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 third quarter ended September 30, 2000
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, 2000: 55,376,812
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
<PAGE>
Index
Page #
------
Part I Financial Information
Item 1. Financial Statements (unaudited) ...............................
Consolidated Balance Sheet September 30, 2000 and
December 31, 1999 ....................................................... 1-2
Consolidated Statements of Income three months ended
September 30, 2000 and September 30, 1999 ............................... 3
Consolidated Statements of Income nine months ended
September 30, 2000 and September 30, 1999 ............................... 4
Consolidated Statements of Cash Flows nine months ended
September 30, 2000 and September 30, 1999 ............................... 5
Notes to Financial ...................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations ............................................... 6-9
<PAGE>
Kaleidoscope Media Group, Inc
CONSOLIDATED BALANCE SHEETS
UNAUDITED
ASSETS
<TABLE>
<CAPTION>
September 30 December 31
---------- -----------
2000 1999
---------- ----------
CURRENT ASSETS
<S> <C> <C>
Cash $ 507 $ 45,650
Accounts receivable, less allowance for doubtful
accounts of $492,678 and $411,428 in 2000 and 1999 661,897 213,222
Expenditures billable to clients 11,912 6,333
Program cost inventory - current portion,
net of accumulated amortization 165,201 280,119
Other current assets 149,782 142,064
---------- ----------
Total Current Assets $ 989,299 $ 687,388
Property and equipment at cost less:
accumulated depreciation 31,444 41,680
Investment in joint venture 453,926 453,826
Other Assets 10,270 11,592
---------- ----------
Total Assets $1,484,938 $1,194,486
========== ==========
</TABLE>
<PAGE>
Kaleidoscope Media Group, Inc
CONSOLIDATED BALANCE SHEETS
UNAUDITED
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
September 30 December 31
------------ ------------
2000 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Cash overdrafts $ -- $ 19,308
Loans officers -- 99,800
Notes payable 2,057,740 1,573,468
Accounts payable and accrues liabilities 1,913,890 1,882,477
Income tax payable 906,302 906,302
Deferred income and client advances 141,890 304,282
------------ ------------
Total Current Liabilities 5,019,821 4,785,635
Security deposit payable 10,552 10,552
------------ ------------
Total liabilities 5,030,373 4,796,187
STOCKHOLDERS' DEFICIT
Preferred stock, $0.001 par value 15,000,000
shares authorized and none issued in 2000
or 1999 -- --
Common stock, $0.001 par value, 100,000,000
shares authorized and 55,376,812 issued in
2000, and $0.01 par value 100,000,000 shares
authorized and 41,155,960 issued in 1999 55,377 41,356
Additional paid-in-capital 10,397,681 9,603,063
Accumulated deficit (13,998,491) (13,246,121)
------------ ------------
Total Stockholders' Deficit (3,545,433) (3,601,701)
------------ ------------
Total Liability and Stockholders' Deficit $ 1,484,940 $ 1,194,486
============ ============
</TABLE>
<PAGE>
Kaleidoscope Media Group, Inc
(Formerly Bnn Corporation)
and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended
September
---------
2000 1999
--------- ---------
NET REVENUE $ 184,336 $ 43,604
DIRECT PROJECT COSTS
Amortization of program costs 147,806 24,358
Other direct project costs -- --
--------- ---------
Total direct project costs $ 147,806 $ 24,358
--------- ---------
GROSS PROFIT $ 36,530 $ 19,246
--------- ---------
EXPENSE
Salaries and benefits 110,365 288,082
General and administrative 201,491 274,880
--------- ---------
Total expenses $ 311,856 $ 562,962
--------- ---------
Operating loss $(275,326) $(543,716)
Amortization of finance costs 169,373 56,243
Depreciation expense 1,403 1,707
