<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
Quarterly report pursuant to section 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended Second Quarter ended June 30, 2000
Commission File No. 0-17591
KALEIDOSCOPE MEDIA GROUP, INC.
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(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
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(Address of principal executive offices)
(212) 757-0700
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(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 June 30, 2000: 50,714,812
Transitional Small Business Disclosure Format (check one):
Yes _____ No___X___
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Index
Page #
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Part I Financial Information
Item 1. Financial Statements (unaudited).................................
Consolidated Balance Sheet June 30, 2000 and
December 31, 1999........................................................ 1-2
Consolidated Statements of Income six months ended
June 30, 2000 and June 30, 1999.......................................... 3
Consolidated Statements of Cash Flows six months ended
June 30, 2000 and June 30, 1999.......................................... 4
Notes to Financial....................................................... 5-6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations................................................ 7-9
<PAGE>
Kaleidoscope Media Group, Inc
(Formerly Bnn Corporation)
and Subsidaries
CONSOLIDATED BALANCE SHEETS
UNAUDITED
ASSETS
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ (2,381) $ 7,595
Accounts receivable, less allowance for doubtful
accounts of $411,428 in 2000 and 1999 665,262 444,322
Expenditures billable to clients 11,912
Program cost inventory-current portion,
net of accumulated amortization 313,007 696,120
Other current assets 108,879 209,391
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Total Current Assets 1,096,680 1,357,428
Program cost inventory, less current portion,
net of accumulated amortization 749,708
Property and equipment at cost less:
accumulated depreciation 32,847 17,273
Investment in joint venture 453,926 886,952
Other Assets 9,911 11,592
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Total Assets $ 1,593,364 $ 3,022,953
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</TABLE>
<PAGE>
Kaleidoscope Media Group, Inc
(Formerly Bnn Corporation)
and Subsidaries
CONSOLIDATED BALANCE SHEETS
UNAUDITED
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Loans officers -- 49,800
Notes payable 1,892,740 1,140,000
Accounts payable and accrues liabilities 1,761,058 1,076,192
Income tax payable 906,302 906,302
Option agreement payable -- 56,250
Deferred income and client advances 221,544 --
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Total Current Liabilities 4,781,643 3,228,544
Security deposit payable 10,552 --
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Total liabilities 4,792,195 3,228,544
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 50,714,812 issued in
2000, and $0.01 par value 100,000,000 shares
authorized and 41,155,960 issued in 1999 50,715 41,157
Additional paid-in-capital 10,263,943 9,499,149
Accumulated deficit (13,513,489) (9,745,897)
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Total Stockholders' Deficit (3,198,831) (205,591)
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Total Liability and Stockholders' Deficit $ 1,593,364 $ 3,022,953
============ ============
</TABLE>
<PAGE>
Kaleidoscope Media Group, Inc
(Formerly Bnn Corporation)
and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
June 30
---------------------------------
2000 1999
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<S> <C> <C>
NET REVENUE $ 131,460 $ 324,197
DIRECT PROJECT COSTS
Amortization of program costs 591 68,804
Other direct project costs -- --
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Total direct project costs 591 68,804
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GROSS PROFIT 130,869 255,393
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EXPENSE
Salaries and benefits 123,546 246,777
General and administrative 92,406 231,760
Total expenses 215,953 478,537
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Operating Income (85,083) (223,144)
Amortization of finance costs 50,918 35,333
Depreciation expense 7,456 9,949
Interest expense 31,534 27,207
Total amortization, Depreciation and interest 89,909 72,489
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS,
EQUITY IN LOSS OF JOINT VENTURE AND INCOME TAXES (174,992) (295,633)
EXTRAORDINARY ITEM 141,240 --
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INCOME (LOSS) BEFORE EQUITY IN LOSS OF JOINT VENTURE
AND INCOME TAXES $(316,232) $(295,633)
EQUITY IN LOSS OF JOINT VENTURE -- --
--------- ---------
INCOME BEFORE INCOME TAXES (316,232) (295,633)
INCOME TAX (BENEFIT) EXPENSE 3,640 --
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NET INCOME (LOSS) $(319,872) $(295,633)
========= =========
NET EARNINGS PER COMMON SHARE
Basic (0.01) (0.01)
</TABLE>
<PAGE>
Kaleidoscope Media Group, Inc
(Formerly Bnn Corporation)
