<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-QSB
Quarterly report pursuant to section 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended Third Quarter ended September 30, 1999
Commission File No. 0-17591
KALEIDOSCOPE MEDIA GROUP, INC.
----------------------------------------------------
(Exact name of registrant as specific in its charter)
Delaware 93-0957030
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
244 W. 54th Street, New York, New York, 10019
---------------------------------------------
(Address of principal executive offices)
(212) 757-0700
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the proceeding 12 months (or for shorter period 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 ________
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether in the registrant filed all documents and reports
required to be filed by Section 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes_____ No ______
Applicable only to corporate Issuers
State the number of shares outstanding of each of the issuer's class as
of common equity, as of September 30, 1999: 45,219,730
Transitional Small Business Disclosure Format (check one):
Yes _____ No__X___
<PAGE>
Index
<TABLE>
<CAPTION>
Page #
------
<S> <C>
Part I Financial Information
Item 1. Financial Statements (unaudited)...............................
Consolidated Balance Sheet September 30, 1999 and September 30, 1998... 1-2
Consolidated Statement of Income....................................... 3
Consolidated Statement of Stockholders' Equity (Deficit),
Nine months ended September 30, 1999 and September 30, 1998............ 4
Consolidated Statements of Cash Flows nine months ended
September 30, 1999 and September 30, 1998.............................. 5
Notes to Financial Statement...........................................
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations.............................................. 6
Part II Other Information
Item 1. Legal Proceedings.............................................. 20
Item 2. Changes in Securities.......................................... 12
Signatures............................................................. 23
</TABLE>
<PAGE>
Kaleidoscope Media Group, Inc
(Formerly Bnn Corporation)
and Subsidaries
CONSOLIDATED BALANCE SHEETS
UNAUDITED
ASSETS
<TABLE>
<CAPTION>
September 30
------------------------------
1999 1998
--------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 357 $ 218
Accounts receivable, less allowance for doubtful
accounts of $508,654 and $116,534 in 1999 and 1998 472,516 847,205
Notes receivable, less allowance for bad debt of
$50,000 -- --
Expenditures billable to clients 28,171 --
Program cost inventory current portion,
net of accumulated amortization 696,120 3,406,442
Deferred income taxes 369,600
Other current assets 180,462 217,430
---------- ----------
Total Current Assets 1,377,625 4,840,895
Program Cost Inventory, less current portion,
net of accumulated amortization 817,133 1,890,471
Property and equipment at cost less:
accumulated depreciation 17,535 58,475
Investment in joint venture 897,102 1,238,110
Deferred income taxes -- 376,800
Goodwill, net of accumulated amortization -- 797,247
Other Assets 11,592 23,116
---------- ----------
Total Assets $3,120,986 $9,225,114
========== ==========
</TABLE>
See notes to financial statements.
-1-
<PAGE>
Kaleidoscope Media Group, Inc
(Formerly Bnn Corporation)
and Subsidaries
CONSOLIDATED BALANCE SHEETS
UNAUDITED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30
----------------------------------
1999 1998
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Cash overdrafts $ -- $ 35,523
Loans officers 49,800 --
Notes Payable 1,252,000 190,000
Accounts payable and accrues liabilities 1,509,676 1,103,377
Income tax payable 906,302 823,179
Option agreement payable 56,250 68,750
Defered rent -- current portion -- 115,805
Deferred income and client advances 98,333 179,898
----------- -----------
Total Current Liabilities 3,872,361 2,516,532
Contingencies (Note 10)
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 100,000,000
shares authorized and 41,155,960 issued in
1999, and $0.01 par value 100,000,000 shares
authorized and 31,882,092 issued in 1998 41,157 36,904
Preferred stock, $0.001 par value 15,000,000
shares authorized and none issued in 1999 or 1998 -- --
Additional paid-in-capital 9,583,262 9,307,855
Accumulated deficit (10,375,795) (1,865,586)
Stock subscription receivable less
allowance of $1,111,542 in 1999 and $438,075 in 1998 -- (770,591)
Treasury stock 529,000 shares in 1999 and 1998
at cost -- --
----------- -----------
Total Stockholders' Equity (751,375) 6,708,582
----------- -----------
Total Liability and Stockholders' Equity $ 3,120,986 $ 9,225,114
=========== ===========
</TABLE>
See notes to financial statements.
