AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CAPITAL MEDIA GROUP LIMITED
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
NEVADA 84-0453100
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
2 RUE DU NOUVEAU BERCY
94220, CHARENTON, FRANCE
+33-1-43-53-6999
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
GILLES ASSOULINE, CHIEF EXECUTIVE OFFICER
CAPITAL MEDIA GROUP LIMITED
2 RUE DU NOUVEAU BERCY
94220, CHARENTON, FRANCE
+33-1-43-53-6999
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES OF ALL COMMUNICATIONS TO:
PHILIP B. SCHWARTZ, ESQ.
AKERMAN, SENTERFITT & EIDSON, P.A.
ONE S.E. 3RD AVENUE, 28TH FLOOR
MIAMI, FLORIDA 33131-1704
(305) 374-5600
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis under Rule 415 under the Securities Act of 1933
check the following box.[X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, under Item 11(a)(1) to
this form, check the following box.[ ]
If this Form is filed to register additional securities for an offering
under Rule 462(b) under the Securities Act, please check the following box and
list the Securities Act registration statement number and the effective
registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed under Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering.[ ]
If delivery of the Prospectus is expected to be made under Rule 434,
please check the following box.[ ]
<PAGE>
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE(5) PRICE(5) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share 1,437,999 shares $2.3125 $3,325,373 $ 878
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Common Stock, par value $.001 per
share (1)(2) 804,800 shares $2.3125 $1,861,100 $ 491
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Common Stock, par value $.001 per
share (2)(3) 600,000 shares $2.3125 $1,387,500 $ 367
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Common Stock, par value $.001 per
share (4) 804,800 shares $2.3125 $1,861,100 $ 491
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TOTAL 3,647,599 shares $2.3125 $8,435,073 $2,227
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(1) Shares of common stock issuable upon the exercise of outstanding
warrants issued in the Company's 1995/96 private placement and Unimedia
Share Exchanges, which shares will be sold by the Selling Stockholders.
(2) Under Rule 416, there are also being registered such indeterminable
additional shares of common stock as may become issuable under
anti-dilution provisions contained in the warrants and the convertible
debt to the extent interest on the convertible debt may be convertible
into such shares.
(3) Shares of common stock issuable upon the exercise of an outstanding
warrant issued to Gralec Establishment.
(4) Shares of common stock issuable if the Company elects to allow the
holders of certain of its outstanding warrants with an exercise price
of $25.00, $31.25 and $40.00 per share to exercise their warrants and
purchase two shares for each warrant held at an exercise price of $3.00
per share.
(5) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 (c) under the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
FILES A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT WILL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING UNDER SAID SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 30, 1999
PROSPECTUS
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CAPITAL MEDIA GROUP LIMITED
- --------------------------------------------------------------------------------
This prospectus will offer shares of common stock of Capital Media
Group Limited proposed to be sold from time to time by several of our existing
stockholders and by our stockholders who hold some of our outstanding common
stock purchase warrants. Capital Media previously committed to undertake this
registration in agreements with the holders of the securities which are being
registered hereby.
We are registering for sale by the selling stockholders: (i) 1,437,999
shares of our common stock held by several of our stockholders; (ii) 600,000
shares of our common stock issuable to Gralec Establishment upon the exercise
(at an exercise price of $1.00 per share) of a common stock purchase warrant;
and (iii) 804,800 shares underlying our common stock purchase warrants issued in
our 1995/96 private placement and in our summer 1997 share exchange with the
stockholders of Unimedia, S.A. At present, these warrants are exercisable on a
one-share for one-warrant basis at prices ranging from $25.00 per share to
$40.00 per share. We intend, for nine months from the date of this Prospectus
(until ____________, 2000), to allow each warrant holder to exercise their
warrants and receive two shares of our common stock at an exercise price of
$3.00 per share (and we have registered additional shares of our common stock in
our Registration Statement (of which this Prospectus forms a part) for resale by
selling stockholders who elect to exercise their warrants during this limited
period in accordance with our proposed offer). If these warrants are not
exercised during this period, they will remain exercisable on their original
terms and will expire 36 months after the date of this Prospectus.
Our selling stockholders will offer our common stock through public or
private transactions at prevailing market prices. We will receive the proceeds
from the exercise of the warrants, but will not receive any proceeds from the
sale by the selling stockholders of the common stock. The Selling Stockholders
will not bear any of the expenses related to this registration (except
commissions in connection with the sale of their common stock).
Our common stock is quoted on the Bulletin Board maintained by the NASD
under the symbol "CPMG."On December 27, 1999, the average of the bid and ask
closing prices of our common stock was $2.125 per share.
THE COMMON STOCK OFFERED IN THIS PROSPECTUS INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE DISCUSSION UNDER "RISK
FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OUR SECURITIES OR DETERMINED WHETHER THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. IT IS ILLEGAL FOR ANYONE TO TELL YOU
OTHERWISE.
The date of this Prospectus is ____________, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY ................................................... 3
RISK FACTORS ......................................................... 6
USE OF PROCEEDS ...................................................... 10
PRICE RANGE FOR OUR COMMON STOCK ..................................... 10
DIVIDEND POLICY ...................................................... 12
CAPITALIZATION ....................................................... 12
SELECTED FINANCIAL DATA .............................................. 13
MANAGEMENT'S DISCUSSION AND ANALYSIS ................................. 15
BUSINESS ............................................................. 26
MANAGEMENT ........................................................... 39
PRINCIPAL STOCKHOLDERS ............................................... 45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ....................... 47
DESCRIPTION OF CAPITAL STOCK ......................................... 49
SELLING STOCKHOLDERS ................................................. 51
PLAN OF DISTRIBUTION ................................................. 56
WHERE CAN I FIND MORE INFORMATION .................................... 57
EXPERTS .............................................................. 57
LEGAL MATTERS ........................................................ 57
INDEX TO FINANCIAL STATEMENTS ........................................ F-1
Some of the information in this prospectus may contain forward-looking
statements. We use words such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar expressions to identify forward-looking
statements. These statements discuss future expectations, contain projections of
results of operations or of financial condition or state other "forward-looking"
information. When considering these forward-looking statements, you should keep
in mind the risk factors and other cautionary statements in this prospectus. The
risk factors noted in this prospectus and additional risks not presently known
or which we presently deem immaterial, together with other factors we note
throughout this prospectus, could cause our actual results to differ materially
from those contained in the forward-looking statements.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. IT IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT
YOU SHOULD CONSIDER BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE
ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION AND THE
FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS.
UNLESS THE CONTEXT OTHERWISE REQUIRES, "CAPITAL MEDIA," "WE," "OUR,"
AND "US" REFER COLLECTIVELY TO CAPITAL MEDIA GROUP LIMITED, A NEVADA COMPANY AND
ITS SUBSIDIARIES: (I) UNIMEDIA, S.A., AND UNIMEDIA'S SUBSIDIARIES, PIXEL, LTD.
AND TOPCARD, S.A., AND (II) CAPITAL MEDIA (UK) LIMITED AND CAPITAL MEDIA (UK)'S
SUBSIDIARY, ONYX TELEVISION GMBH.
OUR BUSINESS
Our primary business is the broadcasting operation of Onyx Television,
which operates an advertiser supported music and entertainment television
station in Germany dedicated to adults. Onyx Television commenced broadcast
operations in January 1996, and its broadcasting signal is currently received in
approximately 11.0 million cable homes and an indeterminate number of satellite
homes in Germany and surrounding countries. We operate Onyx Television in a
strategic alliance with our majority stockholder, Groupe AB, S.A., a large
French television production company. Groupe AB provides Onyx Television with
significantly all of Onyx Television's broadcasting requirements.
We also have interests in three other businesses: (1) Pixel, which
specializes in computer graphics and 3D animation for TV packaging, digital
broadcasting and special effects; (2) TopCard, a software development business
which is engaged in the development of mass transit and e-banking applications
based upon smart card, e-payment technology (including secured authentication
Internet access and hybrid, contactless and infra-red smart- card technology)
and (3) Unimedia, which intends to develop in the future a software platform for
Internet entertainment and gaming.
Our executive offices are located at 2 rue du Nouveau Bercy, 94220,
Charenton, France. Our telephone number is +33-14-353-6999.
3
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RECENT DEVELOPMENTS
At a meeting held on October 22, 1999, our stockholders approved a
one-for-ten reverse stock split of our outstanding common stock, and the reverse
split was effected at 12:01 a.m. on October 27, 1999. Our authorized common
stock remained at 50 million shares after the reverse stock split. All share
references in this Prospectus take into account the completion of the reverse
stock split (except that our audited financial statements for 1998 and 1997
contained on pages F-1 through F-30 do not take into account the completion of
the reverse stock split).
Immediately after the effective time of the reverse stock split, we
issued shares of our common stock to Groupe AB and to Superstar Ventures
Limited, which is controlled by one of our directors, David Ho, upon the
conversion of an aggregate of $22,598,255 (including accrued interest and
penalties of $4,649,839) of our outstanding convertible debt held by them. After
accounting for the issuance of these shares, Groupe AB and Superstar own 50.3%
and 34.0%, respectively, of our outstanding common stock.
USE OF PROCEEDS
We will not receive any of the proceeds from sales of the shares being
registered in this Prospectus for sale by the selling stockholders. Proceeds
received by us upon the exercise of our warrants will be used for general
corporate purposes.
OUTSTANDING SHARES
As of the date of this Prospectus, we had the following securities
outstanding (i) 27,794,876 shares of our common stock (excluding 166,791 shares
owned at that date by our 81.6% subsidiary, Unimedia; and (ii) options and
warrants to purchase an additional 4,889,639 shares of our common stock
(including the shares registered in this Prospectus).
4
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SUMMARY FINANCIAL DATA
THE SUMMARY FINANCIAL DATA SET FORTH BELOW IS DERIVED FROM AND SHOULD
BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, AND THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS CONTAINED
HEREIN.
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FISCAL YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------- ---------------------------------
RESTATED
1998 1997 1999 1998
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STATEMENT OF INCOME DATA:
Operating Revenues........................... $2,468,490 $1,286,076 $2,247,358 $2,103,588
Operating Costs:
Staff costs............................. 2,765,239 3,572,498 1,685,754 2,270,256
Depreciation and amortization........... 1,410,697 1,564,452 770,048 677,744
Other Operating expenses................ 9,145,292 11,104,510 5,133,732 6,612,816
--------------- -------------- ------------- -------------
Total Operating Costs........... (13,321,228) (16,241,460) (7,589,534) (9,560,816)
Operating Loss............................... (10,852,738) (14,955,384) (5,342,176) (7,457,228)
Equity in net losses in investment in
joint venture.............................. (150,808) (251,550) (89,777) (202,360)
Financial income (expense), net.............. 970,407 (2,812,292) (6,490,111) 647,756
Other income (expense)....................... (465,996) 441,748 709,304 (561,232)
--------------- -------------- ------------- -------------
Loss from continuing operations
before taxation............................ (10,498,835) (17,577,478) (11,212,760) (7,573,064)
Tax provision (credit)....................... 41,552 1,658 3,265 (491)
--------------- -------------- ------------- -------------
(10,457,283) (17,575,820) (11,209,495) (7,573,555)
Discontinued operations loss................. (308,532) (797,770) (48,557) (75,773)
Minority interest............................ (1,732) 1,834 ---- ----
--------------- -------------- ------------- -------------
Net Loss..................................... (10,767,547) (18,371,756) (11,258,052) (7,649,328)
=============== ============== ============= =============
Net loss Per share for continuing
operations (1)
basic............................... ($2.62) ($6.29) ($2.80) ($1.89)
=============== ============== ============= =============
diluted............................. ($2.62) ($6.29) ($2.80) ($1.89)
=============== ============== ============= =============
Net loss per share including discontinued
operations (1)
basic............................... ($2.69) ($6.57) ($2.81) ($1.91)
=============== ============== ============= =============
diluted............................. ($2.69) ($6.57) ($2.81) ($1.91)
=============== ============== ============= =============
Weighted Average Shares Outstanding -
basic (1).................................. 4,009,413 2,796,638 4,009,413 4,009,413
=============== ============== ============= =============
Weighted Average Shares Outstanding -
diluted (1)................................ 4,009,413 2,796,638 4,009,413 4,009,413
=============== ============== ============= =============
</TABLE>
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<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31,
------------------------------------- ------------------------------------
PROFORMA (2) ACTUAL 1998 1997
--------------- --------------- --------------- --------------
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BALANCE SHEET DATA:
Working Capital/(Deficit)................... $(5,254,808) $(28,127,847) $(20,607,970) $(9,373,049)
Total Assets................................ 5,521,925 5,521,925 6,608,642 6,302,328
Total Liabilities........................... 7,602,737 30,475,776 23,440,814 11,611,064
Stockholder's Equity/(Deficiency in
Net Assets)............................... (2,527,015) (25,400,054) (17,236,381) (5,711,213)
</TABLE>
- ----------
(1) Share references assume completion of a one for ten reverse stock split
which occurred on October 27, 1999.
(2) Assuming the conversion of $22,528,038 of convertible debt (including
interest and penalties of $4,106,622) into equity on September 30, 1999
(actual conversion date - October 27, 1999). See Management's
Discussion and Analysis-Financial Condition, Liquidity and Capital
Resources."
5
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RISK FACTORS
You should carefully consider the risks described below before making a
decision to invest in our common stock. We urge you to carefully consider these
risk factors, together with all of the other information included in this
prospectus, before you make an investment decision. Please note that the risks
described below are not the only ones facing Capital Media.
WE HAVE A LIMITED OPERATING HISTORY
We have only a limited operating history on which you can base an
evaluation of our business and prospects. Onyx Television, our primary business,
began its broadcast operation in January 1996. As a media company in the early
stages of development, we face increased risks, uncertainties, expenses and
difficulties. You should consider an investment in our company in light of these
risks, uncertainties, expenses and difficulties.
WE REQUIRE ADDITIONAL CAPITAL TO FUND OUR BUSINESS
We continue to require substantial additional funds to meet our current
cash flow requirements and to fund our proposed future business activities. We
are likely going to fund our capital requirements through additional sales of
our equity securities or through sales of the equity securities in one or more
of our businesses (which may include additional sales of these securities to our
principal stockholders). We cannot assure you that necessary funding will be
available to us in the future.
WE MAY NOT BE ABLE TO CONTINUE OPERATIONS
Our independent auditors included an explanatory paragraph in their
audit report contained in our Annual Report on Form 10-KSB for the fiscal years
ended December 31, 1998 and 1997. This explanatory paragraph stated there was a
substantial doubt as to our ability to continue as a going concern as a result
of our lack of working capital and our losses since inception. Our failure to
obtain additional capital or other acceptable arrangements to continue our
business will have a material and adverse effect on us.
WE CONTINUE TO EXPERIENCE SIGNIFICANT LOSSES
We are small and thinly capitalized. During the years ended December
31, 1997 and 1998, and for the nine months ended September 30, 1999, we incurred
net losses of $18,371,756, $10,767,547 and $11,258,052, respectively. We also
had a pro-forma negative net worth of $2,527,015 at September 30, 1999. We
cannot assure you that we will achieve profitable operations and/or positive
cash flow in the future.
WE ARE DEPENDENT ON OUR KEY PERSONNEL AND GROUPE AB
Our future performance will be substantially dependent on the continued
services of our current and future executive officers and other key personnel,
as well as on our
6
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continuing to have a positive working relationship with our majority
shareholder, Groupe AB. The loss of the services of any of these individuals or
a material adverse change in our relationship with Groupe AB could harm our
business. We do not maintain any "key person" life insurance policies on any of
our executive officers or key employees.
WE MAY NEVER ACHIEVE SUFFICIENT LEVELS OF ADVERTISING REVENUES TO FUND OUR
OPERATIONS
Onyx Television began broadcasting in January 1996. Onyx Television's
revenues are derived through the sale of commercial advertising time. As a
result, Onyx Television's success will depend primarily on acceptance of Onyx
Television by advertisers as a venue that attracts the audience targeted by Onyx
Television. Our success will also depend on our ability to establish
distribution of its programming through cable systems to viewers. Many factors
affect the demand of advertisers for advertising time on Onyx, including:
/bullet/ general economic conditions;
/bullet/ the demographic characteristics of the audiences viewing Onyx
Television's broadcasts;
/bullet/ the activities of our competitors;
/bullet/ our ability to provide evidence to advertisers with regard to
the size of our viewing audience; and
/bullet/ trends in the advertising industry.
We cannot assure you that Onyx Television will achieve sufficient
levels of advertising revenue in the future to make our business cash flow
positive and profitable.
WE MUST CONTINUE TO OBTAIN AND MAINTAIN DISTRIBUTION RIGHTS ON GERMAN CABLE
SYSTEMS
In order to distribute Onyx Television through German cable systems, we
must continue to obtain and maintain the approval of the various German Landes
Medienanstalten (Local Media Authorities or LMAs). Each LMA has authority to
approve programming lineups for cable systems in the 16 German regions known as
"Bundeslanders." The members of the LMAs are appointed by local government.
Currently, Onyx Television's channel has been granted the right or partial right
to distribute programming through cable networks located in all 16
Bundeslanders. We cannot assure you that Onyx Television will continue to
receive distribution rights in the future, including distribution rights on
cable systems where it has previously received distribution rights.
OUR BUSINESS IS HIGHLY COMPETITIVE
Onyx Television faces intense competition for both viewers and rights
to distribute programming over the various regional cable television networks
throughout Germany. A number of German cable television networks provide
programming that targets the same audience that is targeted by Onyx Television.
Onyx Television competes with broadcast
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television stations, satellite and wireless programming services, radio, print
media and the Internet for its viewers. Onyx Television's music and teleshopping
programming competes with other broadcast operators, which include other music
and teleshopping channels. Many of our competitors have significantly greater
resources than we do. We cannot assure you that competitive pressures will not
materially adversely affect out business, financial condition or results of
operations.
WE MUST COMPLY WITH EXTENSIVE GOVERNMENT REGULATION
Television broadcast operations in Germany are subject to extensive
government regulation which governs:
/bullet/ the issuance, renewal, transfer and ownership of station
licenses,
/bullet/ the timing and content of programming, the timing, content and
amount of commercial advertising permitted, and
/bullet/ the determination of which stations will be permitted to
broadcast on a particular cable system.
Other regulations require a particular percentage of programming to be produced
or originated in local markets. If Onyx Television attempts to expand to other
countries, Onyx Television may be subject to substantial additional government
regulation. Our cost of programming could also increase as a result of political
initiatives taken by the European Union to increase the amount of
European-produced programming broadcast. Changes in the regulation of our
activities in the future could have a material adverse effect on our business.
WE MUST RECEIVE THE APPROVAL OF GERMAN REGULATORY AUTHORITIES TO FUTURE CHANGES
IN THE OWNERSHIP OF OUR BUSINESS
Any material changes in the ownership of Capital Media or the ownership
of Onyx Television must receive approval from the German media authorities
regarding the effect of the post-transaction ownership on the concentration of
the overall German television industry. We must also receive approval from the
German media authorities for the addition of new stockholders who acquire a
substantial interest in Capital Media or Onyx Television. The failure of the
German media authorities to approve any such change in ownership would likely
result in the suspension and/or revocation of Onyx Television's broadcast
licenses. The suspension or revocation of these licenses would materially and
adversely effect our business and financial condition.
WE ARE CONTROLLED BY GROUPE AB AND DAVID HO
Groupe AB and David Ho own approximately 84.3% of our outstanding
common stock. As a result, they have the ability to control Capital Media and
direct our affairs and business, including the election of directors and the
approval of significant corporate transactions. This concentration of ownership
may have the effect of delaying, deferring or preventing a change in control of
our company and makes transactions more difficult or
8
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impossible without the support of these stockholders, even if they would benefit
or be favored by our other stockholders.
WE FACE ADDITIONAL REGULATION DUE TO OUR LOW STOCK PRICE
Our common stock is currently quoted on the Electronic Bulletin Board
maintained by the NASD. Because our common stock has a market price of less than
$5.00 per share, our common stock is subject to regulations of the Securities
and Exchange Commission which impose sales practice requirements on
broker-dealers. For example, broker-dealers selling our securities, are
required, before effecting any transaction, to provide their customers with a
document which discloses the risks of investing in our common stock. If the
person purchasing our 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 as to 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 our shares. These regulations and
requirements could limit the number of potential purchasers of our securities.
THE PUBLIC TRADING MARKET FOR OUR COMMON STOCK IS ILLIQUID AND HIGHLY SPORADIC
While there is a limited and sporadic public trading market for our
common stock in the over-the-counter market, we cannot be sure that the market
will improve in the future. As a result, investors in our stock may not be able
to liquidate their investment without considerable delay, if at all. If a more
active market does develop, the price of our stock may be highly volatile. The
over-the-counter markets for securities such as ours historically have
experienced extreme price and volume fluctuations during certain periods. These
broad market fluctuations and other factors, such as trends in our industry and
the investment markets generally, as well as economic conditions and variations
in our results of operations, may also adversely affect the market price of our
common stock.
WE ARE SUBJECT TO SIGNIFICANT ANTI-TAKEOVER PROVISIONS
Our articles of incorporation and bylaws contain provisions that may
have the effect of discouraging transactions involving an actual or threatened
change of control. In addition, our board of directors has the authority to
issue up to 5,000,000 shares of preferred stock in one or more series and to fix
the preferences, rights and limitations of any of these series without
stockholder approval. Our ability to issue preferred stock could discourage
unsolicited acquisition proposals or make it more difficult for a third party to
gain control of us, which could adversely affect the market price of our common
stock.
9
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USE OF PROCEEDS
We will not receive any of the proceeds from sales by the selling
stockholders of the shares of our common stock being registered for sale in this
Prospectus. Any net proceeds received by us upon the exercise of our warrants
will be used for general corporate purposes.
PRICE RANGE FOR OUR COMMON STOCK
TRADING MARKET FOR OUR SECURITIES
Our common stock was quoted on the NASDAQ Small Cap Market under the
symbol "CPMG" from July 1996 until June 8, 1998, when our common stock was
delisted from the NASDAQ Small Cap Market. After that date, until November 17,
1998, our common stock was only listed in the pink sheets published by the
National Quotations Bureau. On November 17, 1998, our common stock began to be
quoted on the Bulletin Board maintained by the NASD. We do not believe that
there is an active trading market for our common stock at this time.
The following table sets forth, for the calendar quarters indicated,
the range of high and low bid prices per share of our common stock. The prices
presented are bid prices which represent prices between broker-dealers and do
not include retail mark-ups and mark-downs on any commission to the broker
dealer. The prices do not necessarily reflect actual transactions.
HIGH LOW
1997 ----- -----
First Quarter 37.50 16.25
Second Quarter 1997 19.38 11.25
Third Quarter 16.25 5.63
Fourth Quarter 10.31 2.50
1998
First Quarter 6.56 3.13
Second Quarter 6.25 3.13
Fourth Quarter (commencing November 17, 1998) 6.56 2.50
1999
First Quarter 2.70 1.56
Second Quarter 1.67 1.52
Third Quarter 1.60 1.50
Fourth Quarter (to December 27, 1999) 2.50 .69
10
<PAGE>
At September 17, 1999, we had approximately 310 stockholders of record.
Additionally, we had at that date an indeterminable number of stockholders who
owned their shares in street name through brokerage firms.
Since our common stock is no longer to be quoted on the NASDAQ SmallCap
Market, our common stock has become subject to certain regulations of the
Securities and Exchange Commission which impose sales practice requirements on
broker-dealers because our common stock has a market price of less than $5.00
per share. For example, broker-dealers selling our securities, are required,
before effecting any transaction, to provide their customers with a document
which discloses the risks of investing in our common stock. Furthermore, if the
person purchasing our 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 our securities, which could limit the
number of potential purchasers of our securities. The additional burdens imposed
upon broker-dealers by these requirements may discourage broker-dealers from
effecting transactions in our common stock, which could severely limit the
market liquidity of our common stock.
COMMON STOCK PURCHASE WARRANTS
At the date of this Prospectus, we have the following warrants to
purchase common shares outstanding:
DESCRIPTION NUMBER
- ----------- ---------
Warrants to purchase common stock at $40.00 per share 633,914
Warrants to purchase common stock at $31.25 per share 51,119
Warrants to purchase common stock at $25.00 per share 129,767
Warrants to purchase common stock at $1.00 per share 3,637,339
All of the outstanding and to be outstanding warrants will expire 36
months after the date of this Prospectus.
We intend in the future to offer the holders of our warrants with an
exercise price of $25, $31.25 and $40 per share the right, for not less than 61
days, to exercise their warrants and receive two shares of our common stock at
an exercise price of $3.00 per share. Any such offer will be made to them
subject to the compliance with applicable U.S. securities laws. If the holders
of our outstanding warrants do not exercise this right, these warrants will
remain outstanding on their original terms until their expiration date.
We have already offered one of our warrant holders, Auric Investments
Limited, the right to subscribe to purchase 156,416 shares of common stock on
the basis of two shares for
11
<PAGE>
each of the 78,208 warrants which they hold, but at an exercise of $2.00 per
share. Auric was granted this lower price due to the assistance which they
provided to us in helping us to obtain a quotation on the Bulletin Board
maintained by the NASD.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock.
We currently intend to retain earnings, if any, to support the development of
our business and do not anticipate paying cash dividends for the foreseeable
future. Payment of future dividends, if any, will be at the discretion of our
Board of Directors after taking into account various factors, including our
financial condition, operating results and current and anticipated cash needs.
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
1999, on an actual basis and on a pro-forma basis (assuming that on that date,
instead of on the date on which these events actually occurred (October 27,
1999), we had completed a one for ten reverse stock split of our outstanding
common stock and thereafter issued shares of our common stock upon the
conversion of $22,528,028 of our convertible debt and to satisfy various other
obligations which we had at that date). The information set forth in the table
should be read in conjunction with our Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus, and "Management's
Discussion and Analysis."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------------
ACTUAL PRO FORMA
------------ ------------
(UNAUDITED)
<S> <C> <C>
Minority Interest ............................................... $ 446,203 $ 446,203
Stockholders' equity:
Preferred Stock, $.001 par value, 5,000,000
shares authorized, none outstanding, ........................ -- --
Common Stock, $.001 par value, 50,000,000
shares authorized; shares issued - 4,009,413 actual;
26,882,451 pro forma ........................................ 4,009 26,882
Additional paid-in capital ...................................... 31,191,990 54,042,155
Shares Held by Subsidiary (166,791 shares) ...................... (950,712) (950,712)
Accumulated Deficit ............................................. (59,496,126) (59,496,126)
Cumulative translation adjustment ............................... 3,850,785 3,850,786
------------ ------------
Total stockholders' equity ................................ (25,400,054) (2,527,015)
------------ ------------
Total capitalization ...................................... $(24,953,851) $ (2,080,812)
============ ============
</TABLE>
12
<PAGE>
SELECTED FINANCIAL DATA
THE FOLLOWING INFORMATION HAS BEEN DERIVED FROM OUR FINANCIAL
STATEMENTS. THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1998 INCLUDED ELSEWHERE IN THIS PROSPECTUS HAVE BEEN AUDITED BY DELOITTE &
TOUCHE AND PRICEWATERHOUSECOOPERS, INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. THE
FINANCIAL STATEMENTS AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
INCLUDED ELSEWHERE IN THIS PROSPECTUS HAVE BEEN DERIVED FROM OUR UNAUDITED
FINANCIAL STATEMENTS. IN THE OPINION OF OUR MANAGEMENT, THE UNAUDITED FINANCIAL
STATEMENTS INCLUDE ALL ADJUSTMENTS (CONSISTING OF NORMAL AND RECURRING
ADJUSTMENTS) NECESSARY FOR A FAIR PRESENTATION OF OUR FINANCIAL POSITION AND
RESULTS OF OPERATIONS FOR THESE PERIODS. THE SELECTED FINANCIAL DATA FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 ARE NOT NECESSARILY INDICATIVE OF THE
RESULTS TO BE EXPECTED FOR THE YEAR ENDING DECEMBER 31, 1999 OR ANY OTHER FUTURE
PERIOD. ALL SHARE REFERENCES ASSUME THE COMPLETION OF THE ONE FOR TEN REVERSE
STOCK SPLIT OF OUR OUTSTANDING COMMON STOCK WHICH OCCURRED ON OCTOBER 27, 1999.
THIS SECTION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES THERETO AND WITH OUR "MANAGEMENT'S DISCUSSION AND
ANALYSIS," WHICH ARE INCLUDED ELSEWHERE IN THIS PROSPECTUS.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------- ----------------------------------
RESTATED
1998 1997 1999 1998
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating Revenues.......................... $2,468,490 $1,286,076 $2,247,358 $2,103,588
Operating Costs:
Staff costs............................ 2,765,239 3,572,498 1,685,754 2,270,256
Depreciation and amortization.......... 1,410,697 1,564,452 770,048 677,744
Other Operating expenses............... 9,145,292 11,104,510 5,133,732 6,612,816
--------------- -------------- -------------- -------------
Total Operating Costs.......... (13,321,228) (16,241,460) (7,589,534) (9,560,816)
Operating Loss.............................. (10,852,738) (14,955,384) (5,342,176) (7,457,228)
Equity in net losses in investment in
joint venture............................. (150,808) (251,550) (89,777) (202,360)
Financial income (expense), net............. 970,407 (2,812,292) (6,490,111) 647,756
Other income (expense)...................... (465,996) 441,748 709,304 (561,232)
--------------- -------------- -------------- -------------
Loss from continuing operations
before taxation........................... (10,498,835) (17,577,478) (11,212,760) (7,573,064)
Tax provision (credit)...................... 41,552 1,658 3,265 (491)
--------------- -------------- -------------- -------------
(10,457,283) (17,575,820) (11,209,495) (7,573,555)
Discontinued operations loss................ (308,532) (797,770) (48,557) (75,773)
Minority interest........................... (1,732) 1,834 ---- ----
--------------- -------------- -------------- -------------
Net Loss.................................... (10,767,547) (18,371,756) (11,258,052) (7,649,328)
=============== ============== ============== =============
Net loss Per share for continuing
operations (1)
basic.............................. ($2.62) ($6.29) ($2.80) ($1.89)
=============== ============== ============== =============
diluted............................ ($2.62) ($6.29) ($2.80) ($1.89)
=============== ============== ============== =============
Net loss per share including discontinued
operations (1)
basic.............................. ($2.69) ($6.57) ($2.81) ($1.91)
=============== ============== ============== =============
diluted............................ ($2.69) ($6.57) ($2.81) ($1.91)
=============== ============== ============== =============
Weighted Average Shares Outstanding -
basic (1)................................. 4,009,413 2,796,638 4,009,413 4,009,413
=============== ============== ============== =============
Weighted Average Shares Outstanding -
diluted (1)............................... 4,009,413 2,796,638 4,009,413 4,009,413
=============== ============== ============== =============
</TABLE>
(FOOTNOTES ON NEXT PAGE)
13
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------------------- ------------------------------------
PROFORMA (2) ACTUAL 1998 1997
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital/(Deficit)................... $(5,254,808) $(28,127,847) $(20,607,970) $(9,373,049)
Total Assets................................ 5,521,925 5,521,925 6,608,642 6,302,328
Total Liabilities........................... 7,602,737 30,475,776 23,440,814 11,611,064
Stockholder's Equity/(Deficiency in
Net Assets)............................... (2,527,015) (25,400,054) (17,236,381) (5,711,213)
</TABLE>
- ----------
(1) Share references assume completion of a one for ten reverse stock split
which occurred on October 27, 1999.
