SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _____________.
Commission File No. 0-21051
CAPITAL MEDIA GROUP LIMITED
------------------------------------------------------------------------
(exact name of small business issuer in its charter)
Nevada 87-0453100
----------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 rue du Nouveau Bercy
94220, Charenton, France
----------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter periods that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES _x_ NO __
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of May 31, 2000,
there were 29,553,251 shares of the Common Stock issued and outstanding.
Transitional Small Business Disclosure Format. YES __ NO _X_
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited financial statements for the quarter covered by this report are
attached hereto in accordance with item 310(b) of Regulation S-B.
<TABLE>
<CAPTION>
Index to Financial Statements
<S> <C>
Consolidated Balance Sheet at March 31, 2000 (unaudited) and December 31, 1999....................................3
Unaudited Consolidated Statement of Operations for
the three months ended March 31, 2000 and 1999 ..............................................................4
Unaudited Consolidated Statement of Changes in Stockholders' Equity for
the three months ended March 31, 2000 and the year ended December 31, 1999...................................5
Unaudited Consolidated Statement of Cash Flows for the three months ended March 31, 2000 and 1999 ................6
Notes to Unaudited Consolidated Financial Statements..............................................................7
</TABLE>
2
<PAGE>
CAPITAL MEDIA GROUP LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
Note March 31, December 31,
2000 1999
<S> <C> <C> <C>
ASSETS -Unaudited-
Cash and cash equivalents $ 418,763 $ 181,352
Accounts receivable trade, net of allowances
for doubtful accounts of $0 3 1,016,007 1,345,979
(December 31, 1999 - $28,234)
Inventories, net 152,720 114,744
Prepaid expenses and deposits 41,207 33,784
------------ ------------
TOTAL CURRENT ASSETS 1,628,697 1,675,859
Investments 6,975 6,985
Equity in affiliated companies 101,800 112,725
Intangible assets, net of accumulated amortization of
$3,305,509 (December 31, 1999 - $3,171,811) 4 2,051,608 2,204,271
Property, plant and equipment, net 5 1,017,970 1,085,253
------------ ------------
TOTAL ASSETS $ 4,807,050 $ 5,085,093
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 2,042,096 $ 2,223,375
Accrued expenses 1,425,686 1,620,310
Related parties loans repayable within one year 6 3,266,457 1,259,583
Bank debt due within one year 745,236 1,607,007
------------ ------------
TOTAL LIABILITIES 7,479,475 6,710,275
COMMITMENTS AND CONTINGENCIES - -
MINORITY INTEREST IN SUBSIDIARIES 402,477 402,477
------------ ------------
7,881,952 7,112,752
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - 50,000,000 shares authorized:
$0.001 par value 29,553,251 (December 31, 1999 -
28,583,251) issued and outstanding, 1-13 29,550 28,580
Additional paid in capital 56,740,288 55,771,258
166,791 shares held by subsidiary (December 31, 1999 -
166,791) at cost (950,712) (950,712)
------------ ------------
55,819,126 54,849,126
Cumulative translation adjustment 6,677,735 5,986,265
Accumulated deficit (65,571,763) (62,863,050)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (3,074,902) (2,027,659)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,807,050 $ 5,085,093
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
3
<PAGE>
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended March 31, 2000
<TABLE>
<CAPTION>
3 months ended 3 months ended
March 31, March 31,
2000 1999
(Unaudited) (Unaudited)
Note
<S> <C> <C>
Operating revenue $ 834,414 $ 584,892
Operating costs
Staff costs 657,889 611,525
Depreciation and amortization 225,604 221,655
Other operating expenses 1,748,656 1,612,858
----------- -----------
(2,632,149) (2,446,038)
Operating loss (1,797,735) (1,861,146)
Other (expense) (44,470) (11,088)
Financial (expense) 10
Interest payable (105,561) (2,494,553)
Foreign exchange (loss) (749,720) (816,076)
Equity in net loss of affiliates (10,925) (55,437)
----------- -----------
Loss from continuing operations before taxation (2,708,411) (5,238,300)
Income tax benefit (expense) (302) (121)
----------- -----------
(2,708,713) (5,238,421)
Discontinued operations:
Net loss from operation of discontinued
subsidiary -- (1,700)
Minority interest -- (2,005)
----------- -----------
Net loss $(2,708,713) $(5,242,126)
=========== ===========
Net loss per share for continuing operations
- basic $ (0.09) $ (1.31)
=========== ===========
- diluted $ (0.09) $ (1.31)
=========== ===========
Net loss per share including discontinued operations
- basic $ (0.09) $ (1.31)
=========== ===========
- diluted $ (0.09) $ (1.31)
=========== ===========
Weighted average shares - basic 28,725,695 4,009,413
=========== ===========
Weighted average shares -diluted 28,725,695 4,009,413
