SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to
_____________.
Commission File No. 0-21051
CAPITAL MEDIA GROUP LIMITED
---------------------------------------------------------------------------
(exact name of small business issuer in its charter)
Nevada 87-0453100
- ------------------------------------ ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 James Street, London W1M 5HY
- ------------------------------------ ----------------------------------
(Address of principal executive offices) (Zip Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter periods that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES X NO
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 36,407,204 of Common Stock as of
August 1, 1997, including approximately 4.0 million shares owned By Unimedia,
S.A., a 50.3% owned subsidiary of the issuer.
Transitional Small Business Disclosure Format. YES ____ NO X
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited financial statements for the quarter covered by this report are
attached hereto in accordance with item 310(b) of Regulation S-B.
INDEX TO FINANCIAL STATEMENTS
Unaudited consolidated balance sheet at June 30, 1997
and December 31, 1996....................................................3
Unaudited consolidated statement of operations for the three
and six months ended June 30, 1997 and 1996..............................4
Unaudited consolidated statement of stockholders' equity for
the six months ended June 30, 1997.......................................5
Unaudited consolidated statement of cash flows for the six
months ended June 30, 1997 and 1996......................................6
Notes to the unaudited consolidated financial statements......................7
2
<PAGE>
<TABLE>
<CAPTION>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEET
FOR THE SIX MONTHS ENDED JUNE 30, 1997
NOTE JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
ASSETS
Cash 1,678,265 320,070
Accounts receivable, net of allowances for doubtful
accounts of $10,392 (December 31, 1996 - $10,399) 6 1,052,016 754,103
Amount due from shareholders 13 2,500,000 -
Inventories 29,563 38,455
Prepaid expenses and deposits 574,060 1,481,836
---------------- ----------------
TOTAL CURRENT ASSETS 5,833,904 2,594,464
Investments 192,749 217,213
Intangible assets, net of accumulated amortization of
$390,203 (December 31, 1996 - $262,536) 5 654,902 803,821
Property, plant and equipment, net 4 1,284,848 1,475,284
---------------- ----------------
TOTAL ASSETS 7,966,403 5,090,782
================ ================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable 2,420,965 1,378,801
Accrued expenses 1,329,119 2,310,261
Loans repayable within one year 13 2,100,251 2,016,568
Amounts due to minority shareholders 431,600 411,600
---------------- ----------------
TOTAL LIABILITIES 6,281,935 6,117,230
COMMITMENTS AND CONTINGENCIES 7,8 - -
MINORITY INTEREST IN SUBSIDIARIES 534,514 615,795
---------------- ----------------
6,816,449 6,733,025
---------------- ----------------
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 32,074,204 (December 31, 1996 -
12,663,328) issued and outstanding 13 32,073 12,663
Additional paid in capital 27,004,713 17,117,651
Subscriptions receivable (5,000) (5,000)
Cumulative translation adjustment 2,265,200 326,214
Accumulated deficit (28,147,032) (19,093,771)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 1,149,954 (1,642,243)
---------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 7,966,403 5,090,782
================ ================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
3 MONTHS 6 MONTHS 3 MONTHS 6 MONTHS
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
NOTE 1997 1997 1996 1996
<S> <C> <C> <C> <C>
Revenue 467,695 874,733 481,647 959,805
Operating costs
Staff costs 917,977 1,749,152 954,899 1,620,398
Depreciation and amortization 127,132 249,365 253,955 453,943
Operating expenses 3,760,754 7,783,739 3,467,204 6,023,319
------------------ ------------------ ------------------ -----------------
(4,805,863) (9,782,256) (4,676,058) (8,097,660)
------------------ ------------------ ------------------ -----------------
Operating loss (4,338,168) (8,907,523) (4,194,411) (7,137,855)
Equity in net losses of investment in
joint venture 12 (70,224) (137,514)
Interest income net (35,050) (82,553) 107,205 127,796
Minority interest 26,386 67,617 37,219 42,334
Other income (5,865) 9,381 18,837 19,480
------------------ ------------------ ------------------ -----------------
Loss before taxation (4,422,921) (9,050,592) (4,031,150) (6,948,245)
Tax provision (2,130) (2,669) (539) (580)
------------------ ------------------ ------------------ -----------------
Net loss (4,425,051) (9,053,261) (4,031,689) (6,948,825)
================== ================== ================== =================
Net loss per share ($0.30) ($0.48) ($0.32) ($0.58)
======= ======= ======= =======
Weighted average shares outstanding 18,859,995 18,859,995 12,663,328 12,054,730
================== ================== ================== =================
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
ADDITIONAL CUMULATIVE
COMMON PAID-IN SUBSCRIPTION TRANSLATION ACCUMULATED
STOCK CAPITAL RECEIVABLE ADJUSTMENT DEFICIT TOTAL
Shares $ $ $ $ $ $
<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, 1997 32,074,204 32,073 27,004,713 (5,000) 2,265,200 (28,147,032) 1,149,954
=============== ============ ============= ============= ============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
6 MONTHS ENDED 6 months ended
JUNE 30, June 30,
1997 1996
$ $
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (9,053,261) (6,948,825)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 249,365 498,047
Equity in net losses of investment in joint
venture 137,514 -
Minority interest (81,281) (59,955)
Changes in assets and liabilities:
Decrease (Increase) in inventories 8,892 (1,447)
(Increase) in accounts receivable (2,842,572) (1,544,448)
Decrease (increase) in prepaid expenses 1,003,118 63,770
Decrease in accrued expenses and
accounts payable 487,015 1,096,621
Increase (decrease) in amounts due to minority
shareholders 20,000 (288,196)
------------------ -------------------
NET CASH USED IN OPERATIONS (10,071,210) (7,184,433)
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (22,010) (2,676,821)
Acquisition of intangible assets - (118,805)
Acquisition of investments - 34,805
Investment in joint venture (113,050) -
Acquisition of subsidiary undertakings, net of
cash acquired - -
------------------ -------------------
NET CASH USED IN INVESTING ACTIVITIES (135,060) (2,760,821)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares 10,146,472 6,971,673
Commission paid on issuance of shares (240,000) (160,000)
Loans taken out in the year - -
------------------ -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,906,472 6,811,673
------------------ -------------------
NET INCREASE / (DECREASE) IN CASH (299,798) (3,133,581)
Effect of exchange rate movements on cash 1,657,993 (71,720)
Cash at start of period 320,070 7,537,137
------------------ -------------------
CASH AT END OF PERIOD 1,678,265 4,331,836
================== ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITY:
Cash payments for interest 28,460 -
Cash paid for taxes 2,669 580
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
6
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in conformity with generally
accepted accounting principles in the United States of America.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Capital Media
Group Limited ("the Company") and its wholly owned subsidiaries Capital Media
(UK) Limited ("CM (UK)"), and Onyx Television GmbH ("Onyx") together with its
51% owned subsidiary Tinerama Investment AG ("Tinerama"), after the elimination
of all significant intercompany balances and transactions. The company's
investment in Blink TV Limited ("Blink"), a joint venture in which the company
holds a 50% interest, has been accounted for using the equity method.
INTERIM ADJUSTMENTS
The consolidated 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 for the
interim periods presented. The consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's 1996 Annual Report on Form 10-KSB. The results
of operations for the interim periods should not be considered indicative of
results expected for the full year.
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 amounts 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.
INTANGIBLE ASSETS
Intangible assets represent purchased broadcast licences, computer software and
goodwill arising on acquisition of subsidiary undertakings. The amounts in the
balance sheet are stated net of the related accumulated depreciation. Goodwill
is amortized over ten years. Broadcast licences and computer software are
amortized over their useful lives.
7
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
PROPERTY, PLANT AND EQUIPMENT
Property, plant 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:
Buildings 25 to 50 years
Fixtures, fittings and equipment 5 to 20 years
FOREIGN CURRENCY
Assets and liabilities of the Company's foreign subsidiaries in the United
Kingdom and Germany are translated at year end exchange rates and the results of
those subsidiaries 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.
Assets and liabilities of the Company's foreign subsidiary in Romania are
translated at historical exchange rates in accordance with the temporal method.
This is due to the hyper-inflationary situation in Romania.
INCOME TAXES
Full provision is made for all deferred tax liabilities. Deferred income tax
assets are recognized 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.
2. GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the audited financial
statements contained in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996, during the year ended December 31, 1996 and the period
from February 17, 1995 to December 31, 1995, the Company incurred net losses of
$16,262,104 and $2,831,667, respectively. Additionally, the Company's net loss
for the first six months of 1997 was $9,053,261, which includes a non-cash
accounting exchange rate translation loss of $2,140,952 arising from changes in
currency exchange rates since December 31, 1996. Further, at December 31, 1996
the Company had net current liabilities of $3,522,766 and its total liabilities
exceeded its total assets by $1,026,448. These factors among others may indicate
that the Company will be unable to continue as a going concern for a reasonable
period of time. See the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996, the Company's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1997 and the Company's Current Reports on Form 8-K dated
June 25, 1997 and July 11, 1997.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. As described in note 13, the Company's
continuation as a going concern is dependent upon its ability to obtain
additional financing or refinancing as may be required, and ultimately to attain
successful operations. Management is continuing its efforts to obtain additional
funds
8
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
so that the Company can meet its obligations and sustain operations from
sources that are described in note 13 to the financial statements.
3. INCOME TAXES
<TABLE>
<CAPTION>
The income tax provision consisted of the following:
6 MONTHS 6 MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1996
$ $
<S> <C> <C>
Current tax expense (2,669) (580)
============ ==========
Net operating loss carry forwards which give rise to deferred tax assets are as
follows:
JUNE 30, DECEMBER 31,
1997 1996
$ $
Unutilized tax losses 2,260,000 4,757,000
Valuation allowances (2,260,000) (4,757,000)
----------- ------------
Total deferred tax assets - -
============ ==========
</TABLE>
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.
Because the Company has not yet achieved profitability, it has not recognized
the benefit for these unutilized tax losses in the financial statements.
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
Property, plant and equipment consists of: 1997 1996
$ $
<S> <C> <C>
Buildings 191,550 191,550
Fixtures, fittings and equipment 1,760,711 1,817,170
--------- -------------
Total property, plant and equipment 1,952,261 2,008,720
Less accumulated depreciation (667,413) (533,436)
------------- -------------
1,284,848 1,475,284
============= =============
</TABLE>
9
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
5. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
$ $
<S> <C> <C>
Purchased broadcast licences 360,102 364,969
Computer software 116,034 113,371
Goodwill 568,969 588,017
------------ ------------
1,045,105 1,066,357
Less accumulated amortization (390,203) (262,536)
------------ ------------
654,902 803,821
============ ============
6. ACCOUNTS RECEIVABLE
JUNE 30, DECEMBER 31,
1997 1996
$ $
Accounts receivable comprise:
Trade receivables 230,432 139,059
VAT receivables 100,031 116,801
Other debtors receivable within one year 473,303 498,243
Other debtors receivable after one year 248,250 -
---------- ----------------
1,052,016 754,103
========== ==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
TRANSPONDER
A bank guarantee was originally provided to PTT Telecom on November 30, 1995 in
the amount of ECU 2,000,000 in relation to an agreement to lease transponder
capacity in order to broadcast a television channel in Germany. The guarantee
required as at June 30, 1997 stood at ECU 1,450,000 ($1,537,000 at June 30, 1997
exchange rates) and progressively reduces over the duration of the agreement.
The Company was not in a position to support the guarantee. As a result the
guarantee has been provided by Universal Independent Holdings Limited
("Universal") (see Note 13).
The Company is committed to paying ECU 4,021,000 ($4,262,000 at June 30, 1997
exchange rates) over the period July 1, 1997 to September 25, 1998 for use of
the transponder capacity under the terms of the agreement.
10
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
LEASE COMMITMENTS
In August 1995 the Company entered into an agreement to lease studio, post
production and editing facilities in Dortmund, Germany. Under the terms of the
agreement the Company was committed to paying DM 991,000 ($568,000 at June 30,
1997 exchange rates) per annum for the use of these facilities until February
1997. The Company is currently re-negotiating a five year lease to remain in the
facility on more beneficial terms, although there can be no assurance that this
will occur.
In January 1996 the Company entered into an agreement to lease master control
and broadcast equipment and editing facilities at Ingleheim Germany. Under the
terms of the agreement the Company is committed to paying DM 2,940,000
($1,687,000 at June 30, 1997 exchange rates) per annum for the use of the
equipment and facilities until January 2001. The lease can be terminated
effective December 1998.
In January 1996, the Company entered into an agreement to lease uplink capacity
until January 1999, at a cost of approximately (pound)245,000 ($408,000 at June
30, 1997 exchange rates) per annum.
The Company has also entered into leases for other office space in Germany and
the UK, expiring between 1997 and 2002 at an annualized cost of $231,000 (at
June 30, 1997 exchange rates).
TINERAMA
The shareholders' agreement between the Company and Telor International Limited
("Telor"), provides that if either party wants to transfer its ownership in
Tinerama, it must first offer such ownership interest to the other party. It
also provides that in the first four years commencing November 15, 1995, either
shareholder may force a sale or purchase of its shares at a price specified in
the notice given from one shareholder to the other.
8. LITIGATION
On May 9, 1996 Com TV Production und Vertrieb GmbH ("Com") and Nen TV ("Nen") in
relation to their litigation with the Company served Further and Better
Particulars of the Defense and Counterclaim, which provide details of matters
alleged in the Defense and Counterclaim. The most significant detail given is
that Com and Nen have quantified their estimated damages at DM3,325,438
($1,908,000 at June 30, 1997 exchange rates) based on a 5% share in profits over
a five year period.
The Company has filed a Reply and Defense to the Counterclaim and believes that
the Counterclaim is without merit and intends to vigorously contest the same.
In connection with the same matter, the Company commenced proceedings against
Mr. John Garman. A Defense and Counterclaim has been served on the Company.
Both actions have now been consolidated into one action and an Order for
Directions was made on March 13, 1997 which sets out the steps to be taken up to
and including the trial. Pursuant to the Order, discovery was concluded by May
2, 1997.
The Company believes that both counterclaims are without merit, however, there
can be no assurance as to the outcome of the claims.
11
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
9. TINERAMA
On June 26, 1997 Tinerama exercised the option available under the terms of the
original acquisition agreement to acquire up to a further 10% of the total
issued shares of each of its 51% owned Romanian subsidiary companies for a total
price of Lei 8,000,000 ($3,000 at June 30, 1997 exchange rates). Consequently,
these accounts have been prepared on the basis of Tinerama's existing 51%
shareholdings.
10. WARRANTS
The Company has the following warrants (all of which expire 36 months from the
date of their effective future registration) outstanding at June 30, 1997.
DESCRIPTION NUMBER
Warrants for common stock exercisable at $4.00 5,200,000
Warrants for common stock exercisable at $3.12 2,033,328
Warrants for common stock exercisable at $2.50 2,300,000
The warrants were issued in connection with a Private Placement Offering ("the
Offering") which took place in December 1995 and January 1996. Warrants to
purchase 4,200,000 and 1,000,000 shares of common stock at exercise prices of
$4.00 and $2.50 per share were issued to investors in the Offering; warrants to
purchase 1,000,000 and 433,328 shares of common stock at exercise prices of
$4.00 and $3.125 per share respectively were issued to the placement agent and
sub-distributors for the Offering; and warrants to purchase 1,600,000 and
1,300,000 shares of common stock at exercise prices of $3.125 and $2.50
respectively were issued to certain of the founding shareholders.
11. RE-DOMESTICATION
The Company intends to re-domesticate its legal status to Bermuda or another
non-U.S. jurisdiction as soon as reasonably practicable.
12. BLINK TV LIMITED
The Company has invested $541,000 (at June 30, 1997 exchange rates) in Blink
which is a joint venture arrangement with Mirror Group PLC ("Mirror"). Mirror
owns 50% of the share capital of Blink and has financed the purchase of
equipment for the use of Blink and provided working capital to Blink. The
Company and Mirror jointly control and manage Blink. The investment in Blink has
been accounted for in these financial statements by the equity method.
12
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
13. LIQUIDITY AND CAPITAL RESOURCES
The Company is currently using its cash reserves to fund its operations. Due to
the poorer than expected advertising revenues at Onyx and higher than planned
expenditures in connection with the launch and first year operation of Onyx, the
funds raised by the Company in late 1995 and early 1996 were expended earlier
than anticipated.
On January 13, 1997, the Company issued a Private Placement Memorandum offering
its securities to accredited investors including to all existing shareholders.
