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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
JULY 31, 1997
CAPITAL MEDIA GROUP LIMITED
(Exact name of registrant as specified in its charter)
NEVADA 0-21051 87-0453100
(State or other (Commission File (I.R.S. Employer
jurisdiction Number) Identification
of incorporation) No.)
25 JAMES STREET
LONDON W1M 5HY, ENGLAND
(Address of principal executive offices)
Registrant's telephone number, including area code: 011-44-171-224-4141
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<PAGE>
ITEMS 2 AND 5. ACQUISITION OF ASSETS AND OTHER EVENTS
COMPLETION OF THE SHARE EXCHANGE WITH THE UNIMEDIA STOCKHOLDERS
In its Form 10-QSB for the second quarter and six months ended June 30,
1997, the Company reported the first closing of a share exchange with certain of
the shareholders of Unimedia, S.A. ("Unimedia"). At the first closing of the
share exchange, which was completed on July 31, 1997, the Company acquired 50.3%
of Unimedia's outstanding common stock (the "Unimedia Acquisition") in exchange
for 4,333,000 shares of the Company's authorized but unissued common stock. For
information regarding the Unimedia Acquisition and the other transactions which
were entered into at the first closing of the share exchange, see the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997 (the "Form
10-QSB"). The information with respect to the share exchange between the Company
and certain of the stockholders of Unimedia and regarding the terms of the
Unimedia Acquisition which is contained in this Form 8-K supplements the
information set forth in the Form 10-QSB.
Shareholders of Unimedia that did not participate in the first closing
of the share exchange had the right, under the Agreement and Plan of
Reorganization, as amended, between the Company, Unimedia and certain of the
shareholders of Unimedia (the "Unimedia Agreement"), until September 5, 1997, to
participate in the share exchange on the basis of one Unimedia common share for
700 shares of the Company's authorized but unissued common stock. On September
5, 1997, two additional Unimedia shareholders owning an aggregate of 31.3% of
Unimedia's outstanding shares elected to exchange their Unimedia shares for an
aggregate of 2,693,600 shares of the Company's authorized common stock. At this
date, the Company owns an aggregate of 81.6% of Unimedia's outstanding common
stock.
At the present time, the Unimedia Agreement has expired. The Company
intends to continue a dialogue with the three remaining minority holders of
Unimedia's securities and may, in the future, agree to acquire their Unimedia
securities, although the Company is no longer obligated to do so. The terms of
any such acquisition shall be determined by the Company's Board of Directors and
may be different from the terms of the share exchange which has already been
consummated. See "Dispute with Unimedia Minority Stockholders" below.
FINANCIAL INFORMATION REGARDING UNIMEDIA AND THE COMBINED ENTITY
This Form 8-K contains the following financial statements, as required
by Items 2 and Item 7 of Form 8-K:
- Audited financial statements of Unimedia at December 31, 1995
and 1996 and for the period from inception to December 31,
1995 and the year ended December 31, 1996;
- Unaudited financial statements of Unimedia at June 30, 1996
and 1997 and for the six months ended June 30, 1996 and 1997;
and
<PAGE>
- Proforma consolidated financial information at December 31,
1996 and June 30, 1997 and for the year ended December 31,
1996 and the six months ended June 30, 1997.
SUMMARY FINANCIAL DATA REGARDING UNIMEDIA AND THE COMBINED ENTITY
THE SUMMARY FINANCIAL DATA SET FORTH BELOW IS DERIVED FROM AND SHOULD
BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, AND THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS CONTAINED
HEREIN OR IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1996 AND THE FORM 10-QSB. THE SUMMARY FINANCIAL DATA AS OF JUNE 30,
1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 ARE DERIVED FROM UNAUDITED
INTERIM FINANCIAL STATEMENTS CONTAINED ELSEWHERE HEREIN AND IN THE FORM 10-QSB.
OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 ARE NOT NECESSARILY
INDICATIVE OF RESULTS THAT MAY BE EXPECTED FOR THE YEAR ENDING DECEMBER 31,
1997.
<TABLE>
<CAPTION>
CAPITAL MEDIA GROUP LIMITED
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1996 1997
----------------------------------- -----------------------------
PRO PRO
ACTUAL FORMA(a) ACTUAL FORMA(a)
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue...................... $ 2,075,407 $ 2,343,133 $ 874,733 $ 968,548
Operating Costs.............. (18,352,988) (19,977,080) (9,782,256) (10,632,399)
Operating Loss............... (16,277,581) (17,633,947) (8,907,523) (9,663,851)
Loss before Taxation......... (16,255,481) (19,714,764) (9,050,592) (8,762,567)
Tax Provision................ (6,623) (613,377) (2,669) (2,669)
Net Loss..................... (16,262,104) (19,101,387) (9,053,261) (8,765,236)
Net Loss Per Share........... ($1.32) ($1.02) ($0.48) ($0.34)
Weighted Average Shares
Outstanding................ 12,359,029 19,385,629 18,859,995 25,886,525
</TABLE>
BALANCE SHEET DATA: JUNE 30,
1997
PRO FORMA (b)
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Working Capital(Deficit).............. $(4,199,914)
Current Assets........................ 6,861,244
Investments........................... 6,238,727
Intangible Assets..................... 2,798,690
Total Assets.......................... 17,284,412
Total Liabilities..................... 11,061,158
Minority Interests in Subsidiaries.... 1,024,138
Stockholder's Equity.................. 5,199,116
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(a) Represents pro forma results of operations of the Company after giving
effect to the Unimedia Acquisition as if such event had occurred as of the
beginning of the period presented.
(b) Represents pro forma balance sheet data for the Company after giving effect
to the Unimedia Acquisition as if such event had occurred at June 30, 1997.
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<TABLE>
<CAPTION>
UNIMEDIA, S.A.
FISCAL YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------- -----------------------------
1995 1996 1996 1997
-------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues.............................. -- 327,726 $ 228,432 $ 93,815
Operating Costs....................... (130,921) (1,624,092) (430,424) (850,143)
Operating Loss........................ (130,921) (1,296,366) (201,992) (756,328)
(Loss)/Profit Before Taxation......... (124,201) (3,399,283) (142,539) 288,025(1)
Tax Provision......................... 45,511 1,246,177 47,860 149,705
Net (Loss)/Profit..................... (78,690) (2,153,106) (94,679) 437,730
</TABLE>
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(1) Includes other income, net of $1,044,353.
[CONTINUES ON NEXT PAGE]
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NEED FOR ADDITIONAL SHORT AND LONG TERM CAPITAL
As described in the Form 10-QSB, the Company continues to require
substantial additional funds to meet its current cash flow requirements and to
fund its proposed future business activities. In that regard, while the Company
has not entered into definitive agreements, it expects in the short term to be
able to obtain the funds required to continue its present operation until at
least the end of the year, which the Company believes will allow it sufficient
time to try to obtain the long term capital required to fund the further
development of the Company's current and proposed businesses. If such short term
capital is not obtained, of which there can be no assurance, it will have a
substantial adverse effect upon the Company, as more particularly described
below.
At the present time, the Company expects that it can sustain its current
operations, other than Onyx Television, until the end of 1997, without
substantial additional capital. However, with respect to Onyx Television, which
requires approximately $1.0 million of working capital per month for its
operations, the Company's currently existing funds will only allow the Company
to continue to operate Onyx Television until approximately October 7, 1997. The
Company's failure to obtain short term capital to meet Onyx Television's
operating requirements will likely cause the Company to have to consider its
alternatives with respect to the station, including the possibility of closing
the station. As set forth above, the Company anticipates that the required funds
to continue the operations of Onyx Television beyond October 7, 1997 will be
obtained. However, there can be no assurance that this will occur.
Additionally, the Company is seeking additional funding to allow it to
pursue its longer term business objectives. There can be no assurance that the
funding required to further the Company's longer term business objectives will
be obtained.
In regard to its capital raising efforts, the Company is likely going to
fund its capital requirements through additional sales of the Company's equity
securities. The Company may also seek funding for particular projects through
investments directly into those projects. In that regard, the Company may
consider selling all or a portion of Onyx Television's operations to a third
party or may consider a joint venture of Onyx Television's operations with other
media interests. The Company is also seeking strategic alliances with respect to
its other current and proposed businesses and to reduce operating costs in all
of its businesses whenever possible. No definitive agreements with respect to
any of the above matters have been entered into to date.
For further information regarding the Company's financial condition and
results of operations, see the Company's 1996 Annual Report on Form 10-KSB and
the Form 10-QSB.
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DESCRIPTION OF THE COMPANY'S BUSINESS AFTER COMPLETION OF THE UNIMEDIA
ACQUISITION
Following the acquisition of Unimedia, the Company has two primary
businesses: (i) a media business, consisting of interests in three companies,
Onyx Television, which operates a music television station in Germany, Tinerama,
which operates a Romanian print media group and radio station, and Blink TV,
which is a specialist TV programming vehicle to provide lifestyle programming on
large video screens at U.K. concert events, and (ii) a software development
business, consisting of the Company's interest in Unimedia, a development stage
company which intends to engage in the development of applications based upon
smart card technology (including remote security and authentication token
technology, sales automation, Internet access and infra-red contactless
smart-card technology).
The Company intends to continue to develop its historic businesses. The
Company long term objectives also include: (i) the future development of a
software platform for Internet entertainment and gambling and the development of
one or more strategic relationships to further the development of an Internet
entertainment and gambling business and (ii) the integration of the Company's
media operations with the Company's computer software and Internet related
activities.