(2) Assuming the conversion of $22,528,038 of convertible debt (including
interest and penalties of $4,106,622) into equity on September 30, 1999
(actual conversion date - October 27, 1999). See Management's
Discussion and Analysis-Financial Condition, Liquidity and Capital
Resources."
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FINANCIAL INFORMATION INCLUDED HEREIN SHOULD BE READ IN CONJUNCTION
WITH OUR FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS, INCLUDING
THE NOTES TO THE FINANCIAL STATEMENTS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE INTENDED TO BE
COVERED BY THE SAFE HARBORS CREATED THEREBY. ALL STATEMENTS, OTHER THAN
STATEMENTS OF HISTORICAL FACT, INCLUDED IN THIS PROSPECTUS THAT ADDRESS
ACTIVITIES, EVENTS OR DEVELOPMENTS THAT WE EXPECT, BELIEVE OR ANTICIPATE WILL OR
MAY OCCUR IN THE FUTURE ARE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED
THAT ALL FORWARD- LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, INCLUDING,
WITHOUT LIMITATION, OUR ABILITY TO MAINTAIN OR INCREASE THE DISTRIBUTION OF ONYX
TELEVISION ON GERMAN CABLE SYSTEMS, THE ABILITY TO INCREASE ONYX TELEVISION'S
ADVERTISING REVENUES, CHANGES IN COSTS OF PROGRAMMING, AND GERMAN MEDIA
REGULATORY MATTERS, AS WELL AS GENERAL MARKET CONDITIONS AND COMPETITION. FUTURE
EVENTS AND ACTUAL RESULTS, FINANCIAL AND OTHERWISE, COULD DIFFER MATERIALLY FROM
THOSE SET FORTH IN OR CONTEMPLATED BY THESE FORWARD-LOOKING STATEMENTS. ALTHOUGH
WE BELIEVE THAT THE ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN ARE REASONABLE, ANY OF THESE ASSUMPTIONS COULD BE INACCURATE
AND, THEREFORE, WE CANNOT ASSURE YOU THAT THE FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROSPECTUS WILL PROVE TO BE ACCURATE. IN LIGHT OF THE
SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED
HEREIN, INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION
BY US OR ANY OTHER PERSON THAT OUR OBJECTIVES AND PLANS WILL BE ACHIEVED.
GENERAL
Our financial results for 1997, 1998 and for the first nine months of
1999 include our consolidated accounts for our wholly owned subsidiary Capital
Media (UK) and Capital Media (UK)'s wholly owned subsidiary, Onyx Television,
and our 81.6% owned subsidiary Unimedia, and its 90% owned subsidiary TopCard
SA. Our 50% investment interest in Blink TV Limited has been accounted for using
the equity method. The results of Unimedia and TopCard have been consolidated
from September 1997 and November 1997, which are the respective dates of their
acquisition. Both Unimedia and TopCard have revenues from the sales of goods and
services. Our results for 1998 and for the first nine of 1999 also include the
activities of Pixel Ltd. and its 47.5% interest in Henry Communications, Ltd.,
which is accounted for using the equity method. Pixel was effectively acquired
as of January 1, 1998 and has been consolidated as of its date of acquisition.
Pixel's revenues are generated from the sale of animation and graphic design to
Israel Cable Programming and from services provided in its post-production
editing facilities. Our interest in TIAG has been accounted for as an asset held
for disposition.
Our 1997 Consolidated Financial Statements have been restated to
conform to our 1998 Consolidated Financial Statements. The restatement is in
respect of the treatment of our issued stock held by Unimedia. The stock held
was within investments in the original 1997 Financial Statements and the cost
were adjusted by a year end valuation provision. The
15
<PAGE>
1997 Restated Financial Statements were restated to show the holding at original
cost and as an element of Stockholders' Equity. In Fiscal 1998, the results of
Tinerama are treated as discontinued operations and the 1997 comparatives have
been reclassified accordingly.
During 1998 and 1999, we issued a significant amount of debt
convertible into common stock at $1.00 per share (substantially all of which was
converted into common stock on October 27, 1999). Our Board, when determining to
issue this debt, concluded that the conversion price of such debt was the fair
value of our common stock at the date of grant. While our common stock is quoted
on the Bulletin Board maintained by the NASD, there is currently only a limited
market for our common stock, and no opinion on the valuation of our common stock
has been obtained from a third party. While we believe that the fair value of
our shares was equal to the price at which we issued our convertible debt, if it
were to be later determined that the fair value of our common stock on the date
of these transactions was greater than $1.00 per share when such convertible
debt were issued, the difference between the fair market value of such shares
and $1.00 per share would be a charge against our operations.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Our operating revenues for the nine months ended September 30, 1999
were $2.25 million, an increase of $144,000 compared to operating revenues of
$2.1 million for the nine months ended September 30, 1998. This increase in
operating revenue was largely attributable to an increase of $592,000 at Onyx
Television, while operating revenues at both TopCard and Pixel decreased
$156,000 and $165,000, respectively, compared to the same nine months in 1998.
Our operating costs, including staff costs, depreciation and
amortization, for the nine months to September 30, 1999 were $7.59 million
compared to $9.56 million for the same period of 1998. As stated above, the net
decrease in operating costs is primarily indicative of the cost reductions made
across all the group operations but specifically at Onyx Television where
operating costs were reduced by $1.63 million to $4.79 million in the nine
months to September 30, 1999, compared to $6.42 million in the nine months ended
September 30, 1998.
Depreciation and amortization for the nine months ended September 30,
1999 was $0.77 million compared to $0.68 million for the corresponding period in
1998.
The increase in financial expense related to higher interest expense of
$3.67 million for the nine months ended September 30, 1999, compared to $1.04
million for the nine months ended September 30, 1998. This higher interest
expense is due to the substantial increase in loans received over the year. In
addition, financial expense includes a charge in respect of foreign exchange
losses of $2.82 million for the nine months ended September 30, 1999, compared
to a gain of $1.69 million for the comparative 1998 period. Our foreign
16
<PAGE>
exchange losses arise from changes in currency exchange rates at September 30,
1999 compared to exchange rates at December 31, 1998.
The nine month 1999 results were also impacted by a $0.48 million net
gain relating to the completion of the Instar and Fontal settlements. No such
gain was reported during the comparative 1998 period.
As a result of all of the above factors, our loss from continuing
operations was $11.21 million for the nine months ended September 30, 1999, an
increase of $3.64 million from $7.57 million for the nine months ended September
30, 1998.
Total revenues at Onyx Television for the nine months to September 30,
1999 totaled $1.48 million, a 67% increase over revenues of $0.89 million for
the nine months ended September 30, 1998. We believe that the strategic alliance
between Onyx Television and Groupe AB, together with changes in local German
television regulations effective in 1999, increased network distribution already
achieved and Onyx Television's efforts to increase its advertising sales,
including the additional of an in-house sales person in late 1999, should allow
Onyx Television to substantially increase the development of its revenue over
the next year.
TopCard had a net loss of $94,000 for the nine months to September 30,
1999, compared to a profit of $3,000 for the same period in 1998. Pixel reported
a profit of $64,000 for the nine months ended September 30, 1999, compared to a
profit of $99,000 for the same period in 1998. Henry, its 47.5% owned
subsidiary, recorded a net share of profit of $27,000, compared to a profit of
$32,000 recorded for the corresponding period in 1998. Henry is accounted for on
an equity basis.
During 1998, the Board in its review of investments approved a decision
to dispose of Tinerama and we are in the process of selling our interest in
Tinerama. The operating losses of Tinerama are accounted for as discontinued
operations.
Blink reported a loss for the nine months to September 30, 1999 of
$117,000, compared to a $136,000 loss for the same period in 1998. Blink has
never met its original target objectives and, in December 1999, we sold our 50%
shareholding in Blink to RCL Communication, our joint shareholder, for a nominal
sum and converted our /pound sterling/130,000 (approximately $200,000) of
existing loans made to Blink into new non-voting, redeemable equity. Following
this change, we own approximately 19% of Blink, and if successful in the future,
Blink will be obligated to repay the monies we converted into equity back to us.
There can be no assurance that this will ever occur.
YEAR ENDED DECEMBER 31, 1998 AND 1997
Our operating revenues for the year ended December 31, 1998 were $2.47
million, an increase of $1.18 million compared to operating revenues of $1.29
million for 1997. This increase in operating revenue from period to period was
largely attributable to revenues for
17
<PAGE>
1998 of an aggregate of $1.70 million of operating revenues at TopCard and
Pixel. We acquired Unimedia, TopCard and Pixel under the purchase method of
accounting and therefore accounted for their operations from their respective
date of purchase (August 1997, November 1997 and January 1998.)
Advertising sales by Onyx Television during 1998 totaled $0.76 million,
compared to $0.46 million for 1997. During 1999 we entered into an agreement
with a media agency. We also added an in-house salesperson, and although we
cannot assure you, we believe that Onyx Television's advertising revenue will
increase in the future.
In addition, Onyx Television has entered into a two year strategic
alliance agreement with Groupe AB. Under that agreement, Groupe AB provides
technical services to Onyx Television, including the use of a transponder and
uplink facilities, transmission services and use of a master control room, as
well as providing the funding required to pay cable transmission costs. In
return, Capital Media, on behalf of Onyx Television, pays MMP 260,000 shares per
month (with an agreed value of $260,000).
Operating costs, including staff costs, depreciation and amortization,
totaled $13.32 million for Fiscal 1998 (1997 - $16.24 million). Fiscal 1998
included $2.40 million of operating costs relating to the operations of Pixel,
Unimedia and TopCard. This compares to $0.72 million in 1997 relating to TopCard
and Unimedia.
Total operating costs, excluding operating expenses associated with the
operations of Pixel, Unimedia and TopCard, decreased by $4.6 million for 1998
compared to 1997. During the latter part of 1997, and throughout 1998, we took
steps to substantially reduce costs across all the group operations and these
changes favorably impacted operating costs for 1998.
Onyx Television's operating costs were reduced to $8.24 million in
Fiscal 1998 from $12.0 million in Fiscal 1997. Operating expenses of Onyx
include programming costs, broadcast studio expenses and transmission expenses.
Depreciation and amortization for Fiscal 1998 was $1.41 million
compared to $1.56 million for Fiscal 1997.
As a result of all of the above factors, our operating loss was $10.85
million for the year ended December 31, 1998, compared to an operating loss of
$14.96 million for the same period in 1997.
The increase in other expenses relates to the loss incurred on the sale
of investments in 1998. Interest expense also increased substantially during the
1998 period compared to interest expense in 1997, due to the substantial
increase in borrowings from period to period. Financial income also included a
credit of $2.25 million in respect of foreign exchange gains arising from
currency exchange rates at December 31, 1998 compared to exchange rates at
December 31, 1997 (Fiscal 1997 - $2.51 million charge).
18
<PAGE>
Pixel reported a net profit of $112,000 in Fiscal 1998 compared to a
net profit of $376,000 in the year before acquisition. This result included a
share of the net loss of $74,000 for Henry, compared to a share of net profit of
$137,000 in the year before acquisition.
During Fiscal year 1998, the Tinerama companies had a loss of $308,532,
compared to a loss of $797,770 as restated for Fiscal 1997.
We have significant tax losses in the groups arising primarily from the
operating losses which we have incurred to date in Germany. These tax losses are
available to be carried forward to be set off against future profits in Germany.
However, at the end of 1998, we forecast that we will not be profitable in 1999
and therefore no credit for income taxes was made. We will continue to review
our tax valuation allowance during future periods.
Taking into account all of these factors, the net loss for 1998 was
$10.77 million ($2.69 per basic and per diluted share), compared to a net loss
of $18.37 million ($6.57 per basic and diluted share) for 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The ownership, development and operation of media interests, and
particularly the operation of a television station, requires substantial capital
investment. To date, we have financed our capital requirements through sales of
our equity securities and through debt financing. Since inception through
September 30, 1999, we have incurred an accumulated deficit of approximately
$59.5 million, principally related to the launch and operation of Onyx
Television. At September 30, 1999, we had a negative working capital of
approximately $25.4 million. As described in the Notes to our financial
statements for the nine months ended September 30, 1999, and following the one
for ten reverse stock split effected on October 27, 1999, on a pro-forma basis
at September 30, 1999, as if the conversion of convertible debt into equity had
taken place at that date, we would have had a negative net worth of $2.5 million
and a negative working capital of $5.25 million.
INSTAR LOAN
In October 1996, our UK subsidiary, Capital Media (UK), entered into an
agreement to borrow $2.0 million from Instar Holdings, Inc. to fund our working
capital requirements. Interest was payable monthly on the Instar Loan, at the
rate of 2% above Lloyds Bank base rate until December 31, 1997 and 13% per annum
thereafter. The Instar Loan was guaranteed by Capital Media and Onyx Television
and was secured by a charge on all of Capital Media (UK)'s assets and a pledge
of the stock of Capital Media (UK). Additionally, this same collateral was
simultaneously pledged to support the guaranty by Universal Independent Holdings
Limited of Onyx Television's transponder lease.
19
<PAGE>
On July 21, 1999, Capital Media and Instar settled this loan. Under the
Instar Settlement, we paid Instar $2.2 million and issued to them 200,000 shares
of our common stock. As part of the settlement, Universal agreed that Capital
Media shall no longer be liable to it regarding its guaranty of the transponder
lease. Additionally, as part of the settlement: (i) the liability of Latitude
Investments, Ltd. to Capital Media has been extinguished; (ii) Capital Media and
Instar, Universal and Latitude have entered into mutual releases regarding their
respective obligations in connection with these matters, and (iii) we and
Charles Koppel, our former Chief Executive Officer, have entered into a mutual
general release. As part of the settlement, Instar and Universal have released
their charges against Capital Media (UK)'s assets and the stock of Capital Media
(UK).
EQUITY OFFERINGS BY CAPITAL MEDIA
In 1995, our founders organized Excalibur Communications Limited (n/k/a
(Capital Media (UK)) to develop Onyx Television and to own an interest in
Tinerama Investment AG. In December 1995, our founders exchanged their shares in
Excalibur for shares of our common stock. Simultaneously, in late 1995 and early
1996, we raised net proceeds of $14.4 million in a private placement of our
securities.
On March 3, 1997, we closed a private placement in which we raised net
proceeds of $5.85 million. The funds from this placement were used to fund the
continuing operation of Onyx Television and for general corporate purposes. We
issued an aggregate of 1.2 million shares of our common stock in this private
placement ($5.00 per share), including 400,000 shares of Common Stock subscribed
by Unimedia, S.A. At the time of this private placement, Unimedia was not an
affiliate of Capital Media.
On June 25, 1997, we accepted a subscription for $4.0 million from
Unimedia. In this subscription, we agreed to issue an aggregate of 701,754
shares of our common stock at a purchase price of $5.70 per share. On June 30,
1997, $1,500,000 of the proceeds of the subscription was received by Capital
Media and the balance of $2,500,000 was released to Capital Media from escrow on
July 31, 1997, simultaneously with the closing of the share exchange between
certain of the stockholders of Unimedia and Capital Media, as described below.
In connection with this private placement, we paid Unimedia a fee of $240,000,
which was netted against the purchase price of the shares. At the time of this
private placement, Unimedia was not our affiliate.
Simultaneously with and immediately after this placement, Unimedia
transferred 610,914 of our shares which it owned to eight investors at prices
ranging from $5.70 to $7.50 per share. One of these investors was an entity
controlled by David Ho, who at the time of this transaction was not an affiliate
of Capital Media. That entity, Unbeatable Investments Limited, acquired 438,596
of these shares. None of the other investors who purchased shares from Unimedia
at this time were affiliates of Capital Media or Unimedia. In connection with
the transfer of these shares, Unimedia paid a fee to Valfab for its services in
connection with introducing Unimedia to certain of these investors. The fee
consisted of $195,000 in cash and 10,666 shares of our common stock owned by
Unimedia.
20
<PAGE>
On July 31, 1997, we acquired 50.3% of the outstanding common stock of
Unimedia in exchange for 433,300 shares of our common stock. Stockholders of
Unimedia who did not participate in the first closing of the Unimedia share
exchange had until September 5, 1997 to convert their Unimedia securities into
shares of common stock and on September 5, 1997, we acquired an additional 31.3%
of Unimedia's common stock in exchange for an additional 269,360 shares of our
common stock. Shares issued in the Unimedia share exchange were valued on our
books at $5.70 per share. We acquired Unimedia based on our belief that the
merged entity would cross fertilize Internet development activities and
television distribution in order to poise Capital Media at the convergence of
thematic entertainment television and the Internet. Additionally, Unimedia and
investors identified by Unimedia provided significant financing for use in our
business.
At the time of the closing of the Unimedia share exchange, Unimedia
held 490,840 shares of our common stock. Subsequent to the closing of the
Unimedia share exchange, Unimedia has transferred 324,048 of these shares to
investors in several private transactions, as follows:
SHARES
TRANSFEREE TRANSFERRED
- ---------- -----------
Transferees not affiliated with Capital Media and Unimedia..... 124,448
Stockholders of TopCard(1)..................................... 45,600
Gralec Establishment(2)........................................ 154,000
-------
324,048
=======
- ----------
(1) Shares were transferred to the stockholders of TopCard in connection
with Unimedia's acquisition of 80% of TopCard's outstanding shares.
None of the TopCard stockholders were affiliates of Capital Media or
Unimedia at the time that these shares were transferred to the
stockholders of TopCard.
(2) During the first half of 1998, Unimedia transferred 154,000 shares of
our common stock to Gralec Establishment for an aggregate purchase
price of $500,000. We agreed to register the shares of Common Stock
transferred to Gralec, pursuant to a registration rights agreement, on
or before November 30, 1998, which has not occurred. As part of the
agreement, Unimedia agreed that Gralec may put the shares back to
Unimedia for the purchase price if these shares are not registered.
Since this registration has not taken place, we have agreed with Gralec
to extend the period during which the registration may be completed
until April 1, 2000. In return, we have granted Gralec: (1) a
subscription to purchase 220,000 shares for a purchase price equal to
the net proceeds from the sale of 50,000 ActivCard shares, and (2) an
option to purchase 600,000 shares of our authorized but unissued common
stock at an exercise price of $1.00 per share, which option will be
exercisable until 30 days after the shares of common stock originally
issued to Gralec are registered for resale.
These transfers were effected to raise funds for Capital Media's and
Unimedia's operations and to complete the acquisitions of TopCard and Pixel.
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At the date of this Prospectus, Unimedia continues to own 166,791
shares of our common stock, including 60,000 shares which have been pledged by
Unimedia to Bank Hapoalin to secure Unimedia's guarantee to that bank of certain
indebtedness of Pixel.
Our short term funding requirements were also met during the fourth
quarter of 1997 through direct private placements by Capital Media to four
non-U.S. investors of an aggregate of 79,333 shares of our common stock (raising
$586,000 at prices between $6.00 and $7.50 per share).
In July 1999, we received a letter from Gilles Assouline, our Chairman
and CEO, Anne-Marie Assouline (the wife of our chairman), and an entity
controlled by Mr. and Mrs. Assouline, Diamond Productions, alleging claims under
the Agreement and Plan of Reorganization, dated March 4, 1997, as amended,
between Capital Media, Unimedia, and certain of the stockholders of Unimedia.
Additionally, on July 30, 1999, two of our directors notified Diamond, Gilles
Assouline and Michel Assouline (our Vice President and COO), that we were
asserting a protective claim against each of them under the Unimedia agreement
until the claims raised in the letter can be considered.
After consideration of these matters, our Board and the claimants
concluded that these disputes held the potential of dragging us into substantial
and damaging litigation. As a result, the Board and the claimants determined
that our best interests would be served by resolving these issues at this time.
To accomplish this purpose, on September 22, 1999, we entered into a settlement
agreement with Diamond, Gilles Assouline, Michel Assouline and Anne-Marie
Assouline pursuant to which the asserted claims were withdrawn and Capital Media
and the Assoulines exchanged mutual releases. As part of the settlement, we also
provided the Assoulines with a full indemnity for all claims which may arise in
the future from third parties relating to the Unimedia share exchanges and with
a general release through the date of the settlement agreement.
FUNDS BORROWED SUBSEQUENT TO THE UNIMEDIA SHARE EXCHANGE FROM DAVID
HO AND GROUPE AB
In September 1997, we borrowed $500,000 of short term working capital
from Unbeatable, an entity controlled by David Ho. The debt was payable with
interest of 10% per annum in April 1998 and was convertible into shares of our
common stock at the rate of $5.70 per share.
On January 9, 1998, Capital Media (UK) borrowed an aggregate of
$1,250,000 from Superstar Ventures Limited, which is also controlled by Mr. Ho.
Such loan was evidenced by two 13% Convertible Secured Promissory Notes in the
original principal amounts of $750,000 and $500,000, respectively. Of the
aggregate proceeds, $500,000 was used to replace a loan previously made to
Capital Media (UK) (see above) by Unbeatable. The notes bore interest at the
rate of 13% per annum and were convertible into shares of our common stock on
the basis of one share of common stock for each $5.00 of outstanding principal
and accrued interest on the notes; provided, however, that the notes were not to
be convertible
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until we had held a stockholders meeting to increase our shares available for
issuance to allow for conversion of the notes. The notes were due and payable on
March 31, 1998 and were secured by the same collateral securing the Instar loan,
as well as by pledge of our 81.6% interest in Unimedia.
David Ho received a fee of 20,000 shares of our common stock for
arranging the original loan made by Unbeatable and a fee of 40,000 shares of our
common stock for arranging the January 1998 Superstar loan.
On March 23, 1998, Groupe AB made available to us a line of credit
pursuant to which we borrowed $2,000,000. Outstanding principal and accrued
interest of 13% per annum was originally due and payable on December 31, 1998.
As further consideration for granting the line of credit, Groupe AB was granted
the right, until March 31, 2000, to purchase shares of our authorized but
unissued common stock at a $2.00 per share. On March 25, 1998, Superstar loaned
Capital Media an additional $400,000, payable on the same terms as the line of
credit made available by Groupe AB.
In August 1998, we entered into agreements with Superstar and Groupe AB
pursuant to which Superstar agreed to make available $5.0 million and Groupe AB
agreed to provide cash and services aggregating $6.64 million ($400,000 in cash
which was payable to Capital Media in August 1998 and $6.24 million in services
over a two year period). Such funding was initially in the form of debt (bearing
interest at the rate of 13% per annum), but was automatically to be converted
into equity at the rate of $1.00 per share following approval by our
stockholders of an increase in our common stock available for issuance.
In December 1998, when we did not meet our contractual obligation to
hold a stockholders' meeting to obtain an increase in our common stock available
for issuance by November 30, 1998, Superstar and Groupe AB demanded that we: (i)
reduce the conversion price on all of the outstanding convertible debt of
Capital Media which they held to $1.00 per share; and (ii) that we pay a penalty
of 2% of the outstanding principal amount of the loans (payable in shares at
$1.00 per share) for each month during which we did not hold our special
stockholders meeting. On December 18, 1998, the Board agreed to these changes.
Superstar and Groupe AB also agreed, as part of the amendment to the terms of
their loans, that all of the convertible debt which they then held would
automatically convert into common stock upon the approval by our stockholders of
the increase in our shares of common stock available for issuance.
In March 1999, Groupe AB agreed to fund an additional $6.0 million to
Capital Media for working capital, including the funds required to complete the
settlement of the Instar loan. Such amount was to be funded over a one year
period and would automatically convert into common stock at $1.00 per share.
In May 1999, Groupe AB and Superstar made a loan to Capital Media in
the aggregate amount of $300,000, the proceeds of which were used to fund the
settlement of the Fontal loan. The loan is due in two years and bears interest
at the rate of 10% per annum. In
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connection with the loan, Capital Media granted the lenders a two-year warrant
to purchase 300,000 shares of the Common Stock at an exercise price of $1.00 per
share.
In September 1999, Groupe AB provided a guarantee to a bank for half of
a DM 3 million (approximately $1.6 million) bank facility obtained by Onyx
Television. In connection with the guaranty, we granted Groupe AB a two year
warrant to purchase 810,000 shares of our common stock at an exercise price of
$1.00 per share. In the event the bank guarantee is called upon, we will be
obligated to issue to Groupe AB such number of shares of common stock at $1.00
per share as is equal to the amount paid by Groupe AB under its guaranty.
On October 27, 1999, substantially all of the convertible debt due to
Groupe AB and Superstar was converted into Common Stock and Groupe AB and David
Ho (who controls Superstar) now own 50.3% and 34.0%, respectively, of our
outstanding common stock.
DEBT DUE FROM LATITUDE INVESTMENTS LIMITED
Our balance sheet at December 31, 1998 included a debt due from a
stockholder of $313,691. This amount represented an amount due from Latitude
Investments Limited, one of our founding stockholders. This amount was initially
presented to us as a deposit paid by Latitude to PTT Telecom on behalf of
Capital Media (UK) and Latitude received credit for the amount of such deposit
in connection with its original 1995 subscription to purchase shares of Capital
Media (UK)'s stock (which shares were exchanged for shares of our common stock
in December 1995). We had determined that no deposit was ever paid by Latitude
to PTT Telecom and that therefore the shares of common stock owned by Latitude
were not fully paid as presented. Subsequently, our obligation has been deemed
satisfied as part of our settlement of the Instar loan.
We had been advised by KPN Telecom, formerly known as PTT Telecom, that
Onyx Television owed them approximately $1,060,000. We believed that the amount
due was significantly lower, due to failures in the performance of services by
KPN over the period of the agreement. We had accrued the entire amount allegedly
due to KPN. Additionally, we were advised that KPN had called upon the guaranty
from Universal (see discussion above) and drawn down upon the 500,000 ECU
(approximately $587,000) being held to secure the guaranty. As a result, we owed
the amount paid by Universal back to Universal. Subsequently, we settled our
obligation with KPN Telecom.
In August 1999, Groupe AB made a loan to Capital Media in the aggregate
amount of $327,339, the proceeds of which were used to fund the settlement of
the outstanding amounts due to KPN Telecom. The loan is due in two years and
bears interest at the rate of 10% per annum. In connection with the loan, we
granted Groupe AB a two-year warrant to purchase 327,339 shares of our common
Stock at an exercise price of $1.00 per share.
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LIQUIDITY AND CAPITAL RESOURCES
We believe that additional capital will be required, along with
anticipated revenues from operations, to fund our operations for the next 12
months. We anticipate that the required fundings will be made available by
Groupe AB or Mr. Ho, or from other sources, although we cannot assure you that
the necessary funding will become available. Further, required amounts of
funding will be impacted in part by the level of revenues achieved, particularly
at Onyx Television. We will likely issue additional shares of our common stock,
or shares of the capital stock of our subsidiaries, to meet our anticipated
capital requirements.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process
particular date-based information.
We believe that the software currently being used in our operations is
either year 2000 compliant or can be upgraded to bring it into conformity with
year 2000 requirements without a material cost to us.
INDEPENDENT AUDITORS
PricewaterhouseCoopers was our independent auditors for the fiscal year
ended December 31, 1998. We believe that PricewaterhouseCoopers has the
personnel, professional qualifications and independence necessary to act as our
independent auditors.
Deloitte & Touche ("Deloitte & Touche"), which served as our
independent auditors during the fiscal years ended December 31, 1995, 1996 and
1997, resigned as our independent auditors effective on February 18, 1999. In
connection with their audits of our financial statements for each of the two
fiscal years ended December 31, 1997 and 1996, and in the subsequent interim
periods preceding their resignation, there were no disagreements between us and
Deloitte & Touche on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedures which, if not
resolved to the satisfaction of Deloitte and Touche would have caused them to
make reference to the subject matter of the disagreement(s) in connection with
their report. Deloitte and Touche's audit reports for 1997 and 1996 contained
explanatory paragraphs as to the going concern and as to the outcome of certain
litigation against us.
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BUSINESS
GENERAL
THE STATISTICAL AND OTHER INFORMATION CONTAINED IN THIS SECTION HAS
BEEN DERIVED FROM KABEL & SATELLIT, A PUBLICATION IN GERMANY FOCUSING ON THE
CABLE AND SATELLITE INDUSTRY. WE ALSO RECEIVE INFORMATION FROM DEUTSCHE TELEKOM,
PRIVATE CABLE OPERATORS, SATELLITE OPERATORS AND EUTELSAT SUPPORTING OUR
DISTRIBUTION AND MARKET INFORMATION.
Our primary business is the broadcasting operation of Onyx Television,
which operates an advertiser supported music and entertainment television
station in Germany dedicated to adults. Onyx Television commenced broadcast
operations in January 1996, and its broadcasting signal is currently received in
approximately 11 million cable homes and an indeterminate number of satellite
homes in Germany and surrounding countries. We operate Onyx Television in a
strategic alliance with our majority stockholder, Groupe AB, a large French
television production company. Groupe AB provides Onyx Television with
significantly all of Onyx Television's broadcasting requirements.
