SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from __________________________________
Commission File No. 0-21051
CAPITAL MEDIA GROUP LIMITED
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(Exact name of small business issuer in its charter)
Nevada 87-0453100
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2 Rue du Nouveau Bercy
94220, Charenton, France
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(Address of principal executive offices) (Zip Code)
011-33-1-43-53-6999
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(Issuer's telephone number)
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
WHICH REGISTERED
Not Applicable None
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
Common Stock, $.001 par value
Check whether the Company (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter periods that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this Form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-KSB or any
amendment to this form 10-KSB. [ ]
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State Company's revenues for its most recent fiscal year: $2,728,971
Because there is only a limited market for the Company's Common Stock (the
"Common Stock"), the aggregate market value of the voting stock held by
non-affiliates of the Company cannot be determined with accuracy. As of April
13, 2000, there were 29,373,251 shares of the Common Stock issued and
outstanding, of which 3,686,651 shares were owned by non-affiliates of the
Company.
The following documents are incorporated by reference: None.
Transitional Small Business Disclosure Format. YES ____ NO X
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PART I
ITEM 1. DESCRIPTION OF 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.
Capital Media Group Limited ("us," "we" or the "Company") primary
business is the broadcasting operation of Onyx Television, which operates an
advertising supported music and entertainment television station in Germany
dedicated to adults. Onyx Television commenced broadcast operations in January
1996. Onyx's broadcasting signal is currently received in approximately 11.0
million cable homes in Germany and an indeterminate number of satellite homes
(currently estimated to be approximately 2.5 million) in Germany, France, Italy
and other 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 traffic 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 a software platform for E-commerce online
entertainment.
ONYX TELEVISION
FREE ANALOG TELEVISION
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 Onyx Televison's
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 programming, we intend to
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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 regarding this programming 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 AND E-COMMERCE STRATEGY
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.
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
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believe the sale of these products to attract advertisers and sponsors. We also
intend to make entertainment news and information instantly available.
In February 2000, Onyx entered into a letter of intent with
NetCologne, a local cable operator, to jointly develop and experiment with
broadband interactive programs on-air, such as the "Onyx Jukebox."
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. We
also believe that the purchasing power of our target audience is often high,
which we believe will attract advertisers in the future 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 approximately 18 million cable subscribers as of June 30, 1999. The
German cable television market is substantially built-out. As of December 31,
1998, cable television systems covered approximately 75% of the households in
Germany. Additionally, as of June 30, 1999, Germany had approximately 11.5
million homes served by direct- to-home satellite-delivered television services
and satellite master antenna television systems.
As of December 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 (currently estimated to be
approximately 2.5 million) 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 16 billion ($7.7 billion) in 1999 and now represents approximately 43% of
total German advertising revenue. In comparison, press advertising now
represents approximately 49% of that total. 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
capacity, marketing and audience awareness, relying on 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 actual 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 in Germany.
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 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 and maintain in any year and
from year to year.
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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
o the issuance, renewal, transfer and ownership of station
licenses,
o the timing and content of programming,
o the timing, content and amount of commercial advertising
permitted and
o 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 in
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.
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
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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.
SERVICES AGREEMENT WITH GROUPE AB
In July 1998, we entered into a two-year services agreement (the
"Services Agreement") with 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 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 resulted in an annual
saving of approximately $2.0 million in overhead expenses annually from the
level of operating expenses previously incurred by Onyx in 1998. See Item 6.
"Management's Discussion and Analysis or Plan of Operation."
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. No arrangements have been made between the Company
and Group AB in that regard.
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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 various on-line applications.
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 such as
ActivCard, Pixel, TopCard, Internet Way and Enanti, whose technologies included
remote security and authentication technology, sales automation, Internet access
and infra-red contactless Smart Card technology.
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
two 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, Unimedia has 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.
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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 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 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. The Company believes that these performance objectives were
not reached and that 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 Traffic,
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 the Company's Common
Stock owned by Unimedia to TopCard's stockholders and $150,000 in cash.
TopCard is 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).
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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.
DISCONTINUED OPERATIONS AND DIVESTMENTS
TINERAMA
We previously owned a 51% interest in a Luxembourg holding company,
Tinerama Investment AG (TIAG), which, in turn, controlled five corporations
operating a media business in Romania. In 1998, because of the extremely poor
performance of Tinerama since being acquired in 1995, our Board approved a
decision to sell our interest in this Romanian group for nominal consideration.
The transaction was agreed to in November 1999 and closed in February 2000.
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 was
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)130,000 (approximately
$200,000) of existing loans to Blink into new 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, 1999, we employed 42 persons, 24 of whom were
employed by Onyx Television, 18 of whom are employed by CMG, Unimedia, Top Card
and Pixel, and four of whom were employed in administrative, financial and
managerial positions on behalf of the combined operation.
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ITEM 2. 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.
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.
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.
ITEM 3. LEGAL PROCEEDINGS
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. 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 Onyx Television. The plaintiff appealed against this ruling and has
claimed DM168,000 ($86,000) in respect of his 1997 salary. The court is now
considering new evidence put forward by Onyx and the next hearing is scheduled
in April 2000. 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
($154,000), plus interest, relating to services which TV Strategies alleged that
they provided to Onyx. In March 1999, the default judgment was set aside by the
Texas Appeals Court. In February 2000, Onyx agreed to pay $120,000 in full
settlement of the dispute.
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. Oradea, Lodolo and Pardo 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, Pardo and Atlas Investments 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
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Statements. Unimedia complied with the French court ruling and repaid the loans
in full by July 1999. Unimedia is preparing actions against Oradea, Pardo and
Atlas Investments for damages which it believes have been caused by reason of
their inappropriate actions against Unimedia.
Oradea, Lodolo and Pardo recently commenced actions through the
courts in the UK against Montague Koppel, the father of Charles Koppel, the
Company's former chairman, and Gilles Assouline with respect to their
investments in Unimedia representing $1 million in the aggregate. They are
claiming damages and interest in the range of $1 million under the assumption
that their Unimedia shares are worthless. The Company and Unimedia are not
parties to these suits but we may have an obligation to indemnify Mr. Assouline
for any liability as to which he may be subject. We believe that Mr. Assouline
has valid defenses to this claim. We, however, cannot assure you as to the
outcome of this matter.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a meeting held on October 22, 1999, the Company made the
following proposals to its stockholders: (i) a proposal to ratify the terms of
the arrangements between the Company and Groupe AB and Superstar as more
particularly described in Item 6. "Management's Discussion and Analysis or Plan
of Operation;" (ii) a proposal to reverse split the Company's outstanding Common
Stock on a one-for-ten basis, with the Company's authorized Common Stock
remaining at 50 million shares (thereby increasing the Company's available
shares for issuance to 45,990,587 shares and allowing for the issuance of shares
due to Groupe AB and Superstar upon the exercise of outstanding convertible
debt); (iii) to ratify the grant of a two year warrant to purchase 1.6 million
shares at $1.00 per share, to an entity controlled by both the Chairman and
Chief Executive Officer of the Company; and (iv) to elect six persons to serve
as directors of the Company until the next annual stockholders' meeting or until
their successors are elected and qualified (the "Proposals").
13
<PAGE>
Our stockholders approved all of the Proposals. The one-for-ten
reverse stock split of our outstanding Common Stock 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.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
TRADING MARKET FOR THE COMPANY'S 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 closing 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 closing
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 1.87 1.56
Second Quarter 1.72 1.41
Third Quarter 1.72 1.41
Fourth Quarter 2.50 0.50
2000
- ----
First Quarter 3.125 1.875
Second Quarter (to April 10, 2000) 2.50 2.187
14
<PAGE>
As of the date of this Form 10-KSB, we had approximately 319
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 quoted on the NASDAQ SmallCap
Market, the Common Stock has become subject to certain regulations of the
Securities and Exchange Commission which impose sales practice requirements on
broker-dealers because the 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 the 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 the Common Stock, which could severely limit the
market liquidity of the Common Stock.
COMMON STOCK PURCHASE WARRANTS
At the date of this Form 10-KSB, we had 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 6,137,339
All of the outstanding warrants will expire on or before January 19, 2003. The
warrants listed above do not include warrants and options issued to our
directors, executive officers and employees for their service to the Company.
Until September 19, 2000, holders of our warrants with an exercise price of $25,
$31.25 and $40 per share, have the right to exercise their warrants and receive
two shares of Common Stock at an exercise price of $3.00 per share. 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 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 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.
15
<PAGE>
DIVIDEND POLICY
The Company has never declared a cash dividend on its Common Stock.
The Board anticipates that for the foreseeable future, earnings, if any, will be
retained for use in the business, and no cash distributions will be made on the
Common Stock. The payment of future cash dividends, if any, will be at the
discretion of the Board and will depend upon earnings, financial requirements of
the Company and such other factors as the Board deems relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
THE FINANCIAL INFORMATION INCLUDED HEREIN SHOULD BE READ IN
CONJUNCTION WITH THE FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS ANNUAL
REPORT ON FORM 10-KSB, INCLUDING THE NOTES THERETO. THIS FORM 10-KSB 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 FORM 10-KSB THAT
ADDRESS ACTIVITIES, EVENTS OR DEVELOPMENTS THAT THE COMPANY EXPECTS, BELIEVES OR
ANTICIPATES 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, THE ABILITY OF THE COMPANY 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 MATTERS RELATING TO ONYX TELEVISIONS' RELATIONSHIP
WITH THE GERMAN MEDIA AUTHORITIES HAVING JURISDICTION OVER ONYX TELEVISION, 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 THE FORWARD-LOOKING STATEMENTS HEREIN. ALTHOUGH THE
COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN ARE REASONABLE, ANY OF THESE ASSUMPTIONS COULD BE INACCURATE
AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS FORM 10-KSB 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 THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY
WILL BE ACHIEVED.
GENERAL
The consolidated financial statements include the accounts of 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. 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.