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the three months ended March 31, 2000 and the year ended December 31, 1999
<TABLE>
<CAPTION>
Cumulative
Shares Additional other
held by paid-in comprehensive Accumulated Total
Common stock subsidiary capital income(deficit) deficit
Shares $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 2000 28,583,251 28,580 (950,712) 55,771,258 5,986,265 (62,863,050) (2,027,659)
Shares Issued 970,000 970 - 969,030 970,000
Translation adjustment 691,470 691,470
Net loss - - - - (2,708,713) (2,708,713)
-----------
Comprehensive loss (2,017,243)
---------- ------ --------- ---------- --------- ------------ -----------
Balance at
March 31, 2000 29,553,251 29,550 (950,712) 56,740,288 6,677,735 (65,571,763) (3,074,902)
========== ====== ========= ========== ========= ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Shares Additional Other
Common Stock held by paid-in comprehensive Accumulated Total
subsidiary capital income(deficit) deficit
Shares $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1999 40,094,139 40,090 (950,712) 31,155,909 756,406 (48,238,074) (17,236,381)
Adjustment for
reverse split (see (36,084,726) (36,081) 36,081
Note 1)
---------- ------ --------- ------------- --------- ------------ ------------
Balance at
January 1, 1999 4,009,413 4,009 (950,712) 31,191,990 756,406 (48,238,074) (17,236,381)
adjusted
Shares Issued 24,537,838 24,571 - 24,669,268 - - 24,693,839
Commissions Paid - - - (90,000) - - (90,000)
Translation adjustment - - - - 2,879,580 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>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
UNAUDITED CONSOLIDATED STATEMENT OF CASHFLOWS
For the three months ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
3 months ended 3 months ended
March 31, March 31,
2000 1999
$ $
<S> <C> <C>
Cash flows from operating activities
Net loss (2,708,713) (5,242,126)
Adjustment to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 225,604 221,655
Other income arising from disposal of investments -- 55,437
Equity in net losses of affiliates and minority interests 10,925 2,005
Changes in assets and liabilities :
(Increase) / decrease in other assets and inventories (45,148) 13,982
Decrease / (increase) in accounts receivable 329,972 (14,632)
(Decrease) / increase in accrued expenses and other liabilities (329,028) 325,945
------------- -------------
Net cash used in operations (2,516,388) (4,637,734)
------------- -------------
Cash flows from investing activities
Acquisition of plant and equipment (5,900) (800,000)
------------- -------------
Net cash (used) in investing activities (5,900) (800,000)
------------- -------------
Cash flows from financing activities
Increase in short term debt 1,960,000 2,934,000
Repayment of loans -- (600,000)
Issuance of shares 970,000 --
------------- -------------
Net cash provided by financing activities 2,930,000 2,334,000
------------- -------------
Effect of exchange rate changes on cash 691,470 2,879,580
------------- -------------
Net (decrease) / increase in cash and cash equivalents 1,099,182 (224,154)
Cash and cash equivalents at beginning of period (1,425,655) 583,320
------------- -------------
Net (debt) / cash and cash equivalents at end of period (326,473) 359,166
============= =============
Supplemental data:
Interest paid 58,687 7,976
Income tax paid 302 121
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements are prepared in
conformity with generally accepted accounting principles in the United
States of America.
Principles of consolidation
The unaudited consolidated financial statements include the accounts of
Capital Media Group Limited ("the Company") and its wholly owned
subsidiaries, Capital Media (UK) Limited ("CM(UK)"), and Onyx Television
GmbH ("Onyx"), together with the Company's 81.6% owned subsidiary
Unimedia SA ("Unimedia") and Unimedia's wholly owned subsidiary, Pixel
Limited ("Pixel"), and its 90% owned subsidiary TopCard SA ("TopCard").
All inter company 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.
Tinerama Investment AG ("Tinerama"), a 51% owned subsidiary, was sold in
December 1999 (See Note 7). CM(UK)'s 50% interest in Blink TV Limited
("Blink") was sold in December 1999. Neither of these former investments
is consolidated.
Interim Adjustments
The consolidated financial statements as of, and for the periods ended
March 31, 2000 and March 31, 1999, are unaudited. The interim financial
statements reflect all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of management, necessary for a fair
statement of the results for the interim period presented. The results of
operations for the interim periods should not be considered indicative of
results expected for the full year.
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 is stated net of the related accumulated
amortization. Computer software is amortized in the year of 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. An impairment
loss would be computed based upon the amount by which the carrying amount
of the assets exceeds its fair value at any evaluation date.