We also have interests in three other businesses: (1) Pixel, which
specializes in computer graphics and 3D animation for TV packaging, digital
broadcasting and special effects; (2) TopCard, a software development business
which is engaged in the development of mass transit and e-banking applications
based upon smart card, e-payment technology (including secured authentication
Internet access and hybrid, contactless and infra-red smart- card technology)
and (3) Unimedia, which intends to develop in the future a software platform for
Internet entertainment and gaming.
ONYX TELEVISION
PROGRAMMING
Onyx develops, acquires and exhibits on its network a variety of music
videos, interviews and topical specials. Programming focuses on a distinctive
mix of jazz, blues, classical, country and popular German music, and current and
recurrent pop and rock. Programs are acquired from a variety of sources or
produced internally. Acquired programming includes music videos, concert footage
and other live performance material. Record companies and the music industry
supply this programming to Onyx for a variety of fees ranging from nominal
handling charges for videos to negotiated license fees for live footage. Onyx's
internal productions include interviews and topical specials that range from
profiles of specific artists to genre defined shows such as JAZZ ONYX, ONYX
COUNTRY CLUB, JUKEBOX (a slot for music programmed by the viewers), ONYX VOYAGE
and ONYX OVERTURE (classical). Onyx also broadcasts infomercials (teleshopping)
on its television station.
We are in the process of broadening the focus of our programming format
to increase our viewing audience. Our music only format is being transformed
into "music entertainment" programming. While music will likely remain the core
element of our
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programming, we intend to include movies, moderated shows, financial news,
additional teleshopping, thematic shows (fashion, modern art, erotic, comedy)
and documentaries in our daily programming.
Our new programming will maintain our high quality content and
technical presentation. We expect to work with Groupe AB in developing
programming that attracts new viewership and increases the frequency of viewing
for our current audience. We also plan to use Onyx Television's website to
assist in introducing our new programming.
DIGITAL TELEVISION
In September 1999, Onyx Television received a license from German media
authorities to broadcast five channels on the German digital cable network. We
intend to offer premium programming alternatives on these channels in
conjunction with Groupe AB, which was awarded an additional seven channels.
These "pay" channels will offer our target audience flexibility and options to
meet their viewing preferences.
We expect to use Onyx Television's "free" cable programming and its
website to promote our digital channels and educate our target audience on new
viewing possibilities. We will work in conjunction with Groupe AB to develop our
digital subscriber-based programming. We intend to utilize Groupe AB's digital
platform for transmission on the German digital cable network.
Although we have received a license for channels on the German digital
cable network, we must still negotiate with German cable networks to include our
channels on their cable. We expect to bundle our channels with digital channels
offered by Groupe AB in order to present a more attractive programming package
for cable networks. The terms of our relationship with Groupe AB in this regard
has not yet been determined.
"Pay" television programming has only recently been introduced to
German television. We cannot assure you that this type of programming will be
accepted by the German viewing market.
ONYX WEBSITE
We are dedicated to making Onyx Television's website (www.onyx-tv.de)
an integral part of our business. We view the Internet as a potential source of
revenue and additional marketing. Through enhancements of our websites
entertaining format, we are seeking to transform this website into an online
extension of Onyx Television's currently available services. Our website is
currently totaling approximately 30,000 hits per month.
Our website serves as a natural promotional source for our free cable
programming and will, in the future, promote our subscriber-based services. We
are able to offer online previews, reviews and scheduling for our programming.
As our website usage increases, we intend to try to build an online community
with brand loyalty.
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Our goal is to develop creative interactive links that cater to the
interests and preferences of our target audience. We have intensified our search
for e-commerce partners. Our e-commerce strategy will focus on the establishment
of an "on demand format." Books, CDS, DVDs, videos, entertainment tickets and
travel services can be marketed on our website to our target audience. We
believe the sale of these products to attract advertisers and sponsors. We also
intend to make entertainment news and information instantly available.
TARGET MARKET AND DISTRIBUTION
Our target audience in Germany for Onyx's programming is adults in the
20 to 55 year old age group. The target audience is believed to be one of the
largest demographic segments in Germany. At present, we believe that our target
audience is comprised of an estimated 35 million people, equating to
approximately 40% of the population. We believe that the members of our target
audience watch more television than any other demographic group in Germany. The
purchasing power of our target audience is often high, which should attract
advertisers for our programming.
Germany is the largest cable television market in Europe, with a
population of over 82 million people and approximately 33.0 million households.
Cable television distribution systems covered approximately 24.0 million homes
and served over 17.8 million cable subscribers as of June 30, 1998. The German
cable television market is substantially built- out. As of December 31, 1997,
cable television systems covered approximately 75% of the households in Germany.
Additionally, as of August 31, 1998, Germany had approximately 11.4 million
homes served by direct-to-home satellite-delivered television services and
satellite master antenna television systems.
As of October 31, 1999, Onyx's broadcast signal was distributed to
approximately 11 million cable homes in Germany, compared to 6.7 million homes
as of August 31, 1997. In addition, Onyx's signal is received by an
indeterminate number of homes in Germany which are covered by direct-to-home
satellite systems.
Television is the fastest growing media in Germany, with advertising
revenues having increased from DM 1.4 billion ($0.9 billion) in 1984 to DM 12
billion ($1.2 billion) in 1997. During this same period, television advertising
revenue as a percentage of total advertising revenue has increased from
approximately 10% in 1984 to approximately 24% in 1997. Cable and satellite
television programming's share of television advertising revenue has increased
to approximately 90% since its introduction in Germany in 1984.
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ADVERTISING REVENUE
Primarily all of Onyx Television's current revenues come from the sale
of spot advertising time and from teleshopping. In addition to providing access
to cable households in general, we believe that Onyx Television will in the
future be attractive to advertisers because it offers one of the most cost
effective means of reaching our target audience. We believe that distribution,
marketing and audience awareness, and an effective advertising sales force, are
key to achieving success in the advertising sales market.
In August 1998, Onyx entered into an agreement with a large independent
media company in Germany to act as Onyx's sales agent in Germany. Under the
agreement, which is for a four year period, the sales agent will be paid
commissions based upon the revenues derived from the commercials broadcast on
the station. Onyx has also recently added an in-house sales manager to
coordinate ad-sales activities, in-house marketing, sponsorship and e- business.
The demand by advertisers for advertising time on Onyx Television, and
therefore its operating results, are and will be affected in the future by
general economic conditions, the demographic characteristics of the audiences
viewing Onyx Television's broadcasts, the activities of its competitors, our
ability to provide evidence to advertisers with regard to the size of Onyx
Television's viewing audience, and other factors, as well as trends in the
advertising industry. To date, Onyx Television has not obtained a substantial
amount of advertising revenue from commercials. We cannot assure you that Onyx
Television will ever achieve sufficient levels of advertising revenue to make
the station profitable and cash flow positive.
In addition to advertising, we are seeking to increase sponsorship
revenue. We also expect our website to generate additional advertising revenue
as it becomes more popular and we believe that the future addition of
merchandise sales to our website will attract additional advertisers.
GOVERNMENTAL REGULATION
We must continue to obtain and maintain the approval of German Landes
Medienanstalten (Local Media Authorities or "LMAs") in order to distribute Onyx
Television through German cable systems. These LMAs have authority to approve
programming lineups for cable systems in the 16 German regions known as
"Bundeslanders." Members of the LMAs are appointed by local government.
Currently, Onyx Television's channel has been granted the right or partial right
to distribute programming through cable networks located in all 16
Bundeslanders.
The number of channels available to a cable system in Germany is
currently limited by analog technology to 30 to 35. The success of Onyx
Television is dependent in part upon maintaining its approval and good relations
with each of the LMAs who have agreed to allow broadcast of Onyx Television on
their cable system (both to maintain existing distribution
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and to seek additional distribution on those cable systems). Because decisions
on distribution are made annually by each LMA, we cannot assure you as to the
distribution which Onyx Television might obtain in any year and from year to
year.
Onyx Television has recently been reissued its broadcast license in the
state of Nord-Rhine Westphalia, which has allowed Onyx Television, as of
October 1999, to move its headquarters to Cologne, the leading city for media
business in Germany.
In 1999, the German media authority began licensing proceedings for 70
nationwide digital cable channels. In September 1999, we received a license for
five channels on the German digital cable network. We must now obtain
commitments from German cable operators to provide our channels and programming.
There can be no assurance that we will obtain those commitments.
Television broadcast operations in Germany are subject to extensive
government regulation. This governmental regulation controls, among other things
/bullet/ the issuance, renewal, transfer and ownership of station
licenses,
/bullet/ the timing and content of programming,
/bullet/ the timing, content and amount of commercial advertising
permitted and
/bullet/ the determination of which stations will be permitted to
broadcast on a particular cable system.
Germany also has regulations requiring that a particular percentage of
programming be produced or originated in local markets, which may affect us in
the future. Further, Onyx Television may in the future seek to expand in other
countries. This expansion may expose Onyx Television to substantial additional
government regulation in these countries.
Political initiatives which are being taken by the European Union to
increase the amount of European-produced programming which is being broadcast
may impact Onyx television. These political initiatives could effect the types
of programming which Onyx Television may broadcast and the costs associated with
this programming. We cannot assure you as to the ultimate outcome of these
matters and their effect on Onyx Television.
The German media authorities must approve any substantial change the
ownership of Onyx Television or the ownership of its stockholders. These
authorities will examine the effect of this ownership change on the ownership
concentration in the overall German television industry. We have recently
received approval of the increased ownership interest which has now been taken
in Capital Media by Groupe AB and David Ho. The failure of the German media
authorities to approve future changes in ownership would likely result in the
suspension and/or revocation of Onyx Television's broadcast licenses. A
suspension and/or revocation of Onyx Television's broadcast licenses would have
an adverse effect on our financial condition.
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COMPETITION
Competition is intense among companies providing programming services
via cable television in Germany. Onyx Television must compete for both viewers
and for the right to distribute programming over the various cable television
networks throughout Germany. A number of German cable television networks
provide programming designed to reach Onyx Television's target audience. The
competition for viewers includes broadcast television stations, satellite and
wireless programming services, radio, print media and the Internet. In
connection with its music programming and teleshopping, we compete with other
broadcast operators which provide similar programming, including VH-1. Many of
our competitors have significantly greater resources than we do.
Additionally, increased competition for viewers in the German cable
industry may result from the availability of additional channels and
programming. This availability has been made possible by technological advances,
such as digital compression technology, which allows cable systems to expand
channel capacity, the deployment of fiber optic cable, which has the capacity to
carry a much greater number of channels than coaxial cable, and "multiplexing,"
in which programming services offer more than one feed of their programming. The
increased number of choices available to our target audience as a result of
these technological advances could impact the number of persons watching Onyx
Television's programming.
STRATEGIC ALLIANCE
In July 1998, we entered into a two-year services agreement (the
"Services Agreement") with a subsidiary of Groupe AB under which Groupe AB
provides technical services to Onyx Television, including, among other services:
(1) use of a transponder aboard a satellite of the EUTELSAT type, (2) uplink
facilities, (3) all transmission services to the cable head ends of each of the
German cable television networks over which our programming is broadcast, and
(4) use of a master control room and other transmission facilities required to
operate Onyx Television. Additionally, we receive $60,000 per month in cash from
Groupe AB so that we may pay the costs of transmitting our broadcast signal over
telephone lines to decoders at the cable ends. In return for these services and
this investment, we are obligated to issue 260,000 shares of our common stock
per month to Groupe AB (having an agreed value of $260,000).
In that regard, effective October 1, 1998, Onyx Television's signal
began to be broadcast on EUTELSAT, a digital satellite transponder used by
Groupe AB, and Groupe AB commenced providing Onyx Television with an uplink
facility and with the other services contemplated by the Services Agreement.
Over the last year, our executive management has taken significant
steps to reduce the costs associated with the operations of Onyx Television. The
strategic alliance between Onyx Television and Groupe AB is expected to result
in an annual saving of approximately
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$2.0 million in overhead expenses annually from the level of operating expenses
previously incurred by Onyx. See "Management's Discussion and Analysis."
Our relationship with Groupe AB will also be critical to the success of
our digital cable channels. We will utilize Groupe AB's digital platform for
transmission on the German digital cable network. Groupe AB will continue to
provide us technical assistance and guidance in the development of our digital
cable operations. We also expect to bundle our channels with digital channels
offered by Groupe AB in order to present a more attractive programming package
for cable networks.
OTHER BUSINESSES
UNIMEDIA
On July 31, 1997, we acquired 50.3% of the outstanding common stock of
Unimedia in exchange for 433,330 shares of our authorized but unissued common
stock. Stockholders of Unimedia who did not participate in the first closing of
the Unimedia share exchange had until September 5, 1997 to exchange their
Unimedia shares for Capital Media shares and on September 5, 1997, we acquired
an additional 31.3% of Unimedia's common stock in exchange for an additional
269,360 shares of our authorized but unissued common stock. Shares issued in the
these share exchanges were valued at their fair value as of September 5, 1997
($5.70 per share).
At the time that we acquired an 81.6% interest in Unimedia, it was a
development-stage company. Its operations mainly consisted of the development of
on-line applications for home shopping and gaming. Projects under development at
that time included (i) the creation of specific entertainment sites and several
multi-player games, (ii) the promotion of TV packaging activity and (iii)
distant interactive education.
Unimedia also owned at that time minority equity positions in several
companies which Unimedia believed had progressive Internet, smart card and
advanced software technologies. Our objective was to be involved in the
development of these products and future distribution while securing enabling
front edge Internet technologies to acquire a competitive advantage on
applications under development. To that date, its acquisition activities had
been comprised principally of the acquisition of interest in companies like
ActivCard, Pixel, TopCard, Internet Way and Enanti, whose technologies include
remote security and authentication technology, sales automation, Internet access
and intra-red contactless Smart Card technology.
Unimedia had revenues of $327,726 and $93,815, respectively, for 1996
and the first six months of 1997. Unimedia had a net loss of $3,399,283 for 1996
and net income of $437,730 for the first six months of 1997 (much of which was
derived from the sale of investments). At June 30, 1997, Unimedia had total
assets of $11.0 million, including $6.2 million in investments, liabilities of
$7.5 million and stockholders' equity of $3.5 million.
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At July 31, 1997, Unimedia: (i) held a 10% minority interest in TopCard
and was seeking to acquire the remaining balance of TopCard's outstanding
shares, (ii) had made a $2.5 million loan to Pixel, (iii) held a minority
interest in ActivCard, S.A. ("ActivCard"), a French company that has developed
remote security and authentication token technology, and was acting as a
distributor of ActivCard's technology, and (iv) held a minority interest in
several other companies, including Enanti Corp., a Florida company with
technology for Internet sales automation and contact management, and Internet
Way, a French Internet service provider. Unimedia had eight employees at July
31, 1997. At the time that we acquired an interest in Unimedia, Unimedia was
also in the beginning stages of seeking to develop a software platform for
Internet gaming.
Subsequent to our acquisition of an interest in Unimedia, Unimedia has
acquired an additional 80% interest in TopCard and acquired 100% of Pixel Ltd.,
on the terms more particularly described below. Unimedia continues to run both
of those companies. Unimedia has also sold its interests in ActivCard, InterNet
Way, and has discontinued its involvement in distributing ActivCard's
technology.
In addition to operating TopCard and Pixel, Unimedia is continuing to
pursue the development of a software platform for Internet gaming and
entertainment. To date, in furtherance of this objective, we have engaged the
services of a consultant, Valfab, which provides the services of Jacques Dubost,
a consultant to the casino industry and the former manager of two famous casinos
in Cannes, France and in Monte Carlo. Such business is extremely competitive and
no assurance can be given that Unimedia will be successful in entering this
business.
PIXEL, LTD.
On February 12, 1998, Capital Media, Unimedia, and Pixel Multimedia
Ltd. consummated the transactions contemplated by an agreement executed on that
date and effective as of January 1, 1998. Pixel Multimedia previously owed
Unimedia $2,700,000 for loans made to Pixel Multimedia and for other expenses.
As part of the transaction, Unimedia purchased the outstanding stock of Pixel
Ltd., an Israeli company, from Pixel Multimedia. Pixel specializes in computer
graphic and 3D animation for TV packaging, digital broadcasting and special
effects. Pixel also owns a 47.5% interest in Henry Communication Ltd., a service
company operated in a joint venture with Video Broadcast SB Ltd., an Israeli
broadcasting company. Pixel has, in addition, a contractual relationship with
Israel Cable Programming Company Ltd., providing TV packaging and animation
programming for the cable operators in Israel, utilizing Pixel's digital editing
systems and located in Israel Cable Programming's studio facilities. As part of
the transaction, Pixel also purchased software previously developed for Unimedia
by Pixel Multimedia for use in connection with the development of our and
Unimedia's proposed entertainment and gaming software platform.
The consideration provided in connection with Unimedia's acquisition of
Pixel, in addition to the software described above, consisted of: (i)
forgiveness of $1.7 million of the debt owed by Pixel Multimedia to Unimedia and
(ii) the assumption by Pixel (guaranteed by
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Unimedia and Capital Media) of Pixel Multimedia debt not exceeding $750,000 due
to a financial institution. Additionally, Pixel Multimedia may receive up to
60,000 shares of our Common Stock owned by Unimedia if performance objectives
are achieved by Pixel. These shares have been pledged by Unimedia to the
financial institution to secure Pixel's debt to the financial institution. The
remaining $1,000,000 owed by Pixel Multimedia to Unimedia was to be forgiven if
future performance objectives were achieved by Pixel. These performance
objectives were not reached and consequently the amount is still owed by Pixel
Multimedia.
Pixel is not affiliated, directly or indirectly, with Pixar, the
Richmond, California digital animation studio run by Stephen Jobs.
TOPCARD, S.A.
On November 1, 1997, Unimedia acquired an additional 80% interest in
TopCard, a French company engaged in the design and manufacture of hybrid,
infra-red and contactless smart card technology for use in mass transit,
e-commerce and e-payment applications. Unimedia had previously owned 10% of the
outstanding stock of TopCard and, after this transaction, Unimedia owns 90% of
the outstanding stock of TopCard. The purchase price paid by Unimedia for the
80% interest consisted of the transfer of 45,600 shares of our common stock
owned by Unimedia to TopCard's stockholders and $150,000 in cash.
TopCard is also developing secure access smart card technology required
for processing online transactions. TopCard has agreements to export its smart
card technology based turnkey solutions to Russia and China for use in securing
access to mobile phone applications and prepaid Internet services, respectively,
and is presently in a pilot project with the European Union to develop a secure
decrementing value card system (an electronic purse).
LONG TERM BUSINESS STRATEGY
Our long term strategy is to become a leading provider in Europe of
digital interactive and/or thematic multimedia entertainment programs and
on-line services through conventional media, such as television and cable, and
the Internet. Our future digital cable channels and the development of our
website are the initial steps in implementing our strategy. We believe that over
time, we will be able to maximize our opportunities by cross fertilizing the
conventional aspects of our media business with our proposed new media
development and activities by finding applications for programming in new arenas
(such as the Internet). We also hope 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.
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DISCONTINUED OPERATIONS AND DIVESTMENTS
TINERAMA
We own a 51% interest in a holding company, Tinerama Investment AG
(TIAG), which, in turn, controls five corporations operating a media business in
Romania. The remaining interest in each of the Tinerama operating companies is
owned by Tinerama's founder, Max Banush, and by local investors. Mr. Banush
operates the business. TIAG is owned 51% by us and 49% by Telor International
Ltd., an entity controlled by Karl Hauptmann, one of our former directors. We
are in the process of selling our interest in TIAG.
BLINK TV
Blink TV is a specialist TV programming vehicle which provides
lifestyle programming on large video screens at UK concert events. This
programming consists of music videos, style and fashion, and extreme sports,
which is broadcast as a 30 minute segment immediately before live performances.
Blink TV has installed video screens and projection equipment at five major UK
concert venues in order to offer programming at these venues.
We previously owned a 50% interest in Blink TV. The balance is owned by
RCL Communications, Ltd. In December 1999, we sold our 50% interest in Blink to
RCL for a nominal sum and converted our /pound sterling/130,000 (approximately
$200,000) of existing loans to Blink into new non-voting redeemable equity.
Following this change we own approximately 19% of Blink, and, if successful in
the future, Blink will be obligated to repay the monies we converted into equity
back to us. There can be no assurance that this will ever occur.
PERSONNEL
At December 31 1998, we employed 77 persons, 23 of whom were employed
by Onyx Television, 24 of whom were employed by Tinerama, three of whom were
employed by Blink TV, 23 of whom are employed by Unimedia, Top Card and Pixel,
and four of whom were employed in administrative, financial and managerial
positions on behalf of the combined operation.
PROPERTIES
Our Chairman resides in France and our headquarters are temporarily
located in France. We intend to organize a French branch, CMG France, to operate
as a party to our activities in France and to serve as a temporary
administrative agent for us in France until such time as we relocate our
headquarters to another jurisdiction. Prior to September 1998, our principal
executive office was located in leased office space in London, England.
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CMG France, when organized, will share office space with Unimedia
(Unimedia has entered into an agreement with us to allocate office space and
office costs among the two companies). Unimedia leases office space in
Charenton, France.
Onyx Television leases administrative offices in Cologne, Germany.
Tinerama owns a building and, in addition, leases administrative offices and
print works in Bucharest, Romania. Blink TV leases offices in London. TopCard
leases office space in Aix-en- Provence, France and Pixel leases offices in Tel
Aviv, Israel. For information regarding our financial obligations under its
leases, see Note 10 to Notes to Consolidated Financial Statements.
LEGAL PROCEEDINGS PENDING, THREATENED OR SETTLED
Capital Media (UK) was sued in 1995 by COM TV Production Und Vertrieb
GmbH and Nen TV Limited ("NEN"). This suit, which we vigorously contested,
sought an interest in Onyx Television under an alleged agreement among the
parties. In December 1997, the parties entered into an agreement to settle this
suit. As part of the settlement, Onyx agreed to pay the plaintiffs DM50,000
($30,000). Additionally, the settlement allowed NEN the right to introduce a
client to Onyx within one year of the settlement to use the broadcast downtime
on the Onyx Television station, and to receive a fee for any such introduction.
However, no client was ever introduced to Onyx by NEN.
In June 1997, a former managing director of Onyx Television whose
employment was terminated brought suit in Germany for alleged wrongful early
termination of his employment. The suit sought damages of DM750,000 ($450,000).
Onyx maintained that the action which it took with respect to this employee was
lawful and in July 1998, the court ruled in favor of the Onyx Television. The
plaintiff has the right to appeal and Onyx Television believes that it has valid
defenses to this claim. However, we cannot assure you as to the outcome of this
matter.
In May 1998, TV Strategies, a Dallas based television services company,
obtained a default judgment against Onyx Television for DM300,000 ($180,000),
plus interest, relating to services which TV Strategies alleges that they
provided to Onyx. In March 1999, the default judgment was set aside by the Texas
Appeals Court and the time for TV Strategies to appeal the decision of the
appellate court expired in April 1999. We are vigorously defending this claim
and believe, based upon discussions with our counsel, that we have meritorious
defenses to the suit. No opinion of counsel has been obtained with respect to
this matter and we cannot assure you as to the outcome of this matter.
In July 1998, we were sued in the U.S. District Court for the District
of Nevada by Fontal Limited ("Fontal") for breach of a promissory note. We
believe that Fontal is controlled by Marc Degarni, who is one of our
stockholders and who previously represented to us that he is a stockholder in
Unimedia (through an entity, Atlas Investments, although that entity has advised
Unimedia that it is now represented by another individual, Roland Pardo). Mr.
Degarni is also a former director of Capital Media (UK).
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Under the note, we owed Fontal $200,000, plus accrued but unpaid
interest. We had pledged the rights to trademarks for the International Onyx
name and branding outside of Germany, Switzerland and Austria to Fontal to
secure repayment of this note. In June 1999, the Fontal litigation was fully
settled for $327,500 (including interest and costs) and the related promissory
note was satisfied. This suit has now been dismissed with prejudice.
Unimedia has three minority stockholders (Oradea Inc., represented by
its chairman, Alfonso Lodolo D'Oria, Roland Pardo and Atlas Investments) who
have previously advised Unimedia that they do not believe that the summer 1997
reorganization of Unimedia with us was in the best interest of Unimedia and its
stockholders. These stockholders have brought numerous legal actions against
Unimedia and/or its management (which is also now, in part, the senior executive
management of Capital Media) contending that the past and future activities of
Unimedia are not in the best interest of Unimedia's stockholders and were not
being engaged in for the benefit of Unimedia and its stockholders. To date, such
suits have not been successful. In addition, the French courts have to date
rejected all requests to appoint experts in judgment to review Unimedia's
management's actions.
Oradea Lodolo, and Pardo had also taken action through the courts in
France and Israel to attempt to safeguard their potential rights over assets of
Unimedia in order to secure payment of their unsecured loans due from Unimedia.
See Note 8 of Notes to Consolidated Financial Statements. In connection with
such actions and based upon the fact that the notes did not by their terms
reflect a repayment date, the court established a payment plan for Unimedia to
repay these loans in installments, and such loans have now been repaid in full.
Unimedia is also preparing actions against Oradea and against Messrs. Lodolo and
Pardo for damages which it believes have been caused by reason of Oradea, Lodolo
and Pardo's inappropriate actions against Unimedia.
We own 81.6% of Unimedia, and intend to operate and continue the future
development of Unimedia's business in the best interest of Unimedia's
stockholders, including us. Additionally, we have been funding Unimedia's cash
flow requirements, and in that regard, Unimedia has pledged its stock interest
and loan in Pixel to us to secure repayment of that obligation. To the extent
that such minority holders disagree with the business decisions made by
Unimedia's management in the future, including the use by Unimedia of funds
available to Unimedia which might be used in joint projects between us 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 us and Unimedia. Further, any such
litigation would be time consuming and costly to Unimedia (and thereby to us,
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.
Charles Koppel, our former chairman and CEO, had a service agreement
with us under which he was entitled to an annual base salary of /pound
sterling/100,000 (approximately $160,000). On March 12, 1998, we resolved a
dispute with Mr. Koppel regarding his agreement. In connection with the
settlement of this dispute, we paid Mr. Koppel /pound sterling/60,000.
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In August 1998, Onyx Television sued Charles Koppel in Germany. The
suit alleged that certain of Mr. Koppel's actions as the managing director of
Onyx Television were improperly performed. In connection with the settlement of
the Instar loan, we and Mr. Koppel exchanged mutual general releases and all of
the suits between us and Mr. Koppel have now been dismissed with prejudice.
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MANAGEMENT
The following persons presently serve as our directors and executive
officers:
NAME AGE POSITION
- ---- --- --------
Gilles Assouline 43 Chairman, President, Chief Executive Officer
Michel Assouline 39 Director and Chief Operating Officer
David Ho 50 Director
Jean-Francois Klein 33 Director
Patrick Ho 42 Director
Stephen Coleman 51 Chief Financial Officer
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
Gilles Assouline was, along with his brother, Michel Assouline, a
founder of Unimedia in July 1995. Prior thereto, for more than five years,
Gilles Assouline was the founder and managing director of several consulting,
software and media companies. See "Certain Relationships and Related
Transactions."
Prior to July 1995, for more than five years, Michel Assouline was
employed by Thomson-CSF in various executive capacities, including having
responsibility for business development at the corporate level. Prior to joining
Thompson in 1990, Michel Assouline was a management strategy consultant. See
"Certain Relationships and Related Transactions."
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. Mr. Ho is also a director of Regency Worldwide Holdings Limited.
See "Certain Relationships and Related Transactions."
Jean-Francois Klein has been employed by Groupe AB for more than the
last five years and is currently Vice President and Chief Financial Officer of
Groupe AB. See "Certain Relationships and Related Transactions."
Patrick Ho is the President of Caltex South China Investments Limited,
where he has been employed for more than the last five years. Mr. Ho is also a
director of Regency Worldwide Holdings Limited. Patrick Ho is the brother of
David Ho. See "Certain
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Relationships and Related Transactions" and "Business Experience of Directors
and Executive Officers."
Stephen Coleman was appointed our Chief Financial Officer in November
1996. From March 1993 until November 1996, Mr. Coleman was Director of Finance
at Lightworks Editing Systems, a United Kingdom digital editing systems designer
and manufacturer which was acquired by Tektronix, Inc. in 1995. Mr. Coleman is a
Fellow of the Association of Chartered Certified Accountants in the United
Kingdom.
COMMITTEES OF THE BOARD
Our Board of Directors has established Committees to assist it in the
discharge of its responsibilities. These Committees, their principal
responsibilities, and the current members of each are described below.
AUDIT COMMITTEE. The Audit Committee, which consists of David Ho,
Patrick Ho and Jean Francois Klein, recommends the firm to be appointed as
independent accountants to audit our financial statements and to perform
services related to the audit, reviews the scope and results of the audit with
the independent accountants, reviews with management and the independent
accountants our year-end operating results and considers the adequacy of our
internal accounting procedures.
COMPENSATION COMMITTEE. The Compensation Committee, which consists of
David Ho, Patrick Ho and Jean Francois Klein, reviews and recommends the
compensation arrangements for all directors and officers and approves such
arrangements for other senior level employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
To our knowledge, no compensation committee interlocks currently exist
between our management and its directors.
BOARD COMPENSATION
Our directors receive no compensation for their services as a director.
However, directors are sometimes reimbursed for travel expenses incurred in
attending meetings of the Board of Directors and its committees.
On March 10, 1998, the Board of Directors granted options to purchase
an aggregate of 400,000 of our common stock at an exercise price of $3.50 per
share (the fair market value of our common stock on the date of grant). Messrs.
Gilles Assouline, our Chairman and Chief Executive Officer, Michel Assouline,
our Chief Operating Officer, Stephen Coleman, our Chief Financial Officer and
Barry Llewellyn, then our Vice President and a Director, were each granted
options to purchase 100,000 shares. Of each 100,000 share option grant, options
to purchase 20,000 shares vested immediately, with the remaining options vesting
in
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equal portions over the next three years (in that regard, 80,000 of the options
which were issued to Mr. Llewellyn have lapsed due to his resignation in
September 1998).
