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:
September 30, 1999 0-24449
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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
- ---------------------------- ------- ------
21,298,395 Common Stock October 11, 1999
$.001 par value
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<PAGE>
J-BIRD MUSIC GROUP LTD.
Index
PART I FINANCIAL INFORMATION
Balance Sheet - September 30, 1999 3
Statements of Operations
Three Months Ended September 30, 1999 and 1998 4
Nine Months Ended September 30, 1999 and 1998 5
Statements of Cash Flow
Nine Months Ended September 30, 1999 and 1998 6
Notes to Unaudited Financial Statements
September 30, 1999 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II
Other Information 14
Signatures 15
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<PAGE>
J-Bird Music Group LTD.
Balance Sheet
September 30, 1999
Assets
Cash $ 237,941
Accounts Receivable 10,027
Inventory 271,250
Loans Receivable - Shareholder 143,700
Recording Advances 38,589
Total Current Assets 701,507
Fixed Assets, Net 109,991
Other Assets 7,279
Total Assets $ 818,777
Liabilities and Stockholders' Equity
Accounts Payable and Accrued Expenses $ 321,146
Accrued Royalties 142,507
Notes Payable 93,539
Due to IMM International, Inc. 55,648
Total Current Liabilities 612,840
Total Liabilities 612,840
Stockholders' Equity
Common Stock $.001 par value 25,000,000 Shares
Authorized, 20,095,895 Issued and Outstanding 20,096
Paid in Capital 9,172,614
Deficit (8,986,773)
Total Stockholders' Equity 205,937
Total Liabilities and Equity $ 818,777
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<PAGE>
J-Bird Music Group LTD.
Statements of Operations
Three Months Ended September 30, 1999 and 1998
1999 1998
------ ------
Net Sales $ 21,732 $ 298,010
Cost of Sales 53,369 120,517
Gross Profit/(Loss) (31,637) 177,493
Operating Expenses
Advertising and Promotion 37,374 71,747
Professional Fees 31,940 132,065
Amortization and Depreciation 9,137 9,112
Salaries (37,847) 88,036
Administrative Expenses 184,168 94,551
Interest Expense ( 1,068) 0
Total Operating Expenses 223,704 395,411
Net (Loss) Before Other Income (Expenses) (255,341) (217,918)
Other Income (Expense)
Financing Fee-Sale of Discounted Common Stock (291,400) ( 92,500)
Investment Advisory Fees 0 0
Net Loss $ (546,741) $ (310,418)
Net Loss Per Common Share $( 0.03) $( 0.02)
Weighted Average Common Shares Outstanding 19,554,228 13,659,462
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<PAGE>
J-Bird Music Group LTD.
Statements of Operations
Nine Months Ended September 30, 1999 and 1998
1999 1998
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Net Sales $ 389,101 $ 561,436
Cost of Sales 301,845 276,951
Gross Profit 87,256 284,485
Operating Expenses
Advertising and Promotion 108,908 163,180
Professional Fees 248,490 185,131
Amortization and Depreciation 27,411 27,375
Salaries 112,667 225,730
Administrative Expenses 276,338 206,028
Interest Expense 3,832 0
Total Operating Expenses 777,646 807,444
Net (Loss) Before Other Income (Expenses) (690,390) (522,959)
Other Income (Expenses)
Financing Fee-Sale of Discounted Common Stock (647,800) (1,052,500)
Investment Advisory Fees (380,000) (525,000)
Loss from Disposition of Assets 0 (173,000)
Total Other (Expenses) (1,027,800) (1,750,500)
Net Loss $(1,718,190) $(2,273,459)
Net Loss Per Common Share $( 0.10) $ (0.18)
Weighted Average Common Shares Outstanding 16,680,395 12,616,239
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<PAGE>
J-Bird Music Group LTD.
Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998
1999 1998
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------
Cash Flows from (Used In) Operating Activities
Adjustments to Reconcile Net (Loss) to Net Cash
From (Used In) Operating Activities:
Net (Loss) $(1,718,190) $(2,273,459)
Amortization and Depreciation 27,411 27,375
Financing Fee-Sale of Common Stock at Discount 647,800 1,052,500
Loss on Sale of Assets 0 173,000
Decrease (Increase) in Accounts Receivable ( 10,027) ( 74,446)
Decrease (Increase) in Inventory 72,776 ( 260,697)
Stock Issued for Services 775,500 641,350
Increase Accrued Royalties 66,701 ( 17,500)
(Decrease) Increase in Accounts Payable ( 91,562) ( 40,900)
Net Cash (Used In) Operating Activities ( 229,591) ( 799,777)
Cash Flows from (Used In) Investing Activities
Purchase of Fixed Assets ( 36,785) ( 34,806)
Net Cash (Used In) Investing Activities ( 36,785) ( 34,806)
Cash Flows from (Used In) Financing Activities
Stock Issued for Cash 525,000 0
Collection of Stock Subscriptions 250,000 730,810
Collection of Note Receivable 0 205,000
Increase (Payments) - IMM Loan 29,303 0
Increase (Payments) - Officer/Shareholder ( 530) ( 23,550)
Investment Advisory Fees ( 380,000) 0
Increase (Payments) in Note Payable 78,539 ( 75,000)
Net Cash Flow (Used In) Financing Activities 502,312 837,260
Net Increase (Decrease) in Cash 235,936 2,677
Cash, Beginning of Year 2,005 0
Cash, End of Period $ 237,941 $ 2,677
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<PAGE>
J.-BIRD MUSIC GROUP LTD.