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). We also have issued a
substantial number of warrants to purchase shares of common stock at $1.00 per
share. Our Board, when determining to issue this debt and to issue these
warrants, concluded that the conversion price of such debt (and the exercise
price of these warrants) 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 (and such warrants) were issued,
the difference between the fair market value of such shares and $1.00 per share
would be a charge against our operations.
16
<PAGE>
Tinerama Investment AG ("Tinerama"), a 51% owned subsidiary which
was treated as a discontinued operation in 1998 was sold in 1999. CM(UK)'s 50%
interest in Blink TV Limited ("Blink") was sold in 1999. Neither of these former
investments are consolidated in 1999.
SELECTED FINANCIAL DATA
THE FOLLOWING INFORMATION HAS BEEN DERIVED FROM THE FINANCIAL
STATEMENTS OF THE COMPANY. THE FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL
YEARS ENDED DECEMBER 31, 1999 AND 1998 INCLUDED ELSEWHERE HEREIN HAVE BEEN
AUDITED BY PRICEWATERHOUSECOOPERS, INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
THIS SECTION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO AND "MANAGEMENT'S DISCUSSION AND
ANALYSIS," WHICH ARE INCLUDED ELSEWHERE IN THIS FORM 10-KSB.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
STATEMENT OF INCOME DATA: $ $
Operating Revenues ......................................... 2,728,971 2,468,490
Operating Costs:
Staff costs ........................................... 2,469,286 2,765,239
Depreciation and amortization ......................... 1,089,381 1,410,697
Other Operating expenses .............................. 6,673,502 9,145,292
----------- -----------
Total Operating Costs ......................... (10,232,169) (13,321,228)
Operating Loss ............................................. (7,503,198) (10,852,738)
Equity in net losses in investment in net loss of affiliates (8,075) (150,808)
Financial income (expense net) ............................. (8,980,325) 970,407
Other income (expense) ..................................... 1,808,895 (465,696)
----------- -----------
Loss from continuing operations before taxation ............ (14,682,703) (10,498,835)
Tax provision (credit) ..................................... 57,727 41,552
----------- -----------
(14,624,976) (10,457,283)
----------- -----------
Discontinued operations loss ............................... -- (308,532)
Minority interest .......................................... -- (1,732)
----------- -----------
Net Loss ................................................... (14,624,976) (10,767,547)
=========== ===========
Net loss Per share for continuing operations................
basic ($ 1.90) ($ 2.61)
=========== ===========
diluted ($ 1.90) ($ 2.61)
=========== ===========
Net loss per share including discontinued operations.........
basic ($ 1.90) ($ 2.69)
=========== ===========
diluted ($ 1.90) ($ 2.69)
=========== ===========
Weighted Average Shares Outstanding - basic ................ 7,707,446 4,009,413
=========== ===========
Weighted Average Shares Outstanding - diluted .............. 7,707,446 4,009,413
=========== ===========
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
----------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Working Capital/(Deficit)................................... (5,034,416) $(20,607,970)
Total Assets................................................ 5,085,093 6,608,642
Total Liabilities........................................... (6,710,275) 23,440,814
Minority Interest........................................... 402,477 404,209
Stockholder's Equity/(Deficiency in Net Assets)............. (2,027,659) (17,236,381)
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND 1998
Operating revenues for the year ended December 31, 1999 were $2.73
million, an increase of $261,000 compared to operating revenues of $2.47 million
for 1998. This increase in operating revenue from period to period was largely
attributable to an increase of $1.06 million at Onyx, while operating revenues
of both TopCard and Pixel decreased $541,000 and $243,000, respectively, as
compared to 1998.
Total revenues at Onyx Television in 1999 totalled $1.82 million, an
139% increase of $1.06 million over revenues of $0.76 million in 1998. Onyx
management firmly believes that its strategic alliance agreement with Groupe AB,
together with changes in local regulations effective in 1999, has increased
network distribution. Onyx management also firmly believes that the appointed
media agency has proved extremely positive and believes that Onyx should be able
to substantially increase the development of its revenue over the next year.
The German media authorities have officially confirmed that Onyx's
rating in Germany is ahead of its two main competitors VH-1 and VIVA 2 and it is
anticipated that Onyx's distributions will increase further during 2000. At the
present time, Onyx Television reaches approximately 11 million cable homes and
an indeterminable number of direct satellite homes, currently estimated at 2.5
million, in Germany.
Operating costs, including staff costs, depreciation and
amortization totaled $10.23 million for fiscal 1999 compared to $13.32 million
for fiscal 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 where operating costs were reduced by $1.64 million to
$6.60 million in fiscal 1999, compared to $8.24 million for 1998.
Depreciation and amortization for fiscal 1999 was $1.09 million
compared to $1.41 million for fiscal 1998.
The increase in financial expense related to higher interest expense
of $4.27 million for fiscal 1999, compared to $1.29 million for fiscal 1998.
This is due to the substantial increase in loans received over the year. At the
Stockholder's Meeting held on October 22, 1999, a resolution was approved which
ratified the terms of the agreement between the Company and Groupe AB and
Superstar. See Item 4. "Submission of Matters to a Vote of Security Holders."
Consequently,
18
<PAGE>
loans of $17.95 million and accrued interest of $4.65 million were converted
into equity. In addition, financial expense includes a charge in respect to the
foreign exchange losses of $4.71 million for fiscal 1999, as compared to a
credit of $2.25 million for fiscal 1998. The foreign exchange losses arise from
changes in currency exchange rates at December 31, 1999 compared to exchange
rates at December 31, 1998.
As a result of the above factors, the Company had a loss from
continuing operations of $14.62 million for the year ended December 31, 1999, an
increase of $4.17 million, from $10.46 million for the same period in 1998.
TopCard reported a net loss of $255,000 in 1999, compared to a loss
of $230,000 for the same period in 1998. TopCard's activity in 1999 has been
primarily new development, which it expects to be completed by mid 2000. Pixel
reported a reduced profit of $20,000, for 1999 compared to a profit of $112,000
for 1998. Henry, its 47.5% owned subsidiary recorded a new share of loss of
$4,000 compared to a loss of $74,000 recorded for the corresponding period in
1998. Henry is accounted for on an equity basis.
Following the decision of our Board in 1998 to dispose of Tinerama,
the sale of the investment was agreed to in 1999 and closed in February 2000.
Similarly, our 50% shareholding in Blink was sold to the other joint shareholder
of Blink for a nominal sum and the existing loan made to Blink was converted
into a new form of redeemable equity. We now own an investment of approximately
18% of Blink, and if successful in the future, Blink will be obligated to repay
these monies converted back to us.
The net loss per share for fiscal 1999 (basic and diluted) was
$1.90, compared to a net loss per share (basic and diluted) of $2.69 for fiscal
1998. Weighted average shares outstanding basic and diluted were 7,707,446 for
1999 compared to 4,009,413 for 1998. As described in the Notes to the Financial
Statements, a Stockholder's Meeting was held on October 22, 1999, wherein it was
resolved to effect a reverse split of the Company's authorized capital on a one
new share for ten existing shares. Accordingly, all references to the Company's
shares of Common Stock are on a post split basis. The authorized capital of the
Company remains at 50,000,000 shares of Common Stock.
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
December 31, 1999, we have incurred an accumulated deficit of approximately
$62.9 million, principally related to the launch and operation of Onyx
Television. At December 31, 1999, we had a negative working capital of $5.0
million and a negative net worth of $2.0 million.
19
<PAGE>
INSTAR LOAN
In October 1996, our UK subsidiary, Capital Media (UK), entered into
an agreement to borrow $2.0 million (the "Instar Loan") from Instar Holdings,
Inc. ("Instar") 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 ("Universal") of Onyx
Television's transponder lease.
On July 21, 1999, Capital Media and Instar settled this loan (the
"Instar Settlement"). Under the Instar Settlement, we paid Instar $2.2 million
and issued to them 200,000 shares of 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. ("Latitude") 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 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 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 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.
20
<PAGE>
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.
On July 31, 1997, we acquired 50.3% of the outstanding common stock
of Unimedia in exchange for 433,300 shares of 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:
<TABLE>
<CAPTION>
TRANSFEREE SHARES
TRANSFERRED
<S> <C>
Transferees not affiliated with Capital Media and Unimedia................. 124,448
Stockholders of TopCard(1)................................................. 45,600
Gralec Establishment(2).................................................... 154,000
-------
324,048
=======
</TABLE>
(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 have registered the shares of Common Stock
transferred to Gralec, pursuant to a registration rights
agreement. We, however, failed to register the Common
Stock by November 30, 1999, as required under the
registration rights agreement. In order to extend the
period during which registration of the Common Stock
could be completed, we agreed to (i) sell Gralec
Establishment 220,000 shares of Common Stock for a
purchase price equal to the net proceeds from the sale
of certain shares held by Unimedia (50,000 ActivCard
shares), and (2) grant Gralec Establishment an option
to purchase 600,000 shares of our authorized but
unissued Common Stock at an exercise of $1.00 per share
for a period of eighteen (18) months. These additional
shares and shares underlying the option have also been
registered. On January 19, 2000, all shares and options
granted to Gralec were effectively registered and the
eighteen month exercise period for the options started
on February 19, 2000.
21
<PAGE>
These transfers were effected to raise funds for Capital Media's and
Unimedia's operations and to complete the acquisitions of TopCard and Pixel.
As of the date of the Form 10-KSB, 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).
FUNDS BORROWED SUBSEQUENT TO THE UNIMEDIA SHARE EXCHANGE FROM DAVID
HO AND GROUPE AB
In September 1997, Capital Media (UK) 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 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 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 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 Common Stock for
arranging the original loan made by Unbeatable and a fee of 40,000 shares of
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
22
<PAGE>
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 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
an 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 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 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, $22.6 million which represented substantially
all of the convertible debt due to Groupe AB and Superstar, was converted into
Common Stock. Following conversion, Groupe AB and David Ho (who controls
Superstar) owned 50.4% and 34.0%, respectively, of our outstanding Common Stock.
