SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
QUARTERLY REPORT UNDER REGULATION SB OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number:
June 30, 1998 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 NO X
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
13,842,795 Common Stock November 18, 1998
$.001 par value
<PAGE>
J-BIRD MUSIC GROUP LTD.
Index
PART I FINANCIAL INFORMATION
Balance sheet June 30, 1998 3
Statements of Operations
Three Months Ended June 30, 1998 and 1997 4
Six Months Ended June 30, 1998 and 1997 5
Statements of Cash Flow
Six Months Ended June 30, 1998 and 1997 6
Notes to Unaudited Financial Statements
June 30, 1998 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II
Other Information
Signatures 15
<PAGE>
J-BIRD MUSIC GROUP LTD.
BALANCE SHEET
JUNE 30,1998
ASSETS
Cash $ 401
Inventory 374,601
Accounts receivable 11,296
Loans receivable, shareholder 42,500
Recording advances 21,665
Notes receivable 500,000
Total Current assets 950,463
Fixed assets, net 111,876
Other assets 2,279
Total assets $ 1,064,618
LIABILITIES AND STOCKHOLDERS' EQUITY
Account payable and accrued expenses $ 389,484
Accrued royalties 17,637
Notes payable 50,000
Total current liabilities 457,121
Due to shareholders and officers 7,330
Total Liabilities 464,451
Stockholders' Equity
Common stock $.001 par value 25,000,000
shares Authorized, 13,527,795 issued and
outstanding 13,527
Stock subscriptions receivable (539,286)
Paid in capital 5,370,809
Deficit (4,244,883)
600,167
Total Liabilities and Equity $ 1,064,618
<PAGE>
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30,1998 AND 1997
1998 1997
Net sales $ 146,981 $ 42,989
Cost of sales 86,379 39,147
60,602 3,842
Operating expenses:
Advertising and promotion 40,269 20,306
Professional fees 16,000 31,599
Amortization and depreciation 9,032 10,914
Salaries 85,994 39,812
Administrative expenses 60,650 57,669
211,945 160,300
Net (loss) before other income (expenses) (151,343) (156,458)
Other income (expense):
Financing fee-sale of discounted common stock (960,000) -
Investment advisory fees (525,000) -
(1,485,000) -
Net loss $ (1,636,343) $ (156,458)
Net loss per common share $ (0.12) $ (0.04)
Weighted average common shares outstanding 13,194,462 4,066,667
<PAGE>
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30,1998 AND 1997
1998 1997
Net sales $ 263,426 $ 74,256
Cost of sales 156,434 56,637
106,992 17,619
Operating expenses:
Advertising and promotion 91,433 51,035
Professional fees 53,066 58,599
Amortization and depreciation 18,263 18,190
Salaries 137,694 79,066
Administrative expenses 111,577 104,562
412,033 311,452
Net (loss) before other income (expenses) (305,041) (293,833)
Other income (expense):
Financing fee-sale of discounted common stock (960,000) -
Investment advisory fees (525,000) -
Loss from disposition of assets (173,000) -
(1,658,000) -
Net loss $(1,963,041) $ (293,833)
Net loss per common share $ (0.16) $ (0.07)
Weighted average common shares outstanding 12,094,628 4,033,333
<PAGE>
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,1998 AND 1997
1998 1997
-------------- --------------
Cash flows from (used in) operating activities
Adjustments to reconcile net (loss) to net cash
from (used in) operating activities:
Net (loss) $(1,963,041) $ (293,833)
Amortization and depreciation 18,263 14,551
Financing fee-sale of common stock at discount 960,000 -
Loss on sale of assets 173,000 -
(Increase) in accounts receivable (1,201) (13,604)
(Increase) in inventory (320,835) (34,371)
Stock issued for services 549,150 27,000
(Increase) in recording advances - (6,650)
(Increase) other assets - (479)
Compensation expense (non cash) - 60,000
Increase in accounts payable 61,805 145,451
Net cash (used in) operating activities (522,859) (101,935)
Cash flows from (used in) investing activities
Purchase of fixed assets - (66,363)
Net cash (used in) investing activities - (66,363)
Cash flows from (used in) financing activities
Collection of stock subscriptions 381,810 -
Collection of note receivable 205,000 -
Due from officers - 5,001
Due to shareholder (23,550) 143,380
Repayment of notes payable (40,000) (500)
Net cash from financing activities 523,260 147,881
Net increase (decrease) in cash 401 (20,417)
Cash, beginning of year - 21,675
Cash, end of year $ 401 $ 1,258
<PAGE>
J- Bird Music Group LTD.
