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, 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)
5 River Road, Suite 301, Wilton, Connecticut 06897
(Address and zip code of principal executive officers)
(203) 255-1826
(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
6,614,143 Common Stock September 30, 2002
$.001 par value
J-BIRD MUSIC GROUP LTD.
Index
PART I FINANCIAL INFORMATION
Balance Sheet September 30, 2002 3
Statements of Operations
Nine Months Ended September 30, 2002 and 2001 4
Statements of Cash Flow
Nine Months Ended September 30, 2002 and 2001 5
Notes to Unaudited Financial Statements
September 30, 2002 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II
Other Information 12
Signatures 13
2
J-BIRD MUSIC GROUP LTD.
CONSOLIDATED BALANCE SHEET
September 30, 2002
ASSETS:
Cash $ 1,543
Inventory 101,646
Due from Navarre 0
Due from Employee 0
Recording Advances 30,000
---------------
Total Current Assets 133,189
Fixed Assets, Net 32,170
---------------
Total Assets $ 165,359
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Account Payable and Accrued Expenses $ 305,817
Due to DGM -(Note 5) 1,474
Accrued Royalties 122,654
Due to I.M.M. International-(Note 2) 57,115
Mortgage Payable-Current 0
Cash Overdraft 0
Due to Navarre 117,563
Due to Shareholder- (Note 6) 15,000
---------------
Total Current Liabilities 606,123
Mortgage Payable-Long-Term 0
---------------
Total Liabilities 606,123
---------------
Stockholders' Equity
Common Stock $.001 Par Value 50,000,000 Shares
Authorized, 2,020,960 Issued and Outstanding 50,751
Treasury Stock - 27,500 shares (254,690)
Paid in Capital 12,322,982
Subscription Receivable (30,000)
Retained Earnings/(Deficit) (11,648,279)
---------------
Total Stockholders' Equity (440,764)
---------------
Total Liabilities and Stockholders' Equity $ 165,359
===============
3
J-BIRD MUSIC GROUP LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
2002 2001
----------- -----------
Net Sales $ (58,206) $ 334,408
Cost of Sales (209,277) 365,909
Operating Expenses:
Advertising and Promotion 0 16,724
Professional Fees 152,800 107,542
Amortization and Depreciation 6,793 51,008
Salaries-(Note 3) 35,703 116,000
Administrative Expenses 83,632 788,054
Interest Expense 0 22,759
----------- -----------
Net Income/(Loss) Before
Other Income (Expenses) (546,411) (1,133,588)
Other Income/ (Expenses)
Other Income 0 4,102
Loss on Extinguishment of Debt 0 (63,438)
Royalties Adjustment 0 (36,390)
----------- -----------
Net Income/ (Loss) $ (546,411) $(1,229,314)
=========== ===========
Net Loss per Common Share $ 0.08 $ (1.03)
Weighted Average Common Shares Outstanding 6,614,143 1,119,752
4
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 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) $ (546,411) $(1,229,314)
Amortization and Depreciation 6,792 51,008
(Increase)/Decrease in Employee Loan 0 67,128
(Increase)/Decrease in Accounts Receivable 0 (14,622)
(Increase)/Decrease in Inventory 4,449 30,236
(Increase)/Decrease in Security Deposits 0 978
(Decrease)/Increase in Accrued Royalties 8,315 75,476
(Decrease)/Increase in Accounts Payable 192,601 (6,215)
Stock Issued for Services 127,300 715,829
(Decrease)/Increase in Payroll Liabilities 0 54,137
(Increase)/Decrease in Recording Advance (5,000) 55,000
----------- -----------
Net Cash (Used In) Operating Activities (211,954) (200,359)
----------- -----------
Cash Flows from (Used In) Financing Activities
Stock Issued for Cash 31,000 110,000
Increase/(Decrease)in Shareholder Loans (135,000) 100,226
Increase/(Decrease) in Loan Due I.M.M 0 57,115
Increase/(Decrease) in Mortgage Payable 0 (6,878)
Increase/(Decrease) in Note Payable 0 (12,886)
----------- -----------
Net Cash from Financing Activities (104,000) 247,577
----------- -----------
Net Increase /(Decrease) in Cash (315,954) 47,218
Cash, Beginning of Period 181 (47,289)
----------- -----------
Cash, End of Period $ (315,773) $ (71)
=========== ===========
5
J-BIRD MUSIC GROUP LTD.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September, 2002, I.M.M.