In December 1999, Groupe AB received an additional 841,584 shares of Common
Stock in consideration for $400,000 for services provided and $120,000 cash
advanced in November and December 1999 under the August 1998 agreement described
above, in consideration for $200,000 paid with respect of the settlement of the
Instar Loan and $121,584 for cash received. In March 2000, Groupe AB received an
additional 700,000 shares of Common Stock in consideration for $600,000 received
for services provided under the August 1998 agreement described above and
$100,000 being the final Instar Loan in payment made by Groupe AB on our behalf
under the March 1999 agreement above. Groupe AB and David Ho currently own 53.1%
and 32.2% respectively, of the 29,373,251 shares outstanding of Common Stock.
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<PAGE>
In December 2000, Groupe AB made a loan to the Company of $500,000
for general working capital purposes. The loan is due in two years and bears
interest at the rate of ten percent (10%) per year. In connection with the loan,
the Company granted Group AB a two year warrant to purchase 500,000 shares of
Common Stock at the exercise price of $1.00 per share.
In January 2000, Groupe AB and Superstar made loans to the Company
in the aggregate of $1,000,000. The proceeds were in part used to increase the
capital investments in Onyx by $465,000 and Topcard by $225,000. The loan is due
in two year and accrues interest at the rate of ten percent (10%) per year. In
connection with the loan, we granted Groupe AB and Superstar a two year warrant
to purchase 1,000,000 shares of the Common Stock at an exercise price of $1.00
per share.
In April 2000, Group AB loaned the Company an additional $1,000,000
for working capital. The loan is due in two years with interest of ten percent
(10%) per annum. In connection with the loan, we granted Group AB a two year
warrant to purchase 1,000,000 shares of common stock at an exercise price of
$1.00 per share.
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 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.
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
Common Stock at an exercise price of $1.00 per share.
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 Common Stock, or
shares of the capital stock of our subsidiaries, to meet our anticipated capital
requirements.
24
<PAGE>
BUSINESS
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
- ------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999 and 1998
<S> <C>
Independent Auditors' Report of PricewaterhouseCoopers to the Board of
Directors and Stockholders of Capital Media Group Limited........................F-2
Consolidated Balance Sheet at December 31, 1999 and 1998 ....................................F-3
Consolidated Statement of Operations for the Years ended December 31, 1999
and 1998 ........................................................................F-4
Consolidated Statement of Changes in Stockholders' Equity for the Years
ended December 31, 1999 and 1998 ................................................F-5
Consolidated Statement of Cash Flows for the Years ended December 31, 1999
and 1998 ........................................................................F-6
Notes to the Consolidated Financial Statements...............................................F-7
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR
ACCOUNTING AND FINANCIAL DISCLOSURE
PricewaterhouseCoopers was our independent auditors for the fiscal
years ended December 31, 1999 and 1998.
Deloitte & Touche ("Deloitte & Touche"), which served as the
Company's independent auditors during the fiscal years ended December 31, 1995,
1996 and 1997, resigned as the Company's independent auditors effective on
February 18, 1999. In connection with their audits of the Company's 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 the Company 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.
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<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT
The following persons presently serve as our directors and executive
officers:
NAME Age Position
- ---- --- --------
Gilles Assouline 44 Chairman, President, Chief Executive Officer
Michel Assouline 40 Director and Chief Operating Officer
David Ho 50 Director
Jean-Francois Klein 34 Director and Chief Financial Officer
Patrick Ho 43 Director
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
Thomson 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 Relationships and Related Transactions" and "Business
Experience of Directors and Executive Officers."
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<PAGE>
Stephen Coleman was appointed our Chief Financial Officer in
November 1996 and resigned on January 31, 2000. Mr. Coleman is a Fellow of the
Association of Chartered Certified Accountants in the United Kingdom. Mr.
Coleman is continuing to act as a consultant to the Company.
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
On March 10, 1998, the Board of Directors granted options to
purchase an aggregate of 400,000 of Common Stock at an exercise price of $3.50
per share (the fair market value of 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 then 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 equal portions over the next three years (in that regard, 80,000 and 26,668
of the options which were issued to Mr. Llewellyn and Mr. Coleman respectively
have lapsed due to their resignations in September 1998 and January 2000).
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.
In January 2000, three of our directors, Gilles Assouline, Michael
Assouline and David Ho, were each granted 250,000 warrants to purchase Common
Stock and another director, Jean-Francois Klein, was granted 650,000 warrants to
purchase Common Stock. The warrants to Purchase Common Stock are exercisable for
a three year period at an exercise price of $1.00 per share. The warrants were
granted for their services to the Company. No other directors received
compensation for their service as a director. The directors are also reimbursed
for travel expenses incurred in attending meetings of the Board of Directors and
its committees.
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<PAGE>
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." Under its agreement with Unimedia, if Valfab introduces
investors to us in the future, Valfab would receive commissions not to exceed 8%
of the investment made. In January 2000, the Company issued 90,000 shares of
Common Stock to Valfab in full and final settlement of all Valfab's outstanding
fees resulting from its service agreement with the Company.
BOARD MEETINGS
The Board of Directors of the Company held a total of 15 meetings
during the fiscal year ended December 31, 1999. Each of the directors attended
at least 75% of the aggregate number of meetings of the Board of Directors.
FAMILY RELATIONSHIPS
Gilles Assouline, the Company's Chairman of the Board, President and
Chief Executive Officer, and Michel Assouline, both members and nominees to the
Company's Board of Directors, are brothers.
COMPLIANCE WITH SECTION 16(A)
The Company's officers, directors and more than 10% holders are
required to make filings with the SEC on Forms 3, 4 and, if required, 5 under
Section 16(a) of the Securities Exchange Act of 1934, to report their beneficial
ownership of the Company's securities at the time they became officers,
directors and more than 10% stockholders of the Company, and each month
thereafter that such ownership changes. All of the Company's current officers,
and all of the Company's current directors have made all of their required
filings for 1998 and for periods prior thereto. Based upon the information
available to the Company, all of the holders who are believed to own
beneficially more than 10% of the Company's outstanding shares have made their
required filings for 1998 and for periods prior there to. All of the filings
required of all of the Company's current officers, directors and more than 10%
stockholders will be filed in the near future.
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<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information about the compensation
paid or accrued during 1999 to the Company's Chief Executive Officer and to each
of the other most highly compensated executive officers of the Company whose
aggregate direct compensation exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- Other Annual ------------ All Other
Name Year Salary Bonus Compensation Options Compensation
($) ($) ($) (#) ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gilles Assouline 1999 250,000 --
1998 250,000 100,000 --
1997 104,000 -- -- (1)
Michel Assouline 1999 200,000 --
1998 200,000 100,000 --
1997 83,000 -- -- (1)
Stephen Coleman 1999 200,000 --
1998 200,000 100,000 --
1997 160,000 -- -- --
</TABLE>
- -----------------------------
(1) Gilles Assouline and Michel Assouline received in 1997 under their
employment agreements (see "Employment Agreements with Executive Officers"
below) a grant of 20,000 shares and 17,500 shares, respectively, and
warrants to purchase 20,000 shares and 17,500 shares, respectively.
OPTION GRANTS DURING LAST FISCAL YEAR
No options or warrants to purchase shares of the Company's Common
Stock were granted to those persons named in the Summary Compensation Table
during 1999.
AGGREGATED OPTIONS EXERCISED, LAST FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the exercise
of stock options to purchase shares of Common Stock during the 1999 fiscal year
and the value of unexercised stock options to purchase shares of Common Stock at
the end of the 1999 fiscal year for the persons named in the Summary
Compensation Table.
29
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
NAME UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
---- AT FISCAL YEAR END FISCAL YEAR END($)*
------------------------- ----------------------------
NUMBER OF SHARES
ACQUIRED ON
EXERCISE VALU REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-------------- ------------------- -------------------------- ----------------------------
<S> <C> <C> <C> <C>
Gilles Assouline...... -- -- 62,666/57,334 0/0
Michel Assouline...... -- -- 60,666/56,834 0/0
Stephen Coleman....... -- -- 76,666/26,666 0/0
</TABLE>
- ----------------------
* Computed based upon the difference between the closing price of CMG
Common Stock at December 31, 1999 and the exercise price. No value has
been assigned to options which are not in-the-money.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
The Company 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 the Company's
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 the Common Stock on the date of grant ($5.70);
and (v) such benefits as are provided generally to the executive management of
the Company. 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 shall be paid one year's base
compensation if they are terminated without cause during the term of the
agreements.
Mr. Coleman had an arrangement with the Company to serve as its
Chief Financial Officer, under which he was entitled to an annual base salary
of(pound)125,000 ($200,000) after December 31, 1997 until January 2000. Mr.
Coleman resigned on January 31, 2000 and is to receive $70,000 in compensation
under his service agreement.
STOCK OPTIONS
On December 18, 1998, the 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 was approved at the Stockholder's Meeting
held on October 22, 1999. The warrant has now been extended until December 18,
2001.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of the date of this Form 10-KSB, 29,373,251 shares of Common
Stock were outstanding, including 166,791 shares (of which 60,000 shares are
pledged as security by Unimedia to support its
30
<PAGE>
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 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:
<TABLE>
<CAPTION>
SHARES PERCENT OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
- -------------------------- ------------------ ----------------------
<S> <C> <C>
Gilles Assouline(1) 2,292,564 7.3%
Michel Assouline(2) 328,166 1.1%
David Ho(3) 10,349,983 34.2%
Jean-Francois Klein(4)(5) 842,162 2.8%
Patrick Ho 0 *
Groupe AB(6) 18,985,791 57.8%
Claude Berda(4)(6) 19,167,953 58.4%
Stephen Coleman(7) 103,332 *
Directors and Executive Officers as 13,916,207 41.2%
a group (6 persons)(8)
</TABLE>
- ------------------------------------
* 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 options and warrants
to purchase 1,919,764 shares of Common Stock.