For a description of the business of Onyx Television, Tinerama and Blink
TV, and for information regarding the Company's interests therein, see the
Company's 1996 Annual Report on Form 10-KSB and the Form 10-QSB.
The following sets forth a description of Unimedia's business and the
proposed future businesses of the Company after the Unimedia Acquisition.
UNIMEDIA'S BUSINESS
Unimedia is a development stage company. To date, Unimedia's activities
have been comprised principally of the acquisition and disposition of equity
interests in companies which Unimedia believes have progressive Internet, smart
card and software technologies. Such companies' technologies include remote
security and authentication token technology, sales automation, Internet access
and infra-red contactless smart-card technology.
Historically, Unimedia has sought to have access to technologies that can
satisfy its business objectives through relationships with strategic partners in
which Unimedia acquired an equity interest and distribution arrangement,
although such relationships have not, to date, resulted in substantial revenues
to Unimedia.
In that regard, Unimedia has since its organization taken minority
interests in several companies. Although Unimedia has historically believed that
there are advantages in establishing relationships with technology partners
through acquiring minority interests in such companies, Unimedia's management
has concluded that in the future Unimedia will focus on owning interests in
companies in which it will have access to and use of the technology being
developed for use in its business or
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on ventures in which the Company, either through Unimedia or through other
subsidiaries funded by the Company, controls the technology being developed. It
is also anticipated that over time, Unimedia will divest itself of certain of
the minority interests which it has previously acquired in order to focus its
energy on its proposed smart card technology business.
At the present time, Unimedia owns a minority interest in TopCard S.A.
("TopCard"), a French company specializing in infra-red contactless smart-card
technology and e-cash software. Unimedia has an agreement with TopCard pursuant
to which it is the exclusive worldwide distributor of TopCard technology for use
in Internet, television and gaming applications. Unimedia has recently entered
into a non binding letter of intent to acquire substantially all of TopCard's
outstanding common stock in return for approximately 400,000 shares of the
Company's common stock and $150,000 in cash, which shares will be transferred to
TopCard's shareholders from the shares of the Company's common stock already
owned by Unimedia. There can be no assurance that this proposed transaction will
be completed.
Unimedia has also loaned $2.5 million to an Israeli software development
company, Pixel Ltd. for use in its business and has obtained certain rights with
respect to certain products developed or under development by Pixel. Pixel is a
developer of computer graphics, animation and multimedia interactive software.
At the present time, the Company, Unimedia and Pixel are discussing a possible
acquisition by the Company and/or by Unimedia of a substantial portion of the
business of Pixel in satisfaction of this debt and, perhaps, for certain
additional consideration to be paid by the Company or Unimedia. No definitive
agreements have been entered into to date and there can be no assurance that any
possible acquisition of Pixel's assets will be consummated.
Unimedia also has a minority interest in ActivCard, S.A. ("ActivCard"), a
French company that has developed remote security and authentication token
technology. Unimedia is presently a distributor of ActivCard's technology and
has the right to obtain certain exclusive rights with respect to the technology
in the area of television and online games, Internet video on demand and distant
education if Unimedia meets certain minimum purchase obligations to ActivCard
during 1997. To date, Unimedia has not met those terms and does not anticipate
that it will meet these terms during the remainder of 1997. While it is
anticipated that Unimedia will remain a distributor of ActivCard's technology in
the future, it is not anticipated that the distribution of ActivCard's
technology will be the primary focus of Unimedia's business in the future.
Unimedia owns a minority interest in Enanti Corp., a Florida company with
technology for Internet sales automation and business information management.
Unimedia is the exclusive European distributor of Enanti Corp.'s flagship
product Enanti Contact. Unimedia also has a minority interest in Internet Way, a
French Internet Service Provider to businesses. Unimedia is a non-exclusive
distributor of Internet access through Internet Way. It is not anticipated that
Unimedia will focus on either of these businesses in the future.
During future periods, Unimedia will seek, as its primary business
objective, to develop applications for smart card technology which it determines
can be used in business and from which
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Unimedia can seek to receive transaction fees from the use of the technology. It
can be anticipated that initially the technology held by TopCard will be the
primary technology upon which Unimedia will focus its development efforts.
PROPOSED INTERNET GAMBLING AND ENTERTAINMENT BUSINESS
The Company has decided that it will pursue the development of a software
platform for Internet gambling and entertainment. To date, in furtherance of
this objective, Unimedia has engaged the services of a consultant, SCP Valfab,
which provides the services of Jacque Dubost, a consultant to the casino
industry and the former manager of casinos in Monte Carlo. Unimedia has also
commenced development of the software necessary to enter the Internet gambling
and entertainment business, but is only in the very early stages of the
development of that software.
In furtherance of this proposed business, the Company is presently seeking
joint venture partners in the gambling industry and in the business of providing
software and services to the gambling industry, and funding to allow for the
development of the software platform required to develop this business. To date,
no definitive arrangements have been entered into and there can be no assurance
that any such joint venture partners and funding will be available to develop
this business.
Some of the products which the Company and Unimedia have already identified
for development, subject to funding, are the following:
ONLINE GAMBLING. The Company intends to develop an online
gambling platform for licensing to established casino operators. The Company's
focus in its development is a user friendly platform that will provide leisure
consumers with secured access to well known casinos through the Internet and
alternative access through the telephone and through cable media. The goal of
the platform from the casino's perspective is to permit players to securely open
an account and access the virtual casino, simulated and live, from the Internet
and provide the casino operator with an efficient and transparent way to manage
back-office operations. Unimedia expects that revenues from this proposed
business would be generated through recurrent royalties paid by the casinos
based on the level of gaming activity of its clients.
The legality of gaming through the use of the Internet is uncertain at this
point. The Company does not anticipate running virtual casinos. However, sales
of the Company's proposed gaming-related software products will depend on the
continued international growth of virtual casinos. A number of statutes in
various jurisdictions could be construed to prohibit gaming through the
Internet. While the Company will focus its sales and marketing efforts in
jurisdictions that allow private network and Internet gaming, there can be no
assurance that international, federal, state or local laws or regulatory
procedures, including those which relate to the issue of gaming on the Internet,
which would adversely affect the Company's business, financial condition,
results of operations or prospects will not be expanded or imposed.
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VIRTUAL CITY. The Company plans to develop what the Company
believes to be the next step in Internet interactive experiences - the Virtual
City. The Virtual City will be an interactive web site in which a user may
select a city on the computer screen, such as Monaco, and "visit" the city and
several sites in the city such as a shopping area, cultural gallery, educational
institution or area, amusement area or gaming location. The virtual city site is
expected to offer e-mail, interactive informational and location-specific
movies. It is expected that a virtual city will be accessible through any
personal computer with Internet access and from any interactive television
equipped with a digital decoder. As with the gaming platform, the Company plans
to use the smart card technology developed in the future by Unimedia to assure
secured online payment, e-mail and data warehousing.
The Company's Internet gambling and entertainment business will require
additional capital and substantial software development, as well as entering
into joint ventures with parties in the gambling business and parties offering
services to the gambling industry in order to be successful. There can be no
assurance that the Company will be successful in developing this business.
LONG TERM BUSINESS STRATEGY
The Company's long term strategy is to become a leading provider in Europe
of digital interactive multimedia entertainment programs and online services
through conventional mediums, such as television and cable, and the Internet.
The Company believes that over time it will be able to maximize its
opportunities by cross fertilizing the conventional aspects of its media
business with its proposed new media development and activities by finding
applications for its programming in new arenas (such as the Internet). One
product, for example, which is being considered, is the development of a web
site where persons may view music videos and programming presently shown or
developed in the future on Onyx Television. The Company also plans in the future
to develop new television programming formats in order to become a company at
the leading edge of the convergence between television and PC Networks.
The Company further intends to pursue a strategy of seeking to provide Onyx
Television's programming through expanding digital European television networks
and seeking to expand the Onyx Television and Blink TV concepts to other
countries.
COMPETITION
The Company faces intense and increasing competition from other software
companies and companies developing smart card technology and applications for
smart card technology which are substantially larger, have greater financial
resources and name recognition than the Company and Unimedia and longer
operating histories in the Internet markets and greater technical and marketing
resources than the Company and Unimedia. As a result, such competitors may have
a competitive advantage over the Company and Unimedia and may be able to respond
more quickly to new or emerging technologies and changes in customer needs or to
devote greater resources to the development, promotion and sale of their
products. Initially, the Company will be competing with other companies involved
in the development and marketing of entertainment and communications products
and services over the Internet and the World Wide Web (the "Web"). The Company
will face intense competition in connection with its proposed gambling products.
Its Internet casino product will compete with numerous companies operating
throughout the world. There are numerous casinos currently operating over the
Internet, many of which use software developed for their own purposes. The
Company believes that some of these operators may decide to offer to sell their
software to other casino operators in the future. The Company's proposed gaming
products also compete with other forms of gaming activities, including
state-sponsored lotteries and horse
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racing and competes for discretionary spending with other leisure time
activities and alternate forms of entertainment.
NEW PRODUCT DEVELOPMENT AND RAPID TECHNOLOGICAL CHANGE.