-2-
<PAGE>
Kaleidoscope Media Group, Inc
(Formerly Bnn Corporation)
and Subsidaries
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
NET REVENUE $ 43,604 $ 382,575 $ 405,836 $1,517,156
DIRECT PROJECT COSTS
Amortization of program costs 24,358 314,226 94,342 706,738
Other direct project costs -- 19,128 6,331 51,359
--------- --------- --------- ----------
Total Direct Project Costs 24,358 333,354 100,673 758,097
--------- --------- --------- ----------
GROSS PROFIT 19,247 49,221 305,163 759,059
--------- --------- --------- ----------
EXPENSE
Salaries and Benefits 288,082 336,769 809,162 879,684
General and administrative 361,061 579,854 914,765 1,683,943
Amortization of Goodwill -- 11,389 -- 34,167
Interest & Local Taxes -- 30,896 -- 30,896
--------- --------- --------- ----------
Total Expenses 649,144 958,908 1,723,927 2,628,690
--------- --------- --------- ----------
INCOME (LOSS) BEFORE GAIN ON REDUCTION IN LIABILITIES,
EQUITY IN INCOME OF JOINT VENTURE AND INCOME TAXES (629,897) (909,687) (1,418,764) (1,869,631)
GAIN ON REDUCTION IN LIABILITIES (Note 8) -- -- -- 282,965
--------- --------- --------- ----------
INCOME BEFORE INCOME TAXES (629,897) (909,687) (1,418,764) (1,586,666)
INCOME TAX (BENEFIT) EXPENSE -- (357,360) -- (612,195)
--------- --------- --------- ----------
NET INCOME (LOSS) $(629,897) $(552,327) (1,418,764) $ (974,471)
========= ========= ========= ==========
NET EARNINGS PER COMMON SHARE
Basic (0.02) (0.02) (0.04) (0.03)
Diluted (0.02) (0.02) (0.04) (0.03)
</TABLE>
See notes to financial statements.
-3-
<PAGE>
Kaleidoscope Media Group, Inc
(Formerly Bnn Corporation)
and Subsidaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Stock
Shares Common Paid-in Accumulated Subscription
Issued Stock Capital Deficit Receivable Total
---------- -------- ----------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1999
Balance January 1, 1999 38,660,960 $ 38,662 $ 9,386,258 $ (8,957,030) $ -- $ 467,890
Issuance of shares for
cash consideration 2,495,000 2,495 197,004 199,499
Net Loss -- -- -- (1,418,764) -- (1,418,763.63)
---------- -------- ----------- ------------ --------- -------------
41,155,960 $ 41,157 $ 9,583,262 $ (10,375,794) $ -- $ (751,375)
========== ======== =========== ============ ========= =============
Nine Months Ended September 30, 1998
Balance January 1, 1998 26,027,082 $ 26,027 $ 6,197,661 $ (891,115) $ -- $ 5,332,573
Issuance of shares and related
warrants for cash consideration 10,057,364 10,057 2,813,509 -- -- 2,823,566
Issuance of shares to settle
accounts payable and for
services rendered 520,010 520 296,985 -- -- 297,505
Stock subscription receivable -- -- -- -- (770,591) (770,591)
Issuance of shares in settlement
of claim 300,000 300 (300) -- -- --
Net loss -- -- -- (974,471) -- (974,471)
---------- -------- ----------- ------------ --------- -------------
Balance September 30, 1998 36,904,456 $ 36,904 $ 9,307,855 $ (1,865,586) $(770,591) $ 6,708,582
========== ======== =========== ============ ========= =============
</TABLE>
See notes to financial statements.
-4-
<PAGE>
Kaleidoscope Media Group, Inc.