Additionally, on the same date, each of our non-employee directors was
granted an option to purchase 10,000 shares of Common Stock at an exercise price
of $3.50 per share. An aggregate of options to purchase 50,000 shares were
granted to our non-employee directors. These options vested immediately.
CONSULTANTS
Jacques Dubost, age 69, acts as consultant on behalf of his company,
Valfab S.C.B., for Unimedia and us, with respect to gaming and funding matters.
Mr. Dubost has over 40 years of experience in the gaming industry. Over that
period, Mr. Dubost owned and operated a hotel casino in Dieppe, France and
managed several other casinos, including the Monte-Carlo casino in Monaco and
the Palm Beach Casino in Cannes, France.
In 1997, Valfab received the following fees relating to introducing
investors to Unimedia who purchased our common stock from Unimedia (a) $195,000
in cash (b) 10,666 shares of our common stock with a $64,000 value. See
"Management's Discussion and Analysis -- Financial Condition, Liquidity and
Capital Resources." Further, if Valfab introduces investors to us in the future,
Valfab will receive commissions not to exceed 8% of the investment made.
Valfab has also received (and will receive in the future) commissions
for services relating to our and Unimedia's on-line gaming and entertainment
activities. It can be anticipated that a portion of any fees paid to Valfab will
be paid in shares of our common stock.
FAMILY RELATIONSHIPS
Gilles Assouline, our Chairman, President and Chief Executive Officer,
and Michel Assouline, our Chief Operating Officer and a director, are brothers.
Additionally, two of our directors, David Ho and Patrick Ho, are brothers.
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SUMMARY COMPENSATION TABLE
The following table sets forth information about the compensation paid
or accrued during 1998 to our Chief Executive Officer and to each of the other
of our most highly compensated executive officers whose aggregate direct
compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------- -----------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME YEAR ($) ($) ($) (#) ($)
- ---- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Gilles Assouline 1998 250,000 100,000 --
1997 104,000 -- -- (1)
Michel Assouline 1998 200,000 100,000 --
1997 83,000 -- -- (1)
Stephen Coleman 1998 200,000 100,000 --
1997 160,000 -- --
Charles Koppel 1997 110,000 -- -- -- 100,000(2)
Barry Llewellyn 1998 75,000 20,000 20,000(3)
1997 160,000 -- -- --
</TABLE>
- ----------
(1) Gilles Assouline and Michel Assouline received in 1997 under their
employment agreements (see "Employment Agreements with Executive
Officers" below) a grant of 20,000 shares and 17,500 shares,
respectively, and warrants to purchase 20,000 shares and 17,500 shares,
respectively.
(2) Settlement of amounts due under Service Agreement. See "Business -
Legal Proceedings" above.
(3) Settlement of amounts due under Service Agreement. No longer employed
by Capital Media or its subsidiaries or affiliates.
OPTION GRANTS DURING LAST FISCAL YEAR
The following table sets forth information concerning options to
purchase pre Reverse Split shares of our Common Stock granted during the fiscal
year ended December 31, 1998 to those persons named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SHARE) DATE
---- ------------------ ----------------- --------------- ------------
<S> <C> <C> <C> <C>
Gilles Assouline.............. 100,000 25% $3.50 3/10/03
Michel Assouline.............. 100,000 25% $3.50 3/10/03
Stephen Coleman............... 100,000 25% $3.50 3/10/03
Barry Llewellyn(1)............ 100,000 25% $3.50 3/10/03
</TABLE>
- ----------
(1) No longer employed by us. Unvested portion of these options (80,000
shares) have been forfeited.
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<PAGE>
AGGREGATED OPTIONS EXERCISED, LAST FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the exercise of
stock options to purchase shares of common stock during the 1998 fiscal year and
the value of unexercised stock options to purchase shares of common stock at the
end of the 1998 fiscal year for the persons named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR END FISCAL YEAR END($)*
-------------------------- --------------------------
NUMBER OF SHARES
ACQUIRED ON
NAME EXERCISE VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------ ------------------ -------------------------- --------------------------
<S> <C> <C> <C> <C>
Gilles Assouline..... -- -- 32,000/88,000 0/0
Michel Assouline..... -- -- 30,500/87,000 0/0
Stephen Coleman...... -- -- 50,000/80,000 0/0
Barry Llewellyn(1)... -- -- 20,000/0 0/0
</TABLE>
- ----------
* Computed based upon the difference between the closing price of our
Common Stock at December 31, 1998 and the exercise price. No value has
been assigned to options which are not in-the-money.
(1) No longer employed by us. Unvested options have been forfeited.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
We have entered into three-year employment agreements with Gilles
Assouline and Michel Assouline, effective August 1, 1997, providing for them to
receive the following compensation for their services on our behalf: (i) annual
base compensation of $250,000 and $200,000, respectively, (paid in french francs
at the rate of six French francs to the dollar after August 1998); (ii) such
bonus compensation as is determined by the Board in its discretion; (iii) a
grant of 20,000 and 17,500 shares, respectively, of Common Stock; (iv) options
to purchase an additional 20,000 and 17,500 shares of Common Stock at the fair
market value of our common stock on the date of grant ($5.70); and (v) such
benefits as are provided generally to our executive management. The shares and
options vested 2/5 upon the effective date of the agreement and will vest 1/5 on
each of the first, second and third anniversaries, respectively, of the
agreement. The agreements provide that Messrs. Gilles Assouline and Michel
Assouline will be paid one year's base compensation if they are terminated
without cause during the term of the agreements.
Barry Llewellyn was one of our directors from May 1995 until September
1998, and was one of our executive officers from May 1995 until June 1998. Mr.
Llewellyn had a service agreement with us under which he was entitled to annual
base salary of /pound sterling/100,000 ($160,000). In connection with his
resignation as one of our executive officers, Mr. Llewellyn entered into a
settlement under which Mr. Llewellyn received a payment of /pound
sterling/12,500 ($20,000) in full satisfaction of our future obligations under
his service agreement and the service agreement was canceled.
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<PAGE>
Mr. Coleman has an arrangement with us to serve as our Chief Financial
Officer, under which he was entitled before January 1, 1998 to an annual base
salary of /pound sterling/100,000 ($160,000) and under which he is entitled to
an annual base salary of /pound sterling/125,000 ($200,000) after December 31,
1997. The agreement provides for successive automatic one-year terms unless
terminated upon one year's prior notice in writing.
STOCK OPTIONS
In March 1998, we granted stock options to our executive officers and
directors. See "Executive Officers and Directors-Board Compensation" for
information regarding the terms of these stock options.
On December 18, 1998, our Board approved the grant of a two-year
warrant to purchase an aggregate of 1.6 million shares at an exercise price of
$1.00 per share to Diamond Productions, an entity controlled by Gilles Assouline
and Michel Assouline. This warrant grant was ratified by our stockholders at a
stockholders' meeting held on October 22, 1999.
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<PAGE>
PRINCIPAL STOCKHOLDERS
As of the date of this Prospectus, 27,794,876 shares of our common
stock were outstanding, excluding 166,791 shares (including 60,000 shares
pledged as security by Unimedia to support its guaranty of debt of Pixel, Ltd.
due to a financial institution) owned by our 81.6% owned subsidiary, Unimedia.
The following table sets forth, as of such date, the share ownership of our
common stock by (i) each person who owns beneficially more than 5% of our
outstanding common stock; (ii) each of our directors and executive officers; and
(iii) all of our directors and executive officers as a group:
SHARES PERCENT OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
- ------------------------ ------------------ ----------------------
Gilles Assouline(1) 2,042,564 6.9%
Michel Assouline(2) 78,166 *
David Ho(3) 9,599,983 34.4%
Jean-Francois Klein(4)(5) 192,162 *
Patrick Ho 0 *
Groupe AB(6) 15,444,207 52.9%
Claude Berda(4)(6) 15,626,369 53.5%
Stephen Coleman(7) 76,666 *
Directors and Executive Officers as 11,989,541 40.34%
a group (6 persons)(8)
- ----------
* Less than 1%.
(1) Includes shares owned of record by two entities, Diamond Productions
and Multimedia Investments ("MMI"). Gilles Assouline, our 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. Also includes vested option to purchase 1,669,764 shares
of common stock.
(2) Includes vested options to purchase 60,666 shares.
(3) Substantially all of these shares are owned of record by two entities
controlled by Mr. Ho, Unbeatable and Superstar. Includes vested warrant
and options to purchase 160,000 shares.
(4) Includes shares owned of record by two entities, BIMAP and Media
Venture. Mr. Klein co-controls (with Mr. Berda) the power to vote and
dispose of the shares of common stock owned by these entities, and may
therefore be deemed to be a beneficial owner of these shares for U.S.
securities law purposes. However, the ultimate benefit from the shares
owned of record by these entities and an entity of which Gilles
Assouline is the Chairman, MMI, is held by Claude Berda, who is also an
officer, director and principal shareholder of Groupe AB. See "Certain
Relationships and Related Transactions" and footnote (6) below. Also
includes vested options to purchase 13,592 shares.
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(5) While Mr. Klein serves as an executive officer of Groupe AB, he
disclaims beneficial ownership over the shares and warrants owned by
Groupe AB. See footnote (6) below.
(6) Shares are owned by Groupe AB. Includes warrants to purchase 180,000
shares of Common Stock at an exercise price of $40.00 per share. Mr.
Berda is deemed the beneficial owner of the shares and warrants owned
by Groupe AB by virtue of his being a principal stockholder, officer
and director of that entity, although he only benefits from his
proportionate share of such securities.
(7) Vested options.
(8) Includes vested warrants and options to purchase an aggregate of
1,980,688 shares.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1996, Capital Media (UK), one of our wholly owned
subsidiaries, borrowed $2.0 million from Instar Holdings, Inc. and we owed
Instar $2.61 million including interest at April 30, 1999. On July 21, 1999, we
settled the Instar loan. Under the settlement, we have paid Instar $2.2 million
and issued to them 200,000 shares of our common stock.
In addition, as part of the settlement: (i) Universal has agreed that
we will no longer be liable to it for its guaranty of the transponder lease,
(ii) the liability of Latitude Investments Limited to us has been extinguished;
(iii) we and Instar, Universal and Latitude have entered into mutual releases
regarding their respective obligations relating to the Instar, Universal and
Latitude matters, and (iv) we and Charles Koppel, our former Chief Executive
Officer, have entered into a mutual general release. Finally, as part of the
Instar settlement, Instar and Universal have released their charges against
Capital Media (UK)'s assets and the stock of Capital Media (UK). See
"Management's Discussion and Analysis -- Financial Condition, Liquidity and
Capital Resources."
During 1998, Superstar loaned us an aggregate of $6,650,000 and Groupe
AB loaned us $2.4 million in cash and is currently providing services to Onyx
Television with a value of $6.24 million over a two year period. Groupe AB, in
March 1999, also lent us an additional $6.0 million, a portion of which was used
to fund our settlement with Instar. These loans (which totaled $22.6 million at
October 27, 1999, including principal, interest and penalties) and the amounts
due for such services were automatically converted into shares of common stock
immediately after completion of our one for ten reverse stock split on October
27, 1999. We believe that the terms of our arrangements with Groupe AB and
Superstar were more favorable to than the arrangements which might have been
available from unrelated third parties.
In May 1999, Groupe AB and Superstar loaned us an aggregate of
$300,000, the proceeds of which were used to fund the settlement of the Fontal
loan. See "Business - Legal Proceedings Pending or Threatened." The loan is due
in two years and bears interest at the rate of 10% per annum. In connection with
the loan, we granted the lenders a two-year warrant to purchase 300,000 shares
of our common stock at an exercise price of $1.00 per share.
In August 1999, Groupe AB made a loan to us in the aggregate amount of
$327,339, the proceeds of which were used to fund the settlement of the
outstanding amounts due to KPN Telecom. See "Management's Discussion and
Analysis-Financial Condition, Liquidity and Capital Resources." The loan is due
in two years and bears interest at the rate of 10% per annum. In connection with
the loan, we granted Groupe AB a two-year warrant to purchase 327,339 shares of
our common stock at an exercise price of $1.00 per share.
In September 1999, Groupe AB provided a guarantee to a bank for DM 1.6
million (approximately US $810,000) against a DM 3 million (approximately $1.62
million) bank facility granted to Onyx Television. In connection with the
guarantee, we granted Groupe
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<PAGE>
AB a two year warrant to purchase approximately 810,000 shares of our common
stock at an exercise price of $1.00 per share. In the event that the bank
guarantee is called upon, then we are obligated to issue to Groupe AB such
number of shares of our common stock at an exercise price of $1.00 per share as
are equal to the amount called upon to repay by Groupe AB.
In June 1997, before our acquisition of an 81.6% interest in Unimedia
and before Gilles Assouline and Michel Assouline becoming our executive
officers, we were assisted by Unimedia in completing a private placement. In
connection with such placement, we paid Unimedia a fee of $240,000, which was
netted against the proceeds of such offering. A portion of that fee was paid by
Unimedia to Valfab for introducing Unimedia to the investors who acquired some
of our shares from Unimedia simultaneously with and/or immediately after this
private placement. For information regarding the fees paid to Valfab, see
"Executive Officers and Directors-Consultants." For additional information
regarding our private placements, see "Management's Discussion and Analysis --
Financial Condition, Liquidity and Capital Resources."
In July 1999, we received a letter from Gilles Assouline, our Chairman,
President and CEO, Anne-Marie Assouline (the wife of our chairman), and an
entity controlled by Mr. and Mrs. Assouline, Diamond Productions, alleging
claims under the Agreement and Plan of Reorganization, dated March 4, 1997, as
amended, between Capital Media, Unimedia, S.A. and certain of the stockholders
of Unimedia. Additionally, on July 30, 1999, two of our directors notified
Diamond, Gilles Assouline and Michel Assouline (our Vice President and COO),
that we were asserting a protective claim against each of them under the
Unimedia agreement until the claims raised in the letter can be considered.
After consideration of these matters, our Board and the claimants
concluded that these disputes held the potential of dragging us into substantial
and damaging litigation. As a result, the Board and the claimants determined
that our best interests would be served by resolving these issues at this time.
To accomplish this purpose, on September 22, 1999, we entered into a settlement
agreement with Diamond, Gilles Assouline, Michel Assouline and Anne-Marie
Assouline under which the asserted claims were withdrawn and we and the
Assoulines exchanged mutual releases. As part of the settlement, we also
provided the Assoulines with a full indemnity for all claims which may arise in
the future from third parties relating to the Unimedia share exchanges and with
a general release through the date of the settlement agreement.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital consists of 50,000,000 shares of Common Stock,
par value $.001 per share, and 5,000,000 shares of preferred stock, par value
$.001 per share (the "Preferred Stock"), of which 5,000,000 shares of Preferred
Stock have been designated Series A Preferred Stock (the "Series A Preferred
Stock"). None of the Preferred Stock is presently outstanding.
COMMON STOCK
Holders of our Common Stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders. We do not have
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50 percent of the shares who vote in the election
of directors can elect all of the directors. Holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by our
Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution or winding up of Capital Media, the holders of common
stock are entitled to receive ratably our assets after payment of all our debts
and liabilities. Holders of common stock have no preemptive, subscription,
redemption or conversion rights.
Our bylaws provide that the quorum required for a meeting of
stockholders is stockholders representing more than 50% of the total votes able
to be cast. Our amalgamation, which includes a merger or consolidation, requires
the approval of stockholders representing more than 50% of the total votes cast
at a meeting at which a quorum is established. Our bylaws further provide that
the approval of stockholders representing more than 50% of the total votes able
to be cast is required to amend the bylaws with respect to certain matters,
including, without limitation, the voting provisions and other matters set forth
above.
PREFERRED STOCK
Our articles of incorporation authorize the Board of Directors to
issue, without shareholder approval, such Preferred Stock, with such rights and
limitations as the Board of Directors may later determine. Among other
designations, the Board of Directors may determine (1) the dividend rate and
conditions and the dividend preferences, if any: (2) whether dividends would be
cumulative and, if so, the date from which dividends on such series would
accumulate; (3) whether, and to what extent, the holders of such series would
enjoy voting rights, if any, in addition to those prescribed by law; (4)
whether, and upon what terms such series would be convertible into or
exchangeable for shares of any other class of capital stock or other series of
preferred shares; (5) whether, and upon what terms, such series would be
redeemable; (6) whether or not a sinking fund would be provided for the
redemption of such series and if so, the terms and conditions thereof; and (7)
the preference, if any, to which such series would be entitled in the event of
voluntary and involuntary liquidation, dissolution or winding up of Capital
Media. Any particular series of preferred shares may rank junior to, on a parity
with or senior to any other class of our capital stock,
49
<PAGE>
including any other series of preferred shares. Thus, the Board of Directors,
without the approval of the holders of the outstanding common stock, could
authorize the issuance of a series of preferred shares with voting, conversion
and other rights that (1) could affect the voting power and other rights of the
holders of Common Stock or (2) could have the effect of delaying deferring or
preventing a change in our control.
WARRANTS
We issued common stock purchase warrants in our 1995/1996 private
placement and in the Unimedia share exchange. Each warrant entitles the holder
thereof to purchase one share of common stock at a exercise prices ranging from
$25.00 per share to $40.00 per share for three years commencing on the effective
date of the Registration Statement (of which this Prospectus forms a part). We
may redeem each warrant, at a redemption price of $0.01 per warrant, at any time
after the effective date of the Registration Statement (of which this Prospectus
forms a part), upon thirty days' prior written notice to the holders thereof, if
the average closing bid price of our common stock, as reported on the principal
exchange on which our common stock is traded, equals or exceed $60.00 per share
for twenty consecutive trading days ending three days before the date of the
notice of redemption. Any warrant holder who does not exercise before the
redemption date, as set forth in our notice of redemption, will forfeit the
right to purchase our common stock underlying the warrants, and after the
redemption date or upon conclusion of the exercise period any outstanding
warrants will become void and be of no further force or effect, unless extended
by our Board of Directors.
We may at any time, and from time to time, extend the exercise period
of the warrants, provided the written notice of such extension is given to the
warrant holders before the expiration of the date then in effect. Also, we may
reduce the exercise price of the warrants for limited periods or through the end
of the exercise period if deemed appropriate by the Board of Directors. Any
extension of the term and/or reduction of the exercise price of the warrants may
be subject to compliance with Rule 13c-4 under the Exchange Act including the
filing of a Schedule 13E-4. Notice of any extension of the exercise period
and/or reduction of the exercise price will be given to the warrant holders.
The number of shares of common stock that may be purchased is subject
to adjustment upon the occurrence of certain events including a dividend
distribution to our stockholders, or a subdivision, combination or
reclassification of the outstanding shares of common stock.
For the respective terms of the warrants, the holders of these warrants
are given an opportunity to profit from the rise in the market price of our
common stock with the resulting dilution in the interests of the other
stockholders. The terms on which we may obtain financing may be adversely
affected by the existence of such warrants. The holders of the warrants may
exercise them at a time when we might be able to obtain additional capital
through a new offering of securities on more favorable terms.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
At the present date, 3,989,413 shares of our outstanding common stock
are either freely tradable in the public market or are eligible for sale in the
public market under Rule 144. The balance may not be sold without restriction
under the Act or under an applicable exemption therefrom (under Rule 144).
SELLING STOCKHOLDERS
The following table lists the number of shares of our common stock
being registered in the Registration Statement (of which this Prospectus forms a
part) on behalf of each of the selling stockholders listed below and the
approximate percentage of the shares of common stock outstanding. Other than
with respect to the selling stockholders who are executive officers, directors
or beneficial owners of more than 5% of any class of the voting securities of
Capital Media, we are not aware of the ownership of its securities by any of the
selling stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING OWNED AFTER OFFERING
------------------------ SHARES ----------------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Telor International
Limited(1) 6,750 * 6,750 0 --
Latitude Investments
Limited (1) 6,750 * 6,750 0 --
Bandesco Falcon
Investments (1) 13,250 * 13,250 0 --
Martin E. Loat (1) 4,000 * 4,000 0 --
K2 Limited (1) 4,000 * 4,000 0 --
Edgeport Nominees Ltd. (1) 78,527 * 78,527 0 --
Auric Investments
Limited (1)(2) 78,208 * 78,208 0 --
Kornfeld Associates
International, Inc. (1) 1,250 * 1,250 0 --
A/S Kapitaluvikling (1) 1,000 * 1,000 0 --
AS Weby (1) 1,000 * 1,000 0 --
Gary Barnett (1) 4,000 * 4,000 0 --
Bostar AS (1) 4,000 * 4,000 0 --
Lawrence Burstein (1) 2,000 * 2,000 0 --
Cameo Trust Corporation
Limited (1) 10,000 * 10,000 0 --
Fixtar Holdings, Inc. (1) 10,000 * 10,000 0 --
James M. Florsheim (1) 2,000 * 2,000 0 --
Fred C. Follmer (1) 2,000 * 2,000 0 --
Milton Geller Trust (1) 1,500 * 1,500 0 --
David Greenberg and Susan
Greenberg, TTEEs f/b/o
Greenberg & Panish Defined
Benefit Plan (1) 1,000 * 1,000 0 --
Susan Greenberg (1) 3,000 * 3,000 0 --
Arne Hellesto A/S (1) 4,000 * 4,000 0 --
Nils Otto Holmen (1) 2,000 * 2,000 0 --
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING OWNED AFTER OFFERING
------------------------ SHARES ----------------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Charlotte Horowitz (1) 2,000 * 2,000 0 --
Svein Huse (1) 4,000 * 4,000 0 --
Alan D. Jacobson (1) 1,000 * 1,000 0 --
Leonard Jacobson Profit
Sharing Trust (1) 1,000 * 1,000 0 --
Michael S. Jacobs (1) 1,000 * 1,000 0 --
Christopher D. Jennings (1) 2,500 * 2,500 0 --
Svein Johansen (1) 1,000 * 1,000 0 --
Ronald Koenig (1) 2,000 * 2,000 0 --
Jay Koza and Milton Grunwald,
Ten. in Comm. (1) 1,000 * 1,000 0 --
KTB Enterprises Ltd. (1) 1,000 * 1,000 0 --
Mette Nordby Lund (1) 1,146 * 1,146 0 --
Allan R. Lyons (1) 1,000 * 1,000 0 --
Marigold Corporation nka
Sylvaner Corporation (1) 1,000 * 1,000 0 --
Michael Miller (1) 1,000 * 1,000 0 --
Frank T. Nickell (1) 5,000 * 5,000 0 --
Ellen J. Ooegaard (1) 1,000 * 1,000 0 --
David Anthony Rees (1) 8,000 * 8,000 0 --
Patrick George Ridgewell (1) 4,000 * 4,000 0 --
Brian Roth Special Account (1) 1,000 * 1,000 0 --
Suzan & Brian Roth (1) 1,000 * 1,000 0 --
Allan M. Rudnick (1) 1,000 * 1,000 0 --
Albert L. Salvatico (1) 2,000 * 2,000 0 --
Skips A/S Canopus (1) 4,000 * 4,000 0 --
Svein Erik Stiansen (1) 2,000 * 2,000 0 --
Stolzoff Family Trust (1) 5,000 * 5,000 0 --
Gary Stolzoff (1) 2,000 * 2,000 0 --
Tinden Forvaltning AS (1) 8,000 * 8,000 0 --
Tradeco Limited (1) 4,000 * 4,000 0 --
Allan Weissglass (1) 2,000 * 2,000 0 --
Lois and Guri Yavnelli (1) 1,000 * 1,000 0 --
Seymour Zwickler Revocable
Trust (1) 1,000 * 1,000 0 --
Banco Del Gottardo (1) 15,000 * 15,000 0 --
Bear Stearns Securities Corp.
f/b/o Harvey R. Brice M/P
Plan (1) 1,000 * 1,000 0 --
Jay D. Johnson (1) 500 * 500 0 --
Robert Jones (1) 2,000 * 2,000 0 --
Napier Brown Holdings
Ltd. (1) 3,000 * 3,000 0 --
Walter H. Prime (1) 500 * 500 0 --
Rexo Trading Services Co.
Inc. (1) 500 * 500 0 --
Seracen International Inc. (1) 3,500 * 3,500 0 --
Sommer Appraisal Service, Inc
Retirement Trust (1) . 500 * 500 0 --
Stoneham Investor
Partnership (1) 1,000 * 1,000 0 --
Fontal International Ltd. (1) 15,000 * 15,000 0 --
The Century Trust (1) 1,000 * 1,000 0 --
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING OWNED AFTER OFFERING
------------------------ SHARES ----------------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Joel S. Weissglass (1) 1,000 * 1,000 0 --
David Greenberg IRA Rollover,
Bear Stearns Securities Corp. 1,000
Custodian (1) , * 1,000 0 --
Gruntal & Co., Custodian for
Stanley Hollander IRA (1) 1,000 * 1,000 0 --
Gruntal & Co., Custodian for
Charlotte Horowitz IRA (1) 1,000 * 1,000 0 --
Allan M. Rudnick IRA 1,000
Rollover, Bear Stearns
Securities Corp., Custodian (1) * 1,000 0 --
Daniel M. Herscher Retirement
Plan Trust (1) 500 * 500 0 --
Beatrice Barnett (1) 1,000 * 1,000 0 --
Walder Family Trust (1) 1,000 * 1,000 0 --
Heptagon Investments
Limited (1) 4,000 * 4,000 0 --
Republic National Bank of
New York (Suisse) S.A. (1) 4,000 * 4,000 0 --
Tinden Forvaltning AS (1) 4,000 * 4,000 0 --
Bauer Family Limited
Partnership (1) 2,000 * 2,000 0 --
BFI Banque de Financement &
d'Investissemer (1) 5,300 * 5,300 0 --
Michael Bichan (1) 500 * 500 0 --
Calache Holdings, Ltd. (1) 1,000 * 1,000 0 --
CM Investment Nominees
Limited (1) 500 * 500 0 --
Cameo Trust Corporation
Limited (1) 500 * 500 0 --
Corner Banca (1) 5,000 * 5,000 0 --
John J. Gottsman Trust dtd
8/15/95 (1) 1,000 * 1,000 0 --
Michael John Gray (1) 500 * 500 0 --
Arnfin Haavik (1) 500 * 500 0 --
John J. and Lenore Heckler,
JTWROS (1) 500 * 500 0 --
Istari Investments, L.P. (1) 500 * 500 0 --
Pearl Kornfeld, IRA (1) 2,000 * 2,000 0 --
Karyn Kornfeld IRA 1986
Trust (1) 500 * 500 0 --
Joanna Kornfeld IRA 1986
Trust (1) 500 * 500 0 --
Adam Kornfeld 1986 Trust (1) 500 * 500 0 --
Eugene Meyers (1) 500 * 500 0 --
Republic National Bank of
New York (Luxembourg),
SA (1) 3,000 * 3,000 0 --
Gerald S. Rosen (1) 500 * 500 0 --
Ivor Spiro (1) 1,000 * 1,000 0 --
Terrier Finance Ltd. (1) 1,000 * 1,000 0 --
Barry Townsley (1) 4,000 * 4,000 0 --
Nils Trulsvik (1) 500 * 500 0 --
The LWDejoy Trust u/a/d
4/6/95 (1) 1,000 * 1,000 0 --
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING OWNED AFTER OFFERING
------------------------ SHARES ----------------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
The Johnson Family Trust
dated 6/29/95 (1) 1,000 * 1,000 0 --
Alan Jacobson, IRA (1) 1,000 * 1,000 0 --
Mamiu Investments Ltd. (1) 1,000 * 1,000 0 --
Joseph J. Diamond (1) 500 * 500 0 --
William F. Wise (1) 500 * 500 0 --
Intergalactic Growth Fund,
Inc. (1) 500 * 500 0 --
Morgan Steel Limited (1) 1,000 * 1,000 0 --
Edson V. Mitchell (1) 5,000 * 5,000 0 --
Credit Suisse (Guernsey),
Ltd. (1) 14,516 * 14,516 0 --
W & P Bank (1) 600 * 600 0 --
Roland Mueller (1) 500 * 500 0 --
Bruce Prescott (1) 578 * 578 0 --
Peter Dorsen (1) 500 * 500 0 --
Anthony Harris (1) 1,000 * 1,000 0 --
Allawi Ghazi (1) 500 * 500 0 --
Eastern Financial Services (1) 500 * 500 0 --
Olva Torvanger (1) 500 * 500 0 --
Groupe AB, S.A. (1)(3) 15,444,207 52.9% 180,000 15,264,207 52.8%
Skips AS "Lodd" (1) 400 * 400 0 --
Sigurd Olsvold (1) 250 * 250 0 --
Ada E. Haugerud (1) 58 * 58 0 --
BO Shipping AS (1) 146 * 146 0 --
Bank Julius Baer & Co. (1) 2,000 * 2,000 0 --
Banque Privee Edmond de
Rothschild S.A. (1) 14,000 * 14,000 0 --
Rush & Co. (1) 3,900 * 3,900 0 --
Jules Baer Securities (1) 6,000 * 6,000 0 --
Joseph and Lillian
Matulitch (1) 400 * 400 0 --
Helix Investments Limited (1) 2,566 * 2,566 0 --
Gibes Felt (1) 1,609 * 1,609 0 --
Michael Morris (1) 1,797 * 1,797 0 --
Prime Grieb & Co. Limited (1) 781 * 781 0 --
Eurocapital Ltd. (1) 3,125 * 3,125 0 --
John Clarke (1) 625 * 625 0 --
Vital Miljo (1) 3,594 * 3,594 0 --
Societe Bancaire Jules Baer (1) 1,016 * 1,016 0 --
Mamiu Investments (1) 100 * 100 0 --
Sachem Corporate Finance
Limited (1) 156 * 156 0 --
First National Fund (1) 234 * 234 0 --
Michael Plut (1) 125 * 125 0 --
Brook Bank Holdings
Limited (1) 75 * 75 0 --
Instar Holdings, Inc. 200,000 * 200,000 0 *
Multimedia Investiissements
(1) 36,642 * 36,642 0 *
BIMAP (1) 28,186 * 28,186 0 *
Gilles Assouline (1)(4) 2,042,564 6.9% 8,343 2,034,221 6.9%
HIP Fenelon (1) 11,275 * 11,275 0 *
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING OWNED AFTER OFFERING
------------------------ SHARES ----------------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Media Venture (1) 7,765 * 7,765 0 *
Souviron Industrie Conseil
Sarl (1) 2,819 * 2,819 0 *
Reseau Asta International (1) 4,031 * 4,031 0 *
Tarbella Enterprises (1) 7,667 * 7,667 0 *
Francois de Montseignat (1) 3,058 * 3,058 0 *
Yunkal Trading Corporation (1) 5,637 * 5,637 0 *
Diamond Productions (1) 26,044 * 26,044 0 *
John Swain 40,000 * 40,000 0 --
Maurice Adjimar 100,769 * 100,769 0 --
Allain Balloteau 20,000 * 20,000 0 --
Gerald Burgess 183,334 * 183,334 0 --
SCP Valfab 20,896 * 20,896 0 --
Gerald Maiguet 50,000 * 50,000 0 --
Agnes Augier 18,000 * 18,000 0 --
Gutzwiller et cie 150,000 * 150,000 0 --
Hans Kogl 100,000 * 100,000 0 --
Ludovico Serra 40,000 * 40,000 0 --
Gordon Cotton 6,000 * 6,000 0 --
Gilles Fenach 10,000 * 10,000 0 --
Jean Claude Moisset 40,000 * 40,000 0 --
Gilbert Fenach 10,000 * 10,000 0 --
Gralec Establishment 974,000 3.6% 974,000 0 --
Pierre Demailly 20,000 * 20,000 0 --
Stephen Kornfeld 55,000 * 55,000 0 --
--------------------
TOTAL (1) 2,842,799
====================
</TABLE>
- ----------
* Less than one percent.