The market for the Company's and Unimedia's software and services will be
characterized by rapidly changing technology and industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards can quickly render existing software obsolete and
unmarketable. The Company's and Unimedia's future success will depend in part on
its ability to develop and introduce new products and services to meet changing
customer demands. Specifically, new products must: (i) incorporate new and
evolving industry standards, (ii) continue to offer improved performance and
features, (iii) respond to evolving customer needs, and (iv) achieve market
acceptance. The development of new products and services or enhanced versions of
existing products and services entails significant technical risks. There can be
no assurance that the Company and Unimedia will be successful in developing and
marketing new products and services that respond to technological change or
evolving industry standards, that the Company and Unimedia will not experience
difficulties that would delay or prevent the successful development,
introduction and marketing of these products or services, or that its new
products or services will adequately meet the requirements of the marketplace
and achieve market acceptance. If the Company and Unimedia are unable, for
technological or other reasons, to develop and introduce new products or
services in a timely and cost-effective manner or to address compatibility,
inoperability or other issues raised by technological changes or new industry
standards, the Company's business, financial condition and operating results
could be materially adversely affected.
DEPENDENCE ON THE INTERNET.
The success of many of the Company's proposed software products and
services will depend on the continued development and growth of the Internet.
The Internet is new and evolving and may not develop into the large commercial
marketplace that many predict. The following factors could slow the growth of
the Internet: (i) inadequate development of the necessary infrastructure (e.g.
reliable network backbone), (ii) untimely development of affordable
complementary products such as high speed modems, (iii) delays in the
development or adoption of new standards to handle increased levels of Internet
activity, or (iv) increased government regulation. The number of Internet users
has grown significantly and is expected to continue to grow. The Company cannot
guarantee that the Internet infrastructure will continue to support the demands
placed upon it by this continued growth. The Company's financial condition could
be harmed if the Internet does not become a viable commercial marketplace.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS;
RISKS OF LITIGATION.
In accordance with industry practice, the Company and Unimedia intend to
rely on a combination of copyright, trademark and trade secret laws to protect
their proprietary rights in any software
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products which they develop. Although the Company and Unimedia intend to protect
their rights vigorously, there can be no assurance that these types of measures
will be successful. If a significant amount of copying of the Company's or
Unimedia's software were to occur, the Company could be adversely affected.
Additionally, software products developed by the Company and Unimedia may be
subject to claims by third parties that they infringe on such other parties
intellectual property rights, which may subject the Company to litigation over
these issues. Such litigation could be costly, even if it is ultimately resolved
in the Company's or Unimedia's favor.
DISPUTE WITH UNIMEDIA MINORITY STOCKHOLDERS
Unimedia has three minority shareholders (one of whom is also a shareholder
of the Company) who have previously advised Unimedia that they do not believe
that the reorganization of Unimedia with the Company was in the best interest of
Unimedia and its stockholders. These stockholders may in the future bring legal
actions against Unimedia and/or its management (which is also now, in part, the
senior executive management of the Company) to the extent that they contend that
the future activities of Unimedia are not being engaged in for the benefit of
Unimedia and its stockholders. The Company, which owns 81.6% of Unimedia,
intends to operate and continue the future development of Unimedia's business in
the best interest of Unimedia's stockholders, including the Company.
Additionally, the Company believes that the Internet gambling and entertainment
business which Unimedia had previously contemplated developing, cannot be
developed without funding provided by the Company and without other resources
provided by the Company. To the extent that such minority holders disagree with
the business decisions made by Unimedia in the future, including the use by
Unimedia of funds available to Unimedia which might be used in joint projects
between the Company and Unimedia, they may bring legal actions against Unimedia
and/or its management for breach of fiduciary duties or based upon other legal
theories. Such actions, if brought, may have an adverse impact on the Company
and Unimedia. Further, any such litigation would be time consuming and costly to
Unimedia (and thereby to the Company, based upon its ownership of an 81.6%
interest in Unimedia), even if such litigation were decided in favor of Unimedia
and/or its management.
DISPUTE BETWEEN THE COMPANY AND ITS FORMER CHIEF EXECUTIVE OFFICER
Charles Koppel, the former chairman and CEO of the Company, had a service
agreement with the Company under which he was entitled to an annual base salary
of (pound)100,000 ($160,000). The agreement provided for successive automatic
one-year terms unless terminated upon one year's prior notice in writing. Mr.
Koppel resigned his positions with the Company on August 6, 1997.
Mr. Koppel has advised the Company that he believes that the Board's
selection of a new President and CEO of the Company, as reported in the Form
10-QSB, constituted a constructive dismissal of Mr. Koppel under his service
agreement. It is the Company's view that Mr. Koppel breached his services
agreement by resigning his positions with the Company and the Company intends to
vigerously defend any action brought by Mr. Koppel with respect to his service
agreement. There can be no assurances to the ultimate outcome of this matter.
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SHARE OWNERSHIP OF THE COMPANY'S OUTSTANDING SECURITIES
As of September 1, 1997, there were 39,100,804 shares of Common Stock
issued, 4,556,320 of which were owned by Unimedia. As a result, at that date
there were 34,544,484 shares of Common Stock outstanding. The following table
sets forth certain information regarding the Common Stock, owned of record or
beneficially by (i) each person who owns beneficially more than 5% of the
outstanding Common Stock; (ii) each of the Registrant's directors and named
executive officers; and (iii) all directors and executive officers as a group.
SHARES PERCENT OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
------------------------ ------------------ ----------------------
Gilles Assouline(1)(2) 3,528,000 9.0%
Michel Assouline(1)(3) 0 *
David Ho(4) 4,385,965 11.2%
Charles Koppel(5)(6) 2,671,000 6.7%
Stephen Kornfeld(7) 775,000 2.0%
Barry Llewellyn(8) 610,000 1.6%
Karl Hauptmann(9) 2,241,320 5.7%
James Leitner(10) 2,066,140 5.2%
Jean-Pierre Souviron(1)(11) 140,000 *
Mark Sillam(1)(12)(13) 1,785,700 4.6%
Jean-Francois Klein(13) 0 *
Stanley Hollander(14) 90,000 *
Edgeport Nominees(15) 2,332,656 6.6%
Groupe AB(16) 5,000,000 13.8%
Kestrel, S.A.(17) 2,064,262 5.9%
Instar Holdings, Inc.(18) 4,000,000 10.4%
Directors and Executive Officers
as a group (9 persons)(19) 11,614,665 32.9%
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* Less than 1%.
(1) Excludes an indeterminable number of shares and/or warrants issuable in
connection with the Share Exchange between the Company and the former
shareholders of Unimedia. See Section 1.5 of the Unimedia Agreement, as
amended, which is an exhibit to the Company's 1997 filings with the U.S.
Securities and Exchange Commission.
(2) Includes shares owned of record by two entities, Diamond Productions and
Multimedia Investments ("MMI"). Mr. Assouline, the Company's President and
Chief Executive Officer, controls the power to vote and dispose of the
shares of Common Stock owned by these entities, and may therefore be deemed
to be the beneficial owner of these shares for U.S. securities law
purposes. However, the actual number of shares of Common Stock owned by
these entities and a third entity, Media Ventures (see footnote 12 below),
from which Mr. Assouline and his wife, Anne-
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Marie Assouline, ultimately benefit is 2,118,281 shares (5.4%). Excludes
shares and warrants which may be issued to Mr. Assouline in the future for
his services. Additionally, the shares held by Mr. and Mrs. Assouline are
subject to a put aggregating 110,800 of the shares from which they benefit.
See footnotes (3) and (12) below. If the put were to be exercised, it would
reduce the Assouline family's interest in the Company to 2,007,487 shares
(5.1%).
(3) Mr. Assouline, the Company's Chief Operating Officer, ultimately benefits
from the 764,235 (2.0%) shares owned by several corporate entities
controlled by Gilles Assouline and Marc Sillam. See footnotes (2) and (12).
Mr. Assouline does not control the power to vote and dispose of the shares
owned by those entities. Excludes shares and warrants which may be issued
to Mr. Assouline in the future for his services. Additionally, the shares
held by Mr. Assouline are subject to a put aggregating 55,413 of the shares
from which he benefits. See footnotes (2) and (12). If the put were to be
exercised, it would reduce Mr. Assouline's interest in the Company to
708,822 shares (1.8%).
(4) Shares are owned of record by Unbeatable Investments Ltd., an entity
controlled by Mr. Ho.
(5) A portion of Mr. Koppel's shares are owned of record by Clifton Securities
Limited ("Clifton"), a corporation controlled by Mr. Koppel. Also includes
warrants to purchase 640,000 shares of Common Stock at an exercise price of
$3.125 per share.
(6) Mr. Koppel controls the power to vote and dispose of all of the shares of
Common Stock owned by Clifton. However, Mr. Koppel is the beneficial owner
of only 1,287,500 of the 1,751,080 shares of Common Stock owned by Clifton,
and of all of the 560,000 warrants owned by Clifton. The balance are held
for the account of third parties, including Messrs. Leitner and Hauptmann.
(7) Includes: (i) 400,000 Shares of Common Stock owned by Kornfeld Associates
International, Inc. ("KAI") and options to purchase an additional 200,000
Shares of Common Stock at an exercise price of $2.50 per share, and (ii)
140,000 shares and 35,000 warrants to purchase shares at $4.00 per share
owned by trusts of which Mr. Kornfeld is trustee.
(8) A portion of Mr. Llewellyn's shares are owned of record by Spencer Services
Limited ("Spencer"), a corporation controlled by Mr. Llewellyn. Also
includes warrants to acquire 160,000 shares of Common Stock at an exercise
price of $3.125 per share.