Interest expense 38,900 28,231
--------- ---------
Total amortization, depreciation and interest $ 209,676 $ 86,181
--------- ---------
LOSS BEFORE EXTRAORDINARY ITEMS
AND INCOME TAXES $(485,002) $(629,897)
EXTRAORDINARY ITEM -- --
--------- ---------
LOSS BEFORE INCOME TAXES $(485,002) $(629,897)
INCOME TAX (BENEFIT) EXPENSE -- --
--------- ---------
NET LOSS $(485,002) $(629,897)
========= =========
NET LOSS PER COMMON SHARE
Basic (0.01) (0.02)
Diluted (0.01) (0.02)
<PAGE>
Kaleidoscope Media Group, Inc
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine months ended
September 30
2000 1999
----------- -----------
<S> <C> <C>
NET REVENUE $ 894,631 $ 405,836
DIRECT PROJECT COSTS
Amortization of program costs 178,331 94,342
Other direct project costs 6,825 6,331
----------- -----------
Total direct project costs $ 185,156 $ 100,673
----------- -----------
GROSS PROFIT $ 709,475 $ 305,163
----------- -----------
EXPENSE
Salaries and benefits $ 382,631 $ 809,162
General and administrative 516,967 755,198
----------- -----------
Total expenses $ 899,599 $ 1,564,360
----------- -----------
Operating loss (190,123) (1,259,197)
Amortization of finance costs 300,062 91,576
Depreciation expense 10,235 12,404
Interest expense 107,070 55,588
----------- -----------
Total amortization, depreciation and interest $ 417,367 $ 159,567
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEMS,
EQUITY IN LOSS OF JOINT VENTURE AND INCOME TAXES $ (607,490) $(1,418,764)
EXTRAORDINARY ITEM 141,240 --
----------- -----------
LOSS BEFORE EQUITY IN LOSS OF JOINT VENTURE
AND INCOME TAXES $ (748,730) $(1,418,764)
INCOME TAX (BENEFIT) EXPENSE 3,640 --
----------- -----------
NET LOSS $ (752,370) $(1,418,764)
=========== ===========
NET EARNINGS PER COMMON SHARE
Basic (0.02) (0.04)
Diluted (0.02) (0.04)
</TABLE>
<PAGE>
Kaleidoscope Media Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (752,370) $(1,418,764)
Adjustment to reconcile net (loss) to net cash
used in operating activities:
Amortization and depreciation 310,297 103,979
Change in assets and liabilities:
Accounts receivable (448,675) (149,191)
Expenditures billable to clients (5,580) (28,171.00)
Deferred financing costs (213,917) --
Other assets 51,488 (217,032)
Cash overdraft (19,308) (13,051)
Accounts payable and accrued liabilities 58,809 369,535
Write-down of program costs inventory 178,331 94,342
Income taxes payable -- 1
Deferred income and client advances (162,392) 98,333
----------- -----------
Net Cash Used in Operating Activities (1,003,317) (1,160,019)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Distribution from joint venture -- 102,500
Investment in joint venture (100) (10,150.00)
Expenditures for program costs (63,413) (155,659)
Acquisition of property and equipment -- (1,480)
Loans receivable - officers and shareholders - net change 35,000 9,000
----------- -----------
Net Cash Provided by Investing Activities (28,513) (55,789)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans payable to officers and shareholder (50,000) 49,800
Proceeds from notes payable 831,033 962,000
Repayments of notes payable (75,000) --
Issuance of common stock and related warrants 279,640 199,500
----------- -----------
Net Cash Provided by Financing Activities 985,673 1,211,300
INCREASE (DECREASE) IN CASH (46,157) (4,508)
CASH
Beginning of period 45,650 4,865
----------- -----------
End of period $ 507 $ 357
=========== ===========
</TABLE>
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(UNAUDITED)
Note 1- BASIS OF PRESENTATION:
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
statement of results for the interim period.
The results of operations for the nine months ended September 30, 2000 are
not necessarily indicative of the results to be expected for the full year.