(1) These shares of our common stock were issued in our 1995/96 private
placement and in our summer 1997 share exchange with the stockholders
of Unimedia, S.A. The current exercise price of these warrants ranges
from $25.00 per share to $40.00 per share. We intend, for a period of
nine months from the date of this Prospectus, to allow each warrant
holder to exercise their warrants and receive two shares of our common
stock at an exercise price of $3.00 per share (and we have registered
sufficient additional shares in this Registration Statement for resale
by our selling stockholders who elect to exercise our warrants during
the limited period in which the price of the warrants has been
reduced) . If these warrants are not exercised during this period, they
will remain exercisable at their current exercise price and will expire
36 months after the date of this Prospectus. We intend to supplement
this Prospectus from time to time to add to the securities to be sold
by each warrant holder who exercises this right the additional shares
which they may purchase if they elect to exercise their warrants on
these special terms.
(2) Instead of the $3.00 price referred to in footnote (1) above, Auric has
been granted the right to exercise their warrants and receive two
shares for each warrant which they hold at an exercise price of $2.00
per share. See "Price Range of Our Common Stock."
(3) The shares registered for resale by Groupe AB relate only to common
stock purchase warrants which they received in our 1995/1996 private
placement. See "Management's Discussion and Analysis-Financial
Condition, Liquidity and Capital Resources" and "Principal
Stockholders."
(4) The shares registered for resale by Gilles Assouline relate only to
common stock purchase warrants which he received in our summer 1997
share exchange with the stockholders of Unimedia. See "Management's
Discussion and Analysis-Financial Condition, Liquidity and Capital
Resources" and "Principal Stockholders."
55
<PAGE>
We will pay all expenses to register the shares, except that the
selling stockholders will pay any underwriting and brokerage discounts, fees and
commissions, specified attorneys' fees and other expenses to the extent
applicable to them.
We have agreed to indemnify the selling stockholders and certain
affiliated parties against specified liabilities, including liabilities under
the Securities Act, as amended, in connection with this offering. The selling
securityholders have agreed to indemnify us and our directors and officers, as
well as any persons controlling Capital Media, against certain liabilities,
including liabilities under the Securities Act. Insofar as indemnification for
liabilities under the Securities Act may be permitted to our directors or
officers, or persons controlling Capital Media, we have been advised that in the
opinion of the SEC this kind of indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
PLAN OF DISTRIBUTION
This Prospectus covers the sale of shares of common stock which are or
will be held by the selling stockholders.
Selling Stockholders may sell their shares of common stock either
directly or through a broker-dealer or other agent at prices related to
prevailing market prices or negotiated prices, in one or more of the following
kinds of transactions:
* Transactions in the over-the-counter market;
* Transactions on the NASD Electronic Bulletin Board that lists
our common stock, or transactions negotiated between selling
stockholders and purchasers, or otherwise.
Broker-dealers or agents may purchase shares directly from a selling
stockholders or sell shares to someone else on behalf of a selling stockholders.
Broker-dealers may charge commissions to both selling stockholders selling
common stock, and purchasers buying shares sold by a selling stockholders. If a
broker buys shares directly from a selling securityholder, the broker may resell
the shares through another broker, and the other broker may receive compensation
from the selling stockholders for the resale.
To the extent required by laws, regulations or agreements we have made,
we will use our best efforts to file a Prospectus supplement during the time the
selling stockholders are offering or selling shares covered by this Prospectus
in order to add or correct important information about the plan of distribution
for the shares.
In addition to any other applicable laws or regulations, selling
stockholders must comply with regulations relating to distributions by selling
securityholders, including Regulation M under the Securities and Exchange Act of
1934, as amended.
56
<PAGE>
Some states may require that registration, exemption from registration
or notification requirements be met before selling stockholders may sell their
common stock. Some states may also require selling stockholders to sell their
common stock only through broker-dealers.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
at the SEC's web site at http://www.sec.gov.
EXPERTS
Our consolidated financial statements included in this Prospectus for
1998 have been audited by PricewaterhouseCoopers, independent certified public
accountants, as indicated in their report with respect thereto, and are included
in this prospectus in reliance on the authority of said form as experts in
giving said support.
Our consolidated financial statements included in this Prospectus for
1997 have been audited by Deloitte & Touche, independent certified public
accountants, as indicated in their report with respect thereto, and are included
in this prospectus in reliance on the authority of said form as experts in
giving said support.
LEGAL MATTERS
Akerman, Senterfitt & Eidson, P.A., a law firm in Miami, Florida will
opine as to the validity of the shares of common stock offered under this
prospectus.
57
<PAGE>
CAPITAL MEDIA GROUP LIMITED
CAPITAL MEDIA GROUP LIMITED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YEAR END 1998 AND 1997
Independent Auditors' Report of PricewaterhouseCoopers to the Board of
Directors and Stockholders of Capital Media Group Limited ................ F-2
Independent Auditors' Report of Deloitte & Touche to the Board of
Directors and Shareholders of Capital Media Group Limited ................ F-3
Independent Auditors' Report of Coopers & Lybrand to the Board of
Directors and Stockholders of Tinerama Investment AG ..................... F-4
Consolidated Balance Sheet at December 31, 1998 and 1997 (restated) ........... F-5
Consolidated Statement of Operations for the Years ended December 31, 1998 and
1997 (restated) ..................................................... F-6
Consolidated Statement of Stockholders' Equity for the Years ended December 31,
1998 and 1997 (restated) ............................................. F-7
Consolidated Statement of Cash Flows for the Years ended December 31, 1998
and 1997 (restated) .................................................. F-8
Notes to the Consolidated Financial Statements ................................ F-9
NINE MONTHS 1999 AND 1998
Unaudited Consolidated Balance Sheet at September 30, 1999
and December 31, 1998 ................................................ F-31
Unaudited Consolidated Statement of Operations for
the nine months ended September 30, 1999 and 1998 (restated) ......... F-32
Unaudited Consolidated Statement of Stockholders' Equity for
the nine months ended September 30, 1999 ............................. F-33
Unaudited Consolidated Statement of Cash Flows for the nine
months ended September 30, 1999 and 1998 (restated) .................. F-34
Notes to Unaudited Consolidated Financial Statements .......................... F-35
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS
AND STOCKHOLDERS OF CAPITAL MEDIA GROUP LIMITED FOR 1998
To the Board of Directors and
the Stockholders of Capital Media Group Limited
In our opinion, the consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in stockholders'
equity presented on pages F-5 through F-30, present fairly, in all material
respects, the financial position of Capital Media Group Limited and its
subsidiaries (the "Company") at December 31, 1998 and the result of their
operations and their cash flows for the year in conformity with generally
accepted accounting principles in the United States of America. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance with
generally accepted auditing standards in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 of the
financial statements, the Company's lack of cash being generated by trading and
the uncertainty over its ability to raise further funds raise substantial doubt
about its ability to continue as a going concern. Management's plans concerning
these matters are also described in Note 16. The financial statement do not
include any adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers
Paris, June 4, 1999
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF CAPITAL MEDIA GROUP LIMITED FOR 1997
We have audited the accompanying consolidated balance sheet of Capital
Media Group Limited and its subsidiaries ("the companies") as of December 31,
1997 and the related consolidated statements of operations, stockholders' equity
and cash flows for the year ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the financial statements of Tinerama Investments AG
(a consolidated subsidiary), which statements reflect total assets constituting
17% of consolidated total assets at December 31, 1997 and 1% of consolidated
operating loss for the year then ended. These statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Tinerama Investment AG, is based solely on
the report of such other auditors.
We conducted our audit in accordance with generally accepted auditing
standards in the United Kingdom, which are similar to those in the United
States. 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 for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the companies at December
31, 1997 and the results of their operations and their cash flows for the year
ended December 31, 1997 in conformity with generally accepted accounting
principles in the United States of America.
The accompanying financial statements have been prepared assuming that
the company will continue as a going concern. As discussed in Note 2 to the
financial statements, the company's lack of cash being generated by trading and
the uncertainty over its ability to raise further funds raise substantial doubt
about its ability to continue as a going concern. Management's plans concerning
these matters are also described in Note 16. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 14 to the financial statements, the outcome of
certain litigation against the company is unknown at this time.
As discussed in Note 18 to the financial statements, the accompanying
consolidated financial statements for the year ended December 31, 1997 have been
restated.
DELOITTE & TOUCHE
Chartered Accountants
London, England
14 October 1998 (13 April 1999 as to Note 18)
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT TO THE BOARD OF
DIRECTORS AND STOCKHOLDERS OF TINERAMA INVESTMENT AG
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and retained earnings and of cash
flows present fairly, in all material aspects the financial position of Tinerama
Investment AG and its subsidiaries as of December 31, 1997 and 1996 and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1997 in conformity with Generally Accepted Accounting
Principles in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with Generally Accepted Auditing
Standards in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinions expressed
above.
Coopers & Lybrand
September 18, 1998
Bucharest, Roumania
F-4
<PAGE>
CAPITAL MEDIA GROUP LIMITED
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NOTE DECEMBER 31, DECEMBER 31,
1998 1997
AS RESTATED
(SEE NOTE 18)
<S> <C> <C> <C>
ASSETS $ $
Cash and cash equivalents 3 583,320 332,795
Accounts receivable within one year, net of
allowances for doubtful accounts of $77,579 4 1,801,892 1,004,171
(December 31, 1997 - $11,788)
Inventories 93,938 80,364
Amounts due from stockholders 5-17 313,691 313,691
Prepaid expenses and deposits 40,003 507,024
-------------- --------------
TOTAL CURRENT ASSETS 2,832,844 2,238,045
Investments 4,153 143,336
Equity in affiliate companies 117,000 87,454
Intangible assets, net of accumulated amortization of
$3,076,882 (December 31, 1997 - $2,203,973) 6 2,858,412 3,452,976
Property, plant and equipment, net 7 796,233 380,517
-------------- --------------
TOTAL ASSETS 6,608,642 6,302,328
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 3,786,764 4,245,888
Accrued expenses 4,630,380 2,625,765
Related parties loans repayable within one year 8-17 14,337,442 4,229,008
Other loans repayable within one year 8 190,000 -
Net liabilities for discontinued operations 9 496,228 338,433
Amounts due to minority stockholders - 171,970
-------------- --------------
TOTAL LIABILITIES 23,440,814 11,611,064
COMMITMENTS AND CONTINGENCIES 10-14 - -
MINORITY INTEREST IN SUBSIDIARIES 404,209 402,477
-------------- --------------
23,845,023 12,013,541
-------------- --------------
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 40,094,139 (December 31, 1997 -
40,094,139) issued and outstanding 40,090 40,090
Additional paid in capital 31,155,909 31,155,909
Shares held by subsidiary-1,667,916 (December 31, 18
1997 - 4,023,396), at cost (950,712) (2,282,752)
-------------- --------------
30,245,287 28,913,247
Cumulative translation adjustment 756,406 2,846,067
Accumulated deficit (48,238,074) (37,470,527)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY (17,236,381) (5,711,213)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 6,608,642 6,302,328
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CAPITAL MEDIA GROUP LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
YEAR ENDED 1997
DECEMBER 31, AS RESTATED
1998 (SEE NOTE 18)
NOTE $ $
<S> <C> <C> <C>
Operating Revenue 2,468,490 1,286,076
Operating costs
Staff costs 2,765,239 3,572,498
Depreciation and amortization 1,410,697 1,564,452
Other operating expenses 11 9,145,292 11,104,510
---------------- -----------------
(13,321,228) (16,241,460)
Operating loss (10,852,738) (14,955,384)
Other (expenses)/income (465,696) 441,748
Financial income (expense) net 12 970,407 (2,812,292)
Equity in net losses of affiliates (150,808) (251,550)
---------------- -----------------
Loss from continuing operations (10,498,835) (17,577,478)
before taxation
Income tax benefit 13 41,552 1,658
---------------- -----------------
(10,457,283) (17,575,820)
Discontinued operations 9 Net loss
from operation of discontinued
subsidiary including provision
for our share of $84,267 estimated
operating losses through date of
disposal (308,532) (797,770)
Minority interest (1,732) 1,834
---------------- -----------------
Net loss (10,767,547) (18,371,756)
================ =================
Net loss per share for continuing 15
operations - basic ($0.26) ($0.63)
================ =================
- - diluted ($0.26) ($0.63)
================ =================
Net loss per share including discontinued
operations 15
- - basic ($0.27) ($0.66)
================ =================
- - diluted ($0.27) ($0.66)
================ =================
Weighted average shares - basic 40,094,139 27,966,383
================ =================
Weighted average shares - diluted 40,094,139 27,966,383
================ =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CAPITAL MEDIA GROUP LIMITED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
CUMULATIVE
OTHER
YEAR ENDED COMMON STOCK ADDITIONAL SHARES HELD COMPREHEN-
DECEMBER 31, 1998 PAID-IN BY SIVE INCOME ACCUMULATED
CAPITAL SUBSIDIARY (DEFICIT) DEFICIT TOTAL
SHARES $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 40,094,139 40,090 31,155,909 (2,282,752) 2,846,067 (37,470,527) (5,711,213)
January 1, 1998
as restated
Translation adjustment - - - - (2,089,661) (2,089,661)
Net loss - - - - (10,767,547) (10,767,547)
-----------
Comprehensive loss - - (12,857,208)
Issuance of common stock - - - - - -
Shares held by subsidiary
sold - - - 1,332,040 - - 1,332,040
---------- --------- --------- ----------- ------------ ------------- -----------
Balance at
December 31, 1998 40,094,139 40,090 31,155,909 (950,712) 756,406 (48,238,074) (17,236,381)
========== ========= ========= =========== ============ ============= ===========
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE
OTHER
YEAR ENDED COMMON STOCK COMPREHEN-
DECEMBER 31, 1997 ADDITIONAL SHARES HELD SIVE
PAID-IN BY INCOME/ ACCUMULATED
CAPITAL SUBSIDIARY (DEFICIT) DEFICIT TOTAL
SHARES $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1997 12,663,328 12,663 17,117,651 - 326,214 (19,098,771) (1,642,243)
Translation adjustment - - - - 2,519,853 - 2,519,853
Net loss - - - - - (18,371,756) (18,371,756)
------------
Comprehensive loss - - - - - - (15,851,903)
Issuance of common stock 27,430,811 27,427 14,038,258 - - 14,065,685
Shares held by subsidiary,
at cost (2,282,752) (2,282,752)
------------ ---------- ----------- ------------ ------------- ------------ ------------
Balance at
December 31, 1997 as
restated (Note 18) 40,094,139 40,090 31,155,909 (2,282,752) 2,846,067 (37,470,527) (5,711,213)
============ ========== =========== ============ ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
CAPITAL MEDIA GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED DECEMBER 31,
DECEMBER 31, 1997
1998 AS RESTATED.
$ (SEE NOTE 18)
$
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (10,767,547) (18,371,756)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,410,697 2,438,829
Equity in net losses of affiliates 150,808 251,550
Minority interest 1,732 (1,834)
Changes in assets and liabilities:
Decrease in other assets and inventories 39,539 635,334
Increase in accounts receivable (798,139) (372,512)
Increase in accrued expenses and other liabilities 2,704,749 3,994,657
---------------- --------------
NET CASH USED IN OPERATIONS (7,258,161) (11,425,732)
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (489,580) (17,742)
Acquisition of intangible assets (31,120) (4,615,776)
Cash proceeds from sale of investments 994,047 390,647
Acquisition of Investments - (2,939,210)
---------------- --------------
NET CASH RECEIVED/(USED) IN INVESTING ACTIVITIES 473,347 (7,182,081)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares - 14,924,892
Commission paid on issuance of shares - (859,207)
Increase in short term debt 9,460,000 2,035,000
Repayments of loans (335,000) -
---------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,125,000 16,100,685
---------------- --------------
Effect of exchange rate changes on cash (2,089,661) 2,519,853
---------------- --------------
Net increase in cash and cash equivalents 250,525 12,725
Cash and cash equivalents at beginning of period 332,795 320,070
---------------- --------------
Cash and cash equivalent at end of period 583,320 332,795
================ ==============
Supplemental data:
Interest paid 151,977 111,285
Income tax paid 6,222 1,881
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
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 the
Company's 81.6% owned subsidiary Unimedia S.A. ("Unimedia") and Unimedia's
wholly owned subsidiary Pixel Limited ("Pixel"), and its 90% owned subsidiary
TopCard S.A. ("TopCard"). All intercompany accounts and transactions have been
eliminated in consolidation. CM(UK)'s 50% investment interest in Blink TV
Limited ("Blink") and Pixel's 47.5% interest in Henry Communications Limited,
have been accounted for using the equity method, after the elimination of all
significant intercompany balances and transactions. Tinerama Investment AG
("Tinerama"), a 51% owned subsidiary, is treated as discontinued operations (See
Note 9).
The results of Unimedia, TopCard and Pixel have been consolidated in the
consolidated financial statements from September 1997, November 1997 and January
1998, being their respective dates of acquisition.
INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or market value.
Inventories include both raw materials and finished goods.
INTANGIBLE ASSETS
Intangible assets represent purchased broadcast licenses, computer software and
goodwill arising on acquisition of subsidiary undertakings. The amounts in the
balance sheet are stated net of the related accumulated amortization. Computer
software are amortized in the year of their acquisition. Broadcast licenses and
goodwill are amortized on a straight-line basis over periods not exceeding six
years. The Company evaluates the possible impairment of long-lived assets,
including intangible assets, whenever events or circumstances indicate that the
carrying value of the assets may not be recoverable, by comparing the
undiscounted future cash flows from such assets with the carrying value of the
assets. Any impairment loss would be computed based upon the amount by which the
carrying amount of the assets exceeds its fair value at any evaluation date.
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:
Fixtures, fittings and equipment 5 to 20 years
F-9
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
FOREIGN CURRENCY
Assets and liabilities of the Company's foreign subsidiaries are translated at
year-end exchange rates. Income statement items are translated at the average
rate for the period. 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.
Due to the hyper-inflationary situation in Romania, assets and liabilities of
the Company's foreign subsidiary in Romania are translated at historical
exchange rates in accordance with Statement of Financial Accounting Standards
No. 52.
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 realized.
LEASE
Operating leases are charged to expense, on a straight-line basis, over the term
of the lease.
REVENUE RECOGNITION
Sales are recognized when products, services and fees are delivered and when
advertisements are broadcast and thereby invoiced to the customer. Intercompany
charges are eliminated on consolidation and not included in revenues.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
EARNINGS PER SHARE
In Fiscal 1997, the Company adopted Statement of Financial Accounting Standards
No. 128 ("SFAS No. 128"), EARNINGS PER SHARE, which requires presentation of
basic and diluted income per share on the face of the Consolidated Statements of
Operations. Basic income per share is calculated on the basis of weighted
average outstanding shares. Diluted income per share is computed on the basis of
weighted average outstanding common shares, plus potential common shares
assuming exercised stock options and conversion of outstanding convertible
securities where issued. All prior year earnings per share disclosures have been
restated in accordance with SFAS No. 128.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of certain financial instruments, including cash, receivables,
accounts payable, and other accrued liabilities, approximate the amount recorded
in the balance sheet because of the relatively short-term maturities of these
financial instruments. The fair value of bank, insurance company and other
long-term financing at December 31, 1998 approximate the amounts recorded in the
balance sheet based on information available to the Company with respect to
current interest rates and terms for similar debt instruments.
F-10
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
RECLASSIFICATIONS AND RESTATEMENT
Certain reclassifications have been made to the 1997 year end balances to
conform to the 1998 year end presentation.
USE OF ESTIMATES
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.
APPROVED ACCOUNTING STANDARDS
In 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions
and other Postretirement Benefits." This statement is required to be adopted in
1999. In 1998, the FASB also issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, which establishes
accounting and reporting standards for derivative instruments and for hedging
activities, is required to be adopted in fiscal 2000. The Company is currently
in the process of evaluating the impact of adopting these statements.
2. GOING CONCERN
The accompanying financial statements have been prepared on the going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, during the years ended December 31, 1998 and 1997, the Company
incurred net losses of $10,767,547 and $18,371,756, respectively. At December
31, 1998, the Company had net current liabilities of $20,111,742 and its total
liabilities exceeded its total assets by $17,236,381. These factors among others
may indicate that the Company will be unable to continue as a going concern for
a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of the recorded assets 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 16, the Company's
continuation as a going concern is dependent upon its ability to obtain
additional financing as may be required, and ultimately to attain successful
operations. Management reported in March 1999 that it was to propose at the its
forthcoming Stockholders Meeting, a resolution to increase the authorized
capital of the Company and a further resolution to agree to allow the conversion
of certain of the loans received and interest accrued into equity of the
Company. Management reported in March 1999 that it had entered into a further
agreement to provide funding so that the Company can meet its obligations and
sustain operations from sources described in Note 17.
F-11
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at December 31, 1998 includes a bank deposit
balance of $520,164 (1997-Nil).
4. ACCOUNTS RECEIVABLE
DECEMBER 31, DECEMBER 31,
Accounts receivable comprise: 1998 1997
$ $
Trade receivables 899,352 503,605
Taxation receivables 19,761 449,167
Other debtors receivable 882,779 51,399
------------ ------------
1,801,892 1,004,171
============ ============
5. AMOUNT DUE FROM STOCKHOLDER
In December 1995, the Company issued 261,410 shares at $1.20 each to a
stockholder (Latitude Investments, Ltd.) in exchange for that stockholder
guaranteeing the establishment of a contract with PTT Telecom. This
resulted in the stockholder receiving shares for no payment. As part of
an overall agreement with Instar, Universal and Latitude (see Note 17)
this amount will be forgiven.
6. INTANGIBLE ASSETS
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
Purchase broadcast licenses 249,570 246,810
Computer Software 591,560 419,978
Goodwill 5,094,165 4,990,161
------------ ------------
5,935,295 5,656,949
Less accumulated amortization (3,076,883) (2,203,973)
------------ ------------
2,858,412 3,452,976
============ ============
Goodwill net of amortization is as follows:
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
Tinerama 0 0
Unimedia 2,138,468 2,592,989
TopCard 558,819 677,437
Pixel 78,986 --
------------ ------------
2,776,273 3,270,426
============ ============
F-12
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
7. PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31, DECEMBER 31,
Property, plant and equipment consists of: 1998 1997
$ $
Fixtures, fittings and equipment 3,211,962 936,382
Less accumulated depreciation (2,415,729) (555,865)
------------ ------------
796,233 380,517
============ ============
8. LOANS REPAYABLE WITHIN ONE YEAR
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
Instar Holdings Ltd.* 2,000,000 2,000,000
Unbeatable Investments Ltd.* - 500,000
MMP, SA* 3,120,000 -
Superstar Investments Ltd.* 6,650,000 -
Fontal Ltd.* 200,000 200,000
Oradea* 500,000 500,000
Roland Pardo* 500,000 500,000
Falcon Management* - 335,000
Interest Accrued* 1,367,442 194,008
------------ ------------
Related party loans 14,337,442 4,229,008
Sundry loans 190,000 -
------------ ------------
14,527,442 4,229,008
============ ============
- ----------
* A related party.
The terms of the Instar, MMP (a fully owned subsidiary of Groupe AB) and
Superstar loans are detailed in Notes 15 and 16.
The Unbeatable loan was received on October 10, 1997 and carried an interest
rate of 10% per annum and was replaced on January 9, 1998 by a loan from
Superstar Ventures, Ltd., see Note 16.
F-13
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
LOANS REPAYABLE WITHIN ONE YEAR (CONTINUED)
The Fontal loan was received on December 30, 1997 and carries an interest
rate of 15% per annum and was repayable on February 16, 1998, see Note
14.
The Oradea loan was made to Unimedia in 1996 and carries an interest rate
of 2% above 3 month Eurodollar Libor rate and was repayable on April 18,
1998. See Note 14.
The Roland Pardo loan was made to Unimedia in 1996 and carries an
interest rate of 2% above 3 month Eurodollar Libor rate and was repayable
on July 26, 1998. See Note 14.
The Falcon Loan was made to Unimedia in 1995 and carries an interest rate
of 0.5% per month and was repaid on May 25, 1998.
The sundry loans are in respect of two proposed subscriptions for
1,900,000 shares of common stock at $0.10 per share.
9. DISCONTINUED OPERATIONS
On May 13, 1998, the Company decided to sell its interests in the Romania
company, Tinerama. Discussions with the potential buyer are in progress
and the transaction is expected to be concluded in the second quarter of
1999. The results of the Tinerama business have been reported separately
as discontinued operations. Prior year consolidated financial statements
have been restated to present the Tinerama businesses as discontinued.
The components of the net liabilities of the discontinued operations
included in the consolidated balance sheets are as follows:
1998 1997
$ $
Current assets
Receivables 79,445 89,984
Inventory 38,930 26,079
Other current assets 34,369 63,848
---------- --------
152,744 179,911
---------- --------
Less current liabilities
Accounts payables (138,076) (131,924)
Other current liabilities (564,827) (527,218)
---------- --------
(702,903) (659,142)
---------- --------
Net current liabilities (550,159) (479,231)
Minority interests (460,559) (499,503)
Net property, plant and equipment 514,490 640,301
---------- --------
Net liabilities (496,228) (338,433)
========== ========
F-14
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
10. COMMITMENTS AND CONTINGENCIES
TRANSPONDER
A bank guarantee was originally provided to KPN Telecom (formerly
PTT Telecom) on November 30, 1995 in the amount of ECU 2,000,000 in
relation to an Agreement entered into by CM(UK) on behalf of Onyx
to lease transponder capacity in order to broadcast a television
channel in Germany. The Agreement for use of the transponder
expired on September 25, 1998 and the guarantee as of December 31,
1998 was ECU 500,000 ($587,000 at December 31, 1998 exchange
rates).
The Company was originally not in a position to support the
guarantee. As a result the guarantee was provided by Universal
Independent Holdings Limited ("Universal") (see Note 16 to the
Consolidated Financial Statements).
LEASE COMMITMENTS
In March 1998, the Company entered into a monthly agreement to
lease offices, as well as the use of studio, post production and
editing facilities in Dortmund, Germany as required. Under the
terms of the agreement, the Company was committed to paying DM
150,000 ($90,000 at December 31, 1998 exchange rates) per annum.
In January 1996 the Company entered into an agreement to lease
master control and broadcast equipment and editing facilities at
Ingleheim Germany and was committed to paying DM 2,940,000
($1,765,000 at December 31, 1998 exchange rates) per annum for the
use of the equipment and facilities until January 2001. The terms
of the original agreement were renegotiated and subsequently the
lease was terminated on September 30, 1998.
In January 1996, the Company entered into an agreement to lease
uplink capacity at a cost of approximately /pound sterling/245,000
($408,000 at December 31, 1998 exchange rates) per annum. The lease
was terminated effective October 1998.
The Company has also entered into leases for office space in
France, expiring between 1999 and 2002 at an annualized cost of
$100,000 (at December 31, 1998 exchange rates).
The total rental expense in 1998 and 1997, including transponders
and lease commitments as above, were $4,423,113 and $5,592,000,
respectively.
Under the terms of a two year service agreement which commenced
October 1, 1998, broadcasting facilities for Onyx comprising the
uplink, master control, and satellite transponder broadcasting and
cable transmission costs are provided by Groupe AB at an annual
cost of $3,120,000 (see Notes 15 and 16).
Minimum lease payments under operating lease as of December 31,
1998 are as follows:
Years ending December 31, ($)
-
1999 2,648,500
2000 2,044,000
2001 170,000
2002 170,000
2003 and thereafter 295,000
----------
5,327,500
==========
The Company is committed to pay to its directors and officers under
employment agreements an aggregate of $650,000 during the year
ended December 31, 1999.
F-15
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
RETIREMENT INDEMNITIES AND PENSION PLANS.
Retired employees benefit from State or Government sponsored
pension schemes. Contributions by employers to these sponsored
schemes are expensed as incurred. There are no specific
supplemental pension plans operated by the Company or any
subsidiary. There is no liability arising from retirement
indemnity.
11. RESEARCH AND DEVELOPMENT COSTS
TopCard is involved in the development of specific applications
based upon smart card technology including remote security Internet
access and infra-red contactless smart card technology. 1997 costs
are from the date of acquisition.