(9) Owned of record by Telor International Limited ("Telor"), a corporation
controlled by Mr. Hauptmann. Includes warrants to acquire (i) 200,000
shares of Common Stock at an exercise price of $2.50 per share, (ii)
133,320 shares of Common Stock at an exercise price of $3.125 per share,
and (iii) 67,500 shares of Common Stock at an exercise price of $4.00 per
share. Excludes 62,500 shares owned by Clifton for Mr. Hauptmann's benefit
and 400,000 shares issuable to Mr. Hauptmann upon the conversion, at the
option of Instar, of his portion of the Instar Loan. See footnotes (6) and
(15) and the Form 10-QSB.
(10) Includes warrants to purchase (i) 400,000 shares of Common Stock at an
exercise price of $2.50 per share, (ii) 266,640 shares of Common Stock at
an exercise price of $3.125 per share, and (iii) 132,500 shares of Common
Stock at an exercise price of $4.00 per share. Excludes 50,000 shares owned
by Clifton for Mr. Leitner's benefit and 1,000,000 shares issuable to Mr.
Leitner upon the conversion, at the option of Instar, of his portion of the
Instar Loan. See footnotes (6) and (15) and the Form 10-QSB.
(11) Owned of record by Souviron Industrie Conseil Sarl., an entity controlled
by Mr. Souviron.
(12) Includes shares owned of record by two entities, BIMAP and Media Venture.
Mr. Sillam controls the power to vote and dispose of the shares of Common
Stock owned by these entities, and may therefore be deemed to be the
beneficial owner of these shares for U.S. securities law purposes. However,
the ultimate benefit of 2,064,234 of the shares owned of record by these
entities and an entity controlled by Mr. Assouline, MMI, is held by Claude
Berda, the principal
12
<PAGE>
shareholder of Groupe AB. See footnote (14) below. The beneficiaries of
these shares have a put to acquire the benefit of an additional 166,240
shares. See footnotes (2) and (3) below. If the put were to be exercised,
it would increase Mr. Berda's interest in the Company to 2,230,474 shares
(5.7%).
(13) While Messrs. Sillam (until September 1997) and Klein serve as executive
officers of Groupe AB, they disclaim beneficial ownership over the shares
and warrants owned by Groupe AB. See footnote (14) below.
(14) Includes warrants to purchase (i) 15,000 shares at an exercise price of
$4.00 per share, and (ii) 15,000 shares at an exercise price of $2.50 per
share. Does not include shares of Common Stock and warrants owned of record
by International Capital Growth, Inc. Mr. Hollander disclaims beneficial
ownership of such securities.
(15) Edgeport Nominees holds these securities for the benefit of customers of
Townsley & Co. See "Certain Transactions." Includes warrants to purchase
193,385 shares of Common Stock at an exercise price of $3.125 per share,
warrants to purchase 130,000 shares of Common Stock at $2.50 per share and
warrants to purchase 572,606 shares of Common Stock at $4.00 per share.
Barry Townsley, the principal of Townsley & Co. and a former director of
the Company, also owns an additional 105,000 shares of the Company's common
stock, warrants to purchase 52,500 shares of the Company's Common stock at
an exercise price of $4.00 per share, and the right to receive 600,000
shares upon the conversion of his portion of the Instar Loan to the extent
the loan is converted by Instar (see footnote (18) below), which are
excluded.
(16) Shares are owned of record by MMP, S.A. on behalf of Groupe AB. Includes
warrants to purchase 1,800,000 shares of Common Stock at an exercise price
of $4.00 per share. Messrs. Klein and Sillam disclaim beneficial ownership
over the shares and warrants owned by Groupe AB. If aggregated with the
shares beneficially owned by Mr. Berda, he would be deemed to benefit from
an aggregate of 7,064,237 shares (19.4%), or 7,230,477 (19.9%) if the put
is exercised. See footnote (12) above.
(17) Kestrel, S.A., a Switzerland based investment firm, has advised the Company
that it holds these shares of the Common Stock and warrants to purchase
additional shares of Common Stock in two nominee corporations, Latitude
Investments and Transit Securities, for the benefit of multiple owners.
Clients of Kestrel also control Universal, which has arranged for the
transponder guarantee. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 7 to Notes to the
Company's 1996 Audited Financial Statements, both of which are contained in
the Company's 1996 Annual Report on Form 10-KSB. Kestrel has advised the
Company that it holds these securities in non-discretionary accounts and
that it does not have the power to vote or dispose of the shares of Common
Stock held by it. Kestrel has also advised the Company that no affiliate of
the Company has an interest in these securities and that none of the
beneficial owners of these securities has a five percent or more direct or
indirect beneficial interest in the Common Stock. Includes warrants to
purchase (i) 200,000 shares of Common Stock at an exercise price of $2.50
per share, (ii) 133,320 shares of Common Stock at an exercise price of
$3.125 per share, and (iii) 67,500 shares of Common Stock at an exercise
price of $4.00 per share.
(18) Shares of Common Stock issuable to Instar if it converts, at its option,
the Instar Loan into shares of Common Stock at a conversion rate of $.50
per share (or Series A Preferred Stock which is convertible into an equal
number of shares of Common Stock upon the occurrence of certain events),
subject to increase for shares issuable upon conversion of accrued interest
on the Instar Loan. A portion of the shares of Common Stock issuable to
Instar if it were to convert its loan into shares of Common Stock would be
issuable to Messrs. Hauptmann, Leitner and Townsley. Instar has advised the
Company that other than Messrs. Hauptmann, Leitner and Townsley, no
affiliate of the Company is part of the Instar lending group. Instar has
also advised the Company that it holds the Instar loan for the benefit of
multiple owners and that it does not have the power to vote or dispose of
the shares which it holds. Instar has also advised the Company that none of
the other holders of a portion of the Instar loan (other than Messrs.
Leitner, Hauptmann and Townsley) would, upon conversion, hold more than a
five percent interest in the Company's outstanding Common Stock. See the
Form 10-QSB and footnotes (8), (9) and (13) above.
(19) Includes warrants to purchase an aggregate of 725,000 shares.
13
<PAGE>
MARKET FOR THE COMPANY'S COMMON STOCK
At the present date, all but 330,000 shares of the Company's outstanding
common stock are "restricted securities" as defined in Rule 144 under the
Securities Act of 1933, as amended (the "Act") and may not be sold in the future
without registration under the Act or pursuant to an applicable exemption
therefrom (such as pursuant to Rule 144). The Company has contractually agreed
to register all of the outstanding Common Stock for resale under the Act and
intends to file a registration statement in the near future for the purpose of
satisfying such obligation. Additionally, 12,333,328 of the Company's
outstanding shares are presently eligible for sale under Rule 144. However,
holders of 8,982,342 of the outstanding shares of Common Stock have agreed not
to transfer certain of their securities until nine months after the
effectiveness of a registration statement covering the resale of the Company's
outstanding securities (without the prior written consent of the placement agent
from the Company's winter 1995/96 private placement of securities).
The Company's common stock is currently quoted on the NASDAQ Small-Cap
Market. Under the current NASDAQ rules, in order to qualify for continued
listing on the NASDAQ SmallCap Market, the Company, among other things, must
have total assets of at least $2.0 million, capital and surplus of at least $1.0
million, a market value of public float of at least $200,000, at least two
market makers and a minimum bid price of $1.00 per share (or, if the bid price
is less than $1.00 per share, the Company must have capital and surplus and
market value of the public float equal to at least $2.0 million and $1.0
million, respectively). Additionally, NASDAQ has recently approved changes to
the standards for companies to remain listed on the SmallCap Market, including
new corporate governance standards, a new requirement that the Company have net
tangible assets of $2.0 million, market capitalization of $35.0 million or net
income of $500,000 and other qualitative requirements. These new requirements
will become effective on February 23, 1998.
At the present time, the Company has been advised by NASDAQ that it may not
meet the current maintenance standard requirement of having a minimum bid price
of $1.00 per share. While the Company believes that it currently meets the
alternative NASDAQ tests described above (based upon the pro forma consolidated
financial information appearing elsewhere herein), there can be no assurance
that the Company will continue to meet the NASDAQ continued listing standards.
In such event, the Company may in the future be delisted from the NASDAQ
SmallCap Market. If the Company is unable to satisfy the requirements for
continued inclusion on the NASDAQ SmallCap Market, trading of the Company's
common stock would again be conducted in the over-the-counter market. In such
event, holders of outstanding Common Stock may find it more difficult to dispose
of or obtain accurate quotations as to the market price of the common stock.