Property, plant and equipment
Property, plant and equipment are all stated at cost. Depreciation is
recorded on a straight-line basis over the estimated useful lives of the
assets as shown below:
Fixtures, fittings and equipment 5 to 20 years
Foreign Currency
Assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates. Income statement items are
translated at the average rate for the period. The effects of these
translation adjustments are reported in a separate component of
stockholders' equity. Exchange gains and losses arising from transactions
denominated in a currency other than the functional currency of the
entity involved are included in net income.
7
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
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 and services are delivered and when
advertisements are broadcast and thereby invoiced to the customer.
Intercompany charges are eliminated on consolidation and not included in
revenues.
Research and development costs
Research and development costs are charged to expense as incurred.
Earnings per share
Basic income per share is calculated on the basis of weighted average
outstanding shares. Diluted income per share is computed on the basis of
weighted average outstanding common shares, plus potential common shares
assuming exercised stock options and conversion of outstanding
convertible securities where issued. The computation of earnings per
share does not assume exercise of the warrants or options if they would
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, insurance company and other long-term financing at December 31,
1999 and March 31, 2000 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.
Reclassification and Restatement
On October 27, 1999, the Company effected a reverse split of its
outstanding common stock on a one share for ten share basis, with 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.
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") and (iii) the grant of an option to an
entity controlled
8
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
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.
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 13). At March 31,
2000, the Company has 29,553,251 shares of common stock outstanding.
9
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000
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 three months ended March 31,
2000 and the year ended December 31, 1999, the Company incurred net
losses of $2,708,713 and $14,224,976 respectively.
At March 31, 2000, the Company had net current liabilities of $5,850,778
and its total liabilities exceeded its total assets by $3,074,902. These
factors among others may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of the recorded asset 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 cash flow positive and profitable operations.
3. ACCOUNTS RECEIVABLE
March 31, December 31,
1999 1999
$ $
Accounts receivable comprise:
Trade receivables 455,134 500,954
Taxation receivables 45,657 37,654
Other debtors receivable 515,216 807,371
----------- -----------
1,016,007 1,345,979
=========== ===========
10
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
4. INTANGIBLE ASSETS
March 31, December 31,
2000 1999
$ $
Purchase broadcast licenses 239,295 241,755
Computer Software 552,626 569,131
Goodwill 4,565,196 4,565,196
------------ -------------
5,357,117 5,376,082
Less accumulated amortization (3,305,509) (3,171,811)
------------ -------------
2,051,608 2,204,271
============ =============
Goodwill net of amortization is as follows:
March 31, December 31,
2000 1999
$ $
Unimedia 1,559,382 1,674,695
TopCard 423,328 452,232
Pixel 49,338 53,965
------------ -------------
2,032,048 2,180,892
============ =============
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of: March 31, December 31,
2000 1999
$ $
Fixtures, fittings and equipment 3,454,709 3,505,303
Less accumulated depreciation (2,436,739) (2,420,050)
------------ -------------
1,017,970 1,085,253
============ =============
11
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
6. LOANS REPAYABLE WITHIN ONE YEAR
March 31, December 31,
2000 1999
$ $
Instar Holdings Ltd - 100,000
Groupe AB, S.A. 2,537,339 977,339
Superstar Investments Ltd 650,000 150,000
Interest accrued 79,118 32,244
--------- ---------
Related party loans 3,266,457 1,259,583
========= =========
The terms of the loans are:
The terms of Groupe AB and Superstar loans are detailed in Note 13.
7. DISCONTINUED OPERATIONS AND DIVESTMENTS
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 was agreed to in November 1999 and concluded in February 2000. The
results of the Tinerama business in 1999 were reported separately as a
discontinued operation.
BLINK
In December 1999, the Company's 50% interest in Blink was sold to RCL
Communications Ltd, the other joint investor for a nominal sum and existing
loans of (pound)130,000 (approximately $200,000) were converted into new
redeemable equity equating to approximately 19% of Blink. If successful in the
future, Blink will be obligated to repay the redeemable equity.
12
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments
In October 1999, the Company entered into a monthly agreement to lease
offices, as well as the use of studio, post production and editing
facilities in Cologne, Germany. Under the terms of the office agreement
the Company is committed to paying DM 180,000 ($90,000 at March 31, 2000
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 March
31, 2000 exchange rates).
Group AB provides, under the terms of a two year service agreement which
commenced October 1, 1998, broadcasting facilities for Onyx, comprising
of the uplink, master control, and satellite transponder broadcasting and
cable transmission contribution, at an annual cost of $3,120,000
The total rental expense in 1999, including transponders and
lease commitments as above, is $2,288,870.
Minimum lease payments under operating leases as of March 31, 2000 are as
follows:
Years ending December 31,
2000 $2,607,000
2001 267,000
2002 267,000
2003 267,000
2004 and thereafter 317,000
----------
$3,725,000
==========
The Company is committed to pay to its directors 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.