In the offering, the Company sold an aggregate of 12,000,000 shares of common
stock, $.001 par value per share, at a purchase price of $0.50 per share. On
March 3, 1997, the offering closed and the aggregate net proceeds to the Company
were approximately $5,850,000 after costs.
On June 25, 1997, the Company received subscriptions for $4 million in a Private
Placement offering of its securities to certain accredited investors. In the
offering, the Company agreed to issue an aggregate of 7,017,543 shares of common
stock, $.001 par value per share, at a purchase price of $0.57 per share. On
June 30, 1997, $1,500,000 of the proceeds of the subscription was received and
the balance of $2,500,000 was released to the Company from escrow on July 31,
1997 in connection with the completion of the Unimedia share exchange. See Note
15 to Notes to Consolidated Financial Statements below and Part II, Item 5,
"Other Information -- Completion of the Private Placement."
To continue to fund its operations, the Company will need to raise significant
additional capital. At present the Company is considering various options to
raise additional funding for its capital resources, including potential direct
investments by third parties into Onyx or sales of certain of the Company's
investments, including Onyx Television. However, other than as set forth herein,
no arrangements have been entered into to date. There can be no assurance that
additional working capital will be available on terms acceptable to the Company.
The failure to obtain the additional funding required will almost certainly have
a material and adverse impact on the Company's operations and financial
position.
On October 31, 1996, CM (UK) entered into an agreement to borrow up to $2.0
million from Instar Holdings, Inc. ("Instar") to fund working capital
requirements ("the Instar loan"). The loan was originally due for repayment on
December 31, 1996, or such earlier date as the Company raises additional funds
to repay the loan. The loan is guaranteed by the Company and Onyx, and is
secured by a charge on substantially all of the Company's assets. Interest is
payable monthly on the loan, at the rate of 2% above Lloyds Bank's base rate.
The terms of the Instar Loan were amended on July 31, 1997 to provide that:
(i) the principal repayment date is now January 20, 1998, or if earlier,
the date on which the Company makes a private placement of its
securities (other than referred to in note 14 below) in an amount equal
to or greater than the amount outstanding under the loan; and
(ii) the loan is now convertible, at the option of each holder of a portion
of the loan, into fully paid shares of common stock at a conversion
rate of one share of common stock for each $ 0.50 principal amount of
the loan or fully paid shares of preferred stock on the same basis. See
Part II, Item 5, "Other Information - Modification of the Instar Loan."
On October 31, 1996, CM (UK) entered into a deed of counter-indemnity ("Deed")
with Universal, a BVI corporation. The Deed secures the obligation of CM (UK) to
repay Universal if Universal is called upon to make payment on its transponder
guarantee. (See note 7 to Notes to Consolidated Financial Statements.)
13
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
CM (UK)'s obligations under the Deed are guaranteed by the Company and Onyx, and
are secured by a charge on substantially all of the Company's assets.
Instar and Universal have agreed that their liens on the Company's assets shall
rank pari-passu.
14. RELATED PARTY TRANSACTIONS
INSTAR HOLDINGS, INC
Karl Hauptmann, James Leitner and Barry Townsley have interests of $200,000,
$500,000 and $300,000 respectively in the $2.0 million loan provided by Instar
and referred to in Note 13. Messrs. Hauptmann, Leitner and Townsley were
directors of the Company when the Instar loan was made. Mr. Townsley resigned
from the Board in January 1997 and Messrs. Hauptmann and Leitner resigned from
the Board in August 1997.
TELOR INTERNATIONAL LIMITED
Telor owns 49% of Tinerama and had an amount of $411,600 owing from that company
at March 31, 1997. Mr Hauptmann is a principal of Telor.
TOWNSLEY & CO.
Mr. Townsley is Managing Director of Townsley & Co., a UK brokerage firm. which
participated in the private placement in winter 1995/96, receiving direct
commissions of $210,000, 86,665 shares of common stock and warrants to purchase
86,665 shares and 218,750 shares of common stock at $3.125 and $4.00
respectively.
INTERNATIONAL CAPITAL GROWTH, LTD
The predecessor of International Capital Growth, Ltd ("ICG") was the placement
agent in connection with the winter 1995/96 private placement, for which it
received direct commissions and expense allowances of an aggregate of
$1,339,000, 346,663 shares of common stock and warrants to purchase 346,663 and
781,250 shares of common stock at $3.125 and $4.00, respectively. Mr. Hollander,
a director of the company, is Senior Vice-President and a director of ICG.
In April 1997, the Company issued 93,333 shares of Common Stock to ICG for
services.
KESTREL SA
Kestrel SA ("Kestrel"), a Switzerland based investment firm, holds shares of
common stock and warrants in the Company for the benefit of multiple owners.
Clients of Kestrel control Universal which has arranged for the transponder
guarantee referred to in note 7.
15. SUBSEQUENT EVENTS
On July 31, 1997, the Company acquired 50.3% of the outstanding common stock of
Unimedia, S.A. ("Unimedia") in exchange for 4,333,000 shares of the Company's
authorized but unissued common stock. Shareholders of Unimedia who did not
participate in the first closing of the Unimedia share exchange may exchange
their Unimedia shares for shares of the Company's common stock on or before
September 5, 1997. It is anticipated that on or about that date, the holders of
an additional 31.3% of Unimedia's common stock will exchange their Unimedia
shares for an additional 2,694,000 shares of the Company's authorized but
unissued common stock, at which time the Company will own 81.6% of Unimedia's
outstanding common stock.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FINANCIAL INFORMATION INCLUDED HEREIN SHOULD BE READ IN CONJUNCTION
WITH THE CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
INCLUDED ELSEWHERE IN THIS FORM 10-QSB. CERTAIN OF THE DATA CONTAINED HEREIN
INCLUDES FORWARD LOOKING INFORMATION AND RESULTS COULD DIFFER FROM THAT SET
FORTH BELOW. THIS DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
INFORMATION CONTAINED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR
ENDED DECEMBER 31, 1996 (THE "FORM 10-KSB").
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE AND SIX
MONTHS ENDED JUNE 30, 1996
Operating revenues for the three and six months ended June 30, 1997
were $467,695 and $874,733, respectively, a decrease of $13,952 and $85,072
compared to operating revenues of $481,647 and $959,805 for the three and six
months ended June 30, 1996. The decline in operating revenues from period to
period was attributable to a decline in revenue at Tinerama.
Advertising sales by Onyx Television during the three and six months
ended June 30, 1997 increased slightly compared to the same quarter in 1996. The
Company is continuing to take steps to develop Onyx Television's advertising
revenue. In that regard, the Company has engaged the services of three
experienced sales agents who, working with Onyx Television's new managing
director, are developing a new marketing and sales strategy for Onyx. The
Company hopes that over the next few months, Onyx Television's advertising
revenues will increase, although there can be no assurance that this will, in
fact, occur. At the present time, Onyx Television reaches approximately 9.3
million cable and satellite homes in Germany.
During the three and six months ended June 30, 1997, each of the
Tinerama companies continued to operate at a small loss. The combined loss of
the Tinerama companies increased from $45,000 and $68,000 for the first quarter
and six months of 1996, respectively, to $54,000 and $117,000 for the second
quarter and six months of 1997, respectively.
Operating costs, including depreciation and amortization were $4.8
million and $9.8 million, for the second quarter and six months of 1997,
respectively, and included non-cash accounting exchange translation losses of
$0.8 million and $2.1 million, respectively, arising from changes in currency
exchange rates since December 31, 1996. Excluding these non-cash accounting
exchange losses, operating costs for the three months ended June 30, 1997
decreased by $506,450 and operating costs of the six months ended June 30, 1997
increased by $884,596 as compared to operating expenses for the three and six
months ended June 30, 1996. The decrease is principally reflective of the cost
reduction measures taken during the second quarter of 1997 across all the group
operations. Operating expenses of Onyx Television include programming costs,
broadcast studio expenses, transmission expenses and general and administrative
expenses.
Depreciation and amortization for the three and six months ended June
30, 1997 were $127,132 and $249,365, a decrease of $126,823 of $204,578,
respectively, compared to $253,955 and $453,943 for the three and six months
ended June 30, 1996. This decrease was due primarily to a reversal of an
equipment purchase arrangement into an operating lease agreement.