In addition, if the Common Stock were no longer to be quoted on the NASDAQ
SmallCap Market, then it is likely that the Company's Common Stock would become
subject to certain regulations of the Securities and Exchange Commission, which
imposes sales practice requirements on broker-dealers because the common stock
of the Company has a market price of less than $5.00 per share. For example, in
such situation, broker-dealers selling the securities, would be required, prior
to effecting any transaction, to provide their customers with a document which
discloses the
14
<PAGE>
risks of investing in the Company's common stock. Furthermore, in such
situation, if the person purchasing the securities is someone other than an
accredited investor or an established customer of the broker-dealer, the
broker-dealer must also approve the potential customer's account by obtaining
information concerning the customer's financial situation, investment experience
and investment objectives. The broker-dealer must also make a determination
whether the transaction is suitable for the customer and whether the customer
has sufficient knowledge and experience in financial matters to be reasonably
expected to be capable of evaluating the risks of transactions in the security,
which could limit the number of potential purchasers of the Company's
securities.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
PAGE
(a) FINANCIAL STATEMENTS OF UNIMEDIA, S.A. ----
PERIODS ENDED DECEMBER 31, 1996 AND 1995
Independent Auditors Report............................................F-1
Audited Balance Sheet at December 31, 1996 and 1995....................F-2
Audited Statement of Operations for the year ended
December 31, 1996 and for the period from inception
(August 17, 1995) to December 31, 1995...............................F-3
Audited Statement of Stockholders' Equity for year ended
December 31, 1996 and for the period from inception
(August 17, 1995) to December 31, 1995...............................F-4
Audited Statement of Cash Flows for the year ended
December 31, 1996 and for the period from inception
(August 17, 1995) to December 31, 1995...............................F-5
Notes to the audited financial statements..............................F-6
[CONTINUES ON NEXT PAGE]
15
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Unaudited Balance Sheet at June 30, 1997 and 1996.....................F-10
Unaudited Statement of Operations for the six months ended
June 30, 1997 and 1996..............................................F-11
Unaudited Statement of Stockholders' Equity for six months ended
June 30, 1997 and 1996..............................................F-12
Unaudited Statement of Cash Flows for the six months ended
June 30, 1997 and 1996..............................................F-13
Notes to the unaudited financial statements...........................F-14
(b) PROFORMA FINANCIAL INFORMATION
Unaudited Proforma Consolidated Financial Statements..................F-19
Unaudited pro forma balance sheets at December 31, 1996
and June 30, 1997...................................................F-20
Unaudited pro forma statements of stockholders' equity for the
year ended December 31, 1996 and the six months ended
June 30, 1997.......................................................F-24
Unaudited pro forma statements of operations for the year ended
December 31, 1996 and the six months ended June 30, 1997............F-26
Notes to unaudited pro forma consolidated financial statements........F-28
(c) EXHIBITS
None
16
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors
We have audited the accompanying balance sheet of UNIMEDIA S.A. as of December
31, 1995 and December 31, 1996, and the related statements of operations,
stockholders' equity and cash flow for the periods August 1, 1995 to December
31, 1995 and January 1, 1996 to December 31, 1996.
These financial statements have been prepared in accordance with United States
generally accepted accounting principles (US GAAP) and are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
As statutory auditor, we have certified the statutory accounts of UNIMEDIA S.A.
for its first fiscal year beginning on August 1, 1995 and ending on December 3,
1996. We have also certified the interim financial statements at December 31,
1995. These financial statements have been prepared in accordance with French
accounting standards. We have reviewed the adjustments made to these accounts to
conform with United States generally accepted accounting principles (US GAAP).
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis of our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UNIMEDIA S.A. at December 31,
1995 and December 31, 1996, and the results of its operations and its cash flows
of the two periods, in conformity with the United States generally accepted
accounting principles.
Paris, September 25, 1997
RBA S.A.
MEMBER EUROREVISE
Ali SMAOUI Robert BELLAICHE
F-1
<PAGE>
<TABLE>
<CAPTION>
UNIMEDIA S.A.
AUDITED BALANCE SHEET
DECEMBER 31, 1996
DECEMBER 31, DECEMBER 31,
1996 1995
NOTE US $ US $
<S> <C> <C> <C>
ASSETS
Cash 756,290 728,352
Accounts receivable, net of allowances for doubtful
accounts of $2,375,594 (December 31, 1995 - nil) 4 1,675,976 175,966
Inventories 416,184
Prepaid expenses and deposits 22,734 -
---------------- ----------------
TOTAL CURRENT ASSETS 2,871,184 904,318
Investments 5 3,072,910 1,217,651
Fixtures, fittings and equipment, net 3 116,669 6,344
---------------- ----------------
TOTAL ASSETS 6,060,763 2,128,313
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 1,070,511 60,399
Accrued expenses 366,988 -
Loans repayable 2,754,287 -
---------------- ----------------
TOTAL LIABILITIES 4,191,786 60,399
COMMITMENTS AND CONTINGENCIES - -
---------------- ----------------
4,191,786 60,399
================ ================
STOCKHOLDERS' EQUITY
Common stock - 12,302 shares authorized;
$20 par value (French Francs 100) 11,250
(December 31, 1995 - 9,000) issued and outstanding 216,496 184,034
Additional paid in capital 3,766,014 1,963,030
Cumulative translation adjustment 118,263 (460)
Accumulated deficit (2,231,796) (78,690)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 1,868,977 2,067,914
================ ================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 6,060,763 2,128,313
================ ================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
UNIMEDIA S.A.
AUDITED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
PERIOD FROM
INCEPTION
YEAR ENDED (AUGUST 17, 1995)
DECEMBER 31, TO DECEMBER 31,
1996 1995
NOTE US $ US $
<S> <C> <C> <C>
Revenue 327,726 0
Operating Costs
Staff costs 576,097 37,762
Depreciation 44,017 -
Operating expenses 1,003,978 93,159
---------------- ------------------
1,624,092 130,921
---------------- ------------------
Operating loss (1,296,366) (130,921)
Interest (paid)/income net (63,911) (497)
Other income (expense) (2,039,006) 7,217
---------------- ------------------
Loss before taxation (3,399,283) (124,201)
Tax provision 2 1,246,177 45,511
---------------- ------------------
Net loss (2,153,106) (78,690)
================ ==================
Net profit/(loss) per share ($191) ($9)
================ ==================
Weighted average shares outstanding 11,250 9,000
================ ==================
</TABLE>
The accompanying notes are an integral part of these audited consolidated
financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
UNIMEDIA S.A.
AUDITED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996
ADDITIONAL CUMULATIVE
PAID-IN TRANSLATION ACCUMULATED
COMMON STOCK CAPITAL ADJUSTMENT DEFICIT TOTAL
SHARES US $ US $ US $ US $ US $
<S> <C> <C> <C> <C> <C> <C>
Balance at inception
(August 17, 1995) - - - - - -
Issuance of common stock 9,000 184,034 1,963,030 2,147,064
Translation adjustment (460) (460)
Net loss (78,690) (78,690)
-------------------------------------------------------------------------------------
Balance at December 31, 1995 9,000 184,034 1,963,030 (460) (78,690) 2,067,914
Issuance of shares 2,250 32,462 1,802,984 1,835,446
Translation adjustment 118,723 118,723
Net Loss (2,153,106) (2,153,106)
-------------------------------------------------------------------------------------
Balance at December 31, 1996 11,250 216,496 3,766,014 118,263 (2,231,796) 1,868,977
=====================================================================================
</TABLE>
The accompanying notes are an integral part of these audited consolidated
financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
UNIMEDIA S.A.
AUDITED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
DECEMBER 31, DECEMBER 31,
1996 1995
US $ US $
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss (2,153,106) (78,690)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation 44,017 -
Provision against investments and accounts receivable 2,664,212 -
Unrealized investment gains (75,067) -
Changes in assets and liabilities
Decrease (Increase) in inventories (416,184) -
(Increase) in accounts receivable (3,875,604) (175,966)
Decrease (increase) in prepaid expenses (22,734) -
Increase in accrued expenses and accounts payable 1,377,100 60,399
---------------- -----------------
NET CASH USED IN OPERATIONS (2,457,366) (194,257)
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixtures, fittings and equipment (154,342) (6,344)
Investments (2,020,637) (1,217,651)
---------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (2,174,979) (1,223,995)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares 1,835,446 2,147,064
Loans taken out in the year 2,754,287 -
---------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,589,733 2,147,064
---------------- -----------------
NET INCREASE/(DECREASE) IN CASH (42,612) 728,812
Effect of exchange rate movements on cash 70,550 (460)
Cash at start of period 728,352 -
---------------- -----------------
Cash at end of period 756,290 728,352
================ =================
Cash paid for taxes - -
Interest paid (63,911) (497)
</TABLE>
The accompanying notes are an integral part of these audited consolidated
financial statements.
F-5
<PAGE>
UNIMEDIA S.A.
NOTES TO THE AUDITED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
Unimedia S.A. was incorporated in Paris, France on August 17, 1995 to develop
and acquire interests in emerging high technology companies focusing on the
development of software used in smart card and Internet technology and its
application use in business and entertainment.
1. SIGNIFICANT ACCOUNTING POLICIES
The audited financial statements are prepared in conformity with generally
accepted accounting principles in the United States of America.
BASIS OF PREPARATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of first-in, first-out cost and market
value.
FIXTURES, FITTINGS AND EQUIPMENT
Fixtures, fittings and equipment are all stated at cost. Depreciation is
recorded on a straight-line basis over the estimated useful lives of the assets
as shown below:
Fixtures, fittings and equipment 5 to 20 years
FOREIGN CURRENCY
The Company's assets and liabilities in France are translated at year end
exchange rates and the results of the operation at the average exchange rate for
the year. The effects of these translation adjustments are reported in a
separate component of shareholders' equity. Exchange gains and losses arising
from transactions denominated in a currency other than the functional currency
of the entity involved are included in net income.