Notes to Unaudited Financial Statements June 30, 1998
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 into 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 Caltron Inc.
The total number of shares exchanged in this transaction was 7,889,225.
On October 8 1997, Caltron, Inc. changed its name to J-Bird Music Group LTD.
J-Bird Records, Inc. is a wholly-owned subsidiary of J-Bird Music Group LTD.
As a result of this transaction, the former shareholders of J-Bird Records,
Inc. will be the controlling shareholders of the Company. This transaction
has been accounted for as purchase of Caltron, Inc. by J-Bird Records, Inc.
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.
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, 1997.
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. J-Bird Records, Inc.
On October 7, 1997, Caltron, Inc. entered into 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 common shares exchanged in this transaction was
7,889,225 and was valued at $827,466. This transaction has been accounted
for as a purchase. The financial statements include the operations of
Caltron, Inc. since October 7, 1997, date of acquisition.
The following table summarizes the unaudited pro forma results of
operations of the Company for the three months and six months ended June
30, 1997 assuming the acquisition of J-Bird Records, Inc. had occurred
on January 1, 1997. The unaudited pro forma financial information presented
is not necessarily indicative of the results of operations that would
have occurred had the acquisition taken place on January 1, 1997
or of future results of operations.
Six months Three months
ended June 30,1997 ended June 30, 1997
Net Sales
$ 74,256 $ 42,989
Net (Loss) $ (398,302) $(200,772)
Net (loss) per share $ (.05) $ (.02)
Weighted average shares 8,415,558 8,448,892
Note 3. 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"). Under the
agreement with the Company, RIRI and Porter assigned to the Company
the right to manufacture and distribute a Renal Ozone Sterilization
System ("ROSS") and any interests created by the development and
investment agreement among Porter and RIRI.
In December 1997, the ROSS Corporation signed an agreement with
the Caltron 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.
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. See Note 5. to the financial statements.
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.
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. All
shares of common stock of Caltron owned by AAT or Avnery were returned
to the Company. In May 1998, the Company collected $205,000 for full
settlement of the $350,000 note receivable from AAT. The difference has
been recorded as a loss on disposition of assets in the six months ended
June 30, 1998.
Note 4. Common Stock
In the six months ended June 30, 1998 the Company issued 2,000,000
shares of restricted common stock at prices below the fair market
value of the stock. The Company has recorded a non-cash charge of
$960,000 as "financing fees- sale of discounted stock" in connection
with the sales. The Company has collected $381,810 in the six months
ended June 30, 1998 with respect to the stock subscriptions. At
June 30, 1998, $539,286 in subscriptions receivable were outstanding.
The Company issued 500,000 common shares valued at $525,000 to an
investment banker in connection with an agreement for investment services.
This was recorded as a non-cash charge to operations as investment
advisory fees.
At June 30, 1998 warrants to purchase 87,140 shares of common stock
exercisable through March 2002 at $.25 per share were outstanding.
At June 30, 1998 options to purchase 60,000 shares of stock at $1 per
share were outstanding.
Note 5. Subsequent Event
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. If the
agreement is finalized the Company's assets and stockholders' equity
would be decreased by $500,000 to $564,618 and $100,167 respectively.
<PAGE>
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. and its subsidiary (collectively, the Company), consolidated
results of operations and financial condition for the six months ended June
30, 1998. The discussion should be read in conjunction with the Company's
consolidated financial statements and accompanying notes.
J-Bird derives its revenues from four principle sources: (i) sales of
compact disks ("CDs") directly to the artists for resale to consumers,
(ii) fees paid by artists to sign recording contracts, (iii) CD sales on
the J-Bird Website; and (iv) 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
six months ended June 30, 1998 and the years ended December 31, 1996
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 $ 1,963,041 in the six months ended
June 30,1998 , $351,977 for the year ended December 31, 1996 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 into
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
credential that assisted in signing the distribution agreement with
Navarre Corporation.