1998 1997
$ $
Research and development costs 268,641 45,330
======= ======
12. FINANCIAL INCOME (EXPENSE) NET
1998 1997
$ $
Interest expense (1,284,417) (244,694)
Foreign currency exchange
gain/(losses) 2,254,824 (2,567,598)
----------- -----------
970,407 (2,812,292)
=========== ===========
The foreign currency exchange gain in 1998 and the loss in 1997
arose primarily from the exchange differences arising in the
intercompany loan between CM (UK) and Onyx recorded in pounds
sterling and German Marks, respectively.
13. INCOME TAXES
The income tax benefit consisted of the following:
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
Income tax benefit (41,552) (1,658)
============= ==============
F-16
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
The income tax benefit, net, includes $53,321 of research and
development tax credit for TopCard.
Net operating loss carry forwards which give rise to deferred tax
assets at December 31, 1998 are as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
Deferred tax asset on
unrealized losses 18,408,000 4,180,000
Timing differences 292,000
------------- ------------
Valuation allowances (18,700,000) (4,180,000)
------------- ------------
Total deferred tax assets - -
============= ============
The Company has significant deferred tax assets ($15,828,000)
corresponding to tax losses arising primarily from the operating
losses incurred by Onyx, in Germany. These tax losses are available
to be carried forward indefinitely to be set off against future
profits in Germany. However, at the end of 1998, the management
forecast that the Company will not be profitable in 1999 and
therefore no credit for income tax was recorded. The Company will
continue to review its tax valuation allowance in future periods.
14. LITIGATION
The Company's litigation against Com TV Production und Vertrieb
GmbH ("Com") and Nen TV ("Nen") and Mr. John Garman, related to an
agreement in 1995, wherein the Company was purportedly to invest in
and develop a satellite broadcasting project and was thereby to
allot Nen 5% of the issued share capital of the project in
consideration for various undertakings. The Company has always
maintained that there had been a repudiatory breach of contract by
Com and Nen and that the Company believed that the claims made were
without merit and intended to vigorously contest the same. In
December 1997, at the direction of the trial judge, the Company and
the other parties agreed to a form of settlement, wherein the
Company agreed to enter into reciprocal commercial agreements
allowing the other parties to introduce potential clients wishing
to access available down time for advertising purposes. To date, no
client has been introduced to Onyx by Nen.
In June 1997, a former managing director of Onyx whose employment
was terminated brought suit in Germany for alleged wrongful early
termination of his employment. The suit sought damages of DM750,000
($450,000). Onyx maintained that the action taken was lawful and in
July 1998, the court ruled in favor of Onyx. The plaintiff has
appealed and Onyx believes that it has valid defenses to this
claim. However, there can be no assurance as to the outcome of the
matter.
In May 1998, TV Strategies, a US Dallas based television services
company, obtained a default judgment against Onyx for DM300,000
($180,000), plus interest, relating to services which TV Strategies
alleges that they provided to Onyx. Onyx has taken action in the US
to have the default judgment set aside, and in March 1999, the
Texas appeal court overturned that default judgment. Onyx believes
that it has meritorious defenses to the suit and intends to
vigorously defend same. However, there can be no assurance as to
the outcome of the matter.
F-17
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
In July 1998, the Company was sued in the U.S. District Court for
the District of Nevada by Fontal Limited ("Fontal") for breach of a
promissory note. See Note 8 for a description of the Fontal Note.
The Company had pledged the rights to trademarks for the
International Onyx name outside of Germany, Switzerland and Austria
to Fontal to secure repayment of this note. The Company has filed a
motion to dismiss this suit for FORUM NON CONVENIENS, believing
that the proper forum for this suit is England. The Company also
believes that it has meritorious defenses to this suit and intends
to vigorously defend same. However, there can be no assurance as to
the outcome of the matter.
Unimedia has three minority stockholders (Oradea, Roland Pardo and
Fontal (see Note 8)) 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 have brought numerous legal actions against Unimedia
and/or its management (which is also now, in part, the senior
executive management of the Company) contending that the past and
future activities of Unimedia are not in the best interest of
Unimedia's stockholders and were not being engaged in for the
benefit of Unimedia and its stockholders. To date, such suits have
not been successful. In addition, the French Courts have to date
rejected all requests to appoint experts in Judgment to review
Unimedia's management's actions.
Oradea and Pardo have also taken action through the courts in
France and Israel to safeguard their potential rights over certain
assets of Unimedia in order to secure repayment of their unsecured
loans due from Unimedia (see Note 8). In connection with such
actions and based upon the fact that the notes do not by their
terms reflect a repayment date, in February 1999, the French court
ruled that repayment of the loans be made by a number of
installments starting February 1999 until September 1999 and set a
lower rate of interest to accrue. Unimedia is also preparing
actions against the principal of Oradea and Pardo for damages which
it believes have been inappropriately caused by reason of the
actions taken by the principle of Oradea and Pardo against Unimedia
and its management.
Charles Koppel, the former chairman and CEO of the Company claimed
constructive dismissal following the Board's selection of a new
President and CEO for the Company in August 1997. In March 1998,
the Company resolved its dispute with Mr. Koppel in regard to his
claim for wrongful dismissal and paid Mr. Koppel /pound
sterling/60,000 ($100,000) to resolve outstanding claims under his
service contract with the Company.
In August 1998, Onyx sued Mr. C. Koppel in Germany. The suit
alleges that certain of Mr. C. Koppel's actions as the managing
director of Onyx were improperly performed and seeks damages in an
unspecified amount. The Company and Mr. C. Koppel will exchange
mutual general releases in connection with the Instar Settlement
(see Note 17) and all of the suits between the Company and Mr. C.
Koppel will be dismissed with prejudice.
F-18
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
15. CAPITAL STRUCTURE
COMMON STOCK PURCHASE WARRANTS
The company has the following issued and vested warrants to purchase common
stock outstanding at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 EXPIRED 1997 GRANTED 1998
DESCRIPTION
<S> <C> <C> <C> <C> <C>
Warrants for common stock
exercisable @ $4.00 5,200,000 -- 5,200,000 -- 5,200,000
Warrants for common stock
exercisable @ $3.125 433,328 (1,600,000) 2,033,328 -- 2,033,328
Warrants for common stock
exercisable @ $2.50 1,100,000 (1,200,000) 2,300,000 100,000 2,200,000
---------- ----------- ----------- ----------- ----------
6,733,328 (2,800,000) 9,533,328 100,000 9,433,328
========== =========== =========== =========== ==========
</TABLE>
All outstanding warrants (except the warrants which expired on
December 31, 1998), expire 36 months from the date of the effective
registration of their underlying shares. 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 1,200,000 shares of common stock at exercise prices
of $3.125 and $2.50 respectively were issued to certain of the
founding shareholders (which warrants expired at December 31,
1998). In September 1996, 100,000 shares and warrants to purchase
an additional 100,000 shares at an exercise price of $2.50 were
issued to a director for consulting services.
Additionally, the Company is obliged to issue warrants to former
Unimedia shareholders under the terms of the share exchange
agreement signed on 1997, as follows:
<TABLE>
<CAPTION>
DECEMBER 31, EXPIRED DECEMBER 31,
1998 1997
<S> <C> <C> <C>
Warrants for Common Stock exercisable @ $4.00 1,139,144 -- 1,139,144
Warrants for Common Stock exercisable @ $3.125 77,871 (367,562) 445,433
Warrants for Common Stock exercisable @ $2.50 197,675 (306,177) 503,852
--------------- --------- ------------
1,414,690 (673,739) 2,088,429
=============== ========= ============
</TABLE>
Subject to the compliance with applicable U.S. securities laws and
the approval of an increase in the Company's authorized Common
Stock to allow for such action, the Company intends in the future
to offer the warrant holders the right, for a period of not less
than 61 days, to exercise their warrants and receive two shares of
Common Stock at an exercise price of $0.30 per share. If the
holders of the outstanding warrants do not exercise this right, the
warrants will remain outstanding on their original terms until
their expiration date. This right will be given to the Company's
warrant holders in order to allow the Company's warrant holders to
acquire additional Company securities at a lower price and to raise
additional capital for the Company's operations.
F-19
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
The Company has offered one of its warrant holders, Auric
Investments Limited ("Auric"), the right to subscribe to purchase
1,566,156 shares of Common Stock on the basis of two shares for
each of the 783,078 warrants which they hold, but at an exercise of
$0.20 per share. Auric was granted this lower price due to the
assistance which they provided to the Company in helping the
Company to re-obtain the quotation on the Bulletin Board maintained
by the NASD in 1998.
<TABLE>
<CAPTION>
OUTSTANDING GRANTED OUTSTANDING GRANTED OUTSTANDING
AT DECEMBER AT DECEMBER AT DECEMBER
31, 1998 31, 1997 31, 1996
<S> <C> <C> <C> <C> <C>
Executive officers options exercisable @ 375,000 -- 375,000 375,000
$0.57
of which vested 225,000 150,000
Officers options exercisable @ $2.50 300,000 100,000 200,000 100,000 100,000
of which vested 200,000 100,000
Executive officers options exercisable @ 4,000,000 4,000,000 -- -- --
$0.35
of which vested 800,000
Non-employee directors options exercisable
@ $0.35 500,000 500,000 -- -- --
of which vested 500,000
Options to Diamond Productions exercisable
@ $0.10 16,000,000 16,000,000
------------- ------------ ------------- ---------- -------------
21,175,000 20,600,000 575,000 475,000 100,000
============= ============ ============= ========== =============
</TABLE>
On August 1, 1997, the Company has entered into three-year
employment agreements with the executive officers providing for
them to receive, in addition to other compensations, options to
purchase 200,000 and 175,000 shares of common stock at an exercise
price of $0.57 per share, the price at which transactions were
effected at the time. The options vested 2/5 upon the effective
date of the agreement and will vest 1/5 on each of the first,
second and third anniversaries, respectively, of the agreement.
These options expire 36 months from the date of their effective
registration.
The Chief Financial Officer as part of his service contract is
entitled to receive an option to purchase 100,000 common shares of
the Company at $2.50, the price at which transactions were effected
at the time for each of the years 1996, 1997 and 1998. These
options expire 36 months from the date of their effective
registration.
On March 10, 1998, the Board of Directors granted options to four
executive officers of the company to purchase an aggregate of
4,000,000 shares of common stock at an exercise price of $0.35 per
share (the price of which common stock was negotiated on the date
of grant). On the same date, non-employee directors were granted
options to purchase an aggregate of 500,000 shares at the same
price. The option vested to executive officers 200,000 each in
1998, with the balance over 3 years, and to non-employee directors
immediately. The options are valid for 5 years and expire on March
10, 2003.
On December 18, 1998, the Board approved the grant of a two year
warrant to purchase an aggregate of 16,000,000 shares at an
exercise price of $0.10 per share to Diamond Production, a company
owned by two executive directors. This grant has to be approved at
the forthcoming stockholders' meeting.
F-20
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
PRO FORMA NET LOSS AND NET LOSS PER SHARE
The Company has adopted the disclosure requirement of SFAS No. 123,
"Accounting of Stock-Based Compensation" and, as permitted under
SFAS No. 123 applies Accounting Principles Board Opinion ("APB")
No. 25 and related interpretations in accounting for its stock
options. Since the Company awarded the stock options with no
discount as compared with the market price at the time of the
grants, there was no related compensation costs for any of the
years presented based on the estimated grant date fair value as
defined by FAS 123. The Company pro-forma net loss and loss per
share for the year ended December 31, 1998 and 1997 are as follows:
1998 1997
$ $
Proforma net loss
Basic and diluted (10,767,547) (18,371,756)
Pro forma net loss per share
Basic and diluted (0.27) (0.66)
CONVERTIBLE DEBT AT DECEMBER 31, 1998
The following derivative securities outstanding will become
exercisable if the company's stockholders authorize an increase in
additional shares (see Note 2). Interest and penalties accrued are
also convertible into common stock.
<TABLE>
<CAPTION>
CONVERSION SHARES ISSUABLE
PAYEE $ PRICE($) ON CONVERSION
---------------- --------------- -------------------
<S> <C> <C> <C>
Superstar Ventures Ltd. 1,250,000 0.10 12,500,000
Superstar Ventures Ltd. 400,000 0.10 4,000,000
MMP SA 2,000,000 0.10 20,000,000
Superstar Ventures Ltd. 5,000,000 0.10 50,000,000
MMP SA (1) 1,120,000 0.10 11,200,000
Interest and Penalties Accrued 732,419 0.10 7,324,190
---------------- -------------------
10,502,419 105,024,190
================ ===================
</TABLE>
----------
(1) The debt is part of a convertible note under which MMP
will loan $6,640,000 over 2 years. See Note 10 - Lease
Commitments. It is convertible into common stock at $0.10
per share. The total shares of common stock to be issued
are 66,400,000.
These loans (principal and interest) are automatically convertible
into shares of common stock once the Company holds its meeting of
stockholders and its stockholders approve the increase in the
number of authorized shares. The Company has agreed to pay a 2% per
monthly penalty on the outstanding principal of the loans, payable
in shares of common stock, for each month the Company fails to hold
its special stockholders meeting subsequent to November 30, 1998.
The convertible debt becomes automatically due to Superstar and MMP
SA and immediately payable (with interest plus a 20% penalty) if
the Company's stockholders do not approve the above-mentioned share
number increase.
F-21
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
BASIC EPS COMPUTATION
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net income of continuing operations ($10,459,015) ($17,573,986)
----------------- -------------------
Net loss ($10,767,547) ($18,371,756)
----------------- -------------------
Weighted Average Number of Shares 40,094,139 27,966,383
----------------- -------------------
Basic EPS Net loss of continuing operations ($0.26) ($0.63)
----------------- -------------------
Basic EPS Net loss including discontinued operations ($0.27) ($0.66)
----------------- -------------------
DILUTED EPS COMPUTATION
Weighted average shares 40,094,139 27,966,383
Warrants(1) - -
Convertible debt - 105,024,190 shares(1) - -
Board options - 1,300,000 vested in 1998(1) - -
----------------- -------------------
Adjusted Weighted Average 40,094,139 27,966,383
----------------- -------------------
Diluted EPS Net Loss of Continuing Operations ($0.26) ($0.63)
----------------- -------------------
Diluted EPS Net Loss Including Discontinued
Operations ($0.27) ($0.66)
----------------- -------------------
</TABLE>
----------
(1) The computation does not assume exercise of the warrants or
options since it would have an antidilutive effect on earnings
per share.
16. LIQUIDITY AND CAPITAL RESOURCES
The Company has continued to use its cash reserves to fund its
operations. The ownership, development and operation of media
interests, including the Onyx television station requires substantial
funding. Due to the poorer than expected advertising revenues at Onyx
in its second and third years of operation, the funds raised by the
Company since commencement were expended earlier than anticipated. To
date the Company has historically financed itself through sales of
equity securities and debt financing.
On January 13, 1997, the Company issued a Private Placement Memorandum
offering its securities to accredited investors including to all
existing stockholders. 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 30, 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
F-22
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
30, 1997 $1,500,000 of the proceeds of the subscription was received
and the balance of $2,500,000 was received on August 1, 1997.
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 substantially all of the
Company's assets. Interest is payable monthly on the loan and was until
December 31, 1997 at the rate of 2% above Lloyds Banks' base rate.
Interest as from January 1, 1998 is at the rate of 13% per annum. The
terms of the Instar Loan were amended in August 1997, January 1998 and
July 1998. See note 17.
The terms of the Instar Loan were amended in July 1998 to provide that:
(a) the repayment date is now extended such to accede to
a repayment schedule plan commencing in July 1998 and
terminating on receipt of a final installment payment
in late 1999; and
(b) the loan (or any part thereof) may be converted, at
the option of the holder, into fully paid shares of
common stock, at a conversion rate that may be
offered from time to time by the Company to any
existing or potential investor.
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 10) CM (UK)'s
obligations under the Deed are guaranteed by the Company and Onyx, and
are secured by substantially all of the Company's assets. Instar and
Universal have agreed that their liens on the Company's assets shall
rank pari-passu.
On January 9, 1998 CM (UK) borrowed an aggregate of $1,250,000 from
Superstar Ventures Limited ("Superstar"). Such loan was evidenced by
two 13% Convertible Secured Promissory Notes (the "Notes") in the
original amounts of $750,000 and $500,000, respectively, the latter
replacing a loan previously made to CM (UK) by Unbeatable Investments
Limited. The Notes bear interest at the rate of 13% per annum and are
convertible into the Company's Common Stock on the basis of one share
of Common Stock for each $0.50 of outstanding principal and accrued
interest. The Notes however, may not be converted until the Company has
held a stockholders' meeting at which its Articles of Association are
amended to increase sufficiently the number of authorized shares of
Common Stock of the Company.
On March 23, 1998, MMP, SA ("MMP"), a stockholder of the Company made
available a $2,000,000 Line of Credit ("MMP Line of Credit"), which
carried interest at 13% per annum, and has been fully utilized. The
principal and accrued interest was repayable on December 31, 1998, or
earlier if the Company's cash flow enabled repayment.
On March 25, 1998, Superstar loaned the Company an additional $400,000,
payable on the same terms as the MMP Line of Credit.
These two loans are still outstanding at December 31, 1998.
F-23
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
On June 16, 1998, the Company entered into two Memorandum of
Understanding Agreements ("MOU") with Groupe AB ("AB"), (which is the
parent company of MMP) and Superstar to continue to fund the Company's
operations. These new Agreements will provide up to $11.64 million,
$5.4 million in the form of cash investment to be infused over a one
year period, of which $400,000 were received in 1998, and $6.24 million
over a 24-month period through providing operating services to the
Company at a rate of $200,000 per month starting October 1, 1998 and
cash advances of $60,000 per month starting November 1, 1998. The new
funding will initially be in the form of debt to be automatically
converted into shares of common stock at $0.10 cents per share upon and
after approval of an increase in the Company's authorized capital at
the next stockholders' meeting, which the Company was obligated to hold
no later than November 30, 1998 (See Note 15).
17. SUBSEQUENT EVENTS
The Company has reached an agreement in principal to settle the Instar
Loan. Under the terms of the settlement, the Company will pay Instar
$2.2 million in full settlement of this loan. As part of the
settlement, the company's obligations to Instar and Universal will be
extinguished. (See Notes 8 and 16). Additionally, the obligations of
Latitude Investments, Ltd. to the Company will be deemed paid in full.
(See Note 5). As part of the settlement, all of the securities given
will be released. This transaction is expected to result in a net
credit to income of some $400,000 representing the settlement of the
litigation. There can be no assurance that the settlement will be
completed.
On March 10, 1999, the Company entered into a new $6.0 million
Convertible Promissory Note agreement with AB to provide additional
funding for the Company's operations including $800,000, which was paid
for the purchase of certain technical equipment necessary to implement
the Service Agreement dated July 27, 1998; $3 million is to be loaned
in cash over the five months to July 31, 1999, of which $1,160,000 has
been received by the Company and the balance of $2.2 million, of the
Note is reserved for the Settlement of the proposed repayment of the
Instar loan. (See Note 16). The Note bears interest at the rate of 10%
per annum, and is automatically converted into the Company's Common
Stock on the basis of one share of Common Stock for each $0.10 of
principal and interest. As previous, the Note, may not be converted
until the Company has held its stockholders' meetings at which its
Articles of Association are amended to provide the sufficient number of
authorized shares of Common Stock of the Company.
18. RESTATEMENT
Subsequent to the issuance of the Company's consolidated financial
statements for the year ended December 31, 1997, the Company's
management determined that the 4,023,396 shares of the Company's stock
held at year end should be reflected as an element of stockholders
equity.
Prior to its acquisition by the Company, Unimedia S.A. held 4,556,320
shares in Capital Media Group. Between the date of its acquisition and
the year end, 76,924 shares were sold, and 456,000 formed part of the
consideration given in exchange for the shares in TopCard S.A. The
remaining 4,023,396 shares held at the year end were carried in the
balance sheet within investments at the market value of $0.44 per share
in the previously issued financial statements. This was after reducing
the investment by approximately $0.13 per share from the cost of $0.57
per share. The 1997 financial statements have been restated to reflect
this investment as an element of the Stockholders' Equity at their
original cost of $0.57 per share. The consolidated financial statements
have been restated from the amounts previously reported as follows:
F-24
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
A summary of the significant effects of the restatement are as follows:
AS PREVIOUSLY
REPORTED AS RESTATED
$ $
At December 31, 1997:
Investments 2,014,917 143,336
Total Stockholders' Equity (3,927,770) (5,711,213)
For the Year ended December 31, 1997
Other (expenses)/income (44,684) 441,748
Loss from continuing operation before
taxation (18,976,917) (17,577,478)
Net Loss after taxation (18,975,527) (18,371,756)
Net loss per share - basic and diluted (0.68) (0.66)
19. PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statement give
effect to the acquisition as of January 1, 1998 of Pixel Limited
(Israel) ("Pixel") by Unimedia, SA, as if the acquisition were effected
as of January 1, 1997. The acquisition was accounted for by the
purchase method of accounting.
The cost of investment by Unimedia was based upon the part
extinguishment of a loan made by Unimedia to Pixel Multimedia, its
parent company, in 1996. The loan including interest and costs
outstanding at December 31, 1997 was $2,700,000. The loan was fully
provided for in the accounts of Unimedia in the year ended December 31,
1996. At December 31, 1997, Pixel Multimedia sold to Pixel certain
software produced for Unimedia for $950,000. On closing of the purchase
of Pixel, Unimedia set-off this debt against the loan and reduced the
loan to $1,750,000. $750,000 was extinguished for the cost of
investment in Pixel and the remaining $1,000,000 is contingently
extinguishable if certain financial performance benchmarks are
achieved.
The software has been fully amortized.
The excess of purchase price over the fair value of net assets acquired
is allocated to goodwill and is amortized over six years.
Pixel and its 47.5% owned subsidiary Henry Communications Ltd. are
engaged in providing services in the area of television, computerized
graphics packaging, animation and special effects for television
commercials and other video graphics production.
F-25
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
AS REPORTED
AFTER RESTATEMENT
-----------------
CAPITAL MEDIA PIXEL LIMITED PRO FORMA AS
GROUP ADJUSTED
$ $ $
------------------- ------------------ -----------------
<S> <C> <C> <C>
Operating Revenue 1,286,076 720,176 2,006,252
Operating costs
Staff costs 3,572,498 257,000 3,829,498
Depreciation and amortization 1,564,452 238,080 1,802,532
Other operating expenses 11,104,510 43,477 11,147,987
------------------- ------------------ -----------------
16,241,460 538,557 16,780,017
------------------- ------------------ -----------------
Operating profit / (loss) (14,955,384) 181,619 (14,773,765)
Other (expenses)/income 441,748 -- 441,748
Financial income (expense) net (2,812,292) (11,749) (2,824,041)
Equity in net losses of affiliates (251,550) 136,999 (114,551)
------------------- ------------------ -----------------
Loss before income tax provision (17,577,478) 306,869 (17,270,609)
Income tax benefit 1,658 -- 1,658
------------------- ------------------ -----------------
Continued operations (17,575,820) 306,869 (17,268,951)
Discontinued operations (797,770) -- (797,770)
Minority interests 1,834 (56,464) (54,630)
------------------- ----------------- -----------------
Net loss (18,371,756) 250,405 (18,121,351)
=================== ================= =================
Net loss per share for continuing operations ($0.63) ($0.65)
=================== =================
Weighted average shares outstanding 27,966,383 27,966,383
=================== =================
</TABLE>
F-26
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
20. SEGMENT INFORMATION BY ACTIVITY AND GEOGRAPHIC AREA
The following financial information is summarized by business
segment and country.
- The television media segment contains the operations of Onyx;
and
- The technology segment contains the operations of Unimedia,
Pixel and Topcard.
Capital Media Group's activities are concentrated in Germany,
France and Israel (Revenues account for: 1998 - approximately 31%,
39%, and 29% respectively, 1997 - approximately 35%, 65% and nil
respectively) Revenues were primarily derived from their domestic
markets. In 1998, in Israel all revenue was derived under contract
from one Company, Israeli Cable Programming. In France 55% of
revenue was derived from Societe Marseillaise de Transport.
<TABLE>
<CAPTION>
TELEVISION ELIMINATION &
MEDIA TECHNOLOGY CORPORATE TOTAL
($) ($) ($) ($)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Revenues 760,824 1,697,381 10,285 2,468,490
Inte-segment revenues -- -- -- --
-------------- ------------- ------------ ---------------
Total revenues 760,824 1,697,381 10,285 2,468,490
(Losses) from operations (7,480,286) (674,215) (2,698,237) (10,852,738)
Other (expenses) income 324,495 (348,240) (441,951) (465,696)
Interest revenue 0 10,752 0 10,752
Interest expenses (64,352) (169,086) (1,061,732) (1,295,170)
Other financial income, net 1,795,444 261,318 198,063 2,254,825
Equity in net losses of affiliates -- (74,000) (76,808) (150,808)
Loss in discontinued business -- -- (308,532) (308,532)
Income tax benefit (4,887) 47,774 (1,335) 41,552
Minority interest -- (1,732) -- (1,732)
Net loss (5,429,586) (947,429) (4,390,532) (10,767,547)
============== ============= ============ ===============
Total assets 1,066,965 2,385,586 3,156,091 6,608,642
============== ============= ============ ===============
Capital expenditure 385,788 103,181 611 489,580
============== ============= ============ ===============
Depreciation of fixed assets 135,355 288,123 17,008 440,486
============== ============= ============ ===============
</TABLE>
F-27
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
SEGMENT INFORMATION BY ACTIVITY AND GEOGRAPHIC AREA (CONTINUED)
<TABLE>
<CAPTION>
GERMANY FRANCE ISRAEL THER CORPORATE TOTAL
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 199
Revenues 760,824 970,381 727,000 10,285 2,468,490
Inter-segment revenues -- -- -- -- --
-------------- -------------- --------------- --------------- ---------------
Total revenues 760,824 970,381 727,000 10,285 2,468,490
(Losses ) Income from operations (7,480,286) (932,215) 258,000 (2,698,237) (10,852,738)
Other (expense) income 324,495 (343,240) (5,000) (441,951) (465,696)
Interest revenue -- 10,752 -- -- 10,752
Interest expenses (64,352) (102,086) (67,000) (1,061,732) (1,295,170)
Other financial income, net 1,795,444 261,318 - 198,063 2,254,825
Equity in net losses of affiliates -- -- (74,000) (76,808) (150,808)
Loss in discontinued business -- -- -- (308,532) (308,532)
Income tax benefit (4,887) 47,774 -- (1,335) 41,552
Minority interest -- (1,732) -- -- (1,732)
-------------- -------------- --------------- --------------- ---------------
Net (loss)/profit (5,429,586) (1,059,429) 112,000 (4,390,532) (10,767,547)
============== ============== =============== =============== ===============
Total assets 1,066,965 1,620,586 765,000 3,156,091 6,608,642
============== ============== =============== =============== ===============
Capital expenditure 385,788 103,181 611 -- 489,580
============== ============== =============== =============== ===============
Depreciation of fixed assets 135,355 288,123 17,008 -- 440,486
============== ============== =============== =============== ===============
</TABLE>
F-28
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
SEGMENT INFORMATION BY ACTIVITY AND GEOGRAPHIC AREA (CONTINUED)
<TABLE>
<CAPTION>
ELIMINATION &
TELEVISION MEDIA TECHNOLOGY CORPORATE TOTAL
($) ($) ($) ($)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Revenues 455,646 830,430 -- 1,286,076
Inte-segment revenues -- -- -- --
--------------- -------------- ------------- --------------
Total revenues 455,646 830,430 -- 1,286,076
(losses) Income from operations (11,424,492) 101,628 (3,632,520) (14,955,384)
Other income 21,204 420,544 441,748
Interest revenue -- -- 4,782 4,782
Interest expense (69,876) (41,410) (138,190) (249,476)
Financial (expense) income, net (2,055,525) 158,753 (670,826) (2,567,598)
Equity in net losses of affiliates -- -- (251,550) (251,550)
Loss in discontinued business -- -- (797,770) (797,770)
Income tax benefit (1,613) 3,271 -- 1,658
Minority interest -- 1,834 -- 1,834
--------------- -------------- ------------- --------------
Net (loss)/profit (13,530,302) 644,620 (5,486,074) (18,371,756)
=============== ============== ============= ==============
Total assets (liabilities) 1,163,414 (1,123,048) 6,261,962 6,302,328
=============== ============== ============= ==============
Capital expenditure -- -- 17,742 17,742
=============== ============== ============= ==============
Depreciation of fixed assets 114,322 51,039 13,664 179,025
=============== ============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
OTHER
GERMANY FRANCE CORPORATE TOTAL
($) ($) ($) ($)
<S> <C> <C> <C> <C>
Revenues 455,646 830,430 -- 1,286,076
Inter-segment revenues -- -- -- --
--------------- -------------- ------------- --------------
Total revenues 455,646 830,430 -- 1,286,076
(Losses) income from operations (11,424,492) 101,628 (3,632,520) (14,955,384)
Other income 21,204 420,544 -- 441,748
Interest revenue -- -- 4,782 4,782
Interest expense (69,876) (41,410) (138,190) (249,476)
Financial (expenses) income, net (2,055,525) 158,753 (670,826) (2,567,598)
Equity in net losses of affiliates -- -- (251,550) (251,550)
Loss in discontinued business -- -- (797,770) (797,770)
Income tax benefit (1,613) 3,271 -- 1,658
Minority interest -- 1,834 -- 1,834
--------------- -------------- ------------- --------------
Net (loss)/profit (13,530,302) 644,620 (5,486,074) (18,371,756)
=============== ============== ============= ==============
Total assets/(liabilities) 1,163,414 (1,123,048) 6,261,962 6,302,328
=============== ============== ============= ==============
Capital Expenditure -- -- 17,742 17,742
=============== ============== ============= ==============
Depreciation of fixed assets 114,322 51,039 13,664 179,025
=============== ============== ============= ==============
</TABLE>
F-29
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
21. RELATED PARTY TRANSACTIONS
In addition to the transactions described in Notes 5, 8, 10, 14,
15, 16 and 17, the related party transactions also include the
following:
Mr. Jacques Dubost acts as consultant on behalf of his company,
Valfab, S.C.B. In 1997, the Company paid to Valfab fees relating to
introducing investors to Unimedia who purchased Company common
stock from Unimedia: a) $195,000 in cash b) 106,666 shares of the
Common Stock with a $64,000 value. Further, if Valfab introduces
investors to the Company in the future, Valfab will receive
commissions not to exceed 8% of the investment made.