and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended
June 30
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2000 1999
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<S> <C> <C>
NET REVENUE $ 710,295 $ 362,231
DIRECT PROJECT COSTS
Amortization of program costs 30,525 70,927
Other direct project costs 6,825 5,388
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Total direct project costs 37,350 76,315
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GROSS PROFIT 672,945 285,916
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EXPENSE
Salaries and benefits 272,266 521,079
General and administrative 315,476 480,318
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Total expenses 587,742 1,001,397
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Operating income 85,203 (715,481)
Amortization of finance costs 130,689 35,333
Depreciation expense 8,832 10,696
Interest expense 68,170 27,357
Total amortization, depreciation and interest 207,691 73,386
LOSS BEFORE EXTRAORDINARY ITEMS,
EQUITY IN LOSS OF JOINT VENTURE AND INCOME TAXES (122,488) (788,867)
EXTRAORDINARY ITEM 141,240 --
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LOSS BEFORE EQUITY IN LOSS OF JOINT VENTURE
AND INCOME TAXES $ (263,728) $ (788,867)
EQUITY IN LOSS OF JOINT VENTURE -- --
----------- -----------
LOSS BEFORE INCOME TAXES (263,728) (788,867)
INCOME TAX (BENEFIT) EXPENSE 3,640 --
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NET LOSS $ (267,368) $ (788,867)
=========== ===========
NET EARNINGS PER COMMON SHARE
Basic (0.01) (0.02)
</TABLE>
<PAGE>
Kaleidoscope Media Group, Inc.
(formerly BNN Corporation)
And Subsidaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
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2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (267,368) $ (788,867)
Adjustment to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Amortization and depreciation 139,521 46,029
Change in assets and liabilities:
Accounts receivable (452,040) (120,997)
Expenditures billable to clients (5,579) --
Deferred financing costs (44,545) --
Other assets 48,722 (189,718)
Cash overdraft (19,308) (13,051)
Accounts payable and accrued liabilities (11,480) (63,453)
Writedown of program costs inventory 30,525 70,927
Income taxes payable -- (496)
Deferred income and client advances (82,737) --
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Net Cash Used in Operating Activities (664,291) (1,059,626)
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CASH FLOWS FROM INVESTING ACTIVITIES
Distribution from joint venture -- 102,500
Investment in joint venture (100) --
Expenditures for program costs (63,413) (64,820)
Acquisition of property and equipment (0) 489
Loans receivable officers and shareholders net change 35,000 9,000
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Net Cash Provided by Investing Activities (28,513) 47,169
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CASH FLOWS FROM FINANCING ACTIVITIES
Loans payable to officers and shareholder (50,000) 49,800
Repayments of loan payable shareholders -- --
Proceeds from notes payable 628,533 850,000
Repayments of notes payable (75,000) --
Issuance of common stock and related warrants 141,240 115,387
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Net Cash Provided by Financing Activities 644,773 1,015,187
INCREASE (DECREASE) IN CASH (48,031) 2,730
CASH
Beginning of period 45,650 4,865
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End of period $ (2,381) $ 7,595
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</TABLE>
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 six months ended June 30, 2000 are
not necessarily indicative of the results to be expected for the full
year.
Note 2 - NOTES PAYABLE
During the six-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.
Item 1. 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.
Results of Operations
Six Months Ended June 30, 2000 as Compared with Six Months Ended June
30, 1999 and Three Months Ended June 30, 2000 as Compared with Three
Months Ended June 30, 1999.
<PAGE>
Net revenues consist of total billings (less any agency fees and
media costs) and accruals for earned fees. Net revenues for the second
quarter of 2000 were $131,460 compared with net revenue of $324,197 for
the second quarter of 1999. The second quarter of 1999 reflects revenue
of $350,000 which were to have been derived for Shaka-Zulu at the time
the company had anticipated delivery of the final product. This revenue
was subsequently reversed in forth quarter 1999 due to the delay
delivery of the product in 1999. The current revenue reflects sales of
existing product that has been sold.
Gross profit decreased by $124,524, to $130,869 for the second
quarter in 2000 from $255,393 for the second quarter of 1999. As stated
above, revenues in the second quarter included revenues from Shaka Zulu
which was subsequently reversed.
Net revenues for the six months of 2000 were $710,295 compared
with net revenue of $362,231 for the six 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 $387,029, to $672,945 for the six months
in 2000 from $285,916 for the six months of 1999.