(formerly BNN Corporation)
And Subsidaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September
------------------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (1,418,764) (974,471)
Adjustment to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Amortization and depreciation 103,979 450,057
Deferred income tax expense (benefit) 0 (123,800)
Deferred rent 0 (203,734)
Gain on reduction of liabilities 0 (282,965)
Expense paid through the issuance of stock 0 175,000
Change in assets and liabilities:
Accounts receivable (149,191) (100,524)
Expenditures billable to clients (28,171) 0
Other current assets 0 (142,146)
Other assets (217,032) 0
Cash overdraft (13,051) (158,625)
Accounts payable and accrued liabilities 369,535 (172,537)
Writedown of program costs inventory 94,342 0
Income taxes payable 1 (16,317)
Deferred income and client advances 98,333 (517,135)
----------- -----------
Net Cash Used in Operating Activities (1,160,018) (2,067,197)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Distribution from joint venture 102,500 138,390
Investment in joint venture (10,150) 0
Expenditures for program costs (155,659) (524,558)
Acquisition of property and equipment (1,480) 929
Loans receivable officers and shareholders net change 9,000 36,300
----------- -----------
Net Cash Provided by Investing Activities (55,790) (348,939)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 962,000 150,000
Repayments of notes payable 0 (118,750)
Loans payable to officers and shareholder 49,800 0
Issuance of common stock and related warrants 199,500 2,132,844
----------- -----------
Net Cash Provided by Financing Activities 1,211,300 2,164,094
INCREASE (DECREASE) IN CASH (4,508) (252,042)
CASH
Beginning of period 4,865 252,260
----------- -----------
End of period $ 357 $ 218
=========== ===========
</TABLE>
See notes to financial statements.
-5-
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. MAJOR CUSTOMERS
The company has received its income for the nine months ending
September 30, 1999 from Global International for the Shaka Zulu mini series
and United CineMagic Pictures, Inc. for the a.k.a. Picasso series. The
balances was derived from distribution, syndication and consulting fees.
During the nine months ended September 30, 1998, $907,100 of the
Company's revenue was derived from the release of new made-for-television
movie "Merlin: The Magic Begins". Licensing, to two customers, of the rights
for the movie in two European territories accounted for approximately
$350,000 and $100,000 of this revenue.
2. PROGRAM COST INVENTORY
Program cost inventory as September 30, consists of the following:
1998 1999
==== ====
Current portion $ 696,120 $ 3,406,442
Noncurrent portion 817,133 1,890,471
---------- -----------
Total Program Cost Inventory $1,513,253 $ 5,296,913
3. DISTRIBUTION RIGHTS
The Company has acquired distribution rights in numerous properties.
Under these agreements, the Company distributes the properties in the
allotted territories on behalf of the owners in exchange for receiving a
substantial portion of the gross revenue. Although these rights have
substantial value, the historical cost methodology required by generally
accepted accounting principles do not permit the recognition of these values
in the financial statements in excess of the costs of acquisition. With the
exception of some minor costs included in program cost inventory, the
distribution rights had no cost and therefore were not recorded in the
financial statements. Instead the Company will recognize revenue as it is
earned in accordance with its stated revenue recognition policy.
The properties for which the Company has distribution rights as of
September 30, 1999 are as follows:
The Ice Fantasies Collection:
Gershwin On Ice
Superstars On Ice
Fairytales On Ice/Alice Through the Looking Glass
Fairytales On Ice/Sleeping Beauty
Cinderella On Ice
Nutcracker On Ice
Cyberfit
Thrillmasters
Gravity Angles
-6-
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1999
(UNAUDITED)
Digital Cafe
Shaka Zulu
a.k.a. Picasso
Mia Mine Forever
Diamond Hunters
Magnificent Ambersons
Boxcino
Models & Fantasies
The Great Magic of Las Vegas
The World's Greatest Performers
The World's Top Shows
Circus Adventures
The Best of Monte Carlo
Field & Stream Legends
Outdoor Life Series
The Air Shows
4. NOTES PAYABLE
During the nine-month period the Company issued eight (8%) percent
convertible promissory notes aggregating eight hundred fifty thousand dollars
($850,000) to foreign private investors. The Notes are convertible into an
indeterminate number of shares at a conversion price of the lower of fifteen
($0.15) cents per share or 70% of the lowest closing price within sixty (60)
days of conversion. In conjunction with the financing, the Company issued a
total of 850,000 warrants at an exercise price of $.19. The Company has also
issued additional $1,250,000 of principal amount of notes which were to be
paid for in installments after the registration statement becomes effective
and subject to other conditions because this statement did not become
effective in the required time the note may be cancelled which together with
$1,250,000 of such warrants will be canceled upon certain circumstances. In
August 1999 we sold an additional $112,000 principal amount of notes and
issued an additional 1,000,000 warrants to acquire our common stock.