9. 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.
March 31, March 31,
2000 1999
$ $
Research and development costs 53,695 61,296
========== ==========
13
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
10. FINANCIAL EXPENSE
3 months ended 3 months
March 31, ended
2000 March 31,
$ 1999
$
Interest expense (105,561) (816,076)
Foreign currency exchange (loss) (749,720) (2,494,553)
------------- -----------
(855,281) (3,310,629)
============= ===========
The foreign currency exchange loss in 2000 and in 1999 arose primarily from the
exchange differences arising in the inter-company loan between CM(UK) and Onyx
recorded in pounds sterling and German Marks, respectively.
11. INCOME TAXES
Net operating loss carry forwards which give rise to deferred tax assets
at March 31, 2000 are as follows:
March 31, December 31,
2000 1999
$ $
Deferred tax asset on unrealized tax losses 23,758,000 23,251,000
Timing differences - 409,000
------------- -----------
Valuation allowances (23,758,000) (23,660,000)
------------- -----------
Total deferred tax assets - -
============= ===========
The Company has significant deferred tax assets (approximately
$21,500,000) 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
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
12. 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 favour of Onyx. The plaintiff appealed
against the ruling and has claimed DM168,000 (US$86,000) in respect of
his 1997 salary. The court is currently considering new evidence put
forward by Onyx at the last hearing 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 judgement against Onyx for DM300,000
($154,000), plus interest, relating to services which TV Strategies
alleged that they provided to Onyx. In March 1999, the default judgement
was set aside by the Texas Appeals Court and in February 2000, Onyx
agreed to pay $120,000 to TV Strategies in full settlement of the
dispute.
Unimedia has filed a court action against two of its shareholder's
(Oradea and Pardo) for damages which it believes have been caused by
reason of their inappropriate action against Unimedia. Oradea, its
stockholder Ludolo and Pardo have recently commenced actions through the
court 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, seeking $1.0 million in the aggregate. While
Unimedia and the Company are not a party to the suit, they have
indemnified Mr. Assouline for any liability as to which he may be
subject. The Company believes that Mr. Assouline has valid defenses to
this claim. However, there can be no assurance as to the outcome of the
matter.
15
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
13. CAPITAL STRUCTURE
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 March 31, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
Description March 31, Granted December 31,
2000 1999
<S> <C> <C> <C>
Warrants for common stock
exercisable at $40.00 633,914 633,914
Warrants for common stock
exercisable at $31.25 51,119 51,119
Warrants for common stock
exercisable at $25.00 129,767 129,767
Warrants for common stock
exercisable at $1.00 7,187,339 3,650,000 3,537,339
-------------------------------------------------------------
8,002,139 3,650,000 4,352,139
=============================================================
</TABLE>
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, $31.25 and $40.00 were issued in
connection with a Private Placement Offering ("the Offering") which took
place in December 1995 and January 1996. Warrants to purchase 420,000 and
100,000 shares of common stock at exercise prices of $40.00 and $25.00 per
share were issued to investors in the Offering. In September 1996, 10,000
shares and warrants to purchase an additional 10,000 shares at an exercise
prices 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 million (approximately $1.6 million) bank facility granted
to Onyx Television. In connection with the guaranty, the Company granted
Groupe AB a two year warrant to purchase 810,000 shares of Common Stock at
an exercise price of $1.00 per share. In the event 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: (1) the sale to Gralec of 220,000 shares for the net proceeds from
the sale of certain shares held by Unimedia (50,000 ActivCard shares), and
(2) the grant of an option to Gralec to purchase 600,000 shares of the
Company's authorized but issued Common Stock at an exercise price of $1.00
per share for a period of nine months. On January 19, 2000 all shares and
options granted to Gralec were effectively registered and the nine month
exercise period will start on February 19, 2000.
In January 2000, the Company granted two year warrants to purchase
1,650,000 shares at an exercise price of $1.00 per share. These warrants
were granted to staff members for 250,000; to Jean Francois Klein for
650,000; to David Ho for 250,000 and to Gilles and Michel Assouline for
250,000 each. These warrants were converted in March 2000 into warrants to
purchase Company common stock at a purchase price of $1.00 per share
exercisable from March 17, 2000 until a three year period following the
effective registration of all warrants.
In January 2000, Groupe AB and Superstar made loans to the Company in the
aggregate of $1,000,000. 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 a two-year warrant to purchase 1,000,000 shares of the Common
Stock at an exercise price of $1.00 per share.
In March 2000, Groupe AB loaned the Company an additional $1,000,000 for
working capital. 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 1,000,000 shares of the Common Stock at an
exercise price of $1.00 per share.
16
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
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.
