10-Q 1 b318861_10q.txt QUARTERLY REPORT 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: March 31, 2002 0-24449 J-BIRD MUSIC GROUP LTD. (Exact Name of Registrant as specified in its charter) Pennsylvania 06-1411727 (State or other jurisdiction) (IRS Employer of incorporation or organization) Identification Number) 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 reported required by Regulation SB of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. YES (X) NO ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date: Number of Shares Outstanding Class Date 2,020,960 Common Stock March 31, 2002 $.001 par value J-BIRD MUSIC GROUP LTD. Index PART I FINANCIAL INFORMATION Balance Sheet March 31, 2002 3 Statements of Operations Three Months Ended March 31, 2002 and 2001 4 Statements of Cash Flow Three Months Ended March 31, 2002 and 2001 5 Notes to Unaudited Financial Statements March 31, 2002 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II Other Information 12 Signatures 12 2 J-BIRD MUSIC GROUP LTD. CONSOLIDATED BALANCE SHEET March 31, 2002 ASSETS: Cash $ 0 Inventory 145,991 Due from Navarre 132,331 Due from Employee 0 Recording Advances 25,000 --------------- Total Current Assets 303,322 Fixed Assets, Net 432,170 --------------- Total Assets $ 735,492 =============== LIABILITIES AND STOCKHOLDERS' EQUITY Account Payable and Accrued Expenses $ 273,612 Due to DGM 116,677 Accrued Royalties 114,339 Due to I.M.M. International-(Note 2) 57,115 Mortgage Payable-Current 14,570 Cash Overdraft 3,924 --------------- Total Current Liabilities 580,237 Mortgage Payable-Long-Term 371,052 --------------- Total Liabilities 951,289 --------------- Stockholders' Equity Common Stock $.001 Par Value 50,000,000 Shares Authorized, 2,020,960 Issued and Outstanding 46,158 Treasury Stock - 27,500 shares (254,690) Paid in Capital 12,014,682 Subscription Receivable (30,000) Retained Earnings/(Deficit) (11,991,947) --------------- Total Stockholders' Equity (215,797) --------------- Total Liabilities and Stockholders' Equity $ 735,492 =============== 3 J-BIRD MUSIC GROUP LTD. CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2002 AND 2001

~~J-BIRD~~2002 ~~MUSIC GROUP LTD. CONSOLIDATED BALANCE SHEET September 30,~~ 2001 ~~ASSETS: Cash $ ( 71) Inventory 131,363 Due from Navarre 31,660 Due from Employee 1,000~~ --------------- ~~Total Current Assets 163,952 Fixed Assets, Net 453,054~~ --------------- ~~Total~~Net ~~Assets~~Sales $ ~~617~~(91,~~006~~992) ~~============~~$ ~~LIABILITIES~~143,766 ~~AND~~Cost ~~STOCKHOLDERS'~~of ~~EQUITY~~Sales ~~Account~~(250,326) ~~Payable~~119,254 ~~and~~Operating ~~Accrued~~ Expenses: $Advertising ~~212,633~~and ~~Accrued~~Promotion ~~Royalties~~0 ~~119~~16,~~047~~969 ~~Notes~~Professional ~~Payable~~Fees ~~(Note~~24,000 ~~6) 37~~11,~~050~~486 ~~Due~~Amortization toand ~~I.M.M.~~Depreciation ~~International~~6,793 9,781 Salaries-(Note 23) 5717,~~115~~100 ~~Due~~0 toAdministrative ~~DGM~~Expenses ~~100~~22,~~226~~209 ~~Mortgage Payable-Current 34~~59,~~438~~326 ------------ ~~Total Current Liabilities 560,509 Mortgage Payable~~-~~Long~~-~~Term~~- ~~354,628~~ ------------ ~~Total Liabilities 915,137~~ ---~~---------~~ ~~Stockholders'~~Net ~~Equity~~Income/(Loss) ~~Common~~Before ~~Stock~~Other ~~$.001~~Income ~~Par~~(Expenses) ~~Value 50~~88,~~000,000~~232 ~~Shares Authorized~~(73,050) ~~1,720,960~~Other ~~Issued~~Income/ ~~and Outstanding~~ ( ~~Note 4~~Expenses) ~~45,878~~Other ~~Treasury~~Income ~~Stock~~0 ~~- 27~~4,~~500~~100 ~~shares~~Loss ~~(254,690)~~on ~~Paid~~Extinguishment inof ~~Capital~~Debt ~~11,996,632~~0 ~~Subscription Receivable~~ ( 3063,~~000~~438) ~~Retained~~Royalties ~~Earnings/(Deficit)~~Adjustment 0 (1236,~~055,951~~390) --------------- ~~Total Stockholders' Equity (298,131)~~ --------------- ~~Total~~Net ~~Liabilities~~Income/ ~~and~~(Loss) ~~Stockholders'~~$ ~~Equity~~88,232 $ ~~617~~(168,~~006~~778) =============== =============== Net Loss per Common Share $ 0.06 $ (0.05) Weighted Average Common Shares Outstanding 1,466,752 30,691,728

4 J-BIRD MUSIC GROUP LTD. STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2002 AND 2001