Notes to Unaudited Financial Statements
September 30, 1999
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 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 Caltron common shares issued to J-Bird Records,
Inc. shareholders in this transaction was 4,480,000 and was
valued at $827,466, the net assets of Caltron at date of
acquisition. The number of shares issued represents
approximately 107% of the outstanding Caltron shares at
October 7, 1997. The 4,000,000 shares received by the
founding shareholders of J-Bird Records, Inc. in connection
with the transaction have been shown as outstanding since
the inception of J-Bird Records, Inc. This transaction is
in substance a capital transaction, accompanied by a
recapitalization and has been accounted for as a reverse
merger with J-Bird Records, Inc. being the acquiring company
for accounting purposes. Caltron, Inc. is the acquiring
company for legal purposes. The financial statements
include the operations of Caltron, Inc. since October 7,
1997, date of acquisition. No goodwill was recorded in this
transaction. On October 8, 1997 Caltron changed its name to
J-Bird Music Group LTD (the "Company"). J-Bird Records,
Inc. is a wholly owned subsidiary of J-Bird Music Group LTD.
J-Bird Records, Inc. is the first World Wide Web Recording
Label T. 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 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, 1998.
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.
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<PAGE>
J-BIRD MUSIC GROUP LTD.
Notes to Unaudited Financial Statements
September 30, 1999
Note 2 - 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"). RIRI and Porter entered into a development and
investment agreement and pursuant to this agreement, RIRI
agreed to provide financial support, clinical testing
facilities and supplies to Porter to assist his development
of the Renal Ozone Sterilization System ("ROSS"). Under the
agreement with Caltron RIRI and Porter assigned to Caltron
the right to manufacture and distribute ROSS and any
interests created by the development and investment
agreement among Porter and RIRI. In accordance with the
agreement, RIRI received 125,000 shares of restricted common
stock of Caltron.
In December 1997, the ROSS Corporation signed an agreement
with the Company where the ROSS Corporation is going to buy
the Company's interest in the ROSS Project for the $500,000.
In connection with this transaction Caltron wrote down the
value of its investment to $500,000 as of the date of
acquisition October 7, 1997. A $500,000 note receivable was
recorded by the Company 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 in the
accompanying financial statements. The Company has recorded
this transaction as a $500,000 loss on disposition of assets
in 1998. The shares have been recorded as treasury stock.
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. In September 1997, Caltron
executed a release and assignment of interest in AAT to be
held in escrow until such monies owed to Caltron have been
paid in full. Caltron and AAT entered into a pledge
agreement in favor of the Company, wherein AAT permitted the
pledge of all issued and outstanding shares of capital stock
of AAT, as well as its patent/patent pending in a certain
electron beam accelerator, to secure AAT's obligation to
make certain deferred payments to the Company under the
$350,000 promissory note. AAT also executed a release and
assignment of interest in Caltron.
In May of 1998 $205,000 was received for full settlement of
the $350,000 note due from AAT. The difference of $145,000
was recorded as a loss on disposal of assets in 1998. All
shares issued in this transaction have been returned to the
original issuing parties. The Company's shares have been
recorded as treasury stock.
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<PAGE>
J-BIRD MUSIC GROUP LTD.
Notes to Unaudited Financial Statements
September 30, 1999
Note 3 - Related Party Transactions
In October 1998, the Company entered into a credit agreement
with IMM International, Inc. ("IMM"), a shareholder of the
Company, whereby IMM will provide up to $500,000 in
financing to the Company for working capital purposes. The
agreement expired on March 31, 1999 and was extended to
December 31, 2001. Amounts outstanding under this agreement
bear interest at 8% and are due on June 30, 2000. At
September 30, 1999, the Company owes $55,648 under this
agreement.
In June 1999, the Company issued 1,000,000 shares of common
stock, valued at $380,000 to a shareholder of the company
for investment advisory fees.
Note 4 - Common Stock
At September 30, 1999, warrants to purchase 87,140 shares of
common stock exercisable through June 2002 at $.25 per share
were outstanding.
At September 30, 1999, options to purchase 60,000 shares of
stock at $1 per share were outstanding.
On July 1, 1999 15,000 shares of common stock valued at
$6,000 were issued to a music group in full payment for a
four CD recording contract.
On August 2, 1999 125,000 shares of common stock valued at
$50,000 were issued to Total Technologies, Inc. in
satisfactory of a consulting agreement.
An original J-Bird Records, Inc. stockholder was granted an
option to purchase shares, under the same terms of future
subscription agreements for stock to be issued under fair
market value, to maintain a 2.3% ownership percentage of the
Company. No options have been exercised under this
agreement. Approximately 30,000 shares may be issued upon
exercise of the option.