COMMON STOCK PURCHASE OPTIONS
<TABLE>
<CAPTION>
Description Outstanding at Granted Outstanding at
March 31, December 31,
2000 1999
<S> <C> <C> <C>
Options granted to Gralec Establishment
exercisable @ $1.00 600,000 600,000 --
Executive officers options exercisable @ $5.70 37,500 37,500
of which vested 30,000 30,000
Officers options exercisable @ $25.00 30,000 30,000
of which vested 30,000 30,000
Executive officers options exercisable @ $3.50 400,000 79,998 400,000
of which vested 239,996 159,998
Non-employee directors options exercisable @ $3.50 50,000 50,000
of which vested 50,000 50,000
----------------- -------------- --------------------
Total exercisable 1,117,500 679,998 517,500
================= ============== ====================
</TABLE>
On August 1, 1997, the Company entered into three year employment
agreements with the executive officers providing for them to receive in
addition to other 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 that 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 agreement 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 per share, 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
at which common stock was negotiated on the date of grant). On the same
date, non-employee directors were granted options to purchase an aggregate
of 50,000 shares at the same price. The options vested to executive
officers, 20,000 each in 1998, with the balance over 3 years, and to
non-employee directors immediately. The options are valid for 5 years and
expire on March 10, 2003.
ISSUANCE OF COMPANY SHARES
In March 2000, the Company's management proposed to invest up to $9.65
million dollars in exchange for up to 6.5 million shares of the Company's
authorized but unissued common stock as detailed below:
<TABLE>
<CAPTION>
Purchase price Gilles Assouline Michel Assouline Jean-Francois Klein David Ho Total
-------------- ---------------- ---------------- ------------------- -------- -----
<S> <C> <C> <C> <C> <C>
$1.00 per share 750,000 1,100,000 750,000 750,000 3,350,000
$1.50 per share 250,000 300,000 250,000 250,000 1,050,000
$2.00 per share 250,000 300,000 250,000 250,000 1,050,000
$2.50 per share 250,000 300,000 250,000 250,000 1,050,000
--------- --------- --------- --------- ---------
Total 1,500,000 2,000,000 1,500,000 1,500,000 6,500,000
========= ========= ========= ========= =========
</TABLE>
The terms and conditions of this proposed share issuance were recommended
by the audit committee on March 17, 2000. In concluding this price to be
the fair value for the shares, the audit committee took into consideration
the level of funding of the Company required until the end of 2000 and the
poor level of trading activity of the Company's shares on the market
(making, in their view, the market price of the Common Stock unreliable as
a factor in determining value). The audit committee further considered the
placement of new issued shares under similar terms and conditions in favor
of the non-affiliate shareholders of the Company and recommended this be
done in the future. The Board intends that such a placement will be
proposed during the next shareholder's meeting.
PRO FORMA NET LOSS AND NET LOSS PER SHARE
The Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation" and, as permitted under SFAS
No.123 applies Accounting Principles Board Opinion ("APB") 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
17
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
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 three months
ended March 31, 2000 and 1999 are as follows:
March 31, 2000 March 31, 1999
$ $
Pro forma net loss
Basic and diluted (2,708,713) (5,242,126)
Pro forma net loss per share
Basic and diluted ($0.09) ($1.31)
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
derivative securities outstanding as at December 31, 1999.
<TABLE>
<CAPTION>
PAYEE $ Conversion Shares Shares
Price issuable on issued on
($) conversion conversion
following
Stockholder's
Meeting
<S> <C> <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) 60,000 1.00 60,000 3,720,000
Groupe AB (2) 1.00 5,578,416
Interest and penalty interest accrued 1.00 4,649,839
------------- -------------------------------
60,000 60,000 22,598,255
============= =================================
<FN>
(1) The debt is part of a convertible note under which Groupe AB is providing services and cash advances
with a value of $6,640,000 over 2 years. See Note 8 - 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.
</FN>
</TABLE>
18
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
<TABLE>
<CAPTION>
BASIC EPS COMPUTATION
March 31, March 31,
2000 1999
------------------ ------------------
<S> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net loss of continuing operations (2,708,713) ($5,240,426)
------------------ ------------------
Net loss (2,708,713) ($5,242,126)
------------------ ------------------
Weighted Average number of Shares 28,725,695 4,009,413
------------------ ------------------
Basic EPS Net loss of continuing operations ($0.09) ($1.31)
------------------ ------------------
Basic EPS Net loss including discontinued operations ($0.09) ($1.31)
------------------ ------------------
DILUTED EPS COMPUTATION
Weighted average shares 28,725,695 4,009,413
Warrants (1) - -
Convertible debt - 60,000 shares (1) - -
Board options - 1,949,996 vested in 1998 and 1999 - -
------------------ ------------------
------------------ ------------------
Diluted EPS Net loss of continuing operations ($0.09) ($1.31)
------------------ ------------------
Diluted EPS Net loss including discontinued operations ($0.09) ($1.31)
------------------ ------------------
<FN>
(1) The computation does not assume exercise of the warrants or options since it would have an antidilutive
effect on earnings per share. In addition to the above, loans of $477,339 and $150,000 received from
Groupe AB and Superstar respectively, are repayable in two years and bear interest at 10% per annum.