(2) Includes vested options and warrants to purchase 310,666 shares.
(3) Substantially all of these shares are owned of record by two
entities controlled by Mr. Ho, Unbeatable and Superstar. Includes
vested options and warrants to purchase 910,000 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 and warrants to purchase
663,592 shares.
(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 (i)
180,000 shares of Common Stock at an exercise price of $40.00 per
share, (ii) 3,467,339 shares of Common Stock at an exercise price of
$1.00 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.
31
<PAGE>
(7) Vested options.
(8) Includes vested warrants and options to purchase an aggregate of
3,470,931 shares.
ITEM 12. 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 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."
In September 1999, Groupe AB provided a guarantee to a bank for DM
1.6 million (approximately US $820,000) against a DM 3 million (approximately
$1.54 million) bank facility granted to Onyx Television. In connection with the
guarantee, we granted Groupe AB a two year warrant to purchase approximately
810,000 shares of 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 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."
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
32
<PAGE>
Groupe AB and Superstar were more favorable to us 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. 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 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
Common Stock at an exercise price of $1.00 per share.
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.
On October 27, 1999, $22.6 million which represented substantially
all of the convertible debt due to Groupe AB and Superstar, was converted into
Common Stock. Following conversion, Groupe AB and David Ho (who controls
Superstar) owned 50.4% and 34.0%, respectively, of our outstanding Common Stock.
In December 1999, Groupe AB received an additional 841,584 shares of Common
Stock in consideration for $520,000 received for services provided in November
and December 1999 under the August 1998 agreement described above and in
consideration for $200,000 paid in respect of the Instar Loan and $121,584 for
cash received. In March 2000, Groupe AB received a further 700,000 shares of
Common Stock in consideration for $600,000 received for services provided in the
first quarter of year 2000 under the August 1998 agreement described above and
$100,000 being the final Instar Loan payments made by Groupe AB on our behalf
under the March 1999 agreement described above.
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<PAGE>
In December 1999, Groupe AB made a loan to the Company of $500,000
for general working capital purposes. The loan is due in two years and bears
interest at the rate of ten percent (10%) per year. In connection with the loan,
the Company granted Group AB a two year warrant to purchase 500,000 shares of
Common Stock at the exercise price of $1.00 per share.
In January 2000, Groupe AB and Superstar made loans to the Company
in the aggregate of $1,000,000. The proceeds were in part used to increase the
capital investments in Onyx by $465,000 and Topcard by $225,000. The loan is due
in one year and accrues interest at the rate of ten percent (10%) per year. In
connection with the loan, we granted Groupe AB and Superstar a two year warrant
to purchase 1,000,000 shares of the Common Stock at an exercise price of $1.00
per share.
In April 2000, Groupe AB loaned the Company an additional $1,000,000
for working capital. The loan is due in two years with interest of ten percent
(10%) per annum. In connection with the loan, we granted Group AB a two year
warrant to purchase 1,000,000 shares of Common Stock at an exercise price of
$1.00 per share.
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<PAGE>
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(A) EXHIBITS
2.1. Agreement and Plan of Reorganization, dated December 29,
1995, by and among Cardinal Capital Corp. and the
shareholders 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
shareholders 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).
4.3 Amendment to Articles of Incorporation, dated as of
March 16, 2000 canceling the Series A Preferred Stock.*
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 Shareholders 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).
10.5 Contract for On-Site Satellite Uplink Service between BT
Telecom (Deutschland) GmbH and the Registrant (1).
35
<PAGE>
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 (2).
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).
36
<PAGE>
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).
27.1 Financial Data Schedule.*
- -----------------
* 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.
(b) Reports on Form 8-K
None
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant certifies that it caused this
Annual Report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 14th day of April, 2000.
CAPITAL MEDIA GROUP LIMITED
By: /s/ GILLES ASSOULINE
---------------------------------------
Gilles Assouline, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed by the following persons in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman, President and Chief
/s/ GILLES ASSOULINE Executive Officer (Principal
- ----------------------------------- Executive Officer) April 14, 2000
Gilles Assouline
/s/ MICHAEL ASSOULINE
- -----------------------------------
Michel Assouline Director, Chief Operating Officer April 14, 2000
/s/ SEPHEN COLEMAN
- -----------------------------------
Stephen Coleman Principal Accounting Officer April 14, 2000
/s/ DAVID HO
- -----------------------------------
David Ho Director April 14, 2000
/s/ PATRICK HO
- -----------------------------------
Patrick Ho Director April 14, 2000
/s/ JEAN-FRANCOIS KLEIN
- -----------------------------------
Jean-Francois Klein Director and Chief Financial Officer April 14, 2000
</TABLE>
38
<PAGE>
CAPITAL MEDIA GROUP LIMITED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report of PricewaterhouseCoopers to the Board of
Directors and Stockholders of Capital Media Group Limited...............................................F-2
Consolidated Balance Sheet at December 31, 1999 and 1998.....................................................F-3
Consolidated Statement of Operations for the Years ended December 31, 1999 and
1998 ...........................................................................................F-4
Consolidated Statement of Changes in Stockholders' Equity for the Years ended December 31,
1999 and 1998 ...................................................................................F-5
Consolidated Statement of Cash Flows for the Years ended December 31, 1999
and 1998 ........................................................................................F-6
Notes to the Consolidated Financial Statements...............................................................F-7
</TABLE>
F-1
<PAGE>
CAPITAL MEDIA GROUP LIMITED
INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS
AND STOCKHOLDERS OF CAPITAL MEDIA GROUP LIMITED FOR 1999
To the Board of Directors and
the Stockholders of Capital Media Group Limited
In our opinion, the consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in stockholders'
equity presented on pages F-3 through F-25, present fairly, in all material
respects, the financial position of Capital Media Group Limited and its
subsidiaries (the "Company") at December 31, 1999 and 1998 and the result of
their operations and their cash flows for each of the two years in the period
ended December 31, 1999, 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 statements do not
include any adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers
Paris, April 4, 2000
F-2
<PAGE>
CAPITAL MEDIA GROUP LIMITED
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
NOTE DECEMBER 31, DECEMBER 31,
1999 1998
<S> <C> <C> <C>
ASSETS $ $
Cash and cash equivalents 3 181,352 583,320
Accounts receivable, net of allowances
for doubtful accounts of $28,234 4 1,345,979 1,801,892
(December 31, 1998 - $77,579)
Inventories, net 114,744 93,938
Amounts due from stockholders 5-16 - 313,691
Prepaid expenses and deposits 33,784 40,003
--------------- --------------
TOTAL CURRENT ASSETS 1,675,859 2,832,844
Investments 6,985 4,153
Equity in affiliated companies 112,725 117,000
Intangible assets, net of accumulated amortization of $3,171,811
(December 31, 1998 - $3,076,882) 6 2,204,271 2,858,412
Property, plant and equipment, net 7 1,085,253 796,233
--------------- --------------
TOTAL ASSETS 5,085,093 6,608,642
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 2,223,375 3,786,764
Accrued expenses 1,620,310 4,630,380
Related parties loans repayable within one year 8-16 1,259,583 14,337,442
Other loans repayable within one year 8 - 190,000
Bank debt due within one year 1,607,007 -
Net liabilities for discontinued operation 9 - 496,228
--------------- --------------
TOTAL LIABILITIES 6,710,275 23,440,814
COMMITMENTS AND CONTINGENCIES 10-16 - -
MINORITY INTEREST IN SUBSIDIARIES 402,477 404,209
--------------- --------------
7,112,752 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 28,583,251 (December 31, 1998 - 4,009,413)
issued and outstanding 1-16 28,580 4,009
Additional paid-in capital 55,771,258 31,191,990
166,791 Shares held by subsidiary (December 31, 1998 -
166,791), at cost (950,712) (950,712)
--------------- --------------
54,849,126 30,245,287
Cumulative translation adjustment 5,986,265 756,406
Accumulated deficit (62,863,050) (48,238,074)
--------------- --------------
TOTAL STOCKHOLDERS' EQUITY (2,027,659) (17,236,381)
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 5,085,093 6,608,642
=============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CAPITAL MEDIA GROUP LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
NOTE $ $
<S> <C> <C> <C>
Operating Revenue 2,728,971 2,468,490
Operating costs
Staff costs 2,469,286 2,765,239
Depreciation and amortization 1,089,381 1,410,697
Other operating expenses 6,673,502 9,145,292
-------------- --------------
(10,232,169) (13,321,228)
Operating loss (7,503,198) (10,852,738)
Other (expense)/income 1,808,895 (465,696)
Financial income (expense) net 12
Interest Payable (4,266,534) (1,284,417)
Foreign Exchange (loss)/gain (4,713,791) 2,254,824
Equity in net losses of affiliates (8,075) (150,808)
-------------- --------------
Loss from continuing operations (14,682,703) (10,498,835)
before taxation
Income tax benefit 57,727 41,552
-------------- --------------
(14,624,976) (10,457,283)
Discontinued operations 9
Net loss from operation of discontinued
subsidiary - (308,532)
Minority interest - (1,732)
-------------- --------------
Net loss (14,624,976) (10,767,547)
============== ==============
Net loss per share for continuing
operations
- - basic ($1.90) ($2.61)
============== ==============
- - diluted ($1.90) ($2.61)
============== ==============
Net loss per share including discontinued
operations - basic ($1.90) ($2.69)
============== ==============
- - diluted ($1.90) ($2.69)
============== ==============
Weighted average shares - basic 7,707,446 4,009,413
============== ==============
Weighted average shares - diluted 7,707,446 4,009,413
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CAPITAL MEDIA GROUP LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
CUMULATIVE
OTHER