1995 Conversion Rates Year end - French Franc 4.8904 / US$
Average - French Franc 4.9170 / US$
1996 Conversion Rates Year end - French Franc 5.1987 / US$
Average - French Franc 5.1047 / US$
INCOME TAXES
Full provision is made for all deferred tax liabilities. Deferred income tax
assets are recognized for deductible temporary differences and not operating
losses, reduced by a valuation allowance if it is more likely than not that some
portion of the benefit will not be recognized.
LEASES
Operating leases are charged to the statement of operations in equal annual
amounts over the term of the lease.
F-6
<PAGE>
UNIMEDIA S.A.
NOTES TO THE AUDITED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
2. INCOME TAXES
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED (AUGUST 17, 1995)
DECEMBER 31, TO DECEMBER 31,
1996 1995
US $ US $
<S> <C> <C>
The income tax provision consisted of the following
Current tax credit 1,246,177 45,511
================ ===================
Net operating loss carry forwards which give rise to deferred tax assets are as
follows:
PERIOD FROM
INCEPTION
YEAR ENDED (AUGUST 17, 1995)
DECEMBER 31, TO DECEMBER 31,
1996 1995
US $ US $
Unutilized tax losses - -
Valuation allowances - -
---------------- -----------------
Total deferred tax assets - -
================ =================
The valuation allowance relates to deferred tax assets established under
Statement of Financial Accounting Standard No. 109 and relate to the unutilized
tax losses. These unutilized tax losses, substantially of which do not expire,
will be carried forward to future years for possible utilization. The company
although has not yet fully achieved profitability has recognized the benefit for
these unutilized tax losses in the financial statements.
3. FIXTURES, FITTINGS AND EQUIPMENT
DECEMBER 31, DECEMBER 31,
1996 1995
US $ US $
Fixtures, fittings and equipment 160,686 6,344
Less accumulated depreciation (44,017) -
---------------- -----------------
116,669 6,344
================ =================
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
UNIMEDIA S.A.
NOTES TO THE AUDITED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
4. ACCOUNTS RECEIVABLE
DECEMBER 31, DECEMBER 31,
1996 1995
US $ US $
<S> <C> <C>
Accounts receivable comprise:
Trade receivables 114,402 -
Taxation 1,239,201 45,759
Other debtors receivable within one year 304,696 118,132
Other debtors receivable after one year 17,677 12,075
--------------- -----------------
1,675,976 175,966
=============== =================
5. INVESTMENTS
DECEMBER 31, DECEMBER 31,
1996 1995
US $ US $
Investments comprise:
Investment in quoted securities - Available for sale 2,717,320 -
Investment unquoted securities less provision for diminution
in value - Held to Maturity 355,590 1,217,651
---------------- -----------------
3,072,910 1,217,651
================ =================
</TABLE>
The company acquired interests in the following securities. Quoted securities
are valued at market price. Unrealized gains and losses are accounted for in the
audited statement of operations. Unquoted securities are those acquired for
strategic purposes and are valued at fair value by the management. Provision is
made for any diminution in value and is accounted for in the audited statement
of operations. Provision made, 1996 - $244,872 (1995 - nil)
<TABLE>
<CAPTION>
% Holding
<S> <C> <C> <C>
ENANTI Inc. US 30% Unquoted
Internetway S.A. France 10% Unquoted
ACTIV CARD France - Quoted (Unquoted at December 31, 1995)
Topcard S.A. France 7% Unquoted
Harmony Holdings, Inc. US 15% Quoted
</TABLE>
F-8
<PAGE>
UNIMEDIA S.A.
NOTES TO THE AUDITED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
6. LOANS REPAYABLE
The company has received loans from existing shareholders and potential
shareholders whose share subscription had not completed as of the reporting
dates.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
US $ US $
<S> <C> <C> <C>
Oradea Inc. Loan repayable after one year 509,580 -
Bandesco Falcon Subscription 338,075 -
R. Pardo Loan repayable after one year 495,841 -
Reseau Asta International Subscription 385,285 -
Tarbella Enterprises Inc. Subscription 732,515 -
F de Montsiegnat Subscription 292,991 -
----------------- ----------------
2,754,287 -
================= ================
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
UNIMEDIA S.A.
UNAUDITED BALANCE SHEET
AS OF JUNE 30, 1997
JUNE 30, JUNE 30,
1997 1996
NOTE US $ US $
<S> <C> <C> <C>
ASSETS
Cash 1,987,426 1,103,735
Accounts receivable, net of allowances for doubtful accounts of
nil (June 30, 1996 - nil) 4 1,040,009 200,180
Taxation 2 1,255,942 -
Inventories 358,762 9,712
Prepaid expenses and deposits 106,903 203,890
-----------------------------
TOTAL CURRENT ASSETS 4,749,042 1,517,517
Investments 5 6,159,978 2,381,434
Fixtures, fittings and equipment, net 3 100,903 127,789
-----------------------------
TOTAL ASSETS 11,009,923 4,026,740
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 1,097,792 148,875
Accrued expenses 121,127 3,778
Loans repayable within one year 6 6,300,304 2,003,149
-----------------------------
TOTAL LIABILITIES 7,519,223 2,155,802
COMMITMENTS AND CONTINGENCIES - -
-----------------------------
7,519,223 2,155,802
-----------------------------
STOCKHOLDERS' EQUITY
Common stock - 12,302 shares authorized:
$20 par value (FF 100) 12,302
(June 30, 1996 - 9,000) issued and outstanding 212,060 184,034
Additional paid in capital 4,620,195 1,963,030
Subscriptions receivable - -
Cumulative translation adjustment 452,511 (102,757)
Accumulated deficit (1,794,066) (173,369)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 3,490,700 1,870,938
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 11,009,923 4,026,740
=============================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
UNIMEDIA S.A.
UNAUDITED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1996
NOTE US $ US $
<S> <C> <C> <C>
Revenue 93,815 228,432
Operating costs
Staff costs 371,513 203,436
Depreciation and amortization 17,554 12,794
Operating expenses 461,076 214,194
-----------------------------
850,143 430,424
-----------------------------
Operating profit/(loss) (756,328) (201,992)
Interest (paid)/income net (36,629) 14,488
Other income 5 1,080,982 44,965
-----------------------------
Profit/(loss) before taxation 288,025 (142,539)
Tax provision 2 149,705 47,860
-----------------------------
Net profit/(loss) 437,730 (94,679)
=============================
Net profit/(loss) per share $41.10 ($10.52)
=============================
Weighted average shares outstanding 10,651 9,000
=============================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
UNIMEDIA S.A.
UNAUDITED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
SHARES COMMON ADDITIONAL CUMULATIVE ACCUMULATED TOTAL
STOCK PAID-IN TRANSLATION DEFICIT
CAPITAL ADJUSTMENT
$ $ $ $ $
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995 9,000 184,034 1,963,030 (460) (78,690) 2,067,914
Issuance of common stock --
Translation adjustment (102,297) (102,297)
Net loss (94,679) (94,679)
----------------------------------------------------------------------------------------------------
Balance at June 30, 1996 9,000 184,034 1,963,030 (102,757) (173,369) 1,870,938
Issuance of shares 2,250 32,462 1,802,984 1,835,446
Translation adjustment 221,020 221,020
Net loss (2,058,427) (2,058,427)
----------------------------------------------------------------------------------------------------
Balance at December 31,
1996 11,250 216,496 3,766,014 118,263 (2,231,796) 1,868,978
Issuance of shares 1,052 854,181 854,181
Translation adjustment (4,436) (334,248) (124,358)
Net Loss 437,730 437,730
----------------------------------------------------------------------------------------------------
Balance at June 30, 1997 12,302 212,060 4,620,195 452,511 (1,794,066) 3,490,700
====================================================================================================
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these statements.
F-12
<PAGE>
<TABLE>
<CAPTION>
UNIMEDIA S.A.
UNAUDITED STATEMENT OF CASH FLOWS
AS AT JUNE 30, 1997
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
US $ US $
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss 437,730 (94,679)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation 17,554 12,794
Provision against investments and accounts receivable (88,715) -
Unrealised investment gains (607,529) -
Changes in assets and liabilities:
Decrease (Increase) in inventories 57,422 (9,712)
(Increase) in accounts receivable (619,975) (24,214)
Decrease (increase) in prepaid expenses (84,169) (203,890)
Increase in accrued expenses and accounts payable (218,580) 92,254
---------- ----------
NET CASH USED IN OPERATIONS (1,106,262) (227,447)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixtures, fittings and equipment (1,788) (134,239)
Investments (2,410,651) (1,163,783)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (2,412,439) (1,298,022)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares 854,181
Loans taken out in the year 3,546,017 2,003,149
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,400,198 2,003,149
---------- ----------
NET INCREASE/(DECREASE) IN CASH 881,497 477,680
Effect of exchange rate movements on cash 349,639 (102,297)
Cash at start of period 756,290 728,352
---------- ----------
Cash at end of period 1,987,426 1,103,735
---------- ----------
Cash paid for taxes - -
Interest paid 36,629 -
</TABLE>
The accompanying notes are an integral part of these audited consolidated
financial statements.
F-13
<PAGE>
UNIMEDIA S.A.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in conformity with generally accepted
accounting principles in the United States of America.
INTERIM ADJUSTMENTS
The financial statements as, and for the periods ended, June 30, 1997 and June
30, 1996, are unaudited. The interim financial statements reflect all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair statement of the results of the
interim periods presented. The results of operations for the interim periods
should not be considered indicative of results expected for the full year.