The Company has granted the lenders a two year warrant to purchase 627,339 shares of Common Stock at an
exercise price of $1.00 per share.
</FN>
</TABLE>
14. 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.
19
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
On June 16, 1998, the Company entered into two Memorandum of
Understanding Agreements ("MOU") with Groupe AB ("AB") and Superstar to
continue to fund the Company's operations. These new Agreements were to
provide up to $11.64 million in funding, $5.4 million in the form of cash
investment to be infused over a one year period and $6.24 million through
providing operating services to the Company over a period of two years.
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 13)
On March 10, 1999, the Company entered into a $6 Million Convertible
Promissory Note Agreement with AB to provide 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.
20
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
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 789,999 additional shares in conversion of $790,000 of
certain sundry loans (see Note 8) and also issued 344,000 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 13). 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.
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.
In January 2000, Groupe AB and Superstar made loans to the Company in the
aggregate of $1,000,000. The loans are due in two years and carry
interest at the rate of 10% per annum. In connection with the loans, the
Company granted a two-year warrant to purchase 1,000,000 shares of the
Common Stock at an exercise price of $1.00 per share.
In March 2000, Groupe AB loaned the Company an additional $1,000,000 for
working capital. 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 1,000,000 shares of the Common Stock at an
exercise price of $1.00 per share.
15. SEGMENT INFORMATION BY ACTIVITY AND GEOGRAPHIC AREA
The following financial information is summarized by business segment and
country.
- The television media segment contains the operations of Onyx; and
- The technology segment contains the operations of Unimedia, Pixel and
TopCard.
Capital Media Group's activities are concentrated in Germany, France and
Israel (Revenues account for: to March 2000 - approximately 78%, 10% and
12%, respectively, to March 1999 - approximately 56%, 24% and 20%,
respectively.
21
<PAGE>
CAPITAL MEDIA GROUP LIMITED
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
Elimination
Television &
Media Technology Corporate Total
<S> <C> <C> <C> <C>
Revenues 633,605 180,809 -- 834,414
Inter-segment revenues -- -- -- --
---------- ---------- ---------- ----------
Total Revenues 633,605 180,809 -- 834,414
Income (losses) from operations (1,137,361) (112,260) (548,114) (1,797,735)
Other income (expense) 56,792 (101,262) -- (44,470)
Interest expenses (27,235) (31,452) (46,874) (105,561)
Other financial income (expense), net -- 46,712 (703,008) (749,720)
Equity in net losses of affiliates -- (10,925) -- (10,925)
Income tax benefit (54) (248) -- (302)
---------- ---------- ---------- ----------
Net Loss (1,107,858) (302,859) (1,297,996) (2,708,713)
========== ========== ========== ==========
Total assets 991,597 2,271,325 1,544,128 4,807,050
========== ========== ========== ==========
Capital expenditure 5,900 -- -- 5,900
========== ========== ========== ==========
Depreciation of fixed assets 61,190 10,770 1,223 73,183
========== ========== ========== ==========
<CAPTION>
Other
Germany France Israel Corporate Total
<S> <C> <C> <C> <C>
Revenues 653,605 83,809 97,000 834,414
---------- ---------- ---------- ---------- ----------
Inter-segment revenues
Total Revenues 653,605 83,809 97,000 -- 834,414
Income (losses) from operations (1,137,361) (138,260) 26,000 (548,114) (1,797,735)
Other income (expense) 56,792 101,262) (17,000) -- (61,470)
Interest expenses (27,235) (14,452) -- (46,874) (88,561)
Other financial income (expense), net -- (46,712) -- (703,008) (749,720)
Equity in net losses of affiliates -- -- (10,925) -- (10,925)
Income tax benefit (54) (248) -- -- (302)
---------- ---------- ---------- ---------- ----------
Net Loss (1,107,858) (300,934) (1,925) (1,297,996) (2,708,713)
========== ========== ========== ========== ==========
Total assets 991,397 1,685,725 585,800 1,544,128 4,807,050
========== ========== ========== ========== ==========
Capital expenditure 5,900 -- -- -- 5,900
========== ========== ========== ========== ==========
Depreciation of fixed assets 61,190 10,770 -- 1,223 73,183
========== ========== ========== ========== ==========
</TABLE>
22
<PAGE>
CAPITAL MEDIA GROUP LIMITED
<TABLE>
<CAPTION>
Elimination
Television &
Media Technology Corporate Total
<S> <C> <C> <C> <C>
Three months ended March 31, 1999
Revenues 326,192 258,700 -- 584,892
Inter-segment revenues -- -- -- --
---------- ---------- ---------- ----------
Total revenues 326,192 258,700 -- 584,892