The company issued a note for $100,000 to settle an outstanding debt of
approximately $200,000 to a discontinued vendor.
5. CAPITAL TRANSACTIONS
During the second quarter of 1998 the Company borrowed $150,000 from an
entity affiliated with the Company's chairman and CEO. The entire balance was
still outstanding at September 30, 1999. The note bears interest at 15% per
annum and is payable on demand.
-7-
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1999
(UNAUDITED)
During 1999 the Company has issued 6,558,770 shares of common stock,
2,645,000 were sold at a price ranging from five ($0.05) cents to ten ($0.10)
cents. The balance of shares issued was to either settle litigation, pay
debt, or satisfy contractual obligations.
During the nine months ended September 30, 1998, the Company issued
10,877,374 shares of common stock, and 1,300,000 warrants, in exchange for
$3,163,062 cash (net of offering costs) and receivables, the settlement of
$122,505 of accounts payable and $175,000 of services rendered. 300,000 of
the warrants expire in January 2000 and have exercise prices ranging from
seventy-five cents ($0.75) through one dollar and ten cents ($1.10). 200,000
of the warrants expire in December 2002 and have an exercise price of
seventy-five cents ($0.75), and 800,000 of the warrants have an exercise
price of twenty-five cents ($0.25).
6. CONTINGENCIES
In December 1997, the Company filed an action seeking damages for
breach of contract and fraudulent inducement of contract, among other claims,
arising out of a venture that the Company entered into, with the defendants
in the action to promote a Latin American boxing tournament. The Company
seeks damages of at least $500,000 plus punitive damages in the action. Two
of the defendants have answered the complaint, asserting various affirmative
defenses and two counterclaims seeking damages of not less than $250,000. A
third defendant has not yet responded to the complaint. The Company has
received a default judgment against the parties. The amount of damages to be
decided by the court on November 22, 1999.
Registrant and a wholly owned subsidiary are defendants in an action
commenced by ACC Entertainment Gmbh & Co. verses Kaleidoscope Media Group and
Seagull Entertainment Inc. in the U.S. District Court for the Central
District of California. The complaint alleges breach of contract in
connection with a co-production agreement between the parties. Damages in the
amount of $250,000 and the declaration that the contract is rescinded are
sought. A tentative settlement has been reached.
The Company is a defendant in Sytner versus BNN Corporation which
action is commenced in the Supreme Court of the State of NY in the County of
NY. The plaintiff seeks $1.5 million dollars in damage for the Company's
refusal to deliver its Shares of Common Stock which Mr. Sytner alleges he was
entitled, and a $53,000 reimbursement of business expenses.
The Company is a defendant in an action in which Paul Cioffari versus
Kaleidoscope Media Group et al. Plaintiff seeks one million dollars in
damages in connection with his employment by the Company affiliates and the
Sale of Property to an affiliate of the Company and other various claims.
The Company believes all of these actions are without merit.
-8-
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1999
(UNAUDITED)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments (SFAS 107) requires entities to disclose
the fair value of financial instruments except when it is not practicable to
do so. Under SFAS 107, it is not practicable to make this disclosure when the
costs of formulating the estimates values exceed benefit when considering how
meaningful the information would be to financial statement users.
The Company's financial instruments, and the related amounts recorded
in the balance sheet, to which SFAS 107 would be applied include the
following:
Carrying Amount
September 30,
----------------------------
1999 1998
---------- --------
Asset:
Cash $ 357 $218
Liabilities:
Cash overdraft -0- 35,523
Notes payable 1,252,000 190,000
The fair values of the cash and notes payable do not differ materially
from their carrying amounts.
None of the above are derivative financial instruments and none are
held for trading purposes.