Note 2 - NOTES PAYABLE
During the nine-month period the Company issued eight (8%) percent
convertible promissory notes aggregating two hundred and fifty thousand
dollars ($250,000) to foreign private investors. These notes mature March
9, 2001 together with interest, unless the parties agree to extend the
maturity date. The Notes are convertible into an indeterminate number of
shares at a conversion price of the lower of ten ($0.10) 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 27,625,000
warrants at an exercise price of $0.11. The Company incurred financing
costs of $32,000, which is being amortized over the life of the note.
The Company also issued an additional ten (10%) percent convertible
promissory note in the amount of two hundred and fifty thousand dollars
($250,000) to a foreign investor. This is a demand note. The Note is
convertible into 1,250,000 shares at the conversion price of twenty ($0.20)
cents per share. There were no costs incurred during the financing of this
note. This note is secured with proceeds from several contracts.
During the third quarter the company issued two additional notes in the
amounts of one hundred and fifty thousand dollars ($150,000) and fifty two
thousand five hundred dollars ($52,500) to a foreign private investor and a
domestic private investor, respectively. The notes are due upon completion
of the sale of shares of KMG stock. The interest on the notes is calculated
at ten percent (10%) per annum. There were no finance costs incurred during
the financing of these notes. These notes are secured with proceeds from
several contracts.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
The following statements and certain other statements contained in
this quarterly report on Form 10-QSB are 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.
<PAGE>
Results of Operations
Nine Months Ended September 30, 2000 as Compared with Nine Months Ended
September 30, 1999 and Three Months Ended September 30, 2000 as Compared
with Three Months Ended September 30, 1999.
Net revenues consist of total billings (less any agency fees and media
costs) and accruals for earned fees. Net revenues for the third quarter of
2000 were $184,336 compared with net revenue of $43,604 for the third
quarter of 1999. The third quarter of 2000 reflects revenue of $125,000,
which was to have been derived for Shaka-Zulu this revenue was received as
a recoupable but non-refundable advance towards sales of the series.
Gross profit increased by $17,284, to $36,530 for the third quarter in
2000 from $19,246 for the third quarter of 1999. This is a direct result of
the increase in revenue for this period.
Net revenues for the nine months of 2000 were $894,631 compared with
net revenue of $405,836 for the nine months of 1999. This is an increase of
$488,795 for the nine months of 2000 compared to the nine months of 1999.
The growth in revenue is attributed to the active effect of increasing our
sales of our existing products.
Gross profit increased by $404,312, to $709475 for the nine months in
2000 from $305,163 for the nine months of 1999.
Amortization of program costs (costs to produce, market and distribute
a broadcast or film property) and other direct project costs was $ 185,156
in the third quarter of 2000 compared to $100,673 in 1999. The increase in
the amortization costs is a result in the amortizing of prior years costs
related to Shaka-Zulu. All the costs have been amortized against the
revenue taken in this quarter.
Salaries and benefits decreased by $177,717, to $110,365 in the third
quarter of 2000 compared to $288,082 for the third quarter of 1999 and a
decrease by $426,531, to $382,631 in the nine months of 2000 compared to
$809,162 in the nine months of 1999. The decrease in salaries and benefits
is a result of the closing of the Los Angeles office, the downsizing of
staff to its current staffing level and the benefits of the separations
agreements between former executives and directors, which resulted in,
lower salaries and future salaries.
General and administrative expenses decreased by $71,836, to $203,044
in the third quarter of 2000 from $274,880 for the comparable period in
1999 and a decrease of $ 238,231, to $516,967 in the nine months of 2000
from $755,198 in the nine months of 1999. The decrease in general and
administrative expenses is a largely as a result of write-off of several
outstanding payables which amounted to $99,681 as well as the companies
continued reduction of costs.
Amortization, depreciation, and interest increased by $123,771, to
$209,952 in the third quarter of 2000 from $86,181 from the second quarter
of 1999 and a increase of $257,800, to $417,367 in the nine months of 2000
from $159,567 in the nine months of 1999. The increase is largely due to
the amortization of finance costs. During the third quarter of 2000 the
company amortized $169,373 of these costs and $300,062 for the nine months
of 2000, this was an increase of $208,486 for the nine months of 2000.