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The Company's operating loss was $4.3 million and $8.9 million,
respectively, for the three and six months ended June 30, 1997, compared to
operating losses of $4.2 million and $7.1 million, respectively, for the three
and six month periods ended June 30, 1996. The net loss for the 1997 three and
six-month periods was $4.4 million ($.30 per share) and $9.1 million ($.48 per
share), respectively, compared to a net loss of $4.0 million ($.32 per share)
and $6.9 million ($.58 per share), respectively, for the comparable 1996
periods. Weighted average shares outstanding were 18,859,995 for the three and
six months ended June 30, 1997, compared to 12,663,328 for the three months
ended June 30, 1996 and 12,054,730 for the six months ended June 30, 1996.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The ownership, development and operation of media interests, including
television and radio stations, television production facilities and publishing,
requires substantial capital investment. To date, the Company has financed its
capital requirements through sales of its equity securities and through debt
financing. Since inception through June 30, 1997, the Company has incurred an
accumulated deficit of approximately $28.1 million, principally related to the
Company's launch and operation of Onyx Television.
In February 1996, the Company completed a private placement of its
securities (the "First Private Placement"). The Company received net proceeds of
approximately $14.4 million in the First Private Placement. These funds, along
with capital infusions to the Company from its founding shareholders in the
amount of $3.0 million, were primarily utilized to fund the startup, launch and
first year of operation of Onyx Television, and for general corporate purposes.
In October 1996, the Company's UK subsidiary, CM (UK), entered into an
agreement to borrow up to US $2.0 million ("Convertible Debt") from Instar
Holdings, Inc. ("Instar") to fund the Company's working capital requirements
(principally related to the continuing operation of Onyx Television). The
Convertible Debt is guaranteed by the Company and Onyx and is secured by a
charge on substantially all of the Company's assets. Interest is payable monthly
on the Convertible Debt, at the rate of 2% above Lloyd Bank's base rate.
The Convertible Debt was originally due on December 31, 1996. In January
1997, the Convertible Debt was amended to provide that (i) the principal
repayment date was to be June 1, 1997, or if earlier, the date on which the
Company makes a private placement of its securities (other than the private
placement completed on March 3, 1997) in an amount equal to or greater than the
amount outstanding under the Convertible Debt, and (ii) the Convertible Debt is
convertible, at the option of the holder(s) thereof, into fully paid shares of
Common Stock at a conversion rate of one share of Common Stock for each US $.50
principal amount of the Convertible Debt. See "Certain Transactions." On July
31, 1997, the Convertible Debt was amended to, among other things, extend the
principal repayment date to January 20, 1998. See Part II, Item 5, "OTHER
INFORMATION-MODIFICATIONS TO THE INSTAR LOAN."
CM (UK) and the Company have also granted a charge against
substantially all of their assets to secure their obligations in connection with
the guaranty of the transponder lease. See Note 7 of Notes to Consolidated
Financial Statements with respect to the guaranty of the transponder lease by
Universal Independent Holdings Limited, a BVI corporation ("Universal"). CM (UK)
under its transponder lease, was required to provide a guaranty to PTT Telecom
of its obligations under the lease. Universal agreed to provide such guaranty,
but required, among other things, (i) that CM (UK) enter into, in favor of
Universal, a deed of counter-indemnity ("Deed") to secure the obligation of CM
(UK) to repay Universal if Universal is called upon to make payment on its
transponder guaranty, (ii) that the Company and Onyx guarantee the obligations
of CM (UK) under the Deed, and (iii) that the Company pledge substantially all
of its assets to secure its obligations in connection therewith. Instar and
Universal have agreed that their liens on the Company's assets shall rank pari
passu. If the Company were to default under either or both of such guaranties
and Instar and/or Universal were to foreclose on the pledge of the Company's
assets, it would likely have a significant and adverse impact on the Company's
financial position, and could result in the Company's loss of its operating
assets.
On March 3, 1997, the Company closed a second private placement in which
it raised net proceeds of $5.85 million, which is being used to fund the
continuing operation of Onyx Television and for general corporate purposes. The
Company issued an aggregate of 12.0 million shares of its common stock in this
private placement.
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On June 25, 1997, the Company received subscriptions for $4 million in a
Private Placement offering of its securities to certain accredited investors. In
the offering, the Company agreed to issue an aggregate of 7,017,543 shares of
common stock, $.001 par value per share, at a purchase price of $0.57 per share.
On June 30, 1997, $1,500,000 of the proceeds of the subscription was received
and the balance of $2,500,000 was released to the Company from escrow on July
31, 1997.
On July 31, 1997, the Company acquired 50.3% of the outstanding common
stock of Unimedia, S.A. in exchange for 4,333,000 shares of the Company's
authorized but unissued common stock. Shareholders of Unimedia who did not
participate in the first closing of the Unimedia share exchange may exchange
their Unimedia shares for shares of the Company's common stock on or before
September 5, 1997. It is anticipated that on or about that date, the holders of
an additional 31.3% of Unimedia's common stock will exchange their Unimedia
shares for an additional 2,694,000 shares of the Company's authorized but
unissued common stock, at which time the Company will own 81.6% of Unimedia's
outstanding common stock. At the time of the closing, Unimedia owned
approximately 4.0 million shares of the Company's common stock.
At the present time, the Company expects that Unimedia's current cash
flow requirements will be approximately $125,000 per month for the next several
months and will be met primarily from Unimedia's existing resources. The Company
anticipates that, in the future, the operations of Unimedia's business will
require additional capital for, among other things, the developement of a
software platform for gambling on the Internet.
With respect to Onyx Television, the Company requires additional funds
for working capital needs of approximately U.S. $1.0 million per month to
continue its operations. The Company believes that its current resources should
allow the Company to continue Onyx Television's operation until at least the end
of October 1997.
To meet its short and long term capital requirements, the Company is
presently seeking additional capital. In that regard, the Company intends to
engage in discussions regarding the possibility of obtaining additional equity
investments through additional sales of its equity securities and/or loans to
satisfy its short and long-term financing needs and regarding the possibility of
entering into strategic alliances with key industry participants that would
allow Onyx Television greater access to markets and resources.
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Alternatively, the Company may consider selling all or a substantial portion of
its Onyx Television operation to a third party. No definitive agreements have
been entered into to date.
There can be no assurance that the capital or other acceptable
arrangements required to continue the operations of Onyx Television beyond the
end of October 1997 and to fund Unimedia's future business activities will be
obtained. The Company's failure to raise sufficient funds to repay the
Convertible Debt, or the Company's being called on the transponder guaranty, or
the Company's failure to obtain sufficient working capital for its operations,
will likely have a significant and adverse impact on the Company's financial
position, and could result in the Company's losing its operating assets.
The Company's independent auditors included an explanatory paragraph in
their audit report in the Company's Report on Form 10-KSB for the fiscal year
ended December 31, 1996 stating that the financial statements were prepared
assuming the Company would be able to continue as a going concern and that as a
result of the Company's lack of working capital and losses since inception,
there was a substantial doubt as to the Company's ability to continue as a going
concern. The Company's failure to obtain additional capital or other acceptable
arrangements to continue the business of the Company will have a material and
adverse effect on the Company.
To the extent that the Company finances its activities through the
issuance of additional equity securities, any such issuance would result in
dilution to the interests of the Company's shareholders. Additionally, to the
extent that the Company incurs indebtedness or issues debt securities in
connection with financing activities, the Company will be subject to all of the
risks associated with incurring substantial indebtedness, including risks
associated with pledging assets of the Company and the risks that interest rates
may fluctuate and cash flow may be insufficient to pay principal and interest on
any such indebtedness.
The Company maintains its financial statements in dollars and holds the
majority of its funds in United States dollars, pounds sterling and German
Deutsche marks. Amounts paid to the Company are payable in various currencies,
which are subject to independent fluctuating exchange rates with the U.S.
dollar, the pound and the Deutsche Mark. In the event of a devaluation in a
particular currency between the time its income arises and the time such income
is received and converted by the Company into U.S. dollars, the Company would
suffer an exchange loss which could materially and adversely affect the
Company's financial condition, results of operations and/or cash flows. The
Company does not hedge against foreign currency exchange rate risks. Because of
the number of currencies involved, the constantly changing currency exposures
and the fact that all foreign currencies do not fluctuate in the same manner
against the United States dollar, the Company cannot predict with any certainty
the future effect, if any, from period to period, of exchange rate fluctuations
on its financial condition or results of operations.
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PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in several lawsuits all relating to the
relationship between CM (UK) and John Garman. For information regarding the
current status of these suits, see Item 3 of the Company's Annual Report on Form
10-KSB.