Amortization of program costs (costs to produce, market and
distribute a broadcast or film property) and other direct project costs
was $ 591 in the second quarter of 2000 compared to $68,804 in 1999.
The decrease in the amortization costs is a direct result in the
company's decision not to capitalize costs against revenue. All
expenses are expensed at the time they are incurred.
Salaries and benefits decreased by $123,231, to $123,546 in the
second quarter of 2000 compared to $246,777 for the second quarter of
1999 and a decrease by $248,813, to $272,266 in the six months of 2000
compared to $521,079 in the six 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 $139,354, to
$92,406 in the second quarter of 2000 from $231,760 for the comparable
period in 1999 and a decrease of $ 164,842, to $315,476 in the six
months of 2000 from $480,318 in the six 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 costs.
Amortization, depreciation, and interest increased by $17,420, to
$89,909 in the second quarter of 2000 from $72,489 from the second
quarter of 1999 and a increase of $134,305, to $207,691 in the six
months of 2000 from $73,386 in the six months of 1999. The increase is
largely due to the amortization of finance costs. During the second
quarter of 2000 the company amortized $50,918 of these costs and
$130,688 for the six months of 2000, this was an increase of $95,355
for the six 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 loan.
Interest and local taxes increased by $4,327 to $31,534 in the
second quarter of 2000 from $27,207 in the second quarter of 1999 and
increased by $40,813 to $68,170 in the six months of 2000 from $27,357
in the six months of 1999. This increase is from the notes that were
issued during 1999 and no interest had been incurred during the first
quarter of 1999.
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.
<PAGE>
Losses from operations (before equity in income of joint venture)
increased by $24,239 to a loss of $319,872 in the second quarter of
2000 from a loss of $295,633 for the second quarter of 2000 and
decreased by $521,499 to a loss of $267,368 in the six months from a
loss of $788,867 in the six months of 1999. The company's losses
increased during the quarter due to the need to record extraordinary
items during the quarter. However, the results for the first six 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 in income of its joint
ventures in either the second 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" have been revised
downward.
The Company's net loss amounted to $319,872, or $0.001 per share,
for the second quarter in 2000, as compared to a net losses of
$295,633, or $(0.01) per share, for the same quarter of 1999 and net
loss of $267,368, or $(0.001) per share, for the six months of 2000, as
compared to net losses of $788,867, or $(0.02) per share, for the six
months of 1999.
Liquidity and Capital Resources
Net cash used in operating activities was $664,291 in the six
months of 2000 compared with $1,059,626 in the six 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 provided by investing activities of $47,169 in 1999.
This change was primarily due to the reduction of distribution from our
joint ventures.
Net cash provided in financing activities amounted to $644,773
provided by financing activities for 2000 as compared to $1,015,187 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 June 30, 2000, the company had cash of $(2,381) compared
with $7,595 as of June 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.
The company has taken steps to reverse the company's history of
losses that contributed to its liquidity problem. First it has reduced
costs particularly in overhead and aggressively increased sales and
added additional programming.
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 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 company has experienced chronic cash shortfalls and through
June 30, 2000 has relied upon equity and debt financing. The company
has recently entered into several distribution agreements, which the
company believes may generate sufficient cash to cover operational
expenses for the balance of the year 2000. The foregoing assumes that
present notes outstanding will not be accelerated. We are always at
<PAGE>
risk that product will not be timely delivered or otherwise delayed. If
the Company does not obtain sufficient funds the Company will not be
able to operate.
Legal Matters
Prior to June 30, 2000 we settled the below action that was pending.
On October 28, 1998 Paul Cioffari commenced an action against
us and its subsidiary claiming failure of us to perform its agreement
to pay Mr. Cioffari agreed consideration for entertainment property
allegedly delivered by Mr. Cioffari to us. Cioffari vs. BNN Company
(Supreme Court New York County). Defendants seek damages up to $700,000
on a variety of claims. We have settled this claim and have agreed to
pay Mr. Cioffari 300,000 shares of KMG common stock as well as $6,500
in legal fees.
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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.
June 16, 2000: By: /s/ Myron A. Hyman
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Myron A. Hyman, Chief Executive Officer
June 16, 2000: By: /s/ Ann F. Collins
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Ann F. Collins, Chief Financial Officer
