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, 1999 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
---------------------------- ----- ----
19,395,895 Common Stock August 2, 1999
$.001 par value
<PAGE>
J-BIRD MUSIC GROUP LTD.
Index
PART I FINANCIAL INFORMATION
Balance sheet June 30 , 1999 3
Statements of Operations
Three Months Ended June 30, 1999 and 1998 4
Six Months Ended June 30, 1999 and 1998 5
Statements of Cash Flow
Six Months Ended June 30 , 1999 and 1998 6
Notes to Unaudited Financial Statements
June 30, 1999 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II
Other Information
Signatures 15
2
<PAGE>
J-BIRD MUSIC GROUP LTD.
BALANCE SHEET
JUNE 30,1999
ASSETS
Cash $ 7,034
Inventory 197,173
Loans receivable, shareholder 182,000
Recording advances 16,589
Total Current assets 402,796
Fixed assets, net 119,128
Other assets 7 ,279
Total assets $ 529,203
LIABILITIES AND STOCKHOLDERS' EQUITY
Account payable and accrued expenses $ 208,322
Accrued royalties 142,507
Notes payable 100,000
Total current liabilities 450,829
Due to IMM International, Inc. 92,648
Due to shareholders and officers 30,330
Total Liabilities 573,807
Stockholders' Equity
Common stock $.001 par value 25,000,000 shares
authorized, 18,655,895 issued and outstanding 18,656
Stock subscriptions receivable (711,000)
Paid in capital 7,865,755
Deficit (7,218,015)
(44,604)
Total Liabilities and Equity $ 529,203
3
<PAGE>
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30,1999 AND 1998
1999 1998
------ ------
Net sales $ 70,230 $ 146,981
Cost of sales 87,214 86,379
(16,984) 60,602
Operating expenses:
Advertising and promotion 5,137 40,269
Professional fees 189,237 16,000
Amortization and depreciation 9,142 9,032
Salaries 82,734 85,994
Administrative expenses 31,022 60,650
Interest expense 2,900 0
320,172 211,945
Net (loss) before other
income (expenses) (337,156) (151,343)
Other income (expense):
Financing fee-sale of
discounted common stock (356,400) (960,000)
Investment advisory fees (380,000) (525,000)
(736,400) (1,485,000)
Net loss $ (1,073,556) $ (1,636,343)
Net loss per common share $ (0.07) $ (0.12)
Weighted average common
shares outstanding 15,861,562 13,194,462
4
<PAGE>
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30,1999 AND 1998
1999 1998
-------- --------
Net sales $ 367,369 $ 263,426
Cost of sales 248,476 156,434
118,893 106,992
Operating expenses:
Advertising and promotion 71,534 91,433
Professional fees 216,550 53,066
Amortization and depreciation 18,274 18,263
Salaries 150,514 137,694
Administrative expenses 92,170 111,577
Interest expense 4,900 0
553,942 412,033
Net (loss) before other
income (expenses) (435,049) (305,041)
Other income (expense):
Financing fee-sale of
discounted common stock (356,400) (960,000)
Investment advisory fees (380,000) (525,000)
Loss from disposition of assets 0 (173,000)
(736,400) (1,658,000)
Net loss $(1,171,449) $(1,963,041)
Net loss per common share $ (0.08) $ (0.16)
Weighted average common
shares outstanding 15,093,478 12,094,628
5
<PAGE>
J-BIRD MUSIC GROUP LTD.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,1999 AND 1998
1999 1998
-------- --------
Cash flows from (used in) operating activities
Adjustments to reconcile net (loss) to net
cash from (used in) operating activities:
Net (loss) $(1,171,449) $(1,963,041)
Amortization and depreciation 18,274 18,263
Financing fee-sale of common stock at discount 356,400 960,000
Loss on sale of assets 0 173,000
(Increase) in accounts receivable 0 (1,201)
Decrease(increase) in inventory 1,301 (320,835)
Stock issued for services 551,500 549,150
Increase accrued royalties 66,701 -
(Decrease)increase in accounts payable (204,386) 61,805
Net cash (used in) operating activities (381,659) (522,859)
Cash flows from (used in) investing activities
Purchase of fixed assets (8,900) -
Net cash (used in) investing activities (8,900) -
Cash flows from (used in) financing activities
Stock issued for cash 75,000 -
Collection of stock subscriptions 250,000 381,810
Collection of note receivable - 205,000
Due from IMM (20,912) -
Due to shareholder - (23,550)
Loan receivable shareholder (8,500) -
Increase in note payable 100,000 -
Repayment of notes payable - (40,000)
Net cash from financing activities 395,588 523,260
Net increase in cash 5,029 401
Cash, beginning of year 2,005 -
Cash, end of year $ 7,034 $ 401
Supplemental cash flow information:
Cash paid for interest $ 4,900 -
Stock issued for liabilities $ 15,000 -
6
<PAGE>
J- Bird Music Group LTD.
