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, 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 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
13,842,795 Common Stock November 13, 1998
$.001 par value
<PAGE>
J-BIRD MUSIC GROUP LTD.
Index
PART I FINANCIAL INFORMATION
Balance sheet September30 , 1998 3
Statements of Operations
Three Months Ended September 30, 1998 and 1997 4
Nine Months Ended September 30, 1998 and 1997 5
Statements of Cash Flow
Nine Months Ended September 30, 1998 and 1997 6
Notes to Unaudited Financial Statements
September 30, 1998 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II
Other Information
Signatures 14
<PAGE>
J-BIRD MUSIC GROUP LTD.
BALANCE SHEET
SEPTEMBER 30,1998
ASSETS
Cash $ 2,677
Inventory 314,463
Accounts receivable 84,541
Loans receivable, shareholder 35,000
Recording advances 39,165
Notes receivable 500,000
Total Current assets 975,846
Fixed assets, net 138,916
Other assets 2,279
Total assets 1,117,041
LIABILITIES AND STOCKHOLDERS' EQUITY
Account payable and accrued expenses $ 257,476
Accrued royalties 34,786
Note payable 15,000
Total current liabilities 307,262
Due to shareholders and officers 7,330
Total Liabilities 314,592
Stockholders' Equity
Common stock $.001 par value 25,000,000 shares
Authorized, 13,837,795 issued and outstanding 13,837
Stock subscriptions receivable (290,286)
Paid in capital 5,634,199
Deficit (4,555,301)
802,449
Total Liabilities and Equity $ 1,117,041
<PAGE>
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30,1998 AND 1997
1998 1997
Net sales $ 298,010 $ 57,765
Cost of sales 120,517 41,248
177,493 16,517
Operating expenses:
Advertising and promotion 71,747 44,657
Professional fees 132,065 -
Amortization and depreciation 9,112 6,658
Salaries 88,036 82,223
Administrative expenses 94,551 33,790
395,411 167,328
Net (loss) before other income (expenses) (217,918) (150,811)
Other income (expense)
Financing fee-sale of discounted common stock (92,500) -
(92,500) -
Net loss $ (310,418) $ (150,811)
Net loss per common share $ (0.02) $ (0.03)
Weighted average common shares outstanding 13,659,462 4,403,570
<PAGE>
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
Net sales $ 561,436 $ 132,021
Cost of sales 276,951 97,885
284,485 34,136
Operating expenses:
Advertising and promotion 163,180 95,692
Professional fees 185,131 58,599
Amortization and depreciation 27,375 24,848
Salaries 225,730 161,289
Administrative expenses 206,028 138,352
807,444 478,780
Net (loss) before other income (expenses) (522,959) (444,644)
Other income (expense):
Financing fee- sale of discounted common stock (1,052,500) -
Investment advisory fees (525,000) -
Loss from disposition of assets (173,000) -
(1,750,500) -
Net loss $(2,273,459) $ (444,644)
Net loss per common share $ (0.18) $ (0.11)
Weighted average common shares outstanding 12,616,239 4,156,746
<PAGE>
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 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) $ (2,273,459) $ (444,644)
Amortization and depreciation 27,375 21,209
Financing fee- sale of common stock at discount 1,052,500 -
Loss on sale of assets 173,000 -
(Increase) in accounts receivable (74,446) (52,025)
(Increase) in inventory (260,697) (58,799)
Stock issued for services 614,350 27,000
(Increase) in recording advances (17,500) (17,105)
(Increase) other assets - (979)
Compensation expense (non cash) - 90,000
(Decrease) increase in accounts payable (40,900) 230,894
Net cash (used in) operating activities (799,777) (204,449)
Cash flows from (used in) investing activities
Purchase of fixed assets (34,806) (75,356)
Net cash (used in) investing activities (34,806) (75,356)
Cash flows from (used in) financing activities
Collection of stock subscriptions 730,810 -
Collection of note receivable 205,000 -
Stock issued for cash - 205,000
Due from officers - 5,000
Due to shareholder (23,550) 48,630
Repayment of notes payable (75,000) (500)
Net cash from financing activities 837,260 258,130
Net increase (decrease) in cash 2,677 (21,675)
Cash, beginning of year - 21,675
Cash, end of year $ 2,677 $ -
<PAGE>
J- Bird Music Group LTD.