Year ended COMMON STOCK SHARES HELD ADDITIONAL COMPREHEN-
December 31, 1999 BY PAID-IN SIVE INCOME ACCUMULATED
SUBSIDIARY CAPITAL (DEFICIT) DEFICIT TOTAL
Shares $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1999
as restated 40,094,139 40,090 (950,712) 31,155,909 756,406 (48,238,074) (17,236,381)
Adjustment for reverse split
(See Note 1) (36,084,726) (36,081) 36,081 -
------------ ---------- ----------- ------------ ------------- ------------- ------------
Balance at January 1, 1999
adjusted 4,009,413 4,009 (950,712) 31,191,990 756,406 (48,238,074) (17,236,381)
Shares issued 24,573,838 24,571 - 24,669,268 24,693,839
Commission paid (90,000) (90,000)
Translation adjustment 5,229,859 5,229,859
Net loss - - - - (14,624,976) (14,624,976)
------------
Comprehensive loss (9,395,117)
------------ ---------- ----------- ------------ ------------- ------------- ------------
Balance at
December 31, 1999 28,583,251 28,580 (950,712) 55,771,258 5,986,265 (62,863,050) (2,027,659)
============ ========== =========== ============ ============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE
OTHER
Year ended COMMON STOCK COMPREHEN-
December 31, 1998 SHARES HELD ADDITIONAL SIVE
BY PAID-IN INCOME/ ACCUMULATED
SUBSIDIARY CAPITAL (DEFICIT) DEFICIT TOTAL
Shares $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 40,094,139 40,090 (2,282,752) 31,155,909 2,846,067 (37,470,527) (5,711,213)
January 1, 1998
Adjustment for reverse split
(See Note 1) (36,084,726) (36,081) 36,081
------------ ---------- ------------ ------------- ------------- ------------- ------------
Balance at January 1, 1998
adjusted 4,009,413 4,009 (2,282,752) 31,191,990 2,846,067 (37,470,527) (5,711,213)
Translation adjustment - - - - (2,089,661) (2,089,661)
Net loss - - - - (10,767,547) (10,767,547)
------------
Comprehensive loss - - (12,857,208)
Shares held by subsidiary, at - - 1,332,040 - - - 1,332,040
cost
------------ ---------- ------------ ------------- ------------- ------------- ------------
Balance at
December 31, 1998 4,009,413 4,009 (950,712) 31,191,990 756,406 (48,238,074) (17,236,381)
============ ========== ============ ============= ============= ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
CAPITAL MEDIA GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
<S> <C> <C>
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (14,624,976) (10,767,547)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,089,381 1,410,697
Other income arising from disposal of subsidiary
investments 1,212,145 -
Equity in net losses of affiliates and Minority interest 2,543 152,540
Other non-cash items (84,226) -
Changes in assets and liabilities:
(Increase)/decrease in other assets and inventories (14,587) 39,539
(Increase)/decrease in accounts receivable 769,604 (798,139)
(Decrease)/increase in accrued expenses and other
liabilities (7,617,030) 2,704,749
---------------- -------------
NET CASH USED IN OPERATIONS (19,267,146) (7,258,161)
---------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (642,866) (489,580)
Acquisition of intangible assets - (31,120)
Cash proceeds from sale of investments - 994,047
---------------- -------------
NET CASH RECEIVED/(USED) IN INVESTING ACTIVITIES (642,866) 473,347
---------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short term debt 10,746,339 9,450,000
Repayments of loans (3,100,000) (335,000)
Conversion of loans (19,579,000) -
Issuance of shares 24,693,839 -
Commission paid (90,000) -
---------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,671,178 9,125,000
---------------- -------------
Effect of exchange rate changes on cash 5,229,859 (2,089,661)
---------------- -------------
Net (decrease)/increase in cash and cash equivalents (2,008,975) 250,525
Cash and cash equivalents at beginning of period 583,320 332,795
---------------- -------------
Net (debt)/cash and cash equivalent at end of period (1,425,655) 583,320
================ =============
Supplemental data:
Interest paid 5,578,707 151,977
Income tax paid 1,581 6,222
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 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 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. 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 which was treated as
a discontinued operation in 1998, was sold in 1999 (See Note 9). CM(UK)'s 50%
interest in Blink TV Limited ("Blink") was sold in 1999. Neither of these former
investments are consolidated.
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-7
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
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.
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 number of shares during the year. 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. The computation of earnings per
share does not assume exercise of the warrants or options if they have an
antidilutive effect on earnings per share.
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 and other long-term financing at
December 31, 1998 and December 31, 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 1998 year end balances to
conform to the 1999 year end presentation.
On October 27, 1999, the Company effected a reverse split of its outstanding
common stock on a one share for ten share basis, and its authorized shares
remaining at 50 million shares (see Stockholders' Meeting below). Unless
otherwise stated, all per share data contained herein has been adjusted to
reflect the completion of the reverse split.
F-8
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
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 stock on a one share for ten shares 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 Chief Executive and 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 22,598,255 shares to Groupe AB and Superstar, in
conversion of $22,598,255 of outstanding convertible debt, including $4,649,839
of accrued interest (see Note 8, 15 and 16). The Company also issued 788,999
additional shares in conversion of $790,000 of certain sundry loans (see Note 8)
and 345,000 additional shares 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 shares issuances
and a further 841,584 shares of Common Stock issued, as described in Note 15, at
December 31, 1999 the Company has 28,583,251 shares of common stock outstanding.
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 year ended December 31, 1999 and the year ended December
31, 1998, the Company incurred net losses of $14,624,976 and $10,767,547
respectively.
Following the Stockholders Meeting on October 22, 1999, a resolution approved a
reverse split of the Company's common stock on a one share for ten shares basis.
The authorized capital of the Company remained at 50 million shares, resulting
in approximately 46 million shares of common stock being available for issue. A
further resolution approved the 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. At December 31, 1999, the Company
had net current liabilities of $5,034,416 and its total liabilities exceeded its
total assets by $2,027,659. 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.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at December 31, 1999 includes a bank deposit
balance of Nil (December 31, 1998- $520,164).
F-9
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
Accounts receivable comprise: 1999 1998
$ $
<S> <C> <C>
Trade receivables 500,954 899,352
Taxation receivable 37,654 19,761
Other debtors receivable 807,371 882,779
---------------- ----------------
1,345,979 1,801,892
================ ================
</TABLE>
5. AMOUNT DUE FROM STOCKHOLDER
As part of an overall settlement agreement with Instar, Universal and
Latitude (see Note 17) the debt has been repaid to the Company.
6. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
<S> <C> <C>
$ $
Purchased broadcast licenses 241,755 249,570
Computer Software 569,131 591,560
Goodwill 4,565,196 5,094,165
------------- ----------------
5,376,082 5,935,295
Less accumulated amortization (3,171,811) (3,076,883)
------------- ----------------
2,204,271 2,858,412
============= ================
</TABLE>
Goodwill net of amortization is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
<S> <C> <C>
$ $
Unimedia 1,674,695 2,138,468
TopCard 452,232 558,819
Pixel 53,965 78,986
------------- ---------------
2,180,892 2,776,273
============= ===============
</TABLE>
F-10
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
Property, plant and equipment consists of: 1999 1998
<S> <C> <C>
$ $
Fixtures, fittings and equipment 3,505,303 3,211,962
Less accumulated depreciation (2,420,050) (2,415,729)
---------------- ----------------
1,085,253 796,233
================ ================
</TABLE>
8. LOANS REPAYABLE WITHIN ONE YEAR
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
<S> <C> <C>
$ $
Instar Holdings Ltd. 100,000 2,000,000
Groupe AB, S.A. 977,339 3,120,000
Superstar Investments Ltd. 150,000 6,650,000
Fontal Ltd. - 200,000
Oradea - 500,000
Roland Pardo - 500,000
Interest and penalty interest accrued 32,244 1,367,442
---------------- ----------------
Related party loans 1,259,583 14,337,442
Sundry loans - 190,000
---------------- ----------------
1,259,583 14,527,442
================ ================
</TABLE>
The terms of the loans are:
The terms of Groupe AB and Superstar loans are detailed in Note 15 and 16.
Following the Stockholders meeting on October 22, 1999, which ratified the
agreements between the Company and MMP and Superstar, the majority of the loans
and accrued interest outstanding as at end October 1999, were converted into
equity (see Note 15). The loans outstanding at December 31, 1999 include
$977,339 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 1,127,339 shares of Common
Stock at an exercise price of $1.00 per share (see Note 16). An agreement to
settle the Instar Loan was signed on July 21, 1999 and completed in January
2000. See Note 16 for a description of the terms of the settlement of the Instar
Loan.
The Fontal loan was repaid on May 25, 1999.
The Oradca loan was repaid by July 1999.
The Roland Pardo loan was repaid by July 1999.
The sundry loans received in 1999 were in respect of equity subscriptions, and
following the Stockholders meeting held on October 22, 1999, they were converted
into equity.
F-11
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
9. DISCONTINUED OPERATIONS
TINERAMA
During 1998, the Company approved a decision to sell its interests in the
Romanian group of companies. Tinerama. The sale was for a nominal sum and the
transaction agreed in November 1999 and closed in February 2000. The results of
the Tinerama business in 1998 were reported separately as a discontinued
operation. At December 31, 1998, the total of $496,228 being net liabilities of
the discontinued operations was included in the consolidated balance sheet.
BLINK
In December 1999, the 50% interest in Blink was sold to RCL Communications Ltd.
the other joint investor for a nominal sum and the Company converted its
(pound)130,000 (approximately $200,000) of existing loans to Blink into new
redeemable equity equating to 19% of Blink. If successful in the future, Blink
will be obligated to repay the redeemable equity.
F-12
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
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 as required. Under the terms of the
agreement, the Company was committed to paying DM 180,000 ($92,000 at
December 31, 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
December 31, 1999 exchange rates).