J2002 2001 -~~BIRD~~-------------- ~~MUSIC~~--------------- ~~GROUP~~Cash ~~LTD.~~Flows ~~CONSOLIDATED~~from ~~STATEMENTS~~(Used OFIn) ~~OPERATIONS~~Operating ~~NINE~~Activities ~~MONTHS~~Adjustments ~~ENDED~~to ~~SEPTEMBER~~Reconcile ~~30,~~Net ~~2001~~(Loss) ~~AND~~to ~~2000~~Net ~~2001~~Cash ~~2000~~From ~~----~~(Used ~~----~~In) Operating Activities: Net ~~Sales~~Income/(Loss) $~~334~~ 88,~~408~~232 $~~538~~ (168,~~988~~778) ~~Cost~~Amortization ofand ~~Sales~~Depreciation ~~365~~6,~~909~~792 ~~742~~9,~~480~~781 ~~Operating~~(Increase)/Decrease ~~Expenses:~~in ~~Advertising~~Employee ~~and~~Loan ~~Promotion~~0 16(1,~~724~~000) ~~84,877~~(Increase)/Decrease ~~Professional~~in ~~Fees~~Accounts Receivable (~~Note~~126,569) 5(7,335) ~~107~~(Increase)/Decrease in Inventory (11,~~542~~215) 56(26,~~211~~739) ~~Amortization~~(Decrease)/Increase ~~and~~in ~~Depreciation~~Accrued ~~51,008~~Royalties 25(18,~~219~~757) ~~Salaries-~~(~~Note~~55,411) 3(Decrease)/Increase ~~116~~in Accounts Payable 28,~~000~~422 ~~108~~(7,~~155~~073) ~~Administrative~~(Decrease)/Increase ~~Expenses~~in ~~788,054~~Payroll 1Liabilities 0 54,~~161,957~~137 ~~Interest~~(Increase)/Decrease ~~Expense~~in ~~22,759~~Recording ~~5,944~~Advance 0 0 --------------- --------------- Net Cash (~~Loss~~Used In) ~~Before~~Operating ~~Other~~Activities ~~Income~~ (~~Expenses~~33,095) (191,~~133,588~~596) --------------- --------------- Cash Flows from (~~1,645,855~~Used In) ~~Other~~Financing ~~Income/~~Activities Stock Issued for Cash 50,000 60,000 Increase/(~~Expenses~~Decrease) ~~Other~~in ~~Income~~Shareholder 4Loans 27,~~102~~740 0 ~~Loss~~Increase/(Decrease) onin ~~Extinguishment~~Loan ofDue ~~Debt~~I.M.M ~~(63~~0 44,~~438~~615 Increase/(Decrease) 0in ~~Royalties~~Mortgage ~~Adjustment~~Payable 0 (363,~~390~~219) 0Increase/(Decrease) ~~Investment~~in ~~Advisory~~Note ~~Fees~~Payable 0(50,000) (~~159~~6,~~500~~282) ~~Taxes~~--------------- 0--------------- ~~(927)~~Net Cash from Financing Activities 27,740 95,114 --------------- --------------- Net ~~Loss~~Increase $/(Decrease) in Cash (5,355) 3,518 Cash, Beginning of Period 1,~~229~~432 0 --------------- --------------- Cash,~~314)~~ End of Period $ (13,~~806,282~~923) $ 3,518 =============== ============ ~~Net Loss per Common Share $ ( 1.03) $ ( 0.07) Weighted Average Common Shares Outstanding 1,191,752 28,533,395 (Note 4)~~===

5 J-BIRD MUSIC GROUP LTD. NOTES TO UNAUDITED FINANCIAL STATEMENTS MARCH 31, 2002 Note 1. Organization The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the provisions of Regulation SB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. J-Bird Records, Inc. is the first WorldWide Web Recording Label ((TM)). The Company was officially launched on November 1, 1996 to market, distribute and sell music via a new medium - the Internet. At its Website, located at http://www.j-birdrecords.com, the Company attracts and signs recording artists through its on-line office and promotes, markets and sells their recordings through its on-line record store. J-Bird Records is a wholly owned subsidiary of J-Bird Music Group LTD. The Company has experienced operating losses since its inception and has experienced significant cash flow problems. The Company is in the process of raising capital through various sources to fund its operations and has implemented certain operating strategies to obtain profitably. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, J-Bird Records, Inc. Material inter-company balances and transactions have been eliminated in consolidation. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying financial statements should be read in conjunction with the Company's Form 10-KSB filed for the year ended December 31, 2001. Earnings (loss) per share are based on the weighted average number of shares outstanding. Common stock equivalents have not been considered as their effect would be anti-dilutive. 6 Note 2. Related Party Transactions In October 1998, the Company entered into a credit agreement with I.M.M. International, Inc., a shareholder of the company, whereby I.M.M. will provide up to $500,000 in financing to the Company for working capital purposes. The agreement expired on March 31, 1999. Amounts outstanding under this agreement bear interest at 8% and are due on June 30, 2002. At March 31, 2002, I.M.M. Interntational had advanced $44,515 to the Company. Note 3. Salaries On March 1, 2001 four employees entered into a restricted stock purchase agreement whereas the employees received the right to purchase 800,000 shares (20,000 shares post split) resulting in 200,000 shares (5,000 shares post split) per employee. The issue price of the common stock on March 1, 2001 was $0.0825 per share ($3.40 per share post split) with a cumulative value of $68,000 ($17,000 per employee). An additional 60,000 shares were issued to three employees (20,000 shares per employee) on August 3, 2001 at an issue price of $0.80 per share of common stock for a cumulative total of $48,000 ($16,000 per employee). Note 4. Stock Split On May 24, 2001 the Board of Directors of J Bird Music Group, LTD approved a reverse split of 1:40 effective June 1, 2001. As a result of the split, the total shares authorized remained at 50,000,000 shares while the total number of shares outstanding have been adjusted to reflect the reverse split. Additionally, the weighted average common stock shares in 2001 reflect the reverse split. 