-9-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The consolidated financial statements provided in this nine-month
report for the period ended September 30, 1999 include the financial statements
of SeaGull Entertainment for nine months, the financial statements of the
Company for nine months, and nine months of the Tarzan Joint Venture as an
equity investment. These periods of reporting reflect various months of full
ownership or partial ownership in the current fiscal year and are consistent
with the reporting method utilized for the prior fiscal year. The comparative
results reported for the nine months ended September 30, 1998 include the
financial statements of SeaGull for nine months, the financial statements of the
Company for nine months, the combined financial statements of KSG for nine
months and nine months of the Joint Venture as an equity investment.
Reference is made to Note 2 of the Company's Consolidated Financial
Statements for discussion of significant accounting policies, including revenue
recognition.
FORWARD LOOKING STATEMENTS
The Following statements and certain other statements contained in this
quarterly report on Form 10-QSB is based on current expectations. Such
statements are forward looking statements that involve a number of risks and
uncertainties. Factors that could cause actual results to differ materially
include the following (i) general economic conditions, (ii) competitive market
influence, (iii) audience appeal and critical reviews of its television
programs, (iv) the ability to identify, acquire the rights to, and to develop
quality properties, and (v) and ability to obtain financing.
RESULTS OF OPERATIONS
Nine months Ended September 30, 19999 as Compared with Nine Months
Ended September 30, 1998.
Net revenues consist to total billings (less any agency fees and media
costs) and accruals for earned fees. Net revenues for the Third Quarter of 1999
were $43,604 compared with net revenue of $382,575 for the Third Quarter of
1998.
For the nine-month period ended September 30, 1999, Net Revenues were
$405,836 as compared to $1,517,156 for the nine-month period ended September 30,
1998.
Amortization of program costs (costs to produce, market and distribute
a broadcast or film property) and other direct project costs was $314,226 in the
Third Quarter of 1998 compared to $24,358 in 1999. For the nine-month period, it
was $706,738 in 1998 and $94,342 in 1999.
Gross profit decreased by $29,974, to $19,247 for the Third Quarter in
1999 from $ 49,221 for the Third Quarter of 1998. For the nine-month period of
1999 the gross profit decreased $453,896 as compared to 1998.
Salaries and benefits decreased by $48,687 to $288,082 in the Third
Quarter of 1999 compared to $336,769 for the Third Quarter of 1998. Salaries and
benefits for the nine-month period decreased $70,522 to $809,162 in 1999 as
compared to $879,684 in 1998. General and administrative expenses decreased by
$218,793 to $361,061 in the Third Quarter of 1999 from $579,854 for the
comparable period in 1998. General and administrative expense for the nine month
period decreased by $769,178 to $914,765 in 1999 from $1,683,948 in 1998.
There was no amortization of Goodwill in the Third Quarter of 1999 as
compared to $11,389 in 1998. The entire Goodwill was written off in 1998.
Accordingly there is no amortization for the nine-month period in 1999
as compared to $34,167 in 1998.
-10-
<PAGE>
Losses from operations (before equity in income of joint venture)
decreased by $279,790 from a loss of $909,687 in the Third Quarter of 1998 to a
loss of $629,897 for the Third Quarter of 1999. Losses from operations for the
nine months ending September 30, 1999 are $1,418,764 as compared to the nine
months in 1998 of $1,869,631 reflecting a decrease of $450,867.
The Company did not receive any equity in income of its joint ventures
in the Third Quarter of 1998 and 1999. The Joint Venture's only revenue
producing project to date has been "Tarzan: The Epic Adventures" which earned
most of its revenues in 1996 and 1997. Management's estimate of the ultimate
revenues from "Tarzan: The Epic Adventures" have been revised downward.
The provision for income tax benefit was $357,360 in the Third Quarter
of 1998 as compared to no income tax benefit in 1999. The income tax expense for
1998 and 1999 does not bear the expected relationship between pretax income and
the federal corporate tax rate of 34% because of (a) the effect of state and
local income taxes and (b) the amortization of goodwill and certain other
expenses that are not deductible for income tax purposes.
Even though there is a net operating loss carry forward and a loss for
the quarter, the accounting reflects an increase in the valuation allowance
against the deferred tax asset due to the uncertainty of future profits. In the
absence of future profits, the benefits of the deferred tax asset cannot be
realized.