BASIS OF PREPARATION
Unimedia S.A. was incorporated in Paris, France on August 17, 1995 to develop or
acquire interests in emerging high technology companies focusing on the
development of software used in Smart Card and Internet technology and its
application use in business and entertainment.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial and the reported
amount of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of first-in, first-out cost and market
value.
FIXTURES, FITTINGS AND EQUIPMENT
Fixtures, fittings and equipment are all stated at cost. Depreciation is
recorded on a straight-line basis over the estimated useful lives of the assets
as shown below:
Fixtures, fittings and equipment 5 to 20 years
FOREIGN CURRENCY
The Company's assets and liabilities in France are translated at year end
exchange rates and at the average exchange rate for the year. The effects of
these translation adjustments are reported in a separate component of
shareholders' equity. Exchange gains and losses arising from transactions
denominated in a currency other than the functional currency of the entity
involved are included in net income.
INCOME TAXES
Full provision is made for all deferred tax liabilities. Deferred income tax
assets are required for deductible temporary differences and net operating
losses, reduced by a valuation allowance if it is more likely than not that some
portion of the benefit will not be recognized.
LEASES
Operating leases are charged to the statement of operations in equal annual
amounts over the term of the lease.
F-14
<PAGE>
UNIMEDIA S.A.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
2. INCOME TAXES
The income tax provision consisted of the following:
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
US $ US $
Current tax credit 149,705 47,680
=====================================
Net operating loss carry forwards which give rise to deferred tax assets are as
follows:
US $ US $
Unutilized tax losses 220,000 90,000
Valuation allowances (220,000) (90,000)
-------------------------------------
Total deferred tax assets - -
=====================================
The valuation allowance relates to deferred tax assets established under
Statement of Financial Accounting Standard No. 109 and relate to the unutilized
tax losses. These unutilized tax losses, substantially all of which do not
expire, will be carried forward to future years for possible utilization.
Although the Company has not yet achieved profitability, it has partly
recognized the benefit for these unutilized tax losses in the financial
statements.
JUNE 30, 1997 JUNE 30, 1996
3. FIXTURES, FITTINGS AND EQUIPMENT US$ US$
Fixtures, fittings and equipment 156,689 140,419
Less accumulated depreciation (55,786) (12,630)
-------------------------------------
100,903 127,789
=====================================
F-15
<PAGE>
UNIMEDIA S.A.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
JUNE 30, 1997 JUNE 30, 1996
US $ US $
4. ACCOUNTS RECEIVABLE
Accounts receivable comprise:
Trade receivables 135,851 11,813
VAT receivables - 154,571
Other debtors receivable within one year 713,917 33,796
Other debtors receivable after one year 190,241 -
---------------------------------
1,040,009 200,180
=================================
5. INVESTMENTS US $ US $
Investments comprise:
Investment in quoted securities 5,842,304 -
Investment in unquoted securities
less provision for diminution in value 317,674 1,170,047
Advances made to unquoted securities - 1,191,414
Other - 19,973
-------------------------------------
6,159,978 2,381,434
=====================================
F-16
<PAGE>
UNIMEDIA S.A.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
The company acquired interests in the following securities. Quoted securities
are valued at market price. Unrealized gains and losses are accounted for in the
unaudited statement of operations. Unquoted securities are those acquired for
strategic purposes and are valued at fair value by the management. Provision is
made for any diminution in value and is accounted for in the unaudited statement
of operations. Provisions made six months to June 30, 1997 - nil (1996-nil).
% Holding
ENANTI Inc. US 30% Unquoted
Internetway S.A. France 10% Unquoted
ACTIV CARD France Quoted
Topcard S.A. France 7% Unquoted
Harmony Holdings Inc. US 15% Quoted
Capital Media Group US 10% Quoted
Limited
6. LOANS
The company has received loans from existing shareholders and potential
shareholders whose share subscription had not completed as of the respective
reporting dates.
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996
US $ US $
<S> <C> <C> <C>
Oradea Inc. Subscription and 512,724 1,002,655
Loan repayable
Atlas Investments Subscription - 1,000,494
Limited
Falcon Management Subscription 340,160 -
R. Pardo Loan Repayable 498,901 -
Reseau Asta Subscription 2,512,239 -
International
Universal Holdings, Loan Repayable 2,210,770 -
Inc.
Interest accrued 225,510
----------------------------------------
6,300,304 2,003,149
========================================
</TABLE>
F-17
<PAGE>
UNIMEDIA S.A.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
7. SUBSEQUENT EVENTS
On July 31, 1997, Capital Media Group Limited, a Nevada corporation, acquired
6,190 shares of the outstanding common stock from the holders of such shares,
constituting 50.3% of the then outstanding common stock. Subsequently, on
September 5, 1997, Capital Media acquired an additional 3,848 shares of the
outstanding common stock from the holders of such shares, increasing Capital
Media's ownership interest in the company to 81.6% of the then outstanding
common stock.
F-18
<PAGE>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give effect
to the acquisition as of September 5, 1997 of 81.6% of Unimedia S.A. (France),
as if the acquisition were effected as of December 31, 1996, or at the beginning
of the period presented. The acquisition was accounted for by the purchase
method of accounting. The excess of the purchase price over the net assets
acquired was allocated to the value of goodwill acquired and is amortized over
approximately 10 years.
The following Unaudited Pro Forma Consolidated Balance Sheets present the pro
forma combined financial position of Capital Media Group Limited as of December
31, 1996 and June 30, 1997 as if the acquisition of Unimedia S.A. were effected
as of December 31, 1996.
The following Unaudited Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1996 and the six months ended June 30, 1997 presents the
pro forma results of the combined company as if the acquisition of Unimedia S.A.
was completed as of January 1, 1996.
The unaudited pro forma statements are presented for illustrative purposes only
and are not necessarily indicative of the operating results or financial
position that would have occurred if the acquisition of 81.6% ownership of
Unimedia S.A. had taken place in accordance with the assumptions set forth in
the notes, nor is it necessarily indicative of future operating results of
financial position.
F-19
<PAGE>
<TABLE>
<CAPTION>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1996
AS REPORTED
-----------------------------------------
CAPITAL MEDIA
GROUP PRO FORMA ACQUISITION PRO FORMA AS
(1) UNIMEDIA ADJUSTMENTS ADJUSTED
US $ US $ US $ US $
------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Cash 6,170,070 756,290 (310,000) (3) 6,616,360
Accounts receivable, net of
allowances for doubtful
accounts of $10,399 754,103 436,775 - 1,288,156
Taxation - 1,239,201 (620,000) (5) (619,201)
Inventories 38,455 416,184 - 454,639
Prepaid expenses and deposits 1,481,836 22,734 - 1,504,570
-------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 8,444,464 2,871,184 (930,000) 10,385,648
Investments 217,213 3,072,910 - 3,290,123
Intangible assets, net of accumulated
amortization of $ 803,821 - 3,344,955 (3) 4,148,776
Fixtures, fittings and equipment, net 1,475,284 116,669 - 1,591,953
-------------------------------------------------------------------------------------------
TOTAL ASSETS 10,940,782 6,060,763 2,414,955 19,416,500
===========================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable 1,378,801 1,070,511 - 2,449,312
Accrued expenses 2,310,261 366,988 - 2,677,249
Loans repayable within one year 2,016,568 2,754,287 - 4,770,855
Amounts due to minority
shareholders 411,600 - - 411,600
-------------------------------------------------------------------------------------------
TOTAL LIABILITIES 6,117,230 4,191,786 - 10,309,016
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
AS REPORTED
-----------------------------------------
CAPITAL MEDIA
GROUP PRO FORMA ACQUISITION PRO FORMA AS
(1) UNIMEDIA ADJUSTMENTS ADJUSTED
US $ US $ US $ US $
------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
COMMITMENTS AND
CONTINGENCIES - - - -
MINORITY INTEREST
IN SUBSIDIARIES 615,795 - 218,770 (4) 834,565
-------------------------------------------------------------------------------------------
6,733,025 4,191,786 218,770 11,143,581
-------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock - 5,000,000 shares
authorized: $0.001 par value; no
shares issued and outstanding
Common Stock - 50,000,000 shares
authorized: $0.001 par value;
24,663,328 (12/31/96) issued and
outstanding 24,663 216,496 (209,470) (3) 31,689
Additional paid in capital 22,955,651 3,766,014 292,122 (3) 27,013,787
Subscriptions receivable (5,000) - - (5,000)
Cumulative translation adjustment 326,214 118,263 (118,263) 326,214
Accumulated deficit (19,093,771) (2,231,796) 2,231,796 (19,093,771)
-------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS'
EQUITY 4,207,757 1,868,977 2,196,185 8,272,919
-------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND 10,940,782 6,060,763 2,414,955 19,416,500
STOCKHOLDERS' EQUITY ===========================================================================================
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these statements.