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<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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 nine months ended
September 30, 1999. 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, 1999
and the years ended December 31, 1997 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 $1,718,190 in the nine months ended September
30, 1999, $1,929,865 for the year ended December 31, 1997
and $3,756,724 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 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 financing and loans from
shareholders. At September 30, 1999, the Company had a cash
balance of $237,941. The Company collected $250,000 of the
subscription agreements that were outstanding at December
31, 1998 and sold 6,770,500 shares of common stock for
$3,017,199 in the nine months ended September 30, 1999. The
Company borrowed $100,000 under its line of credit agreement
with a bank. The Company expects negative cash flow from
operations to continue for the near future, as it continues
to develop and market its operation. 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 IMM
International, Inc., a shareholder of the Company.
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<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company is current pursuing long-term financing for its
operating activities. No source of long-term 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 September 30,
1999 Compared to Three Months Ended September 30, 1998
1999 1998
------ ------
Net Sales $ 21,732 $298,010
Cost of Sales 53,369 120,517
In addition to obtaining the distribution agreement with
Navarre, gross sales were relatively stable due to the
increased number of artists and bands signed by the Company,
including three nationally recognized performers. The
Company has 250 artists under agreement at September 30,
1999 compared to 217 at September 30, 1998.
In this quarter gross sales were $171,201 and returns were
$149,469. The income from the sale of these returns was
recognized in prior periods. Of the total returns of
$149,469, 14,888 units totaling $114,397 or 76.5 percent of
the total came from only two artists.
Cost of sales in 1999 has decreased in accordance with the
decrease in sales and the write down of certain musical CDs.
Advertising and Promotion Expenses 37,374 71,747
The decrease in advertising and promotion is due to the
termination of an agreement with an advertising agency.
Professional Fees 31,940 132,065
The decrease in professional fees is due to the lower level
of legal and consulting fees incurred in the quarter.
Salaries Expense (37,847) 88,036
The decrease in salaries expense is due to the reversal of
over accruals in prior quarters.
Financing Fee-Sale of Discounted Stock 291,400 92,500
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.
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<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1999 1998
------ ------
Administrative Expenses $184,168 $ 94,511
The increase in administrative expenses is due to the
increase in travel, entertainment and general office
overhead.
Results of Operations - Nine Months Ended September 30, 1999
Compared to Nine Months Ended September 30, 1998
1999 1998
------ ------
Net Sales $389,101 $561,436
Cost of Sales 301,845 276,951
In 1998, the Company signed a distribution agreement with
Navarre Corporation that 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 September 30,
1999, had sales of approximately $160,000 in the nine months
ended September 30, 1999. The Company has 250 artists under
agreements at September 30, 1999 compared to 217 at
September 30, 1998.
Cost of sales in 1999 has increased as a percentage of sales
due to the increase in returns which reduced sales.
Advertising and Promotion Expenses 108,908 163,180
The decrease in advertising and promotion is due to the
termination of an agreement with an advertising agency.
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<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1999 1998
------ ------
Professional Fees $248,490 $185,131
The increase in professional fees is due to the higher level
of legal fees incurred in 1999.
Salaries Expense 112,667 225,730
The decrease in salary expense is due to the decrease in the
number of employees.
Administrative Expenses 276,338 206,028
The increase in administrative expenses is due to the
increased operations of the Company. Rent increased over
1998. Printing and stationary, registration fees,
insurance, postage and general office overhead increased
over 1998.
Financing Fee-Sale of Discounted Stock 647,800 1,052,500
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.
Investment Advisory Fees 380,000 525,000
In 1998 500,000 shares of common stock valued at $525,000
were issued to an investment banking firm for advisory fees.
In 1999 the Company issued 1,000,000 shares of common stock
valued at $380,000 to a shareholder of the company for
investment advisory fees.
Loss on Sales of Assets 0 173,000
Loss on sale of assets in 1998 consists of $145,000 loss on
the note receivable from ATT and the write off of $28,000 of
other investments.
PART II
OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Included only with the electronic filing of this report is
the Financial Data Schedule for the nine-month period ended
September 30, 1999 (Exhibit Ref. No. 27).
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<PAGE>
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 12, 1999 By: /s/
John J. Barbieri
President
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 237,941
<SECURITIES> 0
<RECEIVABLES> 10,027
<ALLOWANCES> 0
<INVENTORY> 271,250
<CURRENT-ASSETS> 701,507
<PP&E> 109,991
<DEPRECIATION> 0
<TOTAL-ASSETS> 818,777
<CURRENT-LIABILITIES> 612,840
<BONDS> 0
0
0
<COMMON> 20,096
<OTHER-SE> 185,841
<TOTAL-LIABILITY-AND-EQUITY> 818,777
<SALES> 389,101
<TOTAL-REVENUES> 389,101
<CGS> 301,845
<TOTAL-COSTS> 777,646
<OTHER-EXPENSES> 1,027,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,718,190)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,718,190)
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