Income (losses) from operations (1,218,869) (55,568) (586,709) (1,861,146)
Other income (expenses) 10,244 (21,332) -- (11,088)
Interest revenue -- 8,291 -- 8,291
Interest expense (9,395) (17,971) (797,001) (824,367)
Other financial income (expense), net (1,410,090) 38,649 (1,123,112) (2,494,553)
Equity in net losses of affiliates -- (8,299) (47,138) (55,437)
Loss in discontinued business -- -- (1,700) (1,700)
Income tax benefit (121) -- -- (121)
Minority interest -- (2,005) -- (2,005)
---------- ---------- ---------- ----------
Net loss (2,628,231) (58,235) (2,555,660) (5,242,126)
========== ========== ========== ==========
Total assets 1,921,868 3,822,932 1,192,432 6,937,232
========== ========== ========== ==========
Capital expenditure 800,000 0 0 800,000
========== ========== ========== ==========
Depreciation of fixed assets 65,331 38,564 3,425 107,300
========== ========== ========== ==========
Other
Germany France Israel Corporate Total
<CAPTION>
<S> <C> <C> <C> <C>
Revenue 326,192 140,924 117,776 -- 584,892
Inter-segment revenues -- -- -- --
---------- ---------- ---------- ---------- ----------
Total revenue 326,192 140,924 117,776 584,892
Income (losses) from operations (1,218,869) (101,121) 45,553 (586,709) (1,861,146)
Other income (expense) 10,244 (21,332) -- -- (11,088)
Interest revenue -- -- 8,291 -- 8,291
Interest expenses (9,395) (17,971) -- (797,001) (824,367)
Other financial income (expense), (1,410,090) 38,649 -- (1,123,112) (2,494,553)
net
Equity in net losses of affiliates -- (8,299) (47,138) (55,437)
Loss in discontinued business -- -- -- (1,700) (1,700)
Income tax benefit (121) -- -- (121)
Minority interest -- (2,005) -- -- (2,005)
---------- ---------- ---------- ---------- ----------
Net loss (2,628,231) (103,780) 45,545 (2,555,660) (5,242,126)
========== ========== ========== ========== ==========
Total assets 1,921,868 3,116,295 706,637 1,192,432 6,937,232
========== ========== ========== ========== ==========
Capital expenditure 800,000 -- -- -- 800,00
========== ========== ========== ========== ==========
Depreciation of fixed assets 65,311 33,314 5,250 3,425 107,300
========== ========== ========== ========== ==========
</TABLE>
23
<PAGE>
CAPITAL MEDIA GROUP LIMITED
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
16. RELATED PARTY TRANSACTIONS
See Notes 6, 8, 13 and 14, for information regarding related party
transactions.
24
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The financial information included herein should be read in conjunction
with the consolidated financial statements, including the notes thereto,
included elsewhere in this Form 10-QSB. Certain of the data contained herein
includes forward looking information and results could differ from that set
forth below. This discussion and analysis should be read in conjunction with the
information contained in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999 (the "Form 10-K").
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, the Company 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). The Company also issued a
substantial number of warrants to purchase shares of common stock at $1.00 per
share. During 2000, the Company issued additional warrants at $1.00 per share
and granted a subscription at prices starting at $1.00 per share. The Company's
Board, when determining to issue this debt and to issue these warrants and this
subscription, concluded that the conversion price of such debt (and the exercise
price of these warrants and the subscription price of this subscription) was the
fair value of the Company's common stock at the date of grant. While the
Company's common stock is quoted on the Bulletin Board maintained by the NASD,
there is currently only a limited market for the common stock, and no opinion on
the valuation of the Company's common stock has been obtained from a third
party. While the Company believes that the fair value of its shares was equal to
the price at which it issued convertible debt, as well as the exercise price of
the warrants and the subscription, if it were to be later determined that the
fair value of its common stock on the date of these transactions was greater
than $1.00 per share when such convertible debt (and such warrants and
subscription) were issued, the difference between the fair market value of such
shares and $1.00 per share would be a charge against our operations.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
Operating revenues for the three months ended March 31, 2000 were $0.83
million, an increase of $0.25 million compared to operating revenues of $0.58
million for the same period in 1999. This increase in operating revenue from
period to period was largely attributable to an increase of $0.32 million in
operating revenues at Onyx, while operating revenues at Topcard and Pixel
decreased by $57,000 and $19,000, respectively, compared to the same period in
1999.