The total rental expenses in 1999 and 1998, including transponders and
lease commitments as above, are $2,288,870 and $4,423,113,
respectively.
Groupe AB provides, 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 are provided by Groupe AB at an
annual cost of $3,120,000 (see Notes 15 and 16). The contract is to be
extended until December 31, 2001 on the same terms.
Minimum lease payments under operating lease as of December 31, 1999
are as follows:
Years ending December 31,
$
2000 2,267,000
2001 2,267,000
2002 267,000
2003 267,000
2004 and thereafter 317,000
---------------------
5,385,000
=====================
The Company is committed to pay to its directors and officers under
employment agreements an aggregate of $550,000 during the year ended
December 31, 2000.
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.
F-13
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
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.
1999 1998
$ $
Research and development costs 287,804 268,641
=========== =============
12. FINANCIAL INCOME (EXPENSE) NET
1999 1998
$ $
Interest expense (4,266,534) (1,284,417)
Foreign currency exchange gain/(losses) (4,713,791) 2,254,824
---------- ----------
(8,980,325) 970,407
========== ==========
The foreign currency exchange loss in 1999 and the 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
The income tax benefit consisted of the following:
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
Income tax benefit (57,527) (41,552)
============== =============
The income tax benefit, net, includes $49,327 of research and
development tax credit for TopCard.
Net operating loss carry forwards which give rise to deferred tax
assets at December 31, 1999 are as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
Deferred tax asset on unrealized losses 23,251,000 18,408,000
Timing differences 409,000 292,000
------------ ------------
Valuation allowances (23,660,000) (18,700,000)
------------ ------------
Total deferred tax assets - -
============ ============
F-14
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
The Company has significant deferred tax assets (approximately
$23,600,000) 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 1999, the management
forecast that the Company will not be profitable in 2000 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. Onyx maintained that the action taken
was lawful and in July 1998, the court ruled in favor of Onyx. The
plaintiff has appealed against the ruling and has claimed DM168,000
(US$86,000) in respect of 1997 salary. The court is now considering new
evidence put forward by Onyx and the next hearing is in April 2000.
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
($154,000), 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 in February 2000, Onyx
agreed to pay $120,000 in full settlement of the dispute.
Unimedia has three minority stockholders (Oradea, Roland Pardo and
Atlas (see Note 8)) who have 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 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). Unimedia complied with the French courts and
repaid the loans by July 1999.
F-15
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
15. CAPITAL STRUCTURE
COMMON STOCK PURCHASE WARRANTS
At the Stockholder's Meeting on October 22, 1999, the Stockholders approved a
reverse split of the Company's authorized capital 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
reflected completion of the reverse split on October 27, 1999.
The company has the following issued and vested warrants to purchase common
stock outstanding at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
December 31, December 31,
1999 Granted 1998
Description
- -----------
<S> <C> <C> <C>
Warrants for common stock
exercisable @ $40.00 * 633,914 113,914 520,000
Warrants for common stock
exercisable @ $31.25 * 51,119 7,787 43,332
Warrants for common stock
exercisable @ $25.0 * 129,767 19,767 110,000
Warrants for common stock
exercisable @ $1.00 3,537,339 3,537,339 --
============= ============== ============
4,352,139 3,678,807 673,332
============= ============== ============
</TABLE>
* registered with the SEC
All outstanding registered warrants expire on January 19, 2003, being 36 months
from the date of the effective registration of their underlying shares. The
warrants for $25.00, $31.125 and $40.00 were issued in connection with the
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 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, all
of which warrants expired at 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 were issued to a director for consulting services. The Company was
obligated to issue to the former Unimedia stockholders 113,914, 7,787 and 19,767
warrants to purchase shares of common stock at exercise prices of $40.00, $31,25
and $25.00 respectively.
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 Production, a company owned by two executive directors. This
grant was approved at the stockholders' meeting on October 22, 1999.
In May 1999, Groupe AB and Superstar made a loan to the Company in the aggregate
amount of $300,000 and in August 1999, Groupe AB made a loan to the Company in
the aggregate of $327,339. The loans are due in two years and carry interest at
the rate of 10% per annum. In connection with the loan, the Company granted
two-year warrants to purchase an aggregate of 627,339 shares of the Common Stock
at an exercise price of $1.00 per share.
In September 1999, Groupe AB provided to a bank a form of guaranty for half of a
DM3,000,000 (approximately $1.6 million) bank facility granted to Onyx
Television. In connection with the guaranty, the Company granted
F-16
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
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 that the bank guaranty 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.
In December 1999, Groupe AB made a loan to the Company in the amount of
$500,000. The loan is due in two years and carries interest at the rate of 10%
per annum. In connection with the loan, the Company granted a two- year warrant
to purchase 500,000 shares of the Common Stock at an exercise price of $1.00 per
share.
During 1998, Unimedia transferred 154,000 shares of Common Stock to Gralec
Establishment for an aggregate purchase price of $500,000. We have registered
the shares of Common Stock transferred to Gralec, pursuant to a registration
rights agreement. The Company, however, failed to register the Common Stock by
November 30, 1999 as required under the registration rights agreement. In order
to extend the period during which registration of the Common Stock could be
completed, the Board approved on December 29, 1999 to; (1) sell to Gralec
Establishment 220,000 shares of Common Stock for a purchase price equal to the
net proceeds from the sale of certain shares held by Unimedia (50,000 ActivCard
shares), and (2) grant Gralec Establishment an option to purchase 600,000 shares
of our authorized but issued Common Stock at an exercise price of $1.00 per
share for a period of eighteen months. On January 19, 2000 all shares and
options granted to Gralec were effectively registered and the eighteen month
exercise period will start on February 19, 2000.
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 will offer the warrant holders the right, for a period of 9
months, to exercise their warrants and receive two shares of Common Stock at an
exercise price of $3.00 per share with the exception of one of its warrant
holders, Auric Investments Limited ("Auric"). Auric will be given 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 of $2.00 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 NASD.
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.
<TABLE>
<CAPTION>
COMMON STOCK PURCHASE OPTIONS OUTSTANDING OUTSTANDING
AT DECEMBER AT DECEMBER
DESCRIPTION 31, 1999 GRANTED 31, 1998
<S> <C> <C>
Executive officers options exercisable @ $5.70 37,500 37,500
of which vested 30,000 22,500
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 159,998 80,000
Non-employee directors options exercisable @ $3.50 50,000 50,000
of which vested 50,000 50,000
Option to Diamond Production exercisable @ $1.00 - -- 1,600,000
------------- ------------- --------------
Total Exercisable 517,500 -- 2,117,500
------------- ------------- --------------
</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 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 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 was entitled to
receive options in each of the years 1996, 1997 and 1998 to purchase in
aggregate, 30,000 common shares of the Company at $25.00, the price at which
transactions were effected at the time. 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 of which common stock
was negotiated on the date of grant). On the same date, non-employee directors
were granted options to
F-17
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
purchase an aggregate of 50,000 shares at the same price. The option 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 at the Stockholders meeting on October 22, 1999. These are
now shown as "Warrants for Common Stock exercisable @ $1.00."
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, 1999 and 1998 are as
follows:
1999 1998
$ $
Proforma net loss
Basic and diluted (14,624,976) (10,767,547)
Pro forma net loss per share
Basic and diluted (1.90) ($2.69)
CONVERTIBLE DEBT
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 at that date (principal and interest accrued -
see below) were exercised and automatically converted into common stock (See
Note 1). The following shows the derivative securities outstanding as of
December 31, 1999.
<TABLE>
<CAPTION>
SHARES ISSUED
ON CONVERSION
SHARES FOLLOWING
CONVERSION ISSUABLE ON STOCKHOLDER'S
PAYEE $ PRICE ($) CONVERSION MEETING
- -------------------------------------- ------------ ------------------------------ ----------------
<S> <C> <C> <C>
Superstar Ventures Ltd. - 1.00 - 1,250,000
Superstar Ventures Ltd - 1.00 - 400,000
Groupe AB - 1.00 - 2,000,000
Superstar Ventures Ltd - 1.00 - 5,000,000
Groupe AB (1) - 1.00 - 3,720,000
Groupe AB - 1.00 - 5,578,416
Interest and penalty interest accrued - 1.00 - 4,649,839
------------- ------------ ---------------
- - 22,598,255
------------- ------------ ----------------
</TABLE>
(1) The debt is part of a convertible note under which Groupe AB is
providing 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 under this note are 6,640,000.
F-18
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
December 31, December 31,
BASIC EPS COMPUTATION 1999 1998
<S> <C> <C>
Net income of continuing operations (14,624,976) ($10,459,015)
---------------- ------------------
Net loss (14,624,976) ($10,767,547)
---------------- ------------------
Weighted Average Number of Shares 7,707,446 4,009,413
---------------- ------------------
Basic EPS Net loss of continuing operations ($1.90) ($2.61)
---------------- ------------------
Basic EPS Net loss including discontinued operations ($1.90) ($2.69)
---------------- ------------------
DILUTED EPS COMPUTATION
Weighted average shares 7,707,446 4,009,413
Warrants(1) - -
Convertible debt(1) - -
Board options - 1,869,998 vested in 1998 and 1999 - -
---------------- ------------------
7,707,446 4,009,413
---------------- ------------------
Diluted EPS Net Loss of Continuing Operations ($1.90) ($2.61)
---------------- ------------------
Diluted EPS Net Loss Including Discontinued Operations ($1.90) ($2.69)
---------------- ------------------
</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
$977,339 and $150,000 received from Groupe AB and
Superstar respectively, which are repayable in two years
and bear interest at 10% per annum, the Company has
granted the lenders a two year warrant to purchase
1,127,339 shares of Common Stock at an exercise price of
$1.00 per share. Groupe AB has also been granted a two
year warrant to purchase 810,000 shares of Common Stock
at an exercise price of $1.00 per share, for providing a
guarantee to a bank for a bank facility obtained by
Onyx.