ITEM 2. CHANGE IN SECURITIES
See Note 10 to the Notes to the Company's Unaudited Financial
Statements included herewith and Item 5 below.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the quarter covered by this report.
ITEM 5. OTHER INFORMATION
The Company is reporting a number of material transactions in its Form
10-QSB which were completed on July 31, 1997 (in lieu of filing a Current Report
on Form 8-K with respect to such items).
CONSUMMATION OF THE UNIMEDIA SHARE EXCHANGE
On July 31, 1997, the Company consummated the acquisition of 6,190
shares of the outstanding common stock of Unimedia, S.A., a company organized
under the laws of France ("Unimedia"), from certain of Unimedia's securities
holders (the "Unimedia Exchange"), representing 50.3% of the outstanding common
shares of Unimedia, in exchange for 4,333,000 shares of the Company's authorized
but unissued Common Stock, pursuant to that certain Agreement and Plan of
Reorganization (as amended, the "Agreement"), dated effective as of March 4,
1997, with Unimedia and certain of its securities holders, as amended by
Amendment No. 1 effective June 25, 1997 (the "First Amendment"), Amendment No. 2
effective July 11, 1997 (the "Second Amendment") and Amendment No. 3 effective
July 18, 1997 (the "Third Amendment"). Copies of the Agreement, as well as
Amendments 1, 2 and 3 thereto were previously filed by the Company as exhibits
to the Company's Quarterly Report on Form 10-QSB for the first quarter of 1997
and the Company's Current Reports on Form 8-K dated June 25, 1997 and July 11,
1997.
In connection with the Unimedia Exchange, the Board of Directors of the
Company received an opinion from Gruntal & Co., Incorporated, an independent
investment banking firm engaged by the Company, that the Unimedia Exchange was
fair to the stockholders of the Company from a financial point of view.
Shareholders of Unimedia that did not participate in the first closing
of the Unimedia Exchange have until September 5, 1997 to participate. After
September 5, 1997, the Company will
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be under no obligation to continue to complete the Unimedia Exchange on the
terms set forth in the Agreement with the Unimedia shareholders who have not
exchanged their Unimedia shares on or before such date. It is anticipated that
at least an additional 31.3% of Unimedia's outstanding common shares will be
exchanged for a further issuance of 2,694,000 shares of the Company's common
stock, which will increase the Company's ownership of Unimedia's outstanding
common stock to at least 81.6%.
Effective upon the consummation of the Unimedia Exchange, the Company
entered into an Indemnification Agreement with each of Gilles Assouline and
Michel Assouline pursuant to which the Company agreed to indemnify each of them
for liabilities arising out of material misstatements made by the Company in its
reports previously filed with the Securities and Exchange Commission, if any.
COMPLETION OF THE PRIVATE PLACEMENT
Simultaneously with the closing of the Unimedia Exchange on July 31,
1997, $2,350,000 in net proceeds from a private placement to certain investors
associated with Unimedia was released to the Company from escrow. These funds
had been held in escrow pending the closing of the Unimedia Exchange and
represented the final receipts from the Company's $4.0 million private placement
which was completed on June 25, 1997. In the private placement, the Company
issued an aggregate of 7,017,543 shares of its authorized but unissued common
stock.
BRIEF DESCRIPTION OF UNIMEDIA'S BUSINESS
Unimedia is engaged in research, development and marketing activities
of computer software for providing, via multimedia vehicles such as the
Internet, new on-line services to business users and leisure consumers. In
particular, Unimedia has focused its efforts on seeking to develop interactive
software that allows users to work, shop, communicate, educate, gamble and amuse
themselves on the Internet. In that regard, the Company anticipates that these
efforts over the next few months will be focused on developing a software
platform for Internet gambling and on seeking to enter into strategic
relationships to further this proposed business.
In addition, Unimedia owns minority equity business positions
in several companies having Internet technologies and applications and has
entered into agreements to act as a distributor for certain computer software
applications. The Company expects 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 on ventures in which the
Company controls the technology being developed.
CHANGES TO THE COMPANY'S MANAGEMENT
At a meeting of the Board of Directors held on August 1, 1997, and
pursuant to the terms of the Agreement, the Company increased the number of
members constituting the Board from eight to 12 members and appointed Messrs.
Gilles Assouline, the Chief Executive Officer of Unimedia, Michel Assouline, an
executive officer of Unimedia, Jean-Pierre Souviron, a director of Unimedia and
and David Ho to fill the vacancies. Gilles Assouline, Michel Assouline,
Jean-Pierre Souviron and David Ho and/or their respective affiliates, through
their exchange of Unimedia shares in the Unimedia Exchange and/or in the private
placement referred to above, acquired direct or indirect beneficial ownership in
the following shares of the Company's outstanding common stock: (i) Messrs.
Gilles and Michel Assouline, acquired (or will acquire in the
second closing of the Unimedia Exchange) beneficial ownership over approximately
3.5 million outstanding shares, (ii) Mr. Souviron acquired beneficial ownership
over approximately 140,000 shares, and (iii) Mr. Ho acquired beneficial
ownership over approximately 4.385 million shares, respectively.
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On August 1, 1997, the newly constituted Board of Directors elected
Gilles Assouline as the Chairman, President and Chief Executive Officer and
Michel Assouline as Vice President and Chief Operating Officer of the Company.
Gilles Assouline and Michel Assouline founded Unimedia in July 1995.
Prior thereto, Gilles Assouline has been managing director of several
consulting, software and media companies after having been in charge of
corporate strategic planning for two divisions of the French oil company Elf
Aquitaine. Michel Assouline was employed by Thomson-CSF in various executive
capacities, including the responsibility for business development at the
corporate level. Neither Gilles Assouline nor Michel Assouline were involved in
the operations of the Company (except in respect of Unimedia) prior to their
respective appointments to their current positions with the Company by the Board
of Directors.
Jean-Pierre Souviron has had an outstanding career both in French
industry and in various government positions. At various times, he held
positions as Technical Counsel to the Minister of Industry, Deputy Director for
the Minister of Foreign Affairs and Director of Industrial and International
Affairs at the Direction Generale des Telecommunications. He was, between 1978
and 1981, General Director of Industry for the French Ministry. Mr. Souviron has
previously held positions as Chairman of DB Morgan Grenfell France S.A. He is
presently the chairman and chief executive officer of a telephone company in
France that he founded. Mr. Souviron is also a member of the Board of Directors
of Cerus, Valeo and Olivetti, France.
David Ho is the founder of Caltex South China Investments Limited and
holds the position of Executive Vice Chairman of this petroleum firm, where he
has been employed for more than the last five years. Mr. Ho, through a private
venture capital fund, also has interests in other Asia Pacific companies with
extensive interests in manufacturing, leisure, construction, meat processing and
real estate.
In connection with the above-described changes which were made to the
Company's senior management, Stephen Kornfeld, who had been Co-Chairman of the
Company, became an executive consultant to Mr. Assouline as the President and
Chief Executive Officer of the Company. Mr. Kornfeld remains on the Board of
Directors.
On August 6, 1997, Mr. Charles Koppel, who had previously served as the
Co-Chairman, President and Chief Executive Officer, resigned his position as an
officer and director of the Company and its subsidiaries. Subsequently, on
August 11, 1997 and August 12, 1997, respectively, Messrs. Karl Hauptmann and
James Leitner resigned their positions as a director of the Company. No
additional directors have as yet been appointed to fill the vacancies created by
such resignations.
MODIFICATIONS TO THE INSTAR LOAN
As previously reported, the Company presently has outstanding a $2.0
million loan from Instar Holdings Inc. ("Instar"), which is convertible into up
to 4.0 million shares of the Company's authorized but unissued Common Stock at
the option of the holders thereof (the "Instar Loan"). For a description of the
Instar Loan, see "Management's Discussion and Analysis or Plan of Operation,"
and Note 13 to Notes to Consolidated Financial Statements in the Company's
Quarterly Report on Form 10-QSB for the period ended March 31, 1997.
On July 31, 1997, the Company and Instar entered into a letter of
variation and amendment pursuant to which the principal repayment date of the
Instar Loan was extended from its current due date of December 31, 1997 (or such
earlier date as the Company completes a public or private offering of its
securities) to January 20, 1998 (or such earlier date as the Company completes a
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public or private offering of its securities); provided, however, it shall be an
event of default under the Instar Loan if Stockholder Approval (hereinafter
defined) is not obtained on or prior to December 1, 1997.