Notes to Unaudited Financial Statements September 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
and was valued at $827,466. 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 nine months ended
September 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.
Nine months Three months
Ended September 30, 1997 Ended September 30, 1997
Net sales $ 132,021 $ 57,765
Net (loss) $ (3,205,202) $ (2,806,900)
Net (loss) per share $ (0.38) $ (0.32)
Weighted average shares 8,538,971 8,785,795
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 Caltron, RIRI and Porter assigned to Caltron 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 Company
where the ROSS Corporation was 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 nine months ended September 30, 1998.
Note 4. Common Stock
In the nine months ended September 30, 1998 the Company issued 2,250,000
shares of restricted common stock at prices below the fair market value of
the stock. The Company has recorded a non-cash charge of $1,052,500 as
"financing fees- sale of discounted stock" in connection with these sales.
The Company has collected $730,810 of cash in the nine months ended September
30, 1998 with respect to the stock subscriptions. At September 30, 1998
$290,286 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 September 30, 1998 warrants to purchase 87,140 shares of common stock
exercisable through March 2002 at $.25 per share were outstanding.
At September 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 $617,041 and $302,449 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's, consolidated results of operations and financial condition for the
nine months ended September 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 nine months
ended September 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 $ 2,273,459
in the nine months ended September 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 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. At September 30, 1998 , the
Company had a cash balance of $2,677. The Company received $205,000 in May
1998 with respect to the $350,000 note receivable from AAT and recognized a
loss of $145,000 on this transaction. The Company also received $730,810 in
cash from the sale of restricted stock through subscription agreements. The
stock has been sold at a discount to market resulting in a non-cash charge to
earnings of $1,052,500. The amount due under stock subscriptions at
September 30, 1998 was $290,286. 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 September 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- Nine months ended September 30, 1998
compared to Nine months ended September 30,1997
1998 1997
Net Sales $561,436 $132,021
Cost of Sales $276,951 $ 97,885
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 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 two nationally recognized performers. These two
artists accounted for approximately $290,000 of sales in 1998. Thirteen
performers signed to agreements subsequent to September 30, 1997 had sales
of approximately $130,000 in the nine months ended September 30, 1998. Sales
also increased due to the development of the 1997 catalog. Five artists
signed to agreements prior to September 30, 1997 have increased sales by
$57,000 in 1998 compared to 1997.
The Company has 214 of artists under agreements at September 30, 1998 compared
to 159 at September 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 $31,000 for 1997
and 1998. As a result the 1997 cost of sales percentage is significantly higher
than the 1998 percentage.
1998 1997
Advertising and Promotion Expenses $163,180 $ 95,692
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 $185,131 $ 58,599
The increase in professional fees is due to the higher level of legal,
accounting and consulting fees of the Company. Include in professional fees
in 1998 is a charge of approximately $51,000 to a recording artist for
consulting services. Other consulting fees were approximately $60,000
greater than the 1997 levels.
Salaries $225,730 $161,289
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 $1,052,500 $ -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 down of $ 28,000 of other investments.
Administrative Expenses $206,028 $138,352
The increase in administrative expenses is due to the increased of operations
of the Company. Rent expense increased in 1998 by approximately $21,000
compared to 1997. Printing and stationary, registration fees, insurance,
postage and general office expenses increased by approximately $29,000.
Travel and entertainment increased by approximately $35,000. These
increases were offset by a decrease in commission expense of approximately
$17,000 compared to 1997.
Investments 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- Nine months ended September 30, 1997
compared to nine months ended September 30,1996
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,677
<SECURITIES> 0
<RECEIVABLES> 584,541
<ALLOWANCES> 0
<INVENTORY> 314,463
<CURRENT-ASSETS> 975,846
<PP&E> 202,672
<DEPRECIATION> 63,756
<TOTAL-ASSETS> 1,117,041
<CURRENT-LIABILITIES> 307,262
<BONDS> 0
0
0
<COMMON> 13,837
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,117,041
<SALES> 561,436
<TOTAL-REVENUES> 561,436
<CGS> 276,951
<TOTAL-COSTS> 276,951
<OTHER-EXPENSES> 2,557,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,273,459)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,273,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,273,459)
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<EPS-DILUTED> (0.18)
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