The Company currently intends to increase substantially its operating
expenses, to fund increased sales and marketing, to 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 financings and loans from shareholders. At June 30, 1998,
the Company had a cash balance of $ 401. The Company received $205,000
in May 1998 with respect to the $350,000 note receivable from AAT.
The Company also received $381,810 in cash from the sale of stock
through subscription agreements. The stock has been sold at a discount
to market resulting in a non cash charge to earnings of $960,000.
The amount due under stock subscriptions at June 30,1998 was $539,286
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.
While the Company has positive working capital at June 30,1998 the
$500,000 note receivable responsible for the positive working capital
is in the process of being exchanged for the purchase of treasury stock.
See Note 5. to the financial statements.
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- Six months ended June 30,1998 compared to six
months ended June 30, 1997
1998 1997
Net Sales $263,426 $74,256
Cost of Sales $156,434 $56,637
In 1998 the Company signed a distribution agreement with Navarre
Corporation which provides the Company with a national presence into
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 credential that
assisted in signing the distribution agreement with Navarre Corporation.
In addition to obtaining the distribution agreement with Navarre, sales
increased due to the increased number of artists and bands signed by the
Company in 1998, including one nationally recognized performer. This
artist accounted for approximately $44,000 of sales in 1998. Fifteen
performers signed to agreements subsequent to June 30, 1997 had sales of
approximately $160,000 in the six months ended June 30, 1998.
The Company has 174 of artists under agreements at June 30, 1998 compared
to 144 at June 30, 1997.
Cost of sales in 1998 has increased in accordance with the increase
in sales. The cost of sales includes a web site fee of approximately
$17,000 for 1997 and 1998. As a result the 1997 cost of sales percentage
is significantly higher than the 1998 percentage due to the level of sales
in 1997.
1998 1997
Advertising and Promotion Expenses $91,433 $51,035
The increase in advertising and promotion is due to the higher level of
operations of the Company. The primary increase from 1997 to 1998 is
due to an agreement with a advertising agency requiring monthly payments
of $4,500.
Professional Fees $53,066 $58,599
The decrease in professional fees is due to the lower level of legal fees
in incurred in 1998.
Salaries Expense $137,694 $79,066
The increase in salaries expense is due to the increased number of
employees, six in 1998 compared to three in 1997 of the Company.
Financing Fee-Sale of Discounted Stock $960,000 $ -0-
Financing fees related to the non-cash charge for the purchase of
restricted common stock at a discount to the market value of the stock.
Loss on Sale of Assets $173,000 $ -0-
Loss on sale of assets consists of $145,000 loss on the note receivable
from ATT and the write off of $28,000 of other investments.
Administrative Expenses $111,577 $104,562
The increase in administrative expenses is due to the increased of
operations of the Company. Rent increased by approximately $11,000 over
1997. Printing and stationary, registration fees, insurance, postage
and general office supplies increased by approximately $5,000. Travel
and entertainment increased by approximately $7,000. These increases
were offset by a decrease in commission expense of approximately $16,000.
Investment Advisory Fees $525,000 $ -0-
Investment advisory fees increased due to an agreement with an
investment banking firm entered into in 1998. 500,000 shares of
common stock valued at $525,000 were issued in connection with this
transaction.
Results of Operations- Six months ended June 30,1997 compared to
six months ended June 30,1997
A comparison of the 1997 results to the 1996 results is not meaningful
as the Company did not begin, operations until October 1996.
<PAGE>
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: November 19, 1998 By: /s/ John J. Barbieri
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 401
<SECURITIES> 0
<RECEIVABLES> 511,296
<ALLOWANCES> 0
<INVENTORY> 374,601
<CURRENT-ASSETS> 950,463
<PP&E> 166,500
<DEPRECIATION> 54,624
<TOTAL-ASSETS> 1,064,618
<CURRENT-LIABILITIES> 457,121
<BONDS> 0
0
0
<COMMON> 13,527
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,064,618
<SALES> 263,426
<TOTAL-REVENUES> 263,426
<CGS> 156,434
<TOTAL-COSTS> 156,434
<OTHER-EXPENSES> 2,070,033
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,963,041)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,963,041)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,963,041)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