These costs were incurred during end of the second, third and forth
quarters 1999 and second quarter of 2000. Therefore, the amortization of
finance costs had not been expensed during the first quarter of 1999. The
financed costs are being amortized over the life of the loans.
Interest and local taxes increased by $10,669 to $38,900 in the third
quarter of 2000 from $28,231 in the third quarter of 1999 and increased by
$51,482 to $107,070 in the nine months of 2000 from $55,588 in the nine
months of 1999. This increase is from the notes that were issued
<PAGE>
during 1999 and no interest had been incurred during the first quarter of
1999. The increase is also due to the additional notes issued to assists in
the cash flow needs of the company.
The company recorded extraordinary items during the second quarter of
2000. These items are related to stock that was issued during the year to
cover prior payables that previously had not been recorded and/or written
off.
Losses from operations (before equity income of joint venture)
decreased by $268,390 to a loss of $5,326 in the third quarter of 2000 from
a loss of $543,716 for the third quarter of 2000 and decreased by
$1,069,074 to a loss of $190,123 in the nine months from a loss of
$1,259,197 in the nine months of 1999. The company's losses increased
during the second quarter due to the recorded extraordinary items during
the quarter. However, the results for the first nine months of 2000
reflects, the company's continued efforts to turn its operations around and
become a profitable entity.
The Company did not receive any equity income of its joint ventures in
either the third quarter of 1999 and 2000 or in the six months of 1999 and
2000. 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" had been previously revised downward.
The Company's net loss amounted to $485,002, or $0.001 per share, for
the third quarter in 2000, as compared to a net losses of $629,897, or
$(0.02) per share, for the same quarter of 1999 and net loss of $752,370,
or $(0.02) per share, for the nine months of 2000, as compared to net
losses of $1,418,764, or $(0.04) per share, for the nine months of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1,003,317 in the nine
months of 2000 compared with $1,160,019 in the nine months of 1999. The
decrease in cash used operating activities was a direct the result in the
reduction of operating expenses.
Net cash used in investing activities in 2000 was $28,513 compared to
the net cash used in investing activities of $55,789 in 1999. This change
is a result in the reduction of investing in joint ventures in 2000
compared to 1999.
Net cash provided in financing activities amounted to $985,673
provided by financing activities for 2000 as compared to $1,211,300 for
1999. The decrease in cash provided by financing activities was primarily
the result in the company's reduction in operating costs and the increase
in sales therefore reducing the need for outside financing.
As of September 30, 2000, the company had cash of $507compared with
$357 as of September 30, 1999. Operating activities used net cash outflow
of the principle source of cash during 2000 was raised through the issuance
of notes. These amounts were used to reduce the companies' liabilities.
During 1999 and early 2000 the Company received $1,308,468 from the
sale of convertible notes. A portion of present loans are in default
because the Company failed to timely file a registration statement. These
notes are, therefore, demand notes. If demand notes were to be made for
payment of the loans the Company would not be able to pay the loans and may
not be able to continue in business. The note holders have agreed to not to
accelerate the notes until November 2000.
The company has experienced chronic cash shortfalls including $452,500
in June 2000 and through September 30, 2000 has relied upon equity and debt
financing. The company believes
<PAGE>
that the present notes outstanding will not be accelerated, never the less
the Company needs to obtain sufficient funds to be able to operate.
Legal Matters
Because of our financial conditions we have been unable to have our
registration statement declared effective. As a result, the plaintiffs in a
settled action have obtained a judgment against us. In addition, of the
plaintiffs who have settled actions against us, Paul Cioffari and Barry
Sytner may seek to claim that we have breached such settlement.
<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 20, 2000: By: /s/ Myron A. Hyman
-----------------------------
Myron A. Hyman, Chief Executive Officer