Notes to Unaudited Financial Statements June 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
(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.
7
<PAGE>
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.
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 $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,
8
<PAGE>
1999. In September, 1997, Caltron executed a release and assignment
of interest in AAT, to be held in escrow until said 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.
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 June
30,1999 the Company had borrowed $92,648 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 June 30, 1999 warrants to purchase 87,140 shares of common stock
exercisable through June 2002 at $.25 per share were outstanding.
At June 30, 1999 options to purchase $60,000 shares of stock at $1
per share were outstanding.
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.
9
<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, 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 disks ("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 six months ended June 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 $
1,171,449 in the six months ended June 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.
10
<PAGE>
Liquidity and Capital Resources
The Company has financed its operations and capital expenditures
primarily from equity financing and loans from shareholders. At June
30, 1999, the Company had a cash balance of $7,034. The Company
collected $250,000 of the subscription agreements that were
outstanding at December 31, 1998 and sold 300,000 shares for $75,000
in the six months ended June 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. The Company had borrowed $92,648 under
this agreement as of June 30, 1999.
The Company is currently 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- Six months ended June 30,1999 compared to six
months ended June 30,1998
1999 1998
-------- --------
Net Sales $367,369 $263,426
- ---------
Cost of Sales $248,476 $156,434
- -------------
In addition to obtaining the distribution agreement with Navarre,
sales increased due to the increased number of artists and bands
signed by the Company, including three nationally recognized
performers. The Company has ? of artists under agreements at June
30, 1999 compared to 174 at June 30, 1998.
Cost of sales in 1999 has increased in accordance with the increase
in sales and the write down of certain musical cd's.
1999 1998
-------- --------
Advertising and Promotion Expenses $71,534 $91,433
- ----------------------------------
The decrease in advertising and promotion is due to the termination
of an agreement with an advertising agency.
11
<PAGE>
Professional Fees
- ----------------- $216,550 $53,066
The increase in professional fees is due to the higher level of
legal and consulting fees incurred in 1999.
Salaries Expense $150,514 $137,694
- ----------------
The increase in salaries expense is due to the higher level of
salaries paid to employees in 1999.
Financing Fee-Sale of Discounted Stock $356,400 $960,000
- --------------------------------------
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 $ 0 $173,000
- ----------------------
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 $ 92,170 $111,577
- -----------------------
The decrease in administrative expenses is due to the decrease in
travel, entertainment and general office supplies.
Investment Advisory Fees $380,000 $525,000
- ------------------------
In 1999, the Company issued 1,000,000 shares valued at $380,000 to a
shareholder of the Company for investment advisory fees. In 1998,
500,000 shares of common stock valued at $525,000 were issued to an
investment banking firm for advisory fees.
Results of Operations- Six months ended June 30,1998 compared to six
months ended June 30,1997
12
<PAGE>
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 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 June
30, 1997 had sales of approximately $160,000 in the six months ended
June 30, 1998. The Company has 174 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. Therefore, the 1997 cost of sales
percentage is significantly higher than the 1998 percentage due to
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 an 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
- ----------------
13
<PAGE>
The increase in salary 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 $7000.
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
14
<PAGE>
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 six-month period ended June 30, 1999
(Exhibit Ref. No. 27).
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: August 17, 1999 By: /s/ John J. Barbieri
President
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,034
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 197,173
<CURRENT-ASSETS> 402,796
<PP&E> 211,572
<DEPRECIATION> 92,444
<TOTAL-ASSETS> 529,203
<CURRENT-LIABILITIES> 450,829
<BONDS> 0
0
0
<COMMON> 18,656
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 529,203
<SALES> 367,369
<TOTAL-REVENUES> 367,369
<CGS> 248,476
<TOTAL-COSTS> 248,476
<OTHER-EXPENSES> 1,285,442
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,900
<INCOME-PRETAX> (1,171,449)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,171,449)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,171,449)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