F-21
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1997
AS REPORTED
---------------------------------------
CAPITAL MEDIA ACQUISITION PRO FORMA
GROUP UNIMEDIA ADJUSTMENTS AS ADJUSTED
US $ US $ US $ US $
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash 1,678,265 1,987,426 (452,000) 3,213,691
Accounts receivable, net of
allowances for doubtful
accounts of $10,392 1,052,016 1,040,009 - 2,092,025
Amount due from shareholders 2,500,000 - (2,500,000) (6) -
Taxation - 1,255,942 (769,702) (5) 486,240
Inventories 29,563 358,762 - 388,325
Prepaid expenses and deposits 574,060 106,903 - 680,963
-----------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 5,833,904 4,749,042 (3,721,702) 6,861,244
Investments 192,749 6,159,978 (114,000) (2) 6,238,727
Intangible assets, net of accumulated
amortization of $390,203 654,902 - 2,143,788 (3) 2,798,690
Fixtures, fittings and equipment, net 1,284,848 100,903 - 1,385,751
-----------------------------------------------------------------------------------------
TOTAL ASSETS 7,966,403 11,009,923 (1,691,914) 17,284,412
=========================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable 2,420,965 1,097,792 (240,000) (2) 3,278,757
Accrued expenses 1,329,119 121,127 - 1,450,246
Loans repayable within one year 2,100,251 6,300,304 (2,500,000) (6) 5,900,555
Amounts due to minority
shareholders 431,600 - - 431,600
-----------------------------------------------------------------------------------------
TOTAL LIABILITIES 6,281,935 7,519,223 (2,740,000) 11,061,158
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
AS REPORTED
--------------------------------------
CAPITAL MEDIA ACQUISITION PRO FORMA
GROUP UNIMEDIA ADJUSTMENTS AS ADJUSTED
US $ US $ US $ US $
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMITMENTS AND
CONTINGENCIES - - - -
MINORITY INTEREST
IN SUBSIDIARIES 534,514 - 489,624 (4) 1,024,138
------------------------------------------------------------------------------------------
6,816,449 7,519,223 (2,250,376) 12,085,296
------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock - 5,000,000 shares
authorized: $0.001 par value; no
shares issued and outstanding
Common Stock - 50,000,000 shares
authorized: $0.001 par value;
24,663,328 (12/31/96) issued and
outstanding 32,073 212,060 (205,034) (3) 39,099
Additional paid in capital 27,004,713 4,620,195 (578,059) (3) 31,046,849
Subscriptions receivable (5,000) - - (5,000)
Cumulative translation adjustment 2,265,200 452,511 (452,511) 2,265,200
Accumulated deficit (28,147,032) (1,794,066) 1,794,066 (28,147,032)
------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS'
EQUITY 1,149,954 3,490,700 558,462 5,199,116
------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND 7,966,403 11,009,923 (1,691,914) 17,284,412
STOCKHOLDERS' EQUITY ==========================================================================================
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these statements.
F-23
<PAGE>
<TABLE>
<CAPTION>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
SHARES COMMON ADDITIONAL SUBSCRIPTION CUMULATIVE ACCUMULATED TOTAL
STOCK PAID-IN RECEIVABLE TRANSLATION DEFICIT
CAPITAL ADJUSTMENT
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at inception
(February 17, 1995) -- - - - - - -
Issuance of common stock 8,996,664 8,997 10,308,657 (5,000) 10,312,654
Reverse acquisition of
Capital Media Group
Limited 330,000 330 657 987
Translation adjustment (59,963) (59,963)
Net loss (2,831,667) (2,831,667)
---------------------------------------------------------------------------------------------------
Balance at December
31,1995 9,326,664 9,327 10,309,314 (5,000) (59,963) (2,831,667) 7,422,011
Issuance of shares 3,336,664 3,336 6,808,337 6,811,673
Translation adjustment 386,177 386,177
Net Loss (16,262,104) (16,262,104)
---------------------------------------------------------------------------------------------------
Balance at December 31,
1996 12,663,328 12,663 17,117,651 (5,000) 326,214 (19,093,771) (1,642,243)
Issuance of shares 12,000,000 12,000 5,838,000 5,850,000
Issuance of shares on the
acquisition of Unimedia 7,026,600 7,026 4,058,136 4,065,162
---------------------------------------------------------------------------------------------------
Pro Forma Balance at
December 31, 1996 31,689,928 31,689 27,013,787 (5,000) 326,214 (19,093,771) 8,272,919
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these statements.
F-24
<PAGE>
<TABLE>
<CAPTION>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
SHARES COMMON ADDITIONAL SUBSCRIPTION CUMULATIVE ACCUMULATED TOTAL
STOCK PAID-IN RECEIVABLE TRANSLATION DEFICIT
CAPITAL ADJUSTMENT
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996 12,663,328 12,663 17,117,651 (5,000) 326,214 (19,093,771) (1,642,243)
Issuance of common stock 19,410,876 19,410 9,887,062 - - - 9,906,472
Translation adjustment - - - - 1,938,986 - 1,938,986
Net loss - - - - - (9,053,261) (9,053,261)
---------------------------------------------------------------------------------------------------
Balance at June 30, 1995 32,074,204 32,073 27,004,713 (5,000) 2,265,200 (28,147,032) 1,149,954
Issuance of shares on the
acquisition of Unimedia 7,026,600 7,026 4,042,136 - - - 4,049,162
---------------------------------------------------------------------------------------------------
39,100,804 39,099 31,046,849 (5,000) 2,265,200 (28,147,032) 5,199,116
===================================================================================================
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these statements.
F-25
<PAGE>
<TABLE>
<CAPTION>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AS REPORTED
---------------------------------------
CAPITAL MEDIA UNIMEDIA
GROUP PRO ACQUISITION PRO FORMA AS
FORMA ADJUSTMENTS ADJUSTED
US $ US $ US $ US $
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenue 2,075,407 327,726 (60,000) (1) 2,343,133
Operating costs
Staff costs 3,705,972 576,097 - 4,282,069
Depreciation and amortization 521,069 44,017 - 565,086
Operating expenses 14,125,947 1,003,978 - 15,129,925
-----------------------------------------------------------------------------------------
18,352,988 1,624,092 - 19,977,080
-----------------------------------------------------------------------------------------
Operating profit/(loss) (16,277,581) (1,296,366) (60,000) (17,633,947)
Equity in net losses of investment in
joint venture (211,414) - - (211,414)
Interest income net 132,950 (63,911) - 69,039
Minority interest 58,033 - - 58,033
Other income 42,531 (2,039,006) - (1,996,475)
-----------------------------------------------------------------------------------------
Profit/(loss) before taxation (16,255,481) (3,399,283) (60,000) (19,714,764)
Tax provision (6,623) 1,246,177 (626,177) (5) (613,377)
-----------------------------------------------------------------------------------------
Net profit/(loss) (16,262,104) (2,153,106) (686,177) (19,101,387)
=========================================================================================
Net profit/(loss) per share ($1.32) ($1.02)
======= =======
Weighted average shares outstanding 12,359,029 19,385,629
========== ==========
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these statements.
F-26
<PAGE>
<TABLE>
<CAPTION>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AS REPORTED
---------------------------------------
CAPITAL MEDIA UNIMEDIA ACQUISITION PRO FORMA AS
GROUP ADJUSTMENTS ADJUSTED
-----------------------------------------------------------------------------------------
US $ US $ US $ US $
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenue 874,733 93,815 968,548
Operating costs
Staff costs 1,749,152 371,513 - 2,120,665
Depreciation and amortization 249,365 17,554 - 266,919
Operating expenses 7,783,739 461,076 - 8,244,815
----------------------------------------------------------------------------------------
9,782,256 850,143 - 10,632,399
----------------------------------------------------------------------------------------
Operating profit/(loss) (8,907,523) (756,328) - (9,663,851)
Equity in net losses of investment in
joint venture (137,514) - - (137,514)
Interest income net (82,553) (36,629) - (119,182)
Minority interest 67,617 - - 67,617
Other income 9,381 1,080,982 - 1,090,363
----------------------------------------------------------------------------------------
Profit/(loss) before taxation (9,050,592) 288,025 - (8,762,567)
Tax provision (2,669) 149,705 (149,705) (5) (2,669)
----------------------------------------------------------------------------------------
Net profit/(loss) (9,053,261) 437,730 (149,705) (8,765,236)
========================================================================================
Net profit/(loss) per share ($0.48) ($0.34)
======== ======
Weighted average shares outstanding 18,859,995 25,886,525
========== ==========
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of these statements.
F-27
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) Capital Media Group Limited's Pro forma balance sheet as at December 31,
1996, reflects the Private Placement completed on March 3, 1997 in respect
of 12,000,000 shares of common stock sold. The net proceeds were
approximately $5,850,000 after costs.
(2) Represents the elimination of commission paid by Capital Media Group Limited
to Unimedia. Of the commission received by Unimedia, Unimedia itself paid
commission of $256,000 in cash and shares held in Capital Media Group
Limited.
(3) Represents the acquisition by Capital Media Group Limited of 81.6% ownership
of Unimedia and the issuance of 7,026,600 shares and legal and professional
costs of $310,000. The acquisition was accounted for by the purchase method
of accounting. The excess of purchase price over net assets acquired is
allocated to the value of goodwill acquired. The adjustments reflect the
elimination of pre acquisition net assets acquired.
(4) Represents the value of 18.4% minority shareholders interest in Unimedia.
(5) Represents the reversal of valuation allowance relating to tax loss carry
forwards due to the uncertainty regarding the ability to utilize the
benefits in the near future.
(6) Represents the elimination of the proceeds of $2,500,000 of the Private
Placement subscription by investors associated with Unimedia who had
received the deposit of the subscription.
F-28
<PAGE>
SIGNATURE
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 hereunto duly authorized.
CAPITAL MEDIA GROUP LIMITED
By: /s/ GILLES ASSOULINE
-------------------------------------
Gilles Assouline, President
Date: September 29, 1997
17