Interntational 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. Stock Issued For Debt.
On September 20, 2002, Douglas McCaskey converted debt owed to him of $150,000
into 3,000,000 shares of common stock. This amount was reflected in Paid in
Capital and in the Statements of Cash Flow, Financing Activities.
Note 6. Due to Shareholder
As of September 30, 2002, the Company owed Henry Val $15,000 which he loaned to
the Company. Please see Item 5, Other Information, Subsequent Events for more
information.
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, 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 - Nine months ended September 30, 2002 compared to Nine
months ended September 30, 2001
2002 2001
---- ----
Net Sales $( 58,206) $334,408
Cost of Sales $(209,277) $365,909
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 September 30, 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
$(61,682)offset against the quarterly record sales of $26,685 for the first
quarter resulting in negative sales of $(91,992). In the quarter ended
September, 30, 2002, the Company experienced total returns of $20,598, offset by
quarterly sales of $89,381, resulting in net sales of $68,783. The Companies
inventory decreased by $9,003 (valued at historical cost). Additionally, the
royalties due to the artists under contract with the Company increased by
$14,639. 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
$209,277 for the nine month period ended September 30, 2002 and shown as
follows:
Cost of Goods Sold:
Inventory- Beginning $ 134,776
Production Costs (236,154)
Royalties ( 6,253)
Inventory-Ending (101,646)
----------
Cost of Goods Sold $(209,277)
2002 2001
----------- -----------
Advertising and Promotion Expenses $ 0 $ 16,724
The decrease in advertising and promotion is due to the level of operations of
the Company.
Professional Fees $ 152,800 $ 107,542
The increase in professional fees is due to the higher level of legal,
accounting and consulting fees of the Company.
10
Salaries $ 35,703 $ 116,000
In 2002, two employees received compensation through the Company. No
payrolltaxes were taken out of the wages and therefore the employee is
responsible forall taxes due on the compensation received.
Administrative Expenses $ 83,632 $ 788,054
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
Subsequent Events: Effective September 20,2002, Henry Val became CEO,
President, Treasurer and director of the Company. Please see Item 6
below. Mr. Val was removed as CEO, President and Treasurer by the
Board of Directors on October 30, 2002. Effective October 30, 2002
Hope D. Trowbridge was appointed President and Treasurer of the Company
by the Board of Directors.
Mr. Val received an option to purchase 2,500,000 shares of common stock
for $250,000. He exercised this option and the shares were issued to
him in September by the Company pursuant to said Option Agreement.
These shares were canceled on November 1, 2002 due to non-payment of
option price and are not reflected in the in the number of shares
outstanding in this Form 10-QSB. As a result of these shares being
canceled, Douglas McCaskey currently owns 53% of our common shares.
Item 6. Exhibits and Reports on Form 8-K
Form 8-K was filed on September 20, 2002 reporting the following other
events (Item 5):
Effective September 20, 2002, Henry Val became our CEO, President,
Treasurer and director. Hope Trowbridge resigned as President and
Treasurer and remains a director.
As a condition of his employment with us, Mr. Val received 2,500,000
Options to purchase our common stock at $.10 per share. Mr. Val
Subsequently exercised such options to purchase the 2,500,000 shares.
Therefore, Mr. Val currently owns 2,900,000 shares or 31.82% of our
Common stock.
Effective September 20, 2002, Douglas McCaskey converted debt owed to
him into 3,000,000 of our common shares. Therefore, Mr. McCaskey
presently beneficially owns 3,576,000 of our common shares or 39.24%.
12
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)
By: /s/ Hope D. Trowbridge
------------------------------
Dated: November 13, 2002 Hope D. Trowbridge
President/Treasurer/Director
13
CERTIFICATIONS
I, Hope D. Trowbridge, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of J-Bird Music
Group LTD;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed each disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors(or persons performing equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Hope D. Trowbridge
------------------------------
Date: November 12, 2002 Hope D. Trowbridge
President/Treasurer
14