Mr. Karl Hauptmann, a former director and a more than 5%
shareholder of the Company, is a principal of Telor International
Limited, which owns 49% of Tinerama Investment ("TIAG"). The other
51% of TIAG is owned by the Company . Mr. Hauptmann is also a
director of TIAG.
Townsley & Co., a UK brokerage firm, participated in the Company's
winter 1995/96 private placement for which it received direct
commissions of $210,000, 86,655 shares of Common Stock and warrants
to purchase 86,665 shares and 218,750 shares, respectively, at an
exercise price of $3,125 and $4.00, respectively. Mr. Barry
Townsley, Managing Director of Townsley & Co., was a Director of
the Company until January 1997.
Mr. Stanley Hollander, a director of the Company, is Senior Vice
President and a director of International Capital Growth, Ltd.
("ICG"). The predecessor of ICG was the placement agent in
connection with the Company's 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
an exercise price of $3,125 and $4.00, respectively. In April 1997,
ICG received 93,333 shares of common stock for services.
Additionally, in June 1998, Mr. Hollander on behalf of ICG agreed
to continue to assist the Company in an advisory role at no
additional charge.
Mr. James Leitner, a former director and more than 5% shareholder
of the Company is a principal of Falcon Management which loaned
$335,000 to Unimedia in 1995 and was repaid in 1998.
F-30
<PAGE>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------- DECEMBER 31,
PROFORMA(1) ACTUAL 1998
-------- ------ ----
NOTE $ $ $
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents 3 153,165 153,165 583,320
Accounts receivable, within one year, net of allowances
for doubtful accounts of $80,106 (December 31, 1998 - $77,579) 4 1,428,238 1,428,238 1,801,892
Inventories 47,782 47,782 93,938
Amounts due from shareholder 5-17 - - 313,691
Prepaid expenses and deposits 161,138 161,138 40,003
------------ ------------ --------------
TOTAL CURRENT ASSETS 1,790,323 1,790,323 2,832,844
Investments 6,990 6,990 4,153
Equity in affiliate companies 143,788 143,788 117,000
Intangible assets, net of accumulated amortization of
$3,546,061 (December 31, 1998-$3,076,882) 6 2,376,982 2,376,982 2,858,412
Property, plant and equipment, net 7 1,203,842 1,203,842 796,233
------------ ------------ --------------
TOTAL ASSETS 5,521,925 5,521,925 6,608,642
============ ============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 2,889,263 2,889,263 3,786,764
Accrued expenses 2,751,682 3,096,683 4,630,380
Related parties loans repayable within one year 8-17 640,894 22,585,932 14,337,442
Other loans repayable within one year 8 - 583,000 190,000
Bank debt due within one year 763,292 763,292 -
Net liabilities for discontinued operation 9 557,606 557,606 496,228
------------ ------------ --------------
TOTAL LIABILITIES 7,602,737 30,475,776 23,440,814
COMMITMENTS AND CONTINGENCIES 10-16 - - -
MINORITY INTEREST IN SUBSIDIARIES 446,203 446,203 404,209
------------ ------------ --------------
8,048,940 30,921,979 23,845,023
------------ ------------ --------------
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 4,009,413 (December 31, 1998 -
4,009,413) issued and outstanding 26,882 4,009 4,009
Additional paid in capital 54,042,155 31,191,990 31,191,990
166,791 shares held by subsidiary (December 31,
1998 - 166,791) at cost (950,712) (950,712) (950,712)
------------ ------------ --------------
53,118,325 30,245,287 30,245,287
Cumulative translation adjustment 3,850,786 3,850,785 756,406
Accumulated deficit (59,496,126) (59,496,126) (48,238,074)
------------ ------------ --------------
TOTAL STOCKHOLDERS' EQUITY (2,527,015) (25,400,054) (17,236,381)
------------ ------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 5,521,925 5,521,925 6,608,642
============ ============ ==============
</TABLE>
- ----------
(1) See Notes 1 and 17.
See notes to the consolidated financial statements.
F-31
<PAGE>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
RESTATED
9 MONTHS 9 MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
(UNAUDITED) (UNAUDITED)
$ $
NOTE
<S> <C> <C>
Operating revenues 2,247,358 2,103,588
Operating costs:
Staff costs 1,685,754 2,270,256
Depreciation and amortization 770,048 677,744
Other operating expenses 5,133,732 6,612,816
------------ --------------
(7,589,534) (9,560,816)
Operating loss (5,342,176) (7,457,228)
Other (expenses) 709,304 (561,232)
Financial (expense) income, net: 12
Interest Payable (3,674,052) (1,038,165)
Foreign exchange (loss)/gain (2,816,059) 1,685,921
Equity in net loss of affiliates (89,777) (202,360)
------------ --------------
Loss from continuing operations before taxation (11,212,760) (7,573,064)
Income tax benefit (expense) 3,265 (491)
------------ --------------
(11,209,495) (7,573,555)
Discontinued operations (Note 9)
Loss (income) from operations of discontinued subsidiary (48,557) (75,773)
------------ --------------
Net loss before minority interest (11,258,052) (7,649,328)
Minority interest - -
------------ --------------
Net loss (11,258,052) (7,649,328)
============ ==============
Net loss per share for continuing operations
- - basic ($2.80) ($1.89)
============ ==============
- - diluted ($2.80) ($1.89)
============ ==============
Net loss per share including discontinued
operation-basic ($2.81) ($1.91)
============ ==============
- - diluted ($2.81) ($1.91)
============ ==============
Weighted average shares - basic 4,009,413 4,009,413
============ ==============
Weighted average shares - diluted 4,009,413 4,009,413
============ ==============
</TABLE>
See notes to the consolidated financial statements.
F-32
<PAGE>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE OTHER
SHARES HELD PAID-IN COMPREHENSIVE ACCUMULATED
COMMON STOCK BY SUBSIDIARY CAPITAL INCOME (DEFICIT) DEFICIT TOTAL
SHARES $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 40,094,139 40,090 (950,712) 31,155,909 756,406 (48,238,074) (17,236,381)
Adjustment for reverse split (36,084,726) (36,081) - 36,081 - - -
(see Note 1)
------------- ---------- ----------- ------------ ----------- -------------- -------------
Balance at January 1, 1999
adjusted 4,009,403 4,009 (950,712) 31,191,990 756,406 (48,238,874) (17,236,381)
Translation adjustment - - - - 3,094,379 - 3,094,379
Net loss - - - - - (11,258,052) (11,258,052)
-------------
Comprehensive loss (8,163,673)
------------- ---------- ----------- ------------ ----------- -------------- -------------
Balance at September 30, 1999 4,009,413 4,009 (950,712) 31,191,990 3,850,785 (59,496,126) (25,400,054)
============= ========== =========== ============ =========== ============== =============
</TABLE>
See notes to the consolidated financial statements.
F-33
<PAGE>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
RESTATED
9 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
$ $
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (11,258,052) (7,649,328)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 770,048 677,745
Equity in net losses of investment in joint venture 89,777 202,360
Minority interest - -
Changes in assets and liabilities:
Decrease in other assets and inventories 119,310 464,795
Decrease/(Increase) in accounts receivable 373,654 (1,399,869)
Increase in accrued expenses and other liabilities 459,804 2,403,525
---------------- -----------------
NET CASH USED IN OPERATIONS (9,445,459) (5,300,772)
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of plant and equipment (731,122) (453,560)
Acquisition of intangible assets - -
Sale of investments - 915,659
---------------- -----------------
NET CASH (USED) IN INVESTING ACTIVITIES (731,122) 895,481
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short term debt 8,588,755 7,250,000
Repayment of loans (2,700,000) (335,000)
---------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,888,755 6,915,000
---------------- -----------------
Effect of exchange rate changes on cash 3,094,379 (1,727,657)
---------------- -----------------
Net (decrease)/increase in cash and cash equivalents (1,193,447) 348,670
Cash and cash equivalents at beginning of period 583,320 332,795
---------------- -----------------
Net (debt)/cash at end of period (610,127) 681,465
================ =================
SUPPLEMENTAL DATA:
Interest paid 810,044 8,749
Income tax paid 430 490
</TABLE>
See notes to the consolidated financial statements.
F-34
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
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 the Company's 81.6% owned subsidiary Unimedia,
SA ("Unimedia") and Unimedia's wholly owned subsidiary, Pixel Limited
("Pixel"), and its 90% owned subsidiary TopCard, SA ("TopCard"). All
intercompany accounts and transactions have been eliminated in
consolidation. CM (UK)'s 50% interest in Blink TV Limited ("Blink") and
Pixel's 47.5% interest in Henry Communications Limited ("Henry"), have
been accounted for using the equity method, after the elimination of
all significant intercompany balances and transactions. Tinerama
Investment AG ("Tinerama"), a 51% owned subsidiary, is treated as
discontinued operations (See Note 9).
The results of Pixel has been consolidated in the consolidated
financial statements from January 1, 1998, being the date of
acquisition.
INTERIM ADJUSTMENTS
The consolidated financial statements as of September 30, 1999, and for
the periods ended September 30, 1999 and September 30, 1998, 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 results of operations for the
interim periods should not be considered indicative of results expected
for the full year.
On October 27, 1999, the Company effected a one-for-ten reverse split
of its outstanding common stock, with its authorized shares remaining
at 50 million shares (see Stockholders' Meeting below). Unless
otherwise stated, all share per share data contained herein has been
adjusted to reflect the completion of the reverse split.
INVENTORIES
Inventories are stated at the lower of first-in, first-out, cost or
market value. Inventories include both raw materials and finished
goods.
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 amortization. Computer software are amortized in
the year of their acquisition. Broadcast licenses and goodwill are
amortized on a straight-line basis over a period not exceeding six
years. The Company evaluates the possible impairment of long-lived
assets, including intangible assets, whenever events or circumstances
indicate that the carrying value of the assets may not be recoverable,
by comparing the undiscounted future cash flows from such assets with
the carrying value of the assets. An impairment loss would be computed
based upon the amount by which the carrying amount of the assets
exceeds its fair value at any evaluation date.
F-35
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
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:
Fixtures, fittings and equipment 5 to 20 years
FOREIGN CURRENCY
Assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates. Income statement items are
translated at the average rate for the period. The effects of these
translation adjustments are reported in a separate component of
stockholders' 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.
Due to the hyper-inflationary situation in Romania, assets and
liabilities of the Company's foreign subsidiary in Romania are
translated at historical exchange rates in accordance with Statement of
Financial Accounting Standards No. 52.
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
realized.
LEASE
Operating leases are charged to expense, on a straight-line basis, over
the term of the lease.
REVENUE RECOGNITION
Sales are recognized when products, services and fees are delivered and
when advertisements are broadcast and thereby invoiced to the customer.
Intercompany charges are eliminated on consolidation and not included
in revenues.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
EARNINGS PER SHARE
Basic income per share is calculated on the basis of weighted average
outstanding shares. Diluted income per share is computed on the basis
of weighted average outstanding common shares, plus potential common
shares assuming exercised stock options and conversion of outstanding
convertible securities where issued.
F-36
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of certain financial instruments, including cash,
receivables, accounts payable, and other accrued liabilities,
approximate the amount recorded in the balance sheet because of the
relatively short-term maturities of these financial instruments. The
fair value of bank, insurance company and other long-term financing at
December 31, 1998 and September 30, 1999 approximate the amounts
recorded in the balance sheet based on information available to the
Company with respect to current interest rates and terms for similar
debt instruments.
RECLASSIFICATIONS AND RESTATEMENT
Certain reclassifications have been made to the September 1998 balances
to conform to the 1998 year end presentation.
USE OF ESTIMATES
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.
STOCKHOLDERS MEETING
A meeting of the Company's stockholders was held on October 22, 1999.
At the meeting, the stockholders approved the following resolutions:
(i) a reverse split of the Company's outstanding shares on a one for
ten basis, with the Company's authorized shares remaining at 50 million
shares; (ii) the terms of the financial arrangements between the
Company and Groupe AB, S.A. and between the Company and Superstar
Ventures Limited ("Superstar") (see Notes 15 and 16); and (iii) the
grant of an option to an entity controlled by the Company's Chairman
and CEO and the Company's Chief Operating Officer to purchase 1.6
million shares of the Company's common stock at an exercise price of
$1.00 per share. (See Note 15). The stockholders also elected five
directors to serve until the next annual meeting of Stockholders or
until their successors are elected and qualified.
Following the reverse split, which was effected on October 27, 1999, in
accordance with its financial arrangements among the Company, Groupe AB
and Superstar, the Company issued an aggregate of 22,598,255 shares to
Group AB and Superstar in conversion of $22,598,255 of outstanding
convertible debt, including $4,649,839 of accrued interest (see Notes
8, 15 and 16). The Company also issued additional shares in conversion
of certain sundry loans (see Note 8) and to other parties to which it
was obligated, including Instar Holdings Inc. which received 200,000
shares as part of its settlement with the Company (See Note 16). After
all of these share issuances, at November 1, 1999, the Company has
27,741,667 shares of common stock outstanding.
F-37
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
The "Proforma" column as shown in the balance sheet reflects the
completion of the reverse split and the conversion of loans and accrued
interest into equity as if such transactions had occurred as of
September 30, 1999.
2. GOING CONCERN
The accompanying financial statements have been prepared on the going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown
in the financial statements, during the nine-month period ended
September 30, 1999 and for the year ended December 31, 1998, the
Company incurred net losses of $11,258,052, and $10,767,547,
respectively. At September 30, 1999, the Company had net current
liabilities of $28,127,847 and its total liabilities exceeded its total
assets by $24,953,851. These factors among others may indicate that the
Company will be unable to continue as a going concern for a reasonable
period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of the recorded asset amount 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 16, the Company's continuation as a going concern is
dependent upon its ability to obtain additional financing as may be
required, and ultimately to attain successful operations.
At a stockholders meeting held on October 22, 1999, a resolution
approved to reverse split the Company's common stock on a one share for
ten share basis, with the authorized capital of the Company remaining
at 50 million common shares, resulting in approximately 46 million
shares of common stock being available for issue. A further resolution
approved certain financial agreements entered into by the Company and
the conversion of approximately $22.6 million of convertible loans and
interest accrued into equity of the Company. On a pro-forma basis, as
if the conversion of convertible debt into equity had taken place at
September 30, 1999, the Company would have net current liabilities of
$5,254,808 and its total liabilities would have exceeded its total
assets by $2,080,812.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at September 30, 1999 includes a bank deposit
balance of Nil (December 31, 1998 - $520,164).
F-38
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
4. ACCOUNTS RECEIVABLE
SEPTEMBER 30, DECEMBER 31,
1999 1998
Accounts receivable comprise: $ $
Trade receivables 636,616 899,352
Taxation receivables 30,585 19,761
Other debtors receivable 761,037 882,779
------------- --------------
1,428,238 1,801,892
============= ==============
5. AMOUNT DUE FROM SHAREHOLDER
In December 1995, the Company issued 26,141 shares at $12.00 each to a
stockholder (Latitude Investments, Ltd.) in exchange for the
stockholder guaranteeing the establishment of a contract with PTT
Telecom. This resulted in the stockholder receiving shares for no
payment. As part of an overall settlement agreement made in July 1999
with Instar, Universal and Latitude (See Note 16), this amount has been
repaid.
6. INTANGIBLE ASSETS
SEPTEMBER 30, DECEMBER 31,
1999 1998
$ $
Purchased broadcast licenses 247,035 249,570
Computer software 581,843 591,560
Goodwill 5,094,165 5,094,165
--------------- --------------
5,923,043 5,935,295
Less accumulated amortization (3,546,061) (3,076,883)
--------------- --------------
2,376,982 2,858,412
=============== ==============
Goodwill net of amortization is as follows:
SEPTEMBER 30, DECEMBER 31,
1999 1998
$ $
Unimedia 1,802,228 2,138,468
TopCard 467,290 558,819
Pixel 60,220 78,986
--------------- --------------
2,329,738 2,776,273
=============== ==============
F-39
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
SEPTEMBER 30, DECEMBER 31,
1999 1998
$ $
Fixtures, fittings and equipment 3,665,724 3,211,962
Less accumulated depreciation (2,461,882) (2,415,729)
--------------- --------------
1,203,842 796,233
=============== ==============
8. LOANS REPAYABLE WITHIN ONE YEAR
SEPTEMBER 30, DECEMBER 31,
1999 1998
$ $
Instar Holding Inc. 500,000 2,000,000
Groupe AB, S.A. 11,165,755 3,120,000
Superstar Ventures Limited 6,800,000 6,650,000
Fontal Ltd. - 200,000
Oradea - 500,000
Roland Pardo - 500,000
Interest and penalty
interest accrued 4,120,177 1,367,442
--------------- ---------------
Related party loans 22,585,932 14,337,442
Sundry loans 583,000 190,000
--------------- ---------------
23,168,932 14,527,442
=============== ===============
The terms of the loans are:
The terms of the Groupe AB and Superstar loans are detailed in Note 15
and 16. Following the stockholders' meeting held on October 22, 1999,
which ratified the agreements between the Company and Groupe AB and the
Company, and Superstar, substantially all of the loans and accrued
interest as at October 31, 1999 were converted into equity. Of the
loans, $477,339 and $150,000 received from Group AB and Superstar,
respectively, are repayable in two years and bear interest at 10% per
annum. The Company has granted the lenders a two-year warrant to
purchase an aggregate of 627,339 shares of Common Stock at an exercise
price of $1.00 per share (see Note 16).
The terms of the Instar loan is detailed in Note 15 and 16. An
agreement to settle the Instar Loan was signed on July 21, 1999. See
Note 16 for a description of the terms of the settlement of the Instar
Loan.
F-40
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
The Fontal loan was received on December 30, 1997 and carried an
interest rate of 15% per annum. The Fontal loan was repaid on May 25,
1999. See Note 14.
The Oradea loan was made to Unimedia in 1996 and carried an interest
rate of 2% above the three month Eurodollar Libor rate. The Oradea loan
was repaid in July 1999. See Note 14.
The Roland Pardo loan was made to Unimedia in 1996 and carried an
interest rate of 2% above the three month Eurodollar Libor rate. The
Roland Pardo loan and was repaid in July 1999. See Note 14.
The sundry loans are in respect of eight proposed subscriptions
totaling $583,000 in respect of 583,000 shares of common stock.
Following the completion of the reverse split on October 27, 1999,
these loans were converted into equity.
9. DISCONTINUED OPERATIONS
During 1998, the Company approved a decision to sell its interests in
the Romanian company, Tinerama. Discussions with a potential buyer are
in progress and the transaction is expected to be concluded during
1999. The results of the Tinerama business have been reported
separately as discontinued operations. Prior year consolidated
financial statements have been restated to present the Tinerama
business as discontinued. The components of the net liabilities of the
discontinued operations included in the consolidated balance sheets are
as follows:
SEPTEMBER 30, DECEMBER 31,
1999 1998
$ $
Current assets 104,204 152,744
Less current liabilities (719,691) (702,903)
------------- --------------
Net current liabilities (615,487) (550,159)
Minority interests (365,597) (460,559)
Net property, plant and equipment 423,477 514,490
------------- --------------
Net liabilities (557,607) (496,228)
============= ==============
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
In October 1999, the Company entered into a monthly agreement to lease
offices, as well as the use of studio, post production and editing
facilities in Cologne, Germany. Under the terms of the agreement, the
Company is committed to paying DM 180,000 ($96,000 at September 30,
1999 exchange rates) per annum.
The Company has also entered into leases for office space in France,
expiring between 1999 and 2002, at an annualized cost of $95,000 (at
September 30, 1999 exchange rates).
The total rental expense in 1999 and 1998, including transponders and
lease commitments as above, are $2,637,500 and $4,423,000,
respectively.
F-41
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Under the terms of a two year service agreement which commenced October
1, 1998, broadcasting facilities for Onyx, comprising of the uplink,
master control, and satellite transponder broadcasting and cable
transmission costs, are provided by Groupe AB at an annual costs of
$3,120,000 (see Notes 15 and 16).
Minimum lease payments under operating leases as of September 30, 1999
are as follows:
Years ending December 31, $
1999 2,637,500
2000 2,066,000
2001 266,000
2002 266,000
2003 and thereafter 295,000
----------
$5,530,500
==========
The Company is committed to pay to its officers under employment
agreements an aggregate of $650,000 during the year ended December 31,
1999.
RETIREMENT INDEMNITIES AND PENSION PLANS
Retired employees benefit from State or Government sponsored pension
schemes. Contributions by employers to these sponsored schemes are
expensed as incurred. There are no specific supplemental pension plans
operated by the Company or any subsidiary. There is no liability
arising from retirement indemnity.
11. RESEARCH AND DEVELOPMENT COSTS
TopCard is involved in the development of specific applications based
upon smart card technology including remote security Internet access
and infra-red contactless smart card technology.
9 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
$ $
Research and development costs 217,429 196,281
=============== ==================
F-42
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
12. FINANCIAL EXPENSE (INCOME) NET
9 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
$ $
Interest expense 3,674,052 1,038,165
Foreign currency exchange loss (gain) 2,816,059 (1,685,921)
------------ -------------
6,490,111 (647,756)
============= =============
The foreign currency exchange loss in 1999 and gain in 1998 arose
primarily from the exchange differences arising in the intercompany
loan between CM(UK) and Onyx recorded in pounds sterling and German
Marks, respectively.
13. INCOME TAXES
Net operating loss carry forwards which give rise to deferred tax
assets at September 30, 1999 are as follows:
9 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
$ $
Deferred tax asset on
unrealized tax losses 19,860,000 4,180,000
Timing differences 240,000 -
-------------- --------------
Valuation allowances (20,100,000) (4,180,000)
-------------- --------------
Total deferred tax assets - -
============== ==============
The Company has significant deferred tax assets (approximately $18.0
million) corresponding to tax losses arising primarily from the
operating losses incurred by Onyx in Germany. These tax losses are
available to be carried forward indefinitely to be set off against
future profits in Germany. However, at the end of 1998, the management
forecast that the Company will not be profitable in 1999 and therefore
no credit for income tax was recorded. The Company will continue to
review its tax valuation allowance in future periods.
14. LITIGATION
In June 1997, a former managing director of Onyx whose employment was
terminated brought suit in Germany for alleged wrongful early
termination of his employment. The suit sought damages of DM750,000
($395,000). Onyx maintained that the action taken was lawful and in
July 1998 the court ruled in favor of Onyx. The plaintiff has the right
to appeal and Onyx believes that it has valid defenses to this claim.
However, there can be no assurance as to the outcome of this matter.
F-43
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
In May 1998, TV Strategies, a US Dallas based television services
company, obtained a default judgment against Onyx for DM300,000
($158,000), plus interest, relating to services which TV Strategies
alleges that they provided to Onyx. In March 1999, the default judgment
was set aside by the Texas appeals court. The Company is now vigorously
defending this claim and believes that it has meritorious defenses to
the suit. However, there can be no assurance as to the outcome of the
matter.
In July 1998, the Company was sued in the U.S. District Court for the
District of Nevada by Fontal Limited ("Fontal") for breach of a
promissory note. See Note 8 for a description of the Fontal note. The
Company had pledged the rights to trademarks for the international Onyx
name outside of Germany, Switzerland and Austria to Fontal to secure
repayment of this note. On May 25, 1999, this matter was settled for
$327,500, including interest and costs.
Unimedia has three minority shareholders (Oradea, Roland Pardo and
Fontal (see Note 8)) 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
have brought numerous legal actions against Unimedia and/or its
management (which is also now, in part, the senior executive management
of the Company) contending that the past and future activities of
Unimedia are not in the best interest of Unimedia's stockholders and
were not being engaged in for the benefit of Unimedia and its
stockholders. To date, such suits have not been successful. In
addition, the French Courts have to date rejected all requests to
appoint experts in judgment to review Unimedia's management's actions.
Oradea and Pardo also took action through the courts in France and
Israel to safeguard their potential rights over certain assets of
Unimedia in order to secure repayment of their unsecured loans due from
Unimedia (see Note 8). In connection with such actions and based upon
the fact that the notes did not by their terms reflect a repayment
date, in February 1999 the French court ruled that repayment of the
loans be made in installments and set a lower rate of interest to
accrue. Unimedia has complied with the ruling and has repaid these
loans in full. Unimedia has also been considering preparing actions
against the principal of Oradea and against Pardo for damages which it
believes have been inappropriately caused by reason of the actions
taken by them against Unimedia and its management.
Charles Koppel, the former chairman and CEO of the Company claimed
constructive dismissal following the Board's selection of a new
President and CEO for the Company in August 1997. In March 1998, the
Company resolved its dispute with Mr. Koppel in regard to his claim for
wrongful dismissal and paid Mr. Koppel /pound sterling/60,000 ($96,000)
to resolve this claim.
In August 1998, Onyx sued Charles Koppel in Germany. The suit alleged
that certain of Mr. Koppel's actions as the managing director of Onyx
were improperly performed and sought damages in an unspecified amount.
The Company and Charles Koppel have exchanged mutual general releases
in connection with the Instar Settlement (See Note 16) and all of the
suits between the Company and Charles Koppel will be dismissed with
prejudice.
F-44
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
15. CAPITAL STRUCTURE
At a stockholders' meeting held on October 22, 1999, the stockholders
approved a reverse split of the Company's outstanding common stock on a
one new share for ten old shares basis, with the Company's authorized
shares remaining at 50 million shares. Unless otherwise noted, all
share and per share references herein reflect completion of the reverse
split on October 27, 1999.
The Company has the following issued and vested warrants to purchase
common stock outstanding at September 30, 1999 and December 31, 1998:
SEPTEMBER 30, DECEMBER 31,
DESCRIPTION 1999 1998
Warrants for common stock
exercisable at $40.00 520,000 520,000
Warrants for common stock
exercisable at $31.25 43,332 43,332
Warrants for common stock
exercisable at $25.00 110,000 110,000
Warrants for common stock
exercisable at $1.00 810,000 -
--------------------------------
1,483,332 673,332
================================
All outstanding warrants expire 36 months from the date of the
effective registration of their underlying shares. 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 420,000 and 100,000 shares of common stock at exercise prices
of $40.00 and $25.00 per share, respectively, were issued to investors
in the Offering; warrants to purchase 100,000 and 43,332 shares of
common stock at exercise prices of $40.00 and $31.25 per share,
respectively, were issued to the placement agent and sub-distributors
for the Offering; and warrants to purchase 160,000 and 120,000 shares
of common stock at exercise prices of $31.25 and $25.00 respectively
were issued to certain of the founding shareholders (which warrants
expired on December 31, 1998). In September 1996, 10,000 shares and
warrants to purchase an additional 10,000 shares at an exercise price
of $25.00 per share were issued to a director for consulting services.
In September 1999, Groupe AB provided a bank guarantee for half of a DM
3 million (approximately $1.6 million) bank facility obtained by Onyx
Television. In connection with the guaranty, the Company granted Groupe
AB a two year warrant to purchase 810,000 shares of Common Stock at an
exercise price of $1.00 per share. In the event the bank guarantee is
called upon, the Company will be obligated to issue to Groupe AB such
number of shares of common stock at $1.00 per share as is equal to the
amount paid by Groupe AB under its guaranty.
F-45
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Additionally, the Company is obliged to issue warrants to former
Unimedia stockholders under the terms of a share exchange agreement
signed in 1997, as follows:
SEPTEMBER 30, DECEMBER 31,
DESCRIPTION 1999 1998
Warrants for common stock
exercisable at $40.00 113,914 113,914
Warrants for common stock
exercisable at $31.25 7,787 7,787
Warrants for common stock
exercisable at $25.00 19,767 19,767
-----------------------------------
141,468 141,468
===================================
Subject to compliance with applicable U.S. securities laws, the Company
intends in the future to offer its warrant holders the right, for a
period of not less than 61 days, to exercise their warrants and receive
two shares of Common Stock at an exercise price of $3.00 per share. If
the holders of the outstanding warrants do not exercise this right, the
warrants will remain outstanding on their original terms until their
expiration date. This right will be given to the Company's warrant
holders in order to allow the Company's warrant holders to acquire
additional Company securities at a lower price and to raise additional
capital for the Company's operation.
The Company has offered one of its warrant holder, Auric Investments
Limited ("Auric"), the right to subscribe to purchase 156,416 shares of
Common Stock on the basis of two shares for each of the 78,208 warrants
which they hold, but at an exercise price of $2.00 per share. Auric was
granted this lower price due to the assistance which they provided to
the Company in 1998 in helping the Company to re-obtain a quotation on
the Bulletin Board maintained by the NASD.
F-46
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
COMMON STOCK PURCHASE OPTIONS
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING
AT AT
SEPTEMBER 30, DECEMBER 31,
DESCRIPTION 1999 GRANTED 1998
<S> <C> <C> <C>
Executive officers options exercisable @ $5.70 37,500 37,500
of which vested 30,000 30,000
Officers options exercisable @ $25.00 30,000 30,000
of which vested 30,000 20,000
Executive officers options exercisable @ $3.50 400,000 400,000
of which vested 159,999 80,000
Non-employee directors options exercisable @ $3.50 50,000 50,000
of which vested 50,000 50,000
Options to Diamond Production exercisable @ $1.00 1,600,000 1,600,000
---------------------------------------------------
Total exercisable 2,117,500 - 2,117,500
===================================================
</TABLE>
On August 1, 1997, the Company entered into three year employment
agreements with the executive officers providing for them to receive,
in addition to other compensation, options to purchase 20,000 and
17,500 shares of common stock at an exercise price of $5.70 per share,
the price at which transactions were effected at that time. The options
vested 2/5 upon the effective date of the agreements and will vest 1/5
on each of the first, second and third anniversaries, respectively, of
the agreements. These options expire 36 months from the date of their
effective registration.
The Chief Financial Officer as part of his service agreement, holds an
option to purchase 30,000 common shares of the Company at $25.00 per
share, the price at which transactions were effected at the time of
each of the years 1996, 1997 and 1998. These options expire 36 months
from the date of their effective registration.