F-19
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
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 1,200,000 shares of common stock, $.001 par value per
share, 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 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, $.001 par value per
share, at a purchase price of $5.70 per share.
On October 31, 1996, CM (UK) entered into an agreement to borrow up
to $2.0 million from Instar Holdings, Inc. ("Instar") to fund
working capital requirements ("the Instar loan"). The loan was
originally due for repayment on December 31, 1996 or such earlier
date as the Company raises additional funds to repay the loan. The
loan is guaranteed by the Company and Onyx, and is secured by a
change on 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 last amended in July 1998.
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. See Note
17.
On July 23, 1999, the Company settled the Instar Loan. Under the
terms of the settlement, the Company paid Instar $2.2 million and
200,000 shares of Common Stock, in full settlement of this loan,
$1.7 million being paid on the date of the agreement with balance
paid in instalments and was completed in January 2000. As part of
the 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
have been extinguished. (See Note 8). Additionally, the obligations
of Latitude Investments Ltd. to the Company (See Note 5) and the
Company to Universal in the amount paid to PTT Telecom under the
Universal guarantee has been 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, 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.
F-20
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
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 ("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, and $6.24 million over a two year period.
This funding was initially in the form of debt and that received as
at October 31, 1999 was 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 at the stockholders
meeting, held on October 22, 1999. (See Note 15).
On March 10, 1999, the Company entered into a new $6 Million
Convertible Promissory Note Agreement with AB to provide additional
funding for the Company's operations including $690,000, for the
purchase of certain technical equipment necessary to implement the
Service Agreement dated July 27, 1998; $3.1 million loaned in cash
and the balance of $2.2 million of the Note was utilized for the
settlement of the Instar loan. (See above). The Note bears interest
at the rate of 10% per annum, and was automatically converted into
the Company's Common Stock on the basis of one share of Common Stock
for each $1.00 of principal and interest. This funding was initially
in the form of debt and that received as at October 31, 1999 was
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 at the Stockholder's Meeting, held on October 22,
1999. (See Note 15). The balance of this Loan Note was received
after the Stockholder's Meeting and were converted into equity on
the same basis.
In May 1999, Groupe AB and Superstar made a loan to the Company in
the aggregate amount of $300,000. The loan was due in two years and
carries interest at the rate of 10% per annum. In connection with
the loan, the Company granted two-year warrants to purchase an
aggregate of 300,000 shares of the Common Stock at an exercise price
of $1.00 per share.
In August 1999, Groupe AB made a loan to the Company in the
aggregate of $327,339. In connection with the loan, the Company
granted a two-year warrant to purchase 327,339 shares of the Common
Stock at an exercise price of $1.00 per share.
The Company's Stockholders special meeting was held on October 22,
1999. The Stockholders approved the following resolutions: (i) a
reverse split of the Company's outstanding stock on a one for ten
basis; (ii) the terms of the financial arrangements between the
Company and Groupe AB, and between the Company and Superstar
Ventures; (iii) the grant of an option to an entity controlled by
the Company's Chairman and Chief Executive to purchase 1.6 million
post reverse split shares of the Company's common stock at an
exercise price of $1.00 per share; and additionally the stockholders
elected five directors.
Following the reverse split, in accordance with its financial
arrangements with Groupe AB and Superstar, the Company issued
22,598,255 post reverse split shares in conversion of $22,598,255 of
outstanding convertible debt, including $4,649,839 of accrued
interest. The Company also issued 788,999 additional shares in
conversion of $790,000 of certain sundry loans (see Note 8) and also
issued 345,000 additional shares 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 as described
above. In December 1999, Groupe AB received an additional 841,584
shares of Common Stock in consideration, for $400,000 for services
and $120,000 cash advances provided in November and December 1999
under the June 1998 $6.24 million agreement described above, and in
consideration for $200,000 paid in respect of the Instar Loan and
$121,584 for cash received. After all of these shares issuances, at
December 31, 1999 the Company has 28,583,251 shares of common stock
outstanding and Groupe AB's and Superstar's stock holding
represented 51.8% and 33%, respectively.
F-21
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
17. SEGMENT INFORMATION BY ACTIVITY AND GEOGRAPHIC AREA
Thefollowing financial information is summarized by business
segment and country.
- The television media segment contains the operations of
Onyx; and
- The technology segment contains the operations of Unimedia,
Pixel and Topcard.
Capital Media Group's activities are concentrated in Germany, France
and Israel (Revenues account for: 1999 - approximately 67%, 15%, and
18% respectively, to December 1998 - approximately 31%, 39% and 29%
respectively).
<TABLE>
<CAPTION>
Television Elimination &
Media Technology Corporate Total
($) ($) ($) ($)
YEAR ENDED DECEMBER 31, 1999
<S> <C> <C> <C>
Revenues 1,816,016 912,955 - 2,728,971
Inte-segment revenues - - - -
------------- ------------- ------------ --------------
Total revenues 1,816,016 912,955 - 2,728,971
(Losses) from operations (4,772,697) (348,131) (2,382,370) (7,503,198)
Other (expenses) income 27,837 104,275 1,676,783 1,808,895
Interest revenue 4,259 4,259
Interest expenses (85,224) (118,920) (4,066,649) (4,270,793)
Other financial income, net (3,622,693) 126,841 (1,217,939) (4,713,791)
Equity in net losses of affiliates (8,075) (8,075)
Income tax benefit 3,645 54,082 57,727
------------- ------------- ------------ --------------
Net loss (8,449,132) (185,669) (5,990,175) (14,624,976)
============= ============= ============ ==============
Total assets 670,591 2,247,572 2,166,930 5,085,093
============= ============= ============ ==============
Capital expenditure 633,643 - 9,223 642,866
============= ============= ============ ==============
Depreciation of fixed assets 274,360 111,843 12,944 399,147
============= ============= ============ ==============
</TABLE>
F-22
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
SEGMENT INFORMATION BY ACTIVITY AND GEOGRAPHIC AREA (CONTINUED)
<TABLE>
<CAPTION>
Television Elimination &
Media Technology Corporate Total
($) ($) ($) ($)
YEAR ENDED DECEMBER 31, 1998
<S> <C> <C> <C> <C>
Revenues 760,824 1,697,381 10,285 2,468,490
Inte-segment revenues -- -- -- --
------------- -------------- ------------ -------------
Total revenues 760,824 1,697,381 10,285 2,468,490
(Losses) from operations (7,480,286) (674,215) (2,698,237) (10,852,738)
Other (expenses) income 324,495 (348,240) (441,951) (465,696)
Interest revenue 0 10,752 0 10,752
Interest expenses (64,352) (169,086) (1,061,732) (1,295,170)
Other financial income, net 1,795,444 261,318 198,063 2,254,825
Equity in net losses of affiliates -- (74,000) (76,808) (150,808)
Loss in discontinued business -- -- (308,532) (308,532)
Income tax benefit/(change) (4,887) 47,774 (1,335) 41,552
Minority interest -- (1,732) -- (1,732)
------------- -------------- ------------ -------------
Net loss (5,429,586) (947,429) (4,390,532) (10,767,547)
============= ============== ============ =============
Total assets 1,066,965 2,385,586 3,156,091 6,608,642
============= ============== ============ =============
Capital expenditure 385,788 103,181 611 489,580
============= ============== ============ =============
Depreciation of fixed assets 135,355 288,123 17,008 440,486
============= ============== ============ ==============
</TABLE>
F-23
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
SEGMENT INFORMATION BY ACTIVITY AND GEOGRAPHIC AREA (CONTINUED)
<TABLE>
<CAPTION>
GERMANY FRANCE ISRAEL OTHER CORPORATE TOTAL
YEAR ENDED DECEMBER 31, 1999 ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C>
Revenues 1,816,016 428,955 484,000 2,728,971
Inter-segment revenues - - -
-------------- --------------- -------------- ---------------- -------------
Total revenues 1,816,016 428,955 484,000 2,728,971
(Losses ) Income from operations (4,772,597) (470,131) 122,000 (2,382,370 (7,503,198)
Other (expense) income 27,837 104,275 1,676,783 1,808,895
Interest revenue 4,259 4,259
Interest expenses (85,224) (20,920) (98,000) (4,066,649) (4,270,793)
Other financial income, net (3,622,693) 126,841 (1,217,939) (4,713,791)
Equity in net losses of affiliates (8,075) (8,075)
Income tax benefit 3,645 50,282 3,800 57,727
-------------- --------------- -------------- ---------------- -------------
Net (loss)/income (8,449,132) (205,394) 19,725 (5,990,175) (14,624,976)
============== =============== ============== ================ =============
Total assets 670,591 1,578,847 668,725 2,166,930 5,085,093
============== =============== ============== ================ =============
Capital expenditure 633,643 - - 9,223 642,866
============== =============== ============== ================ =============
Depreciation of fixed assets 274,360 64,843 47,000 12,944 399,147
============== =============== ============== ================ =============
GERMANY FRANCE ISRAEL OTHER CORPORATE TOTAL
YEAR ENDED DECEMBER 31, 1998 ($) ($) ($) ($) ($)
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)/income (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-24
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
18. RELATED PARTY TRANSACTIONS
In addition to the transactions described in Notes 5, 8, 10, 15 and
16, 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) 10,666 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 shareholder of the
Company, is a principal of Telor International Limited, which owns
49% of Tinerama Investment ("TIAG"). The other 51% of TIAG was sold
by the Company in 1999. Mr. Hauptmann is also a director of TIAG.
Mr. Stanley Hollander, a former 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, 34,666 shares of Common Stock and warrants
to purchase 34,666 and 78,125 shares of Common Stock at an exercise
price of $31.25 and $40.00, respectively. In April 1997, ICG
received 9,333 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 shareholder of the Company
is a principal of Falcon Management which loaned $335,000 to
Unimedia in 1995 and was repaid in 1998.