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of J-Bird Music Group LTD's, consolidated results of operations and financial condition for the three months ended March 31, 2002. The discussion should be read in conjunction with the Company's consolidated financial statements and accompanying notes. J-Bird Records began in 1996 as "The First World Wide Web Recording Label" (jbirdrecords.com), signing, promoting and selling its artists' CDs exclusively online. The company quickly developed a traditional brick and mortar presence to enhance its efforts, thereby creating a hybrid label combining the best of both offline and online worlds. J-Bird Records is an independent label with a roster of over 350 artists including Rockapella, John Entwistle, the Guess Who, Mitch Ryder, Lee Rocker, and more. The label utilizes traditional and online marketing and distribution methods for the promotion of its artists. The Navarre Corporation is the label's exclusive North American distributor to retail accounts. Navarre is the leading independent distributor of music and music-related products throughout North America. J-Bird Records' business model combines sustained profitability in the traditional retail marketplace along with the online world, thus enabling it to withstand the dot-com fallout as compared to exclusive online music-related companies, who have not. As a result, the company has emerged as a strong industry competitor, anticipating profitability in 2002. J-Bird Records attracts a wide array of established and emerging talent by offering artists a greater level of creative control and involvement. J-Bird Records offers recording contracts which allow artists to exercise a large amount of self-direction in their career planning, while driving those careers toward a successful future. In addition to its expanding talent list, J-Bird is also building its base of assets by acquiring existing libraries of recordings including collections of music from Duke Ellington and Bing Crosby. The Company has already begun positioning itself to take advantage of the new opportunities for promotion and revenue growth from online sources. According to Jupiter Communications, US online music sales are expected to reach $5.4 billion in the year 2005, up from $387 million in 1999. These numbers are based on combined digital music downloads and physical product sold via online resources. Online music is expected to secure approximately one fourth of the total US market sales in 4 years, with digitally distributed products representing 28% of total online dollars (or $1.5 billion by 2005). 8 The Company is poised to take advantage of the financial and promotional opportunities presented to it by aligning itself with third-party digital music providers by licensing its catalog and marketing its services to media and commerce partners, already established as destination sites for music, who provide networked sharing subscription services and digital downloads. These services, industry-wide, are expected to reach approximately $1 billion in 2005, and music downloads will grow to $530 million in the same timeframe. Physical music products (CDs) purchased online are expected to grow from $380 million in 1999 to $3.8 billion in 2005. In addition to the above strategies, J-Bird has recently streamlined operating costs, reduced overhead and consolidated inventory, all helping to reduce the company's breakeven point. These combined factors are designed to enable the Company to achieve profitability in the year 2002. Liquidity and Capital Resources The Company has financed its operations and capital expenditures primarily from equity financing and loans from shareholders and a bank. The Company borrowed $100,000 under its line of credit agreement with a bank. As of December 31, 2001 the Company had settled its debt with a bank and the line of credit was closed. The Company expects negative cash flow from operations to continue for the foreseeable future, as it continues to develop and market its operations. Inflation has not had any material impact on the Company's operations. In addition to the bank loan, the Company is presently funding its operating deficit through a credit agreement with I.M.M. International, Inc., a shareholder of the company. The Company is currently pursuing long term financing for its operating activities and a potential acquisition. No source of financing has occurred to date and there can be no assurance that financing will be available, or if available, that it will be on acceptable terms. The ability to finance existing and future operations