Total revenues at Onyx Television for the three months ended March 31, 2000
totaled $0.65 million, a 103% increase of $0.32 million over revenues of $0.33
million in 1999. Onyx's management firmly believes that its strategic alliance
agreement with Groupe AB, the French television production company which is the
Company's majority stockholder, together with changes in local regulations
effective in 1999, has increased network distribution and the appointed media
agency has proved extremely positive, and, although there can be no assurance,
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 VIVA2 and it is planned
that Onyx's distributions will increase further during 1999. At the present
time, Onyx Television reaches approximately 11 million cable homes and an
indeterminable number of direct satellite homes (previously estimated at 2.5
million) in Germany. See the Form 10-K for further information.
Operating costs, including staff costs, depreciation and amortization and
operating expense, totaled $2.63 million for three months ended March 31, 2000,
compared to $2.45 million for the comparable 1999 period. The small increase in
operating costs relates primarily to operating expenses at Onyx.
The substantial decrease in financial expense relates primarily to lower
interest expense following the conversion of $22 million of convertible debt
into equity in October 1999. Interest expense for the three months ended March
31, 2000 was $0.10 million, compared to $2.49 million for the same period in
1999. In addition, financial expense includes a charge in respect of non cash
foreign exchange loss of $0.75 million for the three months ended March 31,
2000, compared to a loss of $0.82 million for three months ended March 31, 1999.
The foreign exchange losses arise from changes in currency exchange rates at
March 31, 2000 compared to exchange rates at December 31, 1999.
As a result of all of the above factors, the Company's loss from continuing
operations was $2.71 million for three months ended March 31, 2000, a decrease
of $2.53 million from a loss of $5.24 million for the comparative period in
1999.
TopCard reported an increased loss of $126,000 for three months ended March 31,
2000, compared to a loss of $16,000 for the same period in 1999. TopCard
activity in the second half of 1999 to date has been primarily of new
development which it expects to be completed by mid 2000. Pixel reported a
reduced profit of $2,000, for 2000 compared to a profit of $20,000 for three
months ended March 31, 1999. Henry, its 47.5% owned subsidiary recorded a net
share of loss of $11,000, compared to a loss of $4,000 recorded for the
corresponding period in 1999. Henry is accounted for on an equity basis.
The net loss per share for three months ended March 31, 2000 (basic and diluted)
was $0.09, compared to a net loss per share (basic and diluted) of $1.31 for
three months ended March 31, 1999. Weighted average shares outstanding basic and
diluted were 28,725,695 for three months ended March 31, 2000, compared to
4,009,413 for
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the corresponding period in 1999.
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,
with the authorized capital of the Company remaining at 50,000,000 shares of
common stock. Accordingly, all references to the Company's shares of Common
Stock are on a post split basis.
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, the Company has financed its capital requirements through sales of
equity securities and through debt financing. Since inception through to March
31, 2000, the Company has incurred an accumulated deficit of approximately $65.6
million, principally related to the launch and operation of Onyx Television. At
March 31, 2000, the Company has had a negative working capital of $5.85 million
and a negative net worth of $3.07 million.
Instar Loan
In October 1996, the Company's 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, the Company 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).
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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 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.
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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 880,000 shares of Common Stock in consideration for $600,000 received
for services (and $180,000 for cash invested) 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.
In January 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 years 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 March 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 Groupe 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.
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Liquidity and Capital Resources
We believe that additional capital will be required, along with
anticipated revenues from operations, to fund our operations for the next 12
months. We anticipate that the required fundings will be made available by
Groupe AB or Mr. Ho, or from other sources, although we cannot assure you that
the necessary funding will become available. Further, required amounts of
funding will be impacted in part by the level of revenues achieved, particularly
at Onyx Television. We will likely issue additional shares of Common Stock, or
shares of the capital stock of our subsidiaries, to meet our anticipated capital
requirements.
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PART 2
Item 1. Legal Proceedings
For information regarding the status of the Company's
currently outstanding litigation, see Note 12 of Notes to
Unaudited Consolidated Financial Statements included herein
and Item 3. "Legal Proceedings" in the Company's 1999 Form
10-KSB.
Item 2. Change in Securities
See Note 13 of Notes to Unaudited Consolidated Financial
Statements included herein and Item 2. "Management's
Discussion and Analysis or Plan of Operation" included herein
for information regarding changes in securities.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 5th day of June, 2000.
CAPITAL MEDIA GROUP LIMITED
By: /s/ Gilles Assouline
--------------------------------------------------------
Gilles Assouline, President and Chief Executive Officer
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Exhibit Index
Exhibit Descrition
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27.0 Financial Data Schedule