Because the Company does not at present have available sufficient
authorized but unissued shares of its common stock to reserve for issuance upon
the exercise by Instar of its conversion right, the Company has created a series
of convertible Preferred Stock from its authorized but unissued Preferred Stock
which may be issued to Instar (and two present and one former member of the
Company's Board of Directors that are holders of the Company's outstanding
warrants) in the event that an increase in the number of authorized shares of
common stock has not been approved by the shareholders of the Company at a time
when Instar (or such persons)desires to convert the Instar Loan (and/or such
warrants) to common stock. To provide sufficient Preferred Stock to permit this
exercise, on July 28, 1997, the Board of Directors of the Company adopted
resolutions providing for the designation of 5,000,000 shares of Series A
Preferred Stock (the " Series A Preferred Stock") which rank senior to the
common stock of the Company and have a preference in that it shall receive its
ratable portion of any liquidating distribution or dividend before any such
amounts shall be paid to the holders of common stock. Except as otherwise
provided in the Certificate of Designations, Preferences and Rights of Series A
Preferred Stock (the "Certificate of Designations") or by law, each holder of
Series A Preferred Stock shall be entitled to one vote on each matter which is
brought up for a vote by the holders of the common stock. The holders of Series
A Preferred Stock will vote as a single class with the holders of the common
stock on all matters brought to a vote by the holders of the outstanding common
stock. Except as required by law, the Series A Preferred Stock will not vote as
a separate class.
The Series A Preferred Stock is convertible into common stock of the
Company as follows:
If issued and outstanding at the time, each share of Series A
Preferred Stock shall be automatically converted, without any
further action by the Corporation, the holders of the Series A
Preferred Stock, the Board of Directors of the Corporation, or
any other person, into fully-paid and non-assessable shares of
Common Stock at the rate of one (1) share of Common Stock for
each share of outstanding Series A Preferred Stock outstanding
(as may be adjusted, the "Series A Conversion Rate") upon the
approval by the holders of Common Stock (the "Stockholder
Approval"),without regard to the vote of the holders of Series
A Preferred Stock, of an amendment to the Corporation's
Articles of Incorporation increasing the number of authorized
shares of Common Stock of the Corporation by at least that
number of shares of Common Stock into which outstanding shares
of Series A Preferred Stock is then convertible and, in such
event, until certificates representing Series A Preferred
Stock are duly surrendered by holders thereof in exchange for
Common Stock, (A) such certificates shall be deemed to
represent only the equivalent number of shares of Common Stock
and rights appurtenant thereto into which such shares of
Series A Preferred Stock have been automatically converted,
and (B) no Series A Preferred Stock shall continue to be
outstanding for any purpose.
The Series A Conversion Rate is subject to customary
adjustments from time to time.
The Instar Amendment provides that in the event that Stockholder
Approval has not been obtained, Instar shall have the right at any time by
notice in writing to the Company to convert the
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Instar Loan (including principal and interest) to shares of Series A Preferred
Stock at the rate of $0.50 per share; provided, however, if Stockholder Approval
is obtained following such conversion, then the shares of Series A Preferred
Stock then issued shall immediately and automatically convert into shares of
common stock on a one-for-one basis in accordance with the terms and conditions
set forth in the Certificate of Designations. If, on the other hand, Instar has
not converted the Instar Loan prior to Stockholder Approval and thereafter
Stockholder Approval is obtained, Instar will have the right to convert the
Instar Loan into shares of common stock at the rate of $0.50 per share (as may
be adjusted in accordance with the terms of the Instar Loan).
The Company has committed to use its best good faith efforts to cause a
meeting of the stockholders of the Company to be held on or prior to December 1,
1997 for the purpose of obtaining, among other things, Stockholder Approval.
The Instar Amendment grants to Instar the same rights of registration
with respect to the shares into which the Instar Loan is converted (common or
preferred, as applicable) as were granted to the shareholders of Unimedia in the
Agreement and obligates the Company to include such shares in the first
registration statement filed by the Company in respect of any of its outstanding
shares.
The descriptions contained herein of the Indemnification Agreement, the
Instar Amendment and the Certificate of Designations and the transactions
contemplated thereunder are qualified in their entirety by reference to the
foregoing which are attached hereto as Exhibits 10.1, 10.2 and 4.1,
respectively, and which are incorporated herein by this reference.
The financial statements and pro forma financial information required by
Item 7 of Form 8-K will be filed by the filing of a Current Report on Form 8-K
not later than September 28, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4.1 Certificate of Designations, Preferences and Rights of
Series A Preferred Stock.
10.1 Form of Idemnification Agreement dated July 31, 1997, by and
between the Company and Gilles Assouline and Michel Assouline.
10.2 Letter of Variation and Amendment dated July 31, 1997, by and
between the Company and Instar Holdings, Inc.
27. Financial Data Schedule.
(b) Reports on Form 8-K
(i) A Current Report on Form 8-K dated June 25, 1997
relating to (x) Amendment No. 1 to the Agreement and
Plan of Reorganization by and among the Company,
Unimedia, S.A. and certain of its security holders
and (y) extension of the maturity date of the loan
from Instar Holdings Inc. to the Company, was filed
July 7, 1997.
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 18th day of August, 1997.
CAPITAL MEDIA GROUP LIMITED
By: /s/ GILLES ASSOULINE
--------------------------------------
Gilles Assouline, Chairman, President and
Chief Executive Officer
By: /s/ STEPHEN COLEMAN
---------------------------------------
Stephen Coleman, Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Certificate of Designations, Preferences and Rights of Series
A Preferred Stock.
10.1 Form of Idemnification Agreement dated July 31, 1997, by and
between the Company and Gilles Assouline and Michel Assouline.
10.2 Letter of Variation and Amendment dated July 31, 1997, by and
between the Company and Instar Holdings, Inc.
27 Financial Data Schedule.
EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF
SERIES A PREFERRED STOCK
OF
CAPITAL MEDIA GROUP LIMITED
CAPITAL MEDIA GROUP LIMITED, a corporation organized and existing under
the General Corporation Law of the State of Nevada,
DOES HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors
by the Articles of Incorporation (as amended) of said corporation, and pursuant
to the provisions of Section 78.1955 of the General Corporation Law of the State
of Nevada, said Board of Directors, pursuant to a meeting duly held on July 28,
1997, adopted resolutions providing for the issuance of Five Million (5,000,000)
shares of "Series A Preferred Stock", which resolutions are as follows:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of the Articles of
Incorporation and Section 78.1955 of the General Corporation Law of Nevada, a
series of Preferred Stock of the Company be and hereby is created, and the
designation and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof, are as follows:
1. DESIGNATION AND AMOUNT. Of the 5,000,000 shares of Preferred
Stock, $.001 par value per share, authorized by ARTICLE IV of
the Articles of Incorporation, there is hereby designated a
series of Preferred Stock consisting of 5,000,000 shares to be
designated "Series A Preferred Stock" (the "Series A Preferred
Stock").
2. RANKING. The Series A Preferred Stock shall rank senior to the
Common Stock.
3. VOTING RIGHTS. Except as otherwise provided herein or by law,
each holder of Series A Preferred Stock shall be entitled to
one vote on each matter which is brought up for a vote by the
holders of the Common Stock. The Series A Preferred Stock will
vote as a single class with the holders of the Common Stock on
all matters brought to a vote by the holders of the
outstanding Common Stock. Except as required by law, the
Series A Preferred Stock will not vote as a separate class.
<PAGE>
4. OTHER RIGHTS, PREFERENCES AND LIMITATIONS. In all other
respects, except as set forth below, each share of the Series
A Preferred Stock shall have the same rights and preferences
as each share of Common Stock including, without limitation,
upon liquidation, dissolution or winding up of the affairs of
the Company and with respect to dividends; provided, however,
that the Series A Preferred Stock shall have a preference in
that it shall receive its ratable portion of any liquidating
distribution or dividend before any such amounts shall be paid
to the holders of the Common Stock.