The Company's net losses amounted to $552,327, or $0.02 per share, for
the Third Quarter of 1998, as compared to net loss of $629,897 or $0.02 per
share, for the same quarter in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1,967,197 in 1998 compared
with $1,160,018 in 1999. The increase in cash used operating activities was
primarily the result of the reduction of Accounts Payable and Accrued
Liabilities.
Net cash used by investing activities in 1998 was $387,329 compared to
the net cash used in investing activities of $55,790 in 1999. This change was
primarily due to the increase in expenditures for program costs.
Net cash provided in financing activities amounted to $2,164,094 for
1998 as compared to $1,211,300 provided by financing activities for 1999. The
increase in cash provided by financing activities was primarily the result of an
increase in the receipt of cash for equity transactions in 1998 and financing in
1999.
-11-
<PAGE>
As of September 30, 1998, the Company had cash of $218 compared with
$357 as of September 30,1999. Operating activities used net cash outflow of the
principle source of cash during 1999 was raised through the sale of equity
securities and financing. These amounts were used to reduce the companies'
liabilities.
- --------------------------------------------------------------------------------
ITEM 2. LEGAL PROCEEDINGS
The Company is a defendant in ACC Entertainment GmbH Co. v.
Kaleidoscope Media Group, Inc. (United District Court for the District of
California). This action was commenced ACC Entertainment GmbH Co. ("ACC") for
alleged breach of contract. The contract provided for certain rights to the
Company's Merlin film to be produced by the Company in return for an investment
of $375,000. ACC claims the Company failed to properly deliver the film. The
Company has counterclaimed for damages. ACC has also claimed that the Company
executed an additional agreement for Team Extreme. The court has directed that a
settlement conference be held. A tentative settlement has been reached.
Jack Woolf has commenced an action in Supreme Court for the State of
California in Los Angeles entitled Jack Woolf vs. BNN Corporation. Mr. Woolf
alleges breach of an agreement with the Company's former subsidiary Celebrity
Shopping Network, which Mr. Woolf claims the Company is liable. The damages are
not stated with particularity. Mr. Woolf action was dismissed but Mr. Woolf has
appealed. The Company has settled with Mr. Woolf in consideration of 35,000
shares of KMG stock.
An action has also been commenced by Eric Ashenberg a former officer of
Celebrity Showcase Network, its prior subsidiary for damage arising from the
Company's failure to approve
-12-
<PAGE>
the transfer of a certificate allegedly owed by Mr. Ashenberg. Mr. Ashenberg has
also named Henry Siegel and Paul Siegel as defendants. The Company has agreed to
indemnify Messes. Siegel to the full extent provided by law. Mr. Ashenberg seeks
damages in the amount of $450,000. The Company denies that Mr. Ashenberg was
entitled to his certificates. They have agreed to settle for 300,000 share of
KMG stock.
On December 19, 1997, the Company filed an action in the United States
District Court Southern District of New York entitled Kaleidoscope Media Group,
Inc. v. Entertainment Solutions, Inc., James K. Isenhour, Andrew S. Varni. The
complaint seeks damages for breach of contract and fraudulent inducement of
contract, among other claims, arising out of a venture that the Company entered
into with defendants to promote a sports tournament of Latin American boxing in
1997 called "Boxcino." The Company seeks damages of at least $500,000 plus
punitive damages in the action. Defendants James Isenhour and Entertainment
Solutions, Inc. have answered the complaint, asserting various affirmative
defenses and two counterclaims, for breach of contract and quantum merit,
seeking damages of not less than $250,000. The Company believes it has valid and
meritorious defenses to the counterclaims that the counterclaims are otherwise
invalid, and the Company has prepared an appropriate reply. The third defendant,
Andrew Varni, has no yet to date appeared in the action or answered the
complaint. The parties are engaged in discovery at this time. The company has
received a default judgment against the parties. The amount of damage to be
decided by the court on November 22, 1999.
Item 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted.
-13-
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, therewith duly
authorized.
KALEIDOSCOPE MEDIA GROUP, INC.
November 16, 1999: By: /s/ Henry Siegel
--------------------------------------
Henry Siegel, Chief Executive Officer
November 16, 1999: By: /s/ Irving Greenman
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Irving Greenman, Chief Financial Officer
-14-
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<PERIOD-END> SEP-30-1999 SEP-30-1998
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0 0
0 0
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