will be dependent upon external sources. Results of Operations - Three months ended March 31, 2002 compared to three months ended March 31, 2001 2002 2001 ---- ---- Net Sales $ (91,992) $143,766 Cost of Sales $(250,326) $119,254 9 In addition to obtaining the distribution agreement with Navarre, 2002 sales decreased due to the increasing number of returns even though the Company has signed on more artists, including three nationally recognized performers. The Company has over 350 artists under agreements at March 31, 2002. In the first quarter of 2002 the Company experienced a large amount of returns through their distributor, Navarre. The total returns for the quarter were $ 132,525 offset against the quarterly record sales of $ 40,533 for the first quarter resulting in negative sales of $91,992. As a direct result of the large number of returns, the Company's inventory increased by $11,215 (valued at historical cost) to reflect the CD's returned to the distributor. Additionally, the royalties due to the artists under contract with the Company decreased a net $18,757 as a result of the returns. Finally, the Company received a credit from Navarre which resulted in a net of $220,354 for production costs related to the CD's sold in prior quarters but returned in the first quarter of 2002. This credit is reflected in both the receivable from Navarre as well as the direct costs related to producing the CD's. These factors combined result in a cost of goods negative figure of $250,326 for the period ended March 31, 2002 and shown as follows: Cost of Goods Sold: Inventory- Beginning $ 134,776 Production Costs (220,354) Royalties (18,757 Inventory-Ending (145,991) ---------- Cost of Goods Sold $(250,326) 2002 2001 ----------- ----------- Advertising and Promotion Expenses $ 0 $ 16,969 The decrease in advertising and promotion is due to the level of operations of the Company. Professional Fees $ 24,000 $ 11,486 The increase in professional fees is due to the higher level of legal, accounting and consulting fees of the Company. 10 Salaries $ 17,100 $ 0 In 2002, two employees received compensation through the Company. No payroll taxes were taken out of the wages and therefore the employee is responsible for all taxes due on the compensation received. Administrative Expenses $ 22,209 $ 59,326 The decrease in administrative expenses is due to the decreased operations of the Company. Other Expenses Bad Debt $ 0 $ 63,438 This represents a write off in the year 2001 of the net amount due from the former President of the Company per agreement. The Company+ received 100,000 shares of common stock with a value of $4,690 reflected as a treasury stock transaction. Other Expenses (cont.) Royalty Adjustment $ 0 $ 36,390 This represents an agreement with one artist for royalties due for the year 1999 as a result of the company misinterpreting the recording contract. 11 PART II OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities Not applicable Item 3. Default upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information 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: June 6, 2002 By: Hope D. Trowbridge President 12

J-BIRD MUSIC GROUP LTD. STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 2001 2000 ---- ---- Cash Flows from (Used In) Operating Activities Adjustments to Reconcile Net (Loss) to Net Cash From (Used In) Operating Activities: Net (Loss) $ (1,229,314) $ (1,806,282) Amortization and Depreciation 51,008 25,219 (Increase) Decrease in Employee Loan 67,128 0 (Increase) Decrease in Accounts Receivable (14,622) 31,257 (Increase) Decrease in Inventory 30,236 (123,491) (Increase) Decrease in Security Deposits 978 0 (Decrease) Increase in Accrued Royalties 75,476 83,480 (Decrease) Increase in Accounts Payable (6,215) 312,093 Stock Issued for Services 715,829 852,500 (Decrease) Increase in Payroll Tax Liabilities 54,137 0 (Increase) Decrease in Recording Advance 55,000 96,280 ------------ ------------ Net Cash (Used In) Operating Activities (200,359) (528,944) ------------ ------------ Cash Flows from (Used In) Financing Activities Stock Issued for Cash 110,000 743,231 Increase (Decrease) in Shareholder Loans 100,226 12,828 Increase (Decrease) in Loan Due I.M.M. 57,115 (50,958) (Decrease) Increase in Mortgage Payable ( 6,878) 0 Investment Advisory Fees 0 (159,500) (Decrease) Increase in Note Payable ( 12,886) (21,737) ------------ ------------ Net Cash from Financing Activities 247,577 523,864 ------------ ------------ Net (Decrease) Increase in Cash 47,218 (5,080) Cash, Beginning of Period ( 47,289) 16,966 ------------ ------------ Cash, End of Period $ ( 71) $ 11,886 ============ ============

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