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, 2002 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
2,020,960 Common Stock March 31, 2002
$.001 par value
J-BIRD MUSIC GROUP LTD.
Index
PART I FINANCIAL INFORMATION
Balance Sheet March 31, 2002 3
Statements of Operations
Three Months Ended March 31, 2002 and 2001 4
Statements of Cash Flow
Three Months Ended March 31, 2002 and 2001 5
Notes to Unaudited Financial Statements
March 31, 2002 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, 2002
ASSETS:
Cash $ 0
Inventory 145,991
Due from Navarre 132,331
Due from Employee 0
Recording Advances 25,000
---------------
Total Current Assets 303,322
Fixed Assets, Net 432,170
---------------
Total Assets $ 735,492
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Account Payable and Accrued Expenses $ 273,612
Due to DGM 116,677
Accrued Royalties 114,339
Due to I.M.M. International-(Note 2) 57,115
Mortgage Payable-Current 14,570
Cash Overdraft 3,924
---------------
Total Current Liabilities 580,237
Mortgage Payable-Long-Term 371,052
---------------
Total Liabilities 951,289
---------------
Stockholders' Equity
Common Stock $.001 Par Value 50,000,000 Shares
Authorized, 2,020,960 Issued and Outstanding 46,158
Treasury Stock - 27,500 shares (254,690)
Paid in Capital 12,014,682
Subscription Receivable (30,000)
Retained Earnings/(Deficit) (11,991,947)
---------------
Total Stockholders' Equity (215,797)
---------------
Total Liabilities and Stockholders' Equity $ 735,492
===============
3
J-BIRD MUSIC GROUP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2001
--------------- ---------------
Net Sales $ (91,992) $ 143,766
Cost of Sales (250,326) 119,254
Operating Expenses:
Advertising and Promotion 0 16,969
Professional Fees 24,000 11,486
Amortization and Depreciation 6,793 9,781
Salaries-(Note 3) 17,100 0
Administrative Expenses 22,209 59,326
--------------- ---------------
Net Income/(Loss) Before
Other Income (Expenses) 88,232 (73,050)
Other Income/ (Expenses)
Other Income 0 4,100
Loss on Extinguishment of Debt 0 (63,438)
Royalties Adjustment 0 (36,390)
--------------- ---------------
Net Income/ (Loss) $ 88,232 $ (168,778)
=============== ===============
Net Loss per Common Share $ 0.06 $ (0.05)
Weighted Average Common Shares Outstanding 1,466,752 30,691,728
4
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2001
--------------- ---------------
Cash Flows from (Used In) Operating Activities
Adjustments to Reconcile Net (Loss) to Net Cash
From (Used In) Operating Activities:
Net Income/(Loss) $ 88,232 $ (168,778)
Amortization and Depreciation 6,792 9,781
(Increase)/Decrease in Employee Loan 0 (1,000)
(Increase)/Decrease in Accounts Receivable (126,569) (7,335)
(Increase)/Decrease in Inventory (11,215) (26,739)
(Decrease)/Increase in Accrued Royalties (18,757) (55,411)
(Decrease)/Increase in Accounts Payable 28,422 (7,073)
(Decrease)/Increase in Payroll Liabilities 0 54,137
(Increase)/Decrease in Recording Advance 0 0
--------------- ---------------
Net Cash (Used In) Operating Activities (33,095) (91,596)
--------------- ---------------
Cash Flows from (Used In) Financing Activities
Stock Issued for Cash 50,000 60,000
Increase/(Decrease) in Shareholder Loans 27,740 0
Increase/(Decrease) in Loan Due I.M.M 0 44,615
Increase/(Decrease) in Mortgage Payable 0 (3,219)
Increase/(Decrease) in Note Payable (50,000) (6,282)
--------------- ---------------
Net Cash from Financing Activities 27,740 95,114
--------------- ---------------
Net Increase /(Decrease) in Cash (5,355) 3,518
Cash, Beginning of Period 1,432 0
--------------- ---------------
Cash, End of Period $ (3,923) $ 3,518
=============== ===============
5
J-BIRD MUSIC GROUP LTD.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2002
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, 2001.
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, 2002. At March 31, 2002, I.M.M.
Interntational had advanced $44,515 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.
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, 2002. 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, Lee Rocker, 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 2002.
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).
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 2002.
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 December 31, 2001
the Company had settled its debt with a bank and the line of credit was closed.
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, 2002 compared to three
months ended March 31, 2001
2002 2001
---- ----
Net Sales $ (91,992) $143,766
Cost of Sales $(250,326) $119,254
9
In addition to obtaining the distribution agreement with Navarre, 2002 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, 2002.
In the first quarter of 2002 the Company experienced a large amount of returns
through their distributor, Navarre. The total returns for the quarter were $
132,525 offset against the quarterly record sales of $ 40,533 for the first
quarter resulting in negative sales of $91,992. As a direct result of the large
number of returns, the Company's inventory increased by $11,215 (valued at
historical cost) to reflect the CD's returned to the distributor. Additionally,
the royalties due to the artists under contract with the Company decreased a net
$18,757 as a result of the returns. Finally, the Company received a credit from
Navarre which resulted in a net of $220,354 for production costs related to the
CD's sold in prior quarters but returned in the first quarter of 2002. This
credit is reflected in both the receivable from Navarre as well as the direct
costs related to producing the CD's. These factors combined result in a cost of
goods negative figure of $250,326 for the period ended March 31, 2002 and shown
as follows:
Cost of Goods Sold:
Inventory- Beginning $ 134,776
Production Costs (220,354)
Royalties (18,757
Inventory-Ending (145,991)
----------
Cost of Goods Sold $(250,326)
2002 2001
----------- -----------
Advertising and Promotion Expenses $ 0 $ 16,969
The decrease in advertising and promotion is due to the level of operations of
the Company.
Professional Fees $ 24,000 $ 11,486
The increase in professional fees is due to the higher level of legal,
accounting and consulting fees of the Company.
10
Salaries $ 17,100 $ 0
In 2002, two employees received compensation through the Company. No payroll
taxes were taken out of the wages and therefore the employee is responsible for
all taxes due on the compensation received.
Administrative Expenses $ 22,209 $ 59,326
The decrease in administrative expenses is due to the decreased operations of
the Company.
Other Expenses
Bad Debt $ 0 $ 63,438
This represents a write off in the year 2001 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.
Other Expenses (cont.)
Royalty Adjustment $ 0 $ 36,390
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: June 6, 2002 By: Hope D. Trowbridge
President
12