F-25
<PAGE>
Exhibit Index
Item No. Description
- ------- ------------
4.3 Amendment to Articles of Incorporation dated as of March 16, 2000
canceling the Series A Preferred Stock.
27.1 Financial Data Schedule.
EXHIBIT 4.3
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF
SERIES A PREFERRED STOCK
OF
CAPITAL MEDIA GROUP LIMITED
CAPITAL MEDIA GROUP LIMITED, a corporation organized and existing under
the General Corporation Law of the State of Nevada,
DOES HEREBY CERTIFY:
FIRST: The original designations, preferences and rights of the Series A
Preferred Stock of Capital Media Group Limited were as follows:
1. DESIGNATION AND AMOUNT. Of the 5,000,000 shares of Preferred Stock,
$.001 par value per share, authorized by ARTICLE IV of the Articles of
Incorporation, there is hereby designated a series of Preferred Stock
consisting of 5,000,000 shares to be designated "Series A Preferred
Stock" (the "Series A Preferred Stock").
2. RANKING. The Series A Preferred Stock shall rank senior to the
Common Stock.
3. VOTING RIGHTS. Except as otherwise provided herein or by law, each
holder of Series A Preferred Stock shall be entitled to one vote on
each matter which is brought up for a vote by the holders of the Common
Stock. The Series A Preferred Stock will vote as a single class with
the holders of the Common Stock on all matters brought to a vote by the
holders of the outstanding Common Stock. Except as required by law, the
Series A Preferred Stock will not vote as a separate class.
4. OTHER RIGHTS, PREFERENCES AND LIMITATIONS. In all other respects,
except as set forth below, each share of the Series A Preferred Stock
shall have the same rights and preferences
<PAGE>
as each share of Common Stock including, without limitation, upon
liquidation, dissolution or winding up of the affairs of the Company
and with respect to dividends; provided, however, that the Series A
Preferred Stock shall have a preference in that it shall receive its
ratable portion of any liquidating distribution or dividend before any
such amounts shall be paid to the holders of the Common Stock.
5. CONVERSION OF SERIES A PREFERRED STOCK.
a. If issued and outstanding at the time, each share of Series
A Preferred Stock shall be automatically converted, without
any further action by the Corporation, the holders of the
Series A Preferred Stock, the Board of Directors of the
Corporation, or any other person, into fully-paid and
non-assessable shares of Common Stock at the rate of one (1)
share of Common Stock for each share of outstanding Series A
Preferred Stock outstanding (as may be adjusted, the "Series A
Conversion Rate") upon the approval by the holders of Common
Stock (the "Stockholder Approval"),without regard to the vote
of the holders of Series A Preferred Stock, of an amendment to
the Corporation's Articles of Incorporation increasing the
number of authorized shares of Common Stock of the Corporation
by at least that number of shares of Common Stock into which
outstanding shares of Series A Preferred Stock is then
convertible (the "Conversion Date") and, in such event, until
certificates representing Series A Preferred Stock are duly
surrendered by holders thereof in exchange for Common Stock,
(A) such certificates shall be deemed to represent only the
equivalent number of shares of Common Stock and rights
appurtenant thereto
2
<PAGE>
into which such shares of Series A Preferred Stock have been
automatically converted, and (B) no Series A Preferred Stock
shall continue to be outstanding for any purpose.
The Series A Conversion Rate shall be subject to adjustment
from time to time in certain instances as hereinafter
provided. Each adjustment of the Series A Conversion Rate
shall be rounded to the nearest four decimal places. The
Series A Conversion Rate shall be subject to adjustment from
time to time as follows:
(i) If the Corporation shall at any time pay
a dividend or distribution on Common Stock
in Common Stock, subdivide its outstanding
shares of Common Stock into a larger number
of shares, or combine its outstanding shares
of Common Stock into a smaller number of
shares, the Series A Conversion Rate in
effect immediately prior thereto shall be
adjusted so that each share of Series A
Preferred Stock shall thereafter be
convertible into the number of shares of
Common Stock which the holder of a share of
Series A Preferred Stock would have been
entitled to receive after the happening of
any of the events described above had such
share been converted immediately prior to
the happening of such event. An adjustment
made pursuant to this subparagraph shall
become effective retroactively to the record
date in the case of a dividend and shall
3
<PAGE>
become effective on the effective date in
the case of subdivision or combination.
(ii) If the Corporation shall distribute to
all or substantially all holders of shares
of Common Stock any rights to subscribe for
Common Stock, then in each such case the
number of shares of Common Stock into which
each share of Series A Preferred Stock shall
thereafter be convertible shall be
determined by multiplying the number of
shares of Common Stock into which each share
of Series A Preferred Stock was theretofore
convertible on the day immediately preceding
the record date for the determination of the
stockholders entitled to receive such
distribution by a fraction, the numerator of
which shall be the average market price per
share of the Common Stock on such record
date, and the denominator of which shall be
such average market price per share less the
then fair market value (as determined in a
resolution adopted by the Board of Directors
of the Corporation) of such subscription
rights applicable to one share of Common
Stock. Such adjustment shall become
effective retroactively immediately after
such record date.
(iii) In case of any capital reorganization
or any reclassification of the capital stock
of the Corporation or in case of the
consolidation or merger of the Corporation
with another corporation or in the case of
4
<PAGE>
any sale or conveyance of all or
substantially all of the property of the
Corporation, each share of Series A
Preferred Stock shall thereafter be
convertible into the number of shares of
stock or other securities or property
(including cash) receivable upon such
capital reorganization, reclassification of
capital stock, consolidation, merger, sale
or conveyance, as the case may be, by a
holder of the number of shares of Common
Stock into which such share of Series A
Preferred Stock was convertible immediately
prior to such capital reorganization,
reclassification of capital stock,
consolidation, merger, sale or conveyance;
and, in any case, appropriate adjustment (as
determined by the Board of Directors) shall
be made in the application of the provisions
herein set forth with respect to rights and
interests thereafter of the holders of
Series A Preferred Stock to the end that the
provisions set forth herein (including the
specified changes in and other adjustments
of the Series A Conversion Rate) shall
thereafter be applicable, as nearly as may
be reasonably possible, in relation to any
shares of capital stock or other securities
or other property thereafter deliverable
upon the conversion into Common Stock of the
Series A Preferred Stock.
b. The Corporation shall, upon Stockholder Approval and the
filing of the appropriate Articles of Amendment formalizing
the increase in the number of authorized shares of Common
Stock, reserve and keep available out of its authorized
5
<PAGE>
and unissued Common Stock, solely for the purpose of effecting
the conversion of the Series A Preferred Stock as provided
herein, such number of shares as shall from time to time be
sufficient to effect the conversions of all shares of Series A
Preferred Stock from time to time outstanding.
c. Upon the conversion of Series A Preferred Stock, the holder
thereof shall promptly surrender the certificate or
certificates for such Series A Preferred Stock at the office
appointed as aforesaid, which certificate or certificates, if
the Corporation shall so request, shall be duly endorsed to
the Corporation or in blank, or accompanied by proper
instruments of transfer to the Corporation or in blank.
The Corporation will, as soon as practicable after such
surrender of certificates for Series A Preferred Stock, issue
and deliver at the office appointed as aforesaid, to the
person for whose account such Series A Preferred Stock was so
surrendered, certificates for the number of full shares of
Common Stock to which such person shall be entitled as
aforesaid, together with a cash adjustment for any fraction of
a share as hereinafter stated, if not evenly convertible.
Subject to the following provisions of this paragraph, such
conversion shall be deemed to have been made as of the
Conversion Date, as applicable, and the person or persons
entitled to receive the Common Stock issuable upon conversion
of such Series A Preferred Stock shall be treated for all
purposes as the record holder or holders of such Common Stock
on such date.
6
<PAGE>
d. No fractions of shares of Common Stock are to be issued
upon conversion, but in lieu thereof the Corporation will pay
therefor in cash a sum based on the fair market value of the
Common Stock, as determined by a resolution of the Board of
Directors.
SECOND: No Series A Preferred Stock of the Company has been issued.
THIRD: That, pursuant to the authority conferred upon the Board of Directors by
the Articles of Incorporation (as amended) of said corporation, and pursuant to
the provisions of Section 78.1955 of the General Corporation Law of the State of
Nevada, said Board of Directors, pursuant to a unanimous written consent dated
October 25, 1999, adopted resolutions providing for the cancellation of the
"Series A Preferred Stock", which resolutions are as follows:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of the Articles of
Incorporation and Section 78.1955 of the General Corporation Law of Nevada, the
Series A Preferred Stock of the Company be and hereby is canceled, and the
designation and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof, are no longer
effective.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed by its President and attested by its Secretary this 27th day of
October, 1999.
CAPITAL MEDIA GROUP LIMITED
By: /s/ GILLES ASSOULINE
---------------------------------
Gilles Assouline, President
ATTEST:
By: /s/ STEPHEN COLEMAN
-------------------------------
Stephen Coleman,
Chief Financial Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains Summary Financial Information extracted from the 1999
First Quarter Form 10-QSB and is qualified in its entirety by reference to such
Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 181,352
<SECURITIES> 0
<RECEIVABLES> 1,345,979
<ALLOWANCES> 68,122
<INVENTORY> 114,744
<CURRENT-ASSETS> 1,675,859
<PP&E> 1,085,253
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,085,093
<CURRENT-LIABILITIES> 6,710,275
<BONDS> 0
0
0
<COMMON> 2,027,659
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,085,093
<SALES> 2,728,971
<TOTAL-REVENUES> 2,728,971
<CGS> 0
<TOTAL-COSTS> 10,232,169
<OTHER-EXPENSES> (1,808,895)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,266,534)
<INCOME-PRETAX> (14,682,703)
<INCOME-TAX> (57,727)
<INCOME-CONTINUING> (14,624,976)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,624,976)
<EPS-BASIC> (1.90)
<EPS-DILUTED> (1.90)
</TABLE>
