Nine Months Ended September 30, 2000 and 1999 5 Notes to Unaudited Financial Statements September 30, 2000 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II Other Information 11 Signatures 11 2 J-BIRD MUSIC GROUP LTD. CONSOLIDATED BALANCE SHEET September 30, 2000 ASSETS: Cash $ 11,886 Accounts Receivable 519,943 Inventory 195,691 Loans Receivable, Shareholder 68,128 Loans Receivable I.M.M 8,858 Recording Advances 185,980 ------------ Total Current Assets 990,486 Fixed Assets, Net 91,129 Other Assets 979 ------------ Total Assets $ 1,082,594 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Account Payable and Accrued Expenses $ 412,813 Accrued Royalties 33,000 Notes Payable 59,463 ------------ Total Current Liabilities 505,276 Total Liabilities $ 505,276 ------------ Stockholders' Equity Common Stock $.001 Par Value 50,000,000 Shares Authorized, 32,678,295 Issued and Outstanding 32,779 Paid in Capital 10,794,452 Subscription Receivable (250,000) (Deficit) (9,999,913) Total Stockholders' Equity 577,418 ------------ Total Liabilities and Stockholders' Equity $ 1,082,594 ============ 3 J-BIRD MUSIC GROUP LTD. CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 2000 1999 ------------ ------------ Net Sales $ 538,988 $ 389,101 Cost of Sales 742,480 301,845 Operating Expenses: Advertising and Promotion 84,877 108,908 Professional Fees 56,211 248,490 Amortization and Depreciation 25,219 27,411 Salaries 108,155 112,667 Administrative Expenses 1,161,958 276,338 Interest Expense 5,944 3,832 ------------ ------------ Net (Loss) Before Other Income (Expenses) (1,645,855) (690,390) Other Income (Expense) 0 Financing fee-sale of discounted Common stock (647,800) Investment Advisory Fees (159,500) (380,000) Taxes (927) 0 Net Loss $ (1,806,282) $ (1,718,190) ============ ============ Net Loss per Common Share $ (0.07) $ (0.10) Weighted Average Common Shares Outstanding 28,533,395 16,680,395 4 J-BIRD MUSIC GROUP LTD. STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 2000 1999 ----------- ----------- Cash Flows from (Used In) Operating Activities Adjustments to Reconcile Net (Loss) to Net Cash From (Used In) Operating Activities: Net (Loss) $(1,806,282) $(1,718,190) Amortization and Depreciation 25,219 27,411 Finance fee-sale of common stock At discount 0 647,800 (Increase) in Accounts Receivable 31,257 (10,027) (Increase) in Inventory (123,491) 72,776 Stock Issued For Services 852,500 775,500 (Decrease) Increase in Accrued Royalties 83,480 66,701 (Decrease) Increase in Accounts Payable 312,093 (91,562) (Increase) in Recording Advances 96,280 0 ----------- ----------- Net Cash (Used In) Operating Activities (528,944) (229,591) Cash Flows from (Used In) Investing Activities Purchase of Fixed Assets 0 (36,785) ----------- ----------- Net Cash (Used In) Investing Activities 0 (36,785) Cash Flows from (Used In) Financing Activities Stock Issued for Cash 743,231 525,000 Collection of Stock Subscriptions 250,000 Net (Decrease) Increase in Bank Overdraft 0 0 Net Increase in Due from Officer 12,828 (530) Net (Decrease) in Loan Due I.M.M (50,958) 29,303 Increase (Decrease) in Note Payable (21,737) 78,539 Investment Advisory Fees (159,500) (380,000) ----------- ----------- Net Cash from Financing Activities 523,864 502,312 Net (Decrease) Increase in Cash (5,080) 235,936 Cash, Beginning of Period 16,966 2,005 ----------- ----------- Cash, End of Period $ 11,886 $ 237,941 =========== =========== 5 J-BIRD MUSIC GROUP LTD. NOTES TO UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 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 intercompany 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-SB filed for the year ended December 31, 1999. 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, 2000. At September 30, 2000, the Company had advanced $8,858 to I.M.M. Note 3. Common Stock At September 30, 2000, warrants to purchase 87,140 shares of common stock exercisable through March 2002 at $.25 per share were outstanding. 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 nine months ended September 30, 2000. 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 discs ("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 nine months ended September 30, 2000 and the years ended December 31, 1999 and 1998. 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 $1,806,282 in the nine months ended September 30, 2000, $2,147,065 for the year ended December 31, 1999 and $3,764,724 for the year ended December 31, 1998. 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. 8 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. The Company borrowed $100,000 under its line of credit agreement with a bank. As of September 30, 2000, the principle balance owed is $59,463. 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 has advanced $8,858 to I.M.M as of September 30, 2000. 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 - Nine months ended September 30, 2000 compared to nine months ended September 30, 1999 2000 1999 -------- -------- Net Sales $538,988 $389,101 --------- Cost of Sales $742,479 $301,845 ------------- 9 In addition to obtaining the distribution agreement with Navarre, 2000 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 338 artists under agreements at September 30, 2000 compared to 250 at September 30, 1999. 2000 1999 ---- ---- Advertising and Promotion Expenses $ 84,877 $108,908 ---------------------------------- The decrease in advertising and promotion is due to the level of operations of the Company. Professional Fees $ 56,211 $248,490 ----------------- The decrease in professional fees is due to the lower level of legal and consulting fees of the Company. Salaries $108,155 $112,667 -------- The decrease in salaries expense is due to the decreased number of employees. Administrative Expenses $1,161,958 $276,338 ----------------------- The increase in administrative expenses is due to the increased of operations of the Company. Investment adviser fees, stock financing fees, printing and stationary, registration fees, insurance, postage and general office expenses increased by approximately $154,000. Additionally, in the first quarter the Company had incurred an employee signing bonus of $35,000 and a consulting expense of $71,250. For the second quarter the Company incurred an additional $700,000 in consulting expenses. Additionally, in the third quarter the Company incurred another $81,250 for consulting. This expense was an exchange of services for common stock and did not affect the cash flow of the Company. 10 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 11 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) /s/ John J. Barbieri Dated: November 14, 2000 By: John J. Barbieri President 12