On March 10, 1998, the Board of Directors granted options to four
executive officers of the Company to purchase an aggregate of 400,000
shares of common stock at an exercise price of $3.50 per share (the
price at which common stock was quoted on the date of grant). On the
same date, non-employee directors were granted options to purchase an
aggregate of 50,000 shares at the same price. The options vested to
executive officers 20,000 each in 1998, with the balance over 3 years,
and to non-employee directors immediately. The options are valid for 5
years and expire on March 10, 2003.
On December 18, 1998, the Board approved the grant of a two year
warrant to purchase an aggregate of 1,600,000 shares at an exercise
price of $1.00 per share to Diamond Productions, a company owned by two
executive directors. This grant was approved by the Company's
stockholders at the stockholders' meeting held on October 22, 1999.
PRO FORMA NET LOSS AND NET LOSS PER SHARE
The Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation" and, as permitted under SFAS
No. 123, applies Accounting Principles Board Opinion ("APB")
F-47
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
No. 25 and related interpretations in accounting for its stock options.
Since the Company awarded the stock options with no discount as
compared with the market price at the time of the grants, there was no
related compensation costs for any of the years presented based on the
estimated grant date fair value as defined by FAS 123. The Company
pro-forma net loss and loss per share for the nine months ended
September 30, 1999 and 1998 are as follows:
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
$ $
Pro forma net loss
Basic and diluted (11,258,052) (7,649,328)
Pro forma net loss per share
Basic and diluted ($2.81) ($1.91)
CONVERTIBLE DEBT
The following derivative securities were outstanding (principal and
interest accrued) as at September 30, 1999. The Company had agreed to
pay a 2% penalty per month on the outstanding principal of the loans,
payable in shares of common stock, for each month the Company failed to
hold its special stockholders meeting subsequent to November 30, 1998.
On October 22, 1999 the Company's stockholders approved a reverse stock
split of the common shares of the Company, with the Company's
authorized shares remaining at 50 million shares, thereby automatically
increasing the authorized but unissued common shares available for
issuance. Following approval, the derivative securities outstanding
(principal and interest accrued) were automatically converted into
common stock (See Note 1).
F-48
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SHARES SHARES ISSUED
ISSUABLE ON ON CONVERSION
CONVERSION AT FOLLOWING
CONVERSION SEPTEMBER 30, STOCKHOLDERS'
PAYEE $ PRICE ($) 1999 MEETING
<S> <C> <C> <C> <C>
Superstar Ventures Ltd. 1,250,000 1.00 1,250,000 1,250,000
Superstar Ventures Ltd. 400,000 1.00 400,000 400,000
Groupe AB 2,000,000 1.00 2,000,000 2,000,000
Superstar Ventures Ltd. 5,000,000 1.00 5,000,000 5,000,000
Groupe AB (1) 3,400,000 1.00 3,400,000 3,720,000
Groupe AB 5,288,416 1.00 5,288,416 5,578,416
Interest and penalty interest
accrued 4,106,623 1.00 4,106,623 4,649,839
-------------- ---------------------------------
21,445,039 21,445,039 22,598,255
============== =================================
</TABLE>
----------
(1) The debt is part of a convertible note under which Groupe AB
is providing provide services with a value of $6,640,000 over
2 years. See Note 10 - Lease Commitments. Shares will be
issued at the rate of 260,000 shares per month at $1.00 per
share. The total shares of common stock to be issued are
6,640,000.
BASIC EPS COMPUTATION
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
<S> <C> <C>
Net loss of continuing operations (11,212,760) (7,573,064)
------------- -----------------
Net loss (11,258,052) (7,649,328)
------------- -----------------
Weighted Average number of Shares 4,009,413 4,009,413
------------- -----------------
Basic EPS Net loss of
continuing operations ($2.80) ($1.89)
------------- -----------------
Basic EPS Net loss including
discontinued operations ($2.81) ($1.91)
------------- -----------------
</TABLE>
F-49
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
DILUTED EPS COMPUTATION 1999 1998
<S> <C> <C>
Weighted average shares 4,009,413 4,009,413
Warrants (1) - -
Convertible debt 21,445,039 shares (1) - -
Board options - 209,999 vested in 1998 and 1999 - -
----------------- -----------------
4,009,413 4,009,413
----------------- -----------------
Diluted EPS Net loss of continuing operations ($2.80) ($1.89)
----------------- -----------------
Diluted EPS Net loss including discontinued operations ($2.81) ($1.91)
----------------- -----------------
</TABLE>
----------
(1) The computation does not assume exercise of the warrants or
options since it would have an antidilutive effect on earnings
per share. In addition to the above, loans of $477,339 and
$150,000 received from Groupe AB and Superstar respectively,
are repayable in two years and bear interest at 10% per annum.
The Company has granted the lenders a two year warrant to
purchase an aggregate of 627,339 shares of Common Stock at an
exercise price of $1.00 per share.
16. LIQUIDITY AND CAPITAL RESOURCES
The Company has continued to use its cash reserves to fund its
operations. The ownership, development and operation of media
interests, including the Onyx television station, requires substantial
funding. Due to the poorer than expected advertising revenues at Onyx
in its second and third years of operation, the funds raised by the
Company since commencement were expended earlier than anticipated. To
date, the Company has historically financed itself through sales of
equity securities and debt financing.
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 1,200,000 shares of Common Stock, at a purchase price of $5.00 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 30, 1997, the Company received subscriptions for $4.0 million
in a Private Placement offering of its securities to certain accredited
investors. In the offering, the Company agreed to issue an aggregate of
701,754 shares of common stock, at a purchase price of $5.70 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 received on August 1, 1997.
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
raised additional funds to repay the loan. The loan was guaranteed by
the Company and Onyx, and was secured by a charge on substantially all
of the Company's assets. Interest was payable monthly on the loan and
was until December 31, 1997 at the rate of 2% above Lloyds Banks' base
rate. Interest as from January 1, 1998 was at the rate of 13% per
annum. The terms of the Instar Loan were amended in August 1997,
January 1998 and July 1998.
F-50
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
On October 31, 1996, CM(UK) entered into a deed of counter-indemnity
("Deed") with Universal, a BVI corporation. The Deed secured the
obligation of CM(UK) to repay Universal if Universal were called upon
to make payment on its transponder guarantee. (See Note 8). CM(UK)'s
obligations under the Deed were guaranteed by the Company and Onyx, and
were secured by a charge on substantially all of the Company's assets.
Instar and Universal had agreed that their liens on the Company's
assets would rank pari-passu. See Note 17.
On July 21, 1999, the Company agreed to settle the Instar Loan. Under
the terms of the settlement, the Company will pay Instar $2.2 million
in full settlement of this loan, $1.9 million of which has been paid to
date. As part of this settlement, the Company's obligations to Instar
and Universal and Instar's and Universal's charge on CM(UK)'s and the
Company's assets has been extinguished. (See Note 8). Additionally, the
obligations of Latitude Investments Ltd. to the Company (see Note 5)
were deemed paid in full.
On January 9, 1998, CM(UK) borrowed an aggregate of $1,250,000 from
Superstar Ventures Limited ("Superstar"). Such loan was evidenced by
two 13% Convertible Secured Promissory Notes (the "Notes") in the
original amounts of $750,000 and $500,000, respectively. Of the
aggregate proceeds, $500,000 was used to repay a loan previously made
to CM(UK) by Unbeatable Investments Limited. The Notes bear interest at
the rate of 13% per annum and were convertible into Common Stock on the
basis of one share of Common Stock for each $5.00 of outstanding
principal and accrued interest.
On March 23, 1998, MMP, SA ("MMP"), a shareholder of the Company made
available a $2,000,000 Line of Credit ("MMP Line of Credit"), which
carried interest at 13% per annum. The principal and accrued interest
was repayable on December 31, 1998, or earlier if the Company's cash
flow enabled repayment.
On March 25, 1998, Superstar loaned the Company an additional $400,000,
payable on the same terms as the MMP Line of Credit.
On June 16, 1998, the Company entered into two Memorandum of
Understanding Agreements ("MOU") with Groupe AB and Superstar to
continue to fund the Company's operations. These agreements provided
$11.64 million in funding, $5.4 million in the form of a cash
investment to be infused over a one year period and $6.24 million
through providing operating services to the Company over a period of
two years. The new funding were initially in the form of debt, but were
to be automatically converted into shares of common stock at $1.00 per
share upon and after approval of an increase in the Company's
authorized capital available for issue. (See Note 15).
On March 10, 1999, the Company entered into a $6 Million Convertible
Promissory Note Agreement with Groupe AB to provide additional funding
for the Company's operations including $690,000, which was paid for the
purchase of certain technical equipment necessary to implement the
Service Agreement, $3.1 million to be loaned in cash over the five
months to July 31, 1999; of which $2.99 million has been received to
November 5, 1999, and the balance of $2.2 million of the Note was
reserved for use in funding the settlement of the Instar loan (see
above). The Note bears interest at the rate of 10% per annum, and was
automatically convertible into Common Stock on the basis of one share
of Common Stock for each $1.00 of principal and interest. As previous,
the Note could not be converted until the Company had held its
stockholders' meetings and obtained approval of an increase in the
authorized shares of Common Stock available for issue.
In May 1999, Groupe AB and Superstar made a loan to the Company in the
aggregate amount of $300,000, the proceeds of which were used to fund
the settlement of the Fontal loan. See Note 14. The loan is due in two
years and bears interest at the rate of 10% per annum. In connection
with the loan, the Company granted the lenders a two-year warrant to
purchase an aggregate of 300,000 shares of the Common Stock at an
exercise price of $1.00 per share.
F-51
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
In August 1999, Groupe AB made a loan to the Company in the aggregate
amount of $327,339, the proceeds of which were used to fund the
settlement of the outstanding amounts due to KPN Telecom. The loan is
due in two years and bears interest at the rate of 10% per annum. In
connection with the loan, the Company granted the lender a two-year
warrant to purchase 327,339 shares of the Common Stock at an exercise
price of $1.00 per share.
In September 1999, Groupe AB provided a bank guarantee for half of a DM
3 million (approximately $1.6 million) bank facility obtained by Onyx
Television. In connection with the guaranty, the Company granted Groupe
AB a two year warrant to purchase 810,000 shares of Common Stock at an
exercise price of $1.00 per share. In the event the bank guarantee is
called upon, the Company will be obligated to issue to Groupe AB such
number of shares of common stock at $1.00 per share as is equal to the
amount paid by Groupe AB under its guaranty.
17. SUBSEQUENT EVENTS
The Company held a meeting of its stockholders on October 22, 1999.
Following the stockholders meeting, the Company effected a one share
for ten share reverse split of its outstanding common stock and issued
certain new shares of its post-reverse split common stock. See Note 1
for information.
18. RESTATEMENT
Subsequent to the issuance of the Company's consolidated financial
statements for the year ended December 31, 1997, the Company determined
that a holding of the Company's shares held at year end by a subsidiary
company as an investment, should have been reflected as an element of
stockholders equity. The 1997 financial statements have been restated
to reflect this investment as an element of the Stockholders' Equity at
their original cost of $5.70 per share. Accordingly, the comparative
1998 unaudited financial statements have been restated from the amounts
previously reported as follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED AS RESTATED
($) ($)
------------- --------------
<S> <C> <C>
For the nine months ended September 30, 1998
Other (expenses) / income (682,840) (561,232)
Loss from continuing operation before taxation (7,493,259) (7,573,064)
Net loss after taxation (7,497,013) (7,649,329)
Net loss per share - basic and diluted ($1.87) ($1.91)
</TABLE>
F-52
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
19. SEGMENT INFORMATION BY ACTIVITY AND GEOGRAPHIC AREA
The following financial information is summarized by business segment
and country.
- The television media segment contains the operations of Onyx; and
- The technology segment contains the operations of Unimedia, Pixel
and TopCard.
Capital Media Group's activities are concentrated in Germany, France
and Israel (Revenues account for: to September 1999 - approximately
66%, 17% and 17%, respectively; to September 1998 - approximately 42%,
32% and 26%, respectively).
F-53
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ELIMINATION
TELEVISION &
MEDIA TECHNOLOGY CORPORATE TOTAL
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1999
Revenues 1,478,071 769,287 - 2,247,358
Inter-segment revenues - - - -
--------------- --------------- ---------------- -------------
Total revenues 1,478,071 769,287 - 2,247,358
Income (losses) from operations (3,316,271) (215,373) (1,810,532) (5,342,176)
Other income 90,450 138,119 480,735 709,304
Interest expenses (60,233) (79,985) (3,533,834) (3,674,052)
Other financial (expense) income , net (2,479,318) 23,012 (359,753) (2,816,059)
Equity in net profit/(losses) of affiliates - 26,788 (116,565) (89,777)
Loss in discontinued business - - (48,557) (48,557)
Income tax benefit 3,695 (430) - 3,265
Minority interest - - - -
--------------- --------------- ---------------- -------------
Net loss (5,761,677) (107,869) (5,388,506) (11,258,052)
=============== =============== ================ =============
Total assets 1,457,077 2,850,220 1,214,628 5,521, 925
=============== =============== ================ =============
Capital expenditure 731,122 0 0 731,122
=============== =============== ================ =============
Depreciation of fixed assets 240,818 72,982 9,712 323,512
=============== =============== ================ =============
</TABLE>
<TABLE>
<CAPTION>
OTHER
GERMANY FRANCE ISRAEL CORPORATE TOTAL
<S> <C> <C> <C> <C> <C>
Revenues 1,478,071 390,094 379,193 - 2,247,358
Inter-segment revenues - - - - -
---------- ----------- ----------- --------------- -----------------
Total revenues 1,478,071 390,094 379,193 - 2,247,358
Income (losses) from operations (3,316,271) (328,117) 112,744 (1,810,532) (5,342,176)
Other (expense) income 90,450 138,119 - 480,735 709,304
Interest expenses (60,233) (4,603) (75,382) (3,533,834) (3,674,052)
Other financial (expense) income, net (2,479,318) 23,012 - (359,753) (2,816,059)
Equity in net profit/(losses)of affiliates - - 26,788 (116,565) (89,777)
Loss in discontinued business - - - (48,557) (48,557)
Income tax benefit 3,695 (430) - - 3,265
Minority Interest - - - - -
---------- ----------- ----------- --------------- -----------------
Net loss (5,761,677) (172,019) 64,150 (5,388,506) (11,258,052)
========== =========== =========== =============== =================
Total assets 1,457,077 2,196,476 653,744 1,214,628 5,521,925
========== =========== =========== =============== =================
Capital expenditure 731,122 0 0 0 731,122
========== =========== =========== =============== =================
Depreciation of fixed assets 240,818 35,088 37,894 9,712 323,512
========== =========== =========== =============== =================
</TABLE>
F-54
<PAGE>
<TABLE>
<CAPTION>
TELEVISION TECHNOLOGY ELIMINATION & TOTAL
MEDIA CORPORATE
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1998
Revenues 886,802 1,216,786 - 2,103,588
Inter-segment revenues - - - -
---------------- --------------- --------------- ------------
Total revenues 886,802 1,216,786 - 2,103,588
Income (losses) from operations (5,532,026) (324,076) (1,601,126) (7,457,228)
Other (expense) income 99,054 (660,286) - (561,232)
Interest expenses (74,281) (303,648) (660,235) (1,038,164)
Other financial (expense) income, net 1,022,935 126,164 536,822 1,685,921
Equity in net losses of affiliates - (66,000) (136,360) (202,360)
Profit in discontinued business - - (75,773) (75,773)
Income tax benefit (492) - - (492)
---------------- --------------- --------------- ------------
Net loss (4,484,810) (1,227,846) (1,936,672) (7,649,328)
================ =============== =============== ============
Total assets 1,711,049 2,294,746 3,138,679 7,144,474
================ =============== =============== ============
Capital expenditure - 453,560 - 453,560
================ =============== =============== ============
Depreciation of fixed assets 126,135 256,849 11,049 394,033
================ =============== =============== ============
</TABLE>
<TABLE>
<CAPTION>
OTHER
GERMANY FRANCE ISRAEL CORPORATE TOTAL
<S> <C> <C> <C> <C> <C>
Revenues 886,802 669,536 547,250 - 2,103,588
Inter-segment revenues - - - - -
---------------- --------------- --------------- -------------- ---------------
Total revenues 886,802 669,536 547,250 2,103,588
Income (losses) from operations (5,532,026) (508,826) 184,750 (1,601,126) (7,457,228)
Other income (expense) 99,054 (660,286) - - (561,232)
Interest expenses (74,281) (283,898) (19,750) (660,235) (1,038,164)
Other financial (expense) income, net 1,022,935 126,164 - 536,822 1,685,921
Equity in net losses of affiliates - - (66,000) (136,360) (202,360)
Profit in discontinued business - - - (75,773) (75,773)
Income tax benefit (492) - - - (492)
---------------- --------------- --------------- -------------- ---------------
Net loss (4,484,810) (1,326,846) 99,000 (1,936,672) (7,649,328)
================ =============== =============== ============== ===============
Total assets 1,711,049 1,850,746 444,000 3,138,679 7,144,474
================ =============== =============== ============== ===============
Capital expenditure - 453,560 - - 453,560
================ =============== =============== ============== ===============
Depreciation of fixed assets 126,135 101,349 155,500 11,049 394,033
================ =============== =============== ============== ===============
</TABLE>
F-55
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY US OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES
IN ANY STATE OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN
SUCH STATE. THE DELIVERY OF THIS PROSPECTUS DOES NOT IMPLY THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME AFTER ITS DATE.
================================================================================
================================================================================
COMMON STOCK
CAPITAL
MEDIA GROUP
LIMITED
-------------
PROSPECTUS
-------------
_______________, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance of the securities being
registered are as follows:
SEC Registration Fee................................... $ 2,227
NASDAQ Listing Fee..................................... 0
Printing Expenses...................................... 10,000
Accounting Fees and Expenses........................... 5,000
Legal Fees and Expenses................................ 30,000
Blue Sky Fees and Expenses............................. 5,000
Transfer Agent and Registrar Fees and Expenses......... 1,000
Miscellaneous.......................................... 6,773
-------------
Total........................................ $ 60,000
=============
- ----------
* All amounts, except the SEC registration fee and the NASD filing fee, are
estimated.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Registrant's Articles of Incorporation, as amended, provided that no
director or officer will be personally liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty by such
person as a director or officer. Notwithstanding this provision, the
Registrant's Articles of Incorporation further provide that a director or
officer will be liable to the extent provided by applicable law, (i) for acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law, or (ii) for the payment of dividends in violation of NRS 78.300.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On March 3, 1997, the Company completed a private placement in which it
raised net proceeds of $5.85 million. The Company issued 1.2 million shares of
its common stock in this private placement (at a purchase price of $5.00 per
share) to 65 investors, 20 of whom were U.S. persons. This offering was exempt
from registration under the Securities Act of 1933 (the "Act") pursuant to
Section 4(2) thereunder and pursuant to Rule 506. A portion of the offering was
also outside the registration requirements of the Act pursuant to Regulation S.
On June 25, 1997, the Company accepted a subscription for $4.0 million from
Unimedia, S.A. In this subscription, the Company agreed to issue an aggregate of
701,754 shares of its common stock at a purchase price of $5.70 per share. On
June 30, 1997, $1,500,000 of the proceeds of the subscription was received by
the Company and the balance of $2,500,000 was
II-1
<PAGE>
released to the Company on July 31, 1997. This share issuance was exempt from
the registration requirements of the Act pursuant to Section 4(2) of the Act. In
connection with this private placement, the Company paid Unimedia a fee of
$240,000, which was netted against the purchase price of the shares.
On July 31, 1997, the Company acquired 50.3% of the outstanding common
stock of Unimedia in exchange for 433,300 shares of its common stock.
Stockholders of Unimedia who did not participate in the first closing of the
Unimedia share exchange had until September 5, 1997 to convert their Unimedia
securities into shares of the Company's common stock and on September 5, 1997,
the Company acquired an additional 31.3% of Unimedia's common stock in exchange
for an additional 269,360 shares of its common stock. Shares issued in the
Unimedia share exchange were valued on our books at $5.70 per share. Eleven
Unimedia stockholders received shares of the Company's common stock in the share
exchange between the Company and the stockholders of Unimedia. The Unimedia
share exchanges were exempt from the registration requirements of the Act
pursuant to Section 4(2) thereunder. They were also outside the registration
requirements of the Act pursuant to Regulation S.
During the fourth quarter of 1997, the Company issued an aggregate of
79,333 shares of its common stock (raising $586,000 at prices between $6.00 and
$7.50 per share) to four non-US purchasers. These issuances were exempt from the
registration requirements of the Act pursuant to Section 4(2) thereunder. They
were also outside the registration requirements of the Act pursuant to
Regulation S.
On October 27, 1999, the Company issued 13,656,868 shares of its common
stock to Groupe AB and 8,941,387 shares of its common stock to Superstar
Ventures Limited (an entity controlled by David Ho). These shares were issued
upon the conversion of an aggregate of $22,598,255 of outstanding convertible
debt (including interest and penalties of $4,649,839). These shares were issued
in a transaction exempt from the registration requirements of the Act pursuant
to Section 4(2) thereunder.
On October 27, 1999, the Company issued 60,000 shares to David Ho, 55,000
shares to Stephen Kornfeld, 20,000 shares to Pierre Demailly, 16,000 shares to
Gilles Assouline and 14,000 shares to Michel Assouline for services. These
shares were issued in transactions exempt from the registration requirements of
the Act pursuant to Section 4(2) thereunder.
On October 27, 1999, the Company issued an aggregate of 788,999 shares of
its common stock to one purchaser upon conversion of a loan. This issuance was
exempt from the registration requirements of the Act pursuant to Section 4(2)
thereunder. It was also outside the registration requirements of the Act
pursuant to Regulation S.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
2.1. Agreement and Plan of Reorganization, dated December 29, 1995, by and
among Cardinal Capital Corp. and the stockholders of ECL (1).
2.2 Agreement and Plan of Reorganization ("Agreement"), entered into
effective as of March 4, 1997 by and among the Company, Unimedia S.A., a
company organized under the laws of the Republic of France and certain
stockholders of Unimedia, S.A. (incorporated by reference from the
Company's Current Report on Form 8-K, dated March 14, 1997).
2.3 Amendment No. 1 to the Agreement, dated as of June 25, 1997 (incorporated
by reference from the Company's Current Report on Form 8-K dated June 25,
1997)
2.4 Amendment No. 2 to the Agreement, dated as of July 11, 1997 (incorporated
by reference from the Company's Current Report on Form 8-K dated July 11,
1997)
2.5 Amendment No. 3 to the Agreement, dated as of July 25, 1997 (incorporated
by reference from the Company's Current Report on Form 8-K dated July 11,
1997)
3.1 Amendment to Articles of Incorporation (incorporated by reference from
the Company's Current Report on Form 8-K, dated December 29, 1995).
4.1 Certificate of Designations, Preferences and Rights of Series A Preferred
Stock (incorporated by reference from the Company's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1997).
4.2 Form of warrant issued in connection with Registrant's winter 1995/96
private placement of securities (1).
5.1 Opinion of Akerman, Senterfitt & Eidson, P.A.*
10.1 Service Agreement dated September 27, 1995, between the Registrant and
Charles Koppel (1).
10.2 Service Agreement dated September 27, 1995, between the Registrant and
Barry Llewellyn (1).
10.3 Stockholders Agreement dated November 15, 1995, among Telor International
Limited, Europa Capital Management Limited, Tinerama Investment A.G. and
the Registrant (1).
10.4 Transponder Lease between PTT Telecom BV and the Registrant (1).
II-3
<PAGE>
10.5 Contract for On-Site Satellite Uplink Service between BT Telecom
(Deutschland) GmbH and the Registrant (1).
10.6 Service Agreement between Onyx Television and Wagner & Taunusfilm
Television GmbH (1).
10.7 Letter Agreement dated December 6, 1995 between Onyx Television and
Studio Dortmund (1).
10.8 Facility letter dated October 31, 1996 made between Instar Holdings, Inc.
and Capital Media (UK) Limited (2).
10.9 Debenture dated October 31, 1996 made between Instar Holdings, Inc. and
Capital Media (UK) Limited (2).
10.10 Security Assignment dated October 31, 1996 made between Capital Media
(UK) Limited and Instar Holdings, Inc. (2).
10.11 Charge Over Shares and Securities dated October 31, 1996 made between
Capital Media Group Limited and Instar Holdings, (2).
10.12 Guarantee dated October 31, 1996 made between Instar Holdings, Inc. and
the Guarantors (2).
10.13 Deed of Counter -Indemnity dated October 31, 1996 made between Capital
Media (UK) Limited and Universal Independent Holdings Limited(2).
10.14 Side letter to the Deed of Counter-Indemnity dated October 31, 1996 from
Universal Independent Holdings Limited to Capital Media (UK) Limited (2).
10.15 Debenture dated October 31, 1996 made between Universal Independent
Holdings Limited and Capital Media (UK) Limited (2).
10.16 Security Assignment dated October 31, 1996 made between Capital Media
(UK) Limited and Universal Independent Holdings Limited (2).
10.17 Charge Over Shares and Securities dated October 31, 1996 made between
Capital Media Group Limited and Universal Independent Holdings Limited
(2).
10.18 Guarantee dated October 31, 1996 made between Universal Independent
Holding Limited and the Guarantors (2).
10.19 Deed of priorities dated October 31, 1996 made between Instar Holdings,
Inc. and Universal Independent Holdings Limited and Capital Media (UK)
Limited.
II-4
<PAGE>
10.20 Deed of priorities dated October 31, 1996 made between Instar Holdings,
Inc. and Universal Independent Holdings Limited and Capital Media Group
Limited (2).
10.21 Form of Indemnification Agreement dated July 31, 1997, by and between the
Company and Gilles Assouline and Michel Assouline (3).
10.22 Letter Agreement, dated July 1998, between CM (UK), the Company, Onyx,
Superstar and Instar (3).
10.23 Services Agreement between Onyx Television and Groupe AB (3).
10.24 Superstar Note in the face amount of $5.0 million (3).
10.25 Groupe AB Note in the face amount of $6.64 million (3).
10.26 Groupe AB Note in the face amount of $6.0 million (4).
21.1 Subsidiaries (4)
23.1 Consent of PricewaterhouseCoopers*
23.2 Consent of Deloitte & Touche*
23.3 Consent of Akerman, Senterfitt & Eidson, P.A. (included in Exhibit 5.1)
- ----------
* filed herewith
(1) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995.
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996.
(3) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31,1997.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1998.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
A. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant under the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
B. (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act.
(ii) To reflect in the Prospectus any facts or
events arising after the effective date of the
Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the Registration Statement or any material
change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment will be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time will be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
C. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant under the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act, and is, therefore
II-6
<PAGE>
unenforceable if a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred by a director, officer
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by; such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy and as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Under the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Paris, France, on the
30th day of December, 1999.
CAPITAL MEDIA GROUP LIMITED
By: /s/ GILLES ASSOULINE
---------------------------------------------
Gilles Assouline, President and
Chief Executive Officer
Each person who signature appears below on this Registration Statement
hereby constitutes and appoints Gilles Assouline and Michel Assouline, and each
of them, with full power to act as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities (until revoked in writing) to
sign any and all amendments (including post-effective amendments and amendments
thereto) to this Registration Statement on Form SB-2 of Capital Media Group
Limited and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully for all intents and purposes, as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may
lawfully do or cause to be done by virtue hereof.
Under the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ GILLES ASSOULINE
- ------------------------ Chairman, President and December 30, 1999
Gilles Assouline Chief Executive Officer
(Principal Executive
Officer)
/s/ MICHEL ASSOULINE
- ------------------------ Director, Chief Operating December 30, 1999
Michel Assouline Officer
S-1
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ STEPHEN COLEMAN
- ------------------------- Chief Financial Officer December 30, 1999
Stephen Coleman (Principal Financial
Officer)
/s/ DAVID HO
- ------------------------- Director December 30, 1999
David Ho
/s/ PATRICK HO
- ------------------------- Director December 30, 1999
Patrick Ho
/s/ JEAN-FRANCOIS KLEIN
- ------------------------- Director December 30, 1999
Jean-Francois Klein
S-2
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
5.1 Opinion of Akerman, Senterfitt & Eidson, P.A.
23.1 Consent of PricewaterhouseCoopers
23.2 Consent of Deloitte & Touche
EXHIBIT 5.1
December 30, 1999
Capital Media Group Limited
2 rue du Nouveau Bercy
94220, Charenton, France
RE: REGISTRATION STATEMENT ON FORM SB-2
Gentlemen:
We have acted as counsel to Capital Media Group Limited, a Nevada
corporation (the "Company"), with respect to the registration statement on Form
SB-2 (the "Registration Statement") which is being filed with the Securities and
Exchange Commission for the purpose of registering for sale by certain persons
named therein under the Securities Act of 1933, as amended (the "Securities
Act"), up to 3,647,599 shares of the common stock of the Company, $.001 par
value (the "Common Stock"), including 2,209,600 shares which have been reserved
for issuance upon the exercise of certain common stock purchase warrants.
Based on our review of the Articles of Incorporation of the Company, as
amended, the ByLaws of the Company, as amended, and such other documents and
records as we have deemed necessary and appropriate, we are of the opinion that
the Common Stock is, or when issued against payment therefor in accordance with
the terms of the applicable common stock purchase warrants, will be, duly
authorized, validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus which is a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations promulgated thereunder.
Very truly yours,
AKERMAN, SENTERFITT & EIDSON, P.A.
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the incorporation of our report dated June 4, 1999 in the
Registration Statement on Form SB-2 of Capital Media Group Limited dated
December 30, 1999. We also consent to the references to us under the heading
"Experts" in such Document.
Paris, December 29, 1999
/s/ PricewaterhouseCoopers
- --------------------------
PricewaterhouseCoopers
EXHIBIT 23.2
[DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Capital Media Group
Limited on Form SB-2 dated on or around December 30, 1999 of our report dated
October 14, 1998 (April 13, 1999 as to Note 18), appearing in the Prospectus,
which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE
Deloitte & Touche
London, United Kingdom
December 29, 1999