5. CONVERSION OF SERIES A PREFERRED STOCK.
a. If issued and outstanding at the time, each share of
Series A Preferred Stock shall be automatically
converted, without any further action by the
Corporation, the holders of the Series A Preferred
Stock, the Board of Directors of the Corporation, or
any other person, into fully-paid and non-assessable
shares of Common Stock at the rate of one (1) share
of Common Stock for each share of outstanding Series
A Preferred Stock outstanding (as may be adjusted,
the "Series A Conversion Rate") upon the approval by
the holders of Common Stock (the "Stockholder
Approval"),without regard to the vote of the holders
of Series A Preferred Stock, of an amendment to the
Corporation's Articles of Incorporation increasing
the number of authorized shares of Common Stock of
the Corporation by at least that number of shares of
Common Stock into which outstanding shares of Series
A Preferred Stock is then convertible (the
"Conversion Date") and, in such event, until
certificates representing Series A Preferred Stock
are duly surrendered by holders thereof in exchange
for Common Stock, (A) such certificates shall be
deemed to represent only the equivalent number of
shares of Common Stock and rights appurtenant thereto
into which such shares of Series A Preferred Stock
have been automatically converted, and (B) no Series
A Preferred Stock shall continue to be outstanding
for any purpose.
The Series A Conversion Rate shall be subject to
adjustment from time to time in certain instances as
hereinafter provided. Each adjustment of the Series A
Conversion Rate shall be rounded to the nearest four
decimal places. The Series A Conversion Rate shall be
subject to adjustment from time to time as follows:
(i) If the Corporation shall at any time pay
a dividend or distribution on Common Stock
in Common Stock, subdivide its outstanding
shares of Common Stock into a larger number
of shares, or combine its outstanding shares
of Common Stock into a smaller number of
shares, the Series A Conversion Rate in
effect immediately prior thereto shall be
adjusted so that each share of Series A
Preferred Stock shall thereafter be
convertible into the number of shares of
Common Stock which the holder of a share of
Series A Preferred Stock would have been
entitled to receive after the happening of
any of the events described above had such
share
2
<PAGE>
been converted immediately prior to the
happening of such event. An adjustment made
pursuant to this subparagraph shall become
effective retroactively to the record date
in the case of a dividend and shall become
effective on the effective date in the case
of subdivision or combination.
(ii) If the Corporation shall distribute to
all or substantially all holders of shares
of Common Stock any rights to subscribe for
Common Stock, then in each such case the
number of shares of Common Stock into which
each share of Series A Preferred Stock shall
thereafter be convertible shall be
determined by multiplying the number of
shares of Common Stock into which each share
of Series A Preferred Stock was theretofore
convertible on the day immediately preceding
the record date for the determination of the
stockholders entitled to receive such
distribution by a fraction, the numerator of
which shall be the average market price per
share of the Common Stock on such record
date, and the denominator of which shall be
such average market price per share less the
then fair market value (as determined in a
resolution adopted by the Board of Directors
of the Corporation) of such subscription
rights applicable to one share of Common
Stock. Such adjustment shall become
effective retroactively immediately after
such record date.
(iii) In case of any capital reorganization
or any reclassification of the capital stock
of the Corporation or in case of the
consolidation or merger of the Corporation
with another corporation or in the case of
any sale or conveyance of all or
substantially all of the property of the
Corporation, each share of Series A
Preferred Stock shall thereafter be
convertible into the number of shares of
stock or other securities or property
(including cash) receivable upon such
capital reorganization, reclassification of
capital stock, consolidation, merger, sale
or conveyance, as the case may be, by a
holder of the number of shares of Common
Stock into which such share of Series A
Preferred Stock was convertible immediately
prior to such capital reorganization,
reclassification of capital stock,
consolidation, merger, sale or conveyance;
and, in any case, appropriate adjustment (as
determined by the Board of Directors) shall
be made in the application of the provisions
herein set forth with respect to rights and
interests thereafter of the holders of
Series A Preferred Stock to the end that the
provisions set forth herein (including the
specified changes in and other adjustments
of the Series A Conversion Rate) shall
thereafter be applicable, as nearly as may
be reasonably possible, in relation to any
shares of capital
3
<PAGE>
stock or other securities or other property
thereafter deliverable upon the conversion
into Common Stock of the Series A Preferred
Stock.
b. The Corporation shall, upon Stockholder Approval and
the filing of the appropriate Articles of Amendment
formalizing the increase in the number of authorized
shares of Common Stock, reserve and keep available
out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of
the Series A Preferred Stock as provided herein, such
number of shares as shall from time to time be
sufficient to effect the conversions of all shares of
Series A Preferred Stock from time to time
outstanding.
c. Upon the conversion of Series A Preferred Stock, the
holder thereof shall promptly surrender the
certificate or certificates for such Series A
Preferred Stock at the office appointed as aforesaid,
which certificate or certificates, if the Corporation
shall so request, shall be duly endorsed to the
Corporation or in blank, or accompanied by proper
instruments of transfer to the Corporation or in
blank.
The Corporation will, as soon as practicable after
such surrender of certificates for Series A Preferred
Stock, issue and deliver at the office appointed as
aforesaid, to the person for whose account such
Series A Preferred Stock was so surrendered,
certificates for the number of full shares of Common
Stock to which such person shall be entitled as
aforesaid, together with a cash adjustment for any
fraction of a share as hereinafter stated, if not
evenly convertible. Subject to the following
provisions of this paragraph, such conversion shall
be deemed to have been made as of the Conversion
Date, as applicable, and the person or persons
entitled to receive the Common Stock issuable upon
conversion of such Series A Preferred Stock shall be
treated for all purposes as the record holder or
holders of such Common Stock on such date.
d. No fractions of shares of Common Stock are to be
issued upon conversion, but in lieu thereof the
Corporation will pay therefor in cash a sum based on
the fair market value of the Common Stock, as
determined by a resolution of the Board of Directors.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed by its President and attested by its Secretary this 25th day of July,
1997.
CAPITAL MEDIA GROUP LIMITED
By: /s/ CHARLES KOPPEL
---------------------------
Charles Koppel, President
ATTEST:
By: /s/ CHARLES KOPPEL
----------------------------
Charles Koppel, Secretary
5
<PAGE>
STATE OF FLORIDA )
:ss.
COUNTY OF DADE )
The undersigned being first duly sworn, deposes and states: that the
undersigned is the Secretary and president of Capital Media Group Limited, that
the undersigned has read the Certificate of Designations and knows the contents
thereof and that the same contains a truthful statement of the Resolutions duly
adopted by the Board of Directors of the Corporation.
/s/ CHARLES KOPPEL
------------------------------
Charles Koppel
President and Secretary
6
<PAGE>
STATE OF FLORIDA )
:ss.
COUNTY OF DADE )
On this 25th day of July, 1997, before me, Philip B. Schwartz the
undersigned officer, personally appeared CHARLES KOPPEL known personally to me
to be the President and Secretary of the above named corporation and
acknowledged that he, as an officer being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by himself as an officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ PHILIP B. SCHWARTZ
--------------------------------
Notary Public
(seal) My commission expires: MARCH 1, 1998
7
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made and entered into
this 31st day of July, 1997, between Capital Media Group Limited (the "Company")
and Gilles Assouline and Michel Assouline (collectively, the "Indemnified
Parties").
WHEREAS, the Company has engaged in a private placement of 7,017,543
shares of its authorized, but unissued common stock (the "Offered Shares"), on
the terms set forth in that certain Private Placement Memorandum, dated May 25,
1997, as supplemented by Supplement No. 1 thereto, dated June 25, 1997
(collectively, the "Memorandum");
WHEREAS, Unimedia, S.A. ("Unimedia") subscribed to purchase all of the
Offered Shares, and has transferred a portion of the Offered Shares to certain
third parties; and
WHEREAS, the Company has agreed to indemnify the Indemnified Parties in
certain respects, as enumerated herein.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:
1. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
each of the Indemnified Parties against any losses, claims, damages or
liabilities, joint or several, to which the Indemnified Parties may become
subject, under the Securities Act or otherwise, to the extent and only to the
extent such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any statement contained in the
Memorandum, or (ii) the omission or alleged omission to state in the Memorandum
a fact required to be stated therein or necessary to make the statements therein
not misleading; and will reimburse the Indemnified Parties for any legal or
other expenses reasonably incurred by the Indemnified Parties in connection with
investigating or defending any such loss, claim, damage, liability or action.
Notwithstanding the foregoing, the Company will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon any of the following: (i) the trading by Unimedia of a portion of the
Offered Shares for ordinary shares of ActivCard S.A. ("ActivCard") and the sale
of such ActivCard shares in the market (unless such action, loss, claim, damage,
or liability arises by reason of a claim arising from the information contained
in the Memorandum); (ii) matters relating to the ownership and/or trading by
Unimedia of ActivCard shares in connection with its business activities,
including claims involving Merrill Lynch, Oradea Inc., Alfonso Lodolo D'Oria or
Roland Pardo, or affiliates of any of such persons; or (iii) matters for which
indemnification is already provided for under Section 9 of that certain
Agreement and Plan of Reorganization, dated as of March 4, 1997, among the
Company, Unimedia and the stockholders of Unimedia (including the Indemnified
Parties), as same has been amended by Amendments 1, 2 and 3 thereof.
2. PROCEDURE. Within five (5) business days after receipt by an
Indemnified Party under this Agreement of notice of the commencement of any
action, such Indemnified Party will, if a claim in respect thereof is to be made
against the Company under this Agreement, notify in writing the Company of the
commencement thereof; but the omission to so notify the Company will not relieve
<PAGE>
the Company from any liability under this Agreement so long as the Company is
not prejudiced by the failure to so notify. In case any such action is brought
against any Indemnified Party, and it notifies the Company of the commencement
thereof, the Company will be entitled to participate therein, and to the extent
that it may wish, to assume the defense thereof with counsel who shall be to the
reasonable satisfaction of such Indemnified Party. Notwithstanding the
foregoing, each Indemnified Party shall have the right to employ their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party unless (i) the employment of such counsel
has been authorized in writing by the Company in connection with the defense of
such action, (ii) the Company shall not have employed counsel reasonably
satisfactory to the Indemnified Party to take charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such Indemnified Party shall have reasonably concluded and have been so
advised in a written opinion from counsel reasonably satisfactory to the Company
that there may be defenses available to it or them (as to the specific issue for
which the Indemnified Party is being indemnified) which are different from or
additional to those available to the Company (in which case the Company shall
not have the right to direct the defense of such action on behalf of the
Indemnified Party), in any of which such events such fees and expenses shall be
borne by the Company. Anything in this subsection to the contrary
notwithstanding, the Company shall not be liable for any settlement of any claim
or action effected without its written consent, provided, however, that such
consent was not unreasonably withheld.
This Agreement is made and entered into as of the day and year first
above written.
CAPITAL MEDIA GROUP LIMITED
BY: /s/ CHARLES KOPPEL
--------------------------------
Charles Koppel, President
BY: /s/ STEPHEN KORNFELD
-------------------------------
Stephen Kornfeld, Co-Chairman
INDEMNIFIED PARTIES
/s/ GILLES ASSOULINE
----------------------------------
Gilles Assouline
/s/ MICHEL ASSOULINE
----------------------------------
Michel Assouline
2
EXHIBIT 10.2
INSTAR HOLDINGS INC.
R.R.E. COMMERCIAL CENTRE
MAJURO
MARSHALL ISLANDS
TO: Capital Media (UK) Limited
25 James Street
London W1M5HY July 31, 1997
Dear Sirs
We refer to the US$2,000,000 cash advance facility dated 31 October 1996 between
you and us as amended by a letter of variation and amendment dated 14 January
1997, a letter of variation and amendment dated 31 January 1997, a letter of
variation and amendment dated 3 March 1997 a letter of variation and amendment
dated 10 March 1997 and a letter of variation and amendment dated 25 June 1997
(together the "Facility").
We hereby confirm our agreement that with effect from the date of this letter:
(b) at clause 1.1
(i) the definition of "Repayment Date" shall be
supplemented and amended by deleting after "the" in
line 1 "1 December 1997" and inserting "20 January
1998"; and
(ii) shall be inserted the definition of "CMG" Capital
Media Group Limited (registered in the State of
Nevada United States of America) whose principal
office is at 25 James Street, London W1M 5HY".
(c) at clause 9(b) shall be inserted:
"(6) In the event that CMG consummates the share exchange
contemplated by the agreement and plan of reorganization dated
March 4, 1997, by and among CMG, Unimedia S.A., a company
organized under the laws of the Republic of France, Company
No. RCS Paris B 401 988 308 ("Unimedia") and those
shareholders of Unimedia a party thereto, as amended by that
certain Amendment No. 1 dated June 23, 1997, Amendment No. 2
dated as of July 11, 1997 and Amendment No. 3 dated as of July
18, 1997 (the "Unimedia Agreement") on or around 25 July 1997;
(a) CMG shall prior to or simultaneously create a series of
Preferred Stock called "Series A Preferred Stock" with the
rights, preferences and limitations described in the
Certificate of Designations (the "Designation") required to be
filed with the Secretary of State of Nevada in the form
attached to this this letter hereto as Exhibit "A";
(b) Notwithstanding anything to the contrary contained in this
clause 9 with respect to the convertibility of the Loan into
Shares;
<PAGE>
(i) In the event that Stockholder Approval (as hereinafter
defined) has not been obtained, Instar shall have the right at
any time by notice in writing to convert to shares of Series A
Preferred Stock at the rate of US$0.50 of Loan per share of
Series A Preferred Stock; provided however if Stockholders
Approval is obtained following the aforementioned conversion
to Series A Preferred Stock, the Series A Preferred Stock then
issued shall immediately automatically convert (as set fort in
the Designation) into Shares on a one-for-one basis in
accordance with the terms and conditions of the Series A
Preferred Stock; and
(ii) In the event that Stockholder Approval has been obtained, the
Lender shall have the right at any time to convert the Loan
into Shares at the Conversion Rate.
The term "Stockholder Approval" shall have the meaning given
to such term in the Designation.
Shares issuable upon conversion of the Loan are hereinafter
referred to as "Conversion Shares", whether consisting of
Shares or Series A Preferred Stock.
(7) CMG shall use its best good faith efforts to cause a meeting
of the stockholders of CMG to be held on or prior to December
1, 1997 for the purpose of obtaining, among other things,
Stockholder Approval. Upon Stockholder Approval, the Company
shall reserve for issuance that number of shares equal to the
number of Conversion Shares.
(8) CMG hereby grants to the Lender the same rights of
registration with respect to the Conversion Shares as were
granted to the shareholders of Unimedia, who are a party to
the share exchange contemplated by the Unimedia Agreement. CMG
shall include the Conversion Shares in the first registration
statement filed by CMG in respect of any of it shares
including but not limited to the common stock (unless
prohibited by law or by the Securities and Exchange
Commission)."
(c) at clause 15.1 shall be inserted after (p)
"(q) Stockholder Approval (as defined in the Designation) is
not obtained by close of business on the 1 December and/or CMG
breaches any of its obligation under this letter".
Save as stated above, the Facility shall continue in full force and
effect in accordance with its terms and all references in the Facility
to "this Facility Letter", "hereunder" or cognate expressions shall be
deemed to be references to the Facility Letter as amended by this
letter and the Facility Letter shall be read together with this letter.
Terms defined in the Facility shall have the same meaning in this
letter.
Could you please confirm your agreement to the terms of this letter by
signing and returning the enclosed copy.
This letter shall be governed by and construed in accordance with the
laws of England.
Yours faithfully
-2-
<PAGE>
/s/ A.M. BOUSFIELD, DIRECTOR
- -----------------------------
For and on behalf
Instar Holdings Inc
-3-
<PAGE>
We confirm our agreement to the terms of this letter and confirm that the terms
set out shall be part of the Facility
/s/ CHARLES KOPPEL
- ------------------------------
For and on behalf of
Capital Media (UK) Limited
-4-
<PAGE>
We confirm our agreement to the terms of this letter and that the terms set out
shall be part of the Facility
/s/ CHARLES KOPPEL
- ------------------------------
For and on behalf of
Capital Media Group Limited
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,678,265
<SECURITIES> 0
<RECEIVABLES> 1,052,016<F1>
<ALLOWANCES> 0
<INVENTORY> 29,563
<CURRENT-ASSETS> 5,833,904
<PP&E> 1,284,848<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,296,403
<CURRENT-LIABILITIES> 6,281,935
<BONDS> 534,514<F3>
0
0
<COMMON> 32,073
<OTHER-SE> 1,112,881
<TOTAL-LIABILITY-AND-EQUITY> 7,966,403
<SALES> 467,695
<TOTAL-REVENUES> 467,695
<CGS> 0
<TOTAL-COSTS> 4,805,263
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,422,921)
<INCOME-TAX> (2,130)
<INCOME-CONTINUING> (4,425,051)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,425,051)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> 0
<FN>
<F1>Net of allownace for doubtful accounts of $10,392.
<F2>Net of depreciation.
<F3>Minority interest in subsidiaries.
</FN>
</TABLE>
