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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 First Quarter ended March 31, 2000
Commission File No. 0-17591
KALEIDOSCOPE MEDIA GROUP, INC.
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(Exact name of registrant as specific in its charter)
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Delaware 93-0957030
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(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)
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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
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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
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's class as
of common equity, as of March 31, 2000: 41,355,960
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 March 31, 2000.................. 1-2
Consolidated Statements of Income three months ended
March 31, 2000 and March 31, 1999.......................... 3
Consolidated Statements of Cash Flows three months ended
March 31, 2000 and March 31, 1999.......................... 4
Notes to Financial......................................... 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations........................ 7-9
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Kaleidoscope Media Group, Inc
(Formerly Bnn Corporation)
and Subsidaries
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, 2000
ASSETS
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<S> <C>
CURRENT ASSETS
Cash $ 2,597
Accounts receivable, less allowance for doubtful
accounts of $411,428 706,717
Expenditures billable to clients 12,550
Program cost inventory - current portion,
net of accumulated amortization 313,598
Other current assets 142,528
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Total Current Assets 1,177,990
Property and equipment at cost less:
accumulated depreciation of $50.390 40,304
Investment in joint venture 453,926
Other assets 11,592
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Total Assets $ 1,683,812
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1
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Kaleidoscope Media Group, Inc
(Formerly Bnn Corporation)
and Subsidaries
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, 2000
LIABILITIES AND STOCKHOLDERS' DEFICIT
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<S> <C>
CURRENT LIABILITIES
Cash overdrafts $ 8,338
Loans officers 84,800
Notes payable 1,877,000
Accounts payable and accrued liabilities 2,095,236
Income tax payable 906,302
Deferred income and client advances 250,782
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Total Current Liabilities 5,222,458
LONG TERM LIABILITIES
Security deposit payable 10,552
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Total Liabilities 5,233,010
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STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value, 100,000,000
shares authorized and 41,355,960 issued in 1999 41,356
Preferred stock, $0.001 par value 15,000,000
shares authorized and none issued --
Additional paid-in-capital 9,603,063
Accumulated deficit (13,193,617)
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Total Stockholders' Deficit (3,549,198)
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Total Liability and Stockholders' Deficit $ 1,683,812
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2
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Kaleidoscope Media Group, Inc
(Formerly Bnn Corporation)
and Subsidaries
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
NET REVENUE $ 578,834 $ 38,034
DIRECT PROJECT COSTS
Amortization of program costs 29,934 --
Other direct project costs 6,825 7,511
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Total Direct Project Costs 36,759 7,511
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GROSS PROFIT 542,076 30,523
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EXPENSE
Salaries and benefits 148,720 274,302
General and administrative 300,575 249,455
Interest & local taxes 40,276 --
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Total Expenses 489,571 523,757
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INCOME (LOSS) BEFORE EQUITY IN LOSS OF JOINT VENTURE AND
PROVISION FOR INCOME TAXES 52,504 (493,234)
EQUITY IN LOSS OF JOINT VENTURE -- --
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INCOME (LOSS) BEFORE INCOME TAXES 52,504 (493,234)
PROVISION FOR INCOME TAXES -- --
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NET INCOME (LOSS) $ 52,504 $(493,234)
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NET EARNINGS PER COMMON SHARE
Basic Earnings (Loss) Per Share $ 0.001 $ (0.01)
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Diluted Earnings (Loss) Per Share $ 0.001 $ (0.01)
========= =========
</TABLE>
3
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Kaleidoscope Media Group, Inc.
(formerly BNN Corporation)
And Subsidaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
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2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 52,504 $(493,234)
Adjustment to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Amortization and depreciation 77,506 5,810
Changes in assets and liabilities:
Accounts receivable (493,495) (53,985)
Expenditures billable to clients (6,216) --
Deferred financing costs (94,545) --
Other assets 17,951 7,547
Cash overdraft (10,970) (13,051)
Accounts payable and accrued liabilities 212,759 194,498
Write-down of program costs inventory 29,934 --
Income taxes payable -- 3,315
Deferred income and client advances (53,500) --
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Net Cash Used in Operating Activities (268,073) (349,100)
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CASH FLOWS FROM INVESTING ACTIVITIES
Distribution from joint venture -- 73,500
Investment in joint venture (100) --
Expenditures for program costs (63,413) 70,666
Acquisition of property and equipment -- 726
Loans receivable - officers and shareholders - net change -- 9,000
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Net Cash Provided by (Used In) Investing Activities (63,513) 153,892
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CASH FLOWS FROM FINANCING ACTIVITIES
Loans payable to officers and shareholder (15,000) --
Proceeds from notes payable 410,533 40,800
Deferred financing costs incurred (32,000)
Repayments of notes payable (75,000) --
Issuance of common stock and related warrants -- 195,968
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Net Cash Provided by Financing Activities 288,533 236,768
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INCREASE (DECREASE) IN CASH (43,053) 41,560
CASH
Beginning of period 45,650 4,865
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End of period $ 2,597 $ 45,425
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</TABLE>
4
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KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 three months ended March 31, 2000
are not necessarily indicative of the results to be expected for the
full year.
Note 2 - MAJOR CUSTOMERS
KMG has increased its revenues substantial over the first three
months of 2000 by adding several new programs to its distribution
library. These additions include a major contract with Global
Entertainment for the distribution of Magnificent Ambersons mini
series.
Note 3 - NOTES PAYABLE
During the three-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.
5
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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
Three months Ended March 31, 2000 as Compared with Three Months Ended
March 31, 1999.
Net revenues consist of total billings (less any agency fees and
media costs) and accruals for earned fees. Net revenues for the first
quarter of 2000 were $578,834 compared with net revenue of $38,034 for
the first quarter of 1999. The increase in revenues is due to the
signing of several new contracts over the last six months. These
contract include several distribution agreements and two consulting
agreement to Internet streaming companies. The contract with Global
Entertainment for the distribution of Magnificent Ambersons mini series
has in accounted for $325,000 in revenues for the first quarter of
2000.
Gross profit increased by $511,533, to $542,076 for the first
quarter in 2000 from $ 30,523 for the first quarter of 1999.
Amortization of program costs (costs to produce, market and
distribute a broadcast or film property) and other direct project costs
was $36,759 in the first quarter of 2000 compared to $7,511 in 1999.
The increase in the amortization costs is a direct result in the
increase of revenue derived from programs.
Salaries and benefits decreased by $125,582, to $148,720 in the
first quarter of 2000 compared to $274,302 for the first quarter of
1999. General and administrative expenses increased by $51,120 to
$300,575 in the first quarter of 2000 from $249,455 for the comparable
period in 1999. The decrease in salaries and benefits is a result of
the closing of the Los Angeles office and the termination of several
employees. The increase in general and administrative expenses is a
result of the amortization of finance costs in the first three months
of 2000 these costs were incurred during third and fourth quarter 1999.
The financed costs are being amortized over the life of the loan. The
total finance costs amortized over the three-month period totaled
$76,130. The Company also incurred costs of approximately $11,000 for
domestic distribution that had not been incurred during the comparative
three months of 1999. The total of these costs is $87,130. Therefore,
by eliminating these costs, general and administrative expenses have
decrease by $36,010.
Interest and local taxes increased to $40,276 in the first quarter
of 2000; there was no interest and local taxes in first quarter of
1999.
Losses from operations (before equity in income of joint venture)
decreased by $545,738 from a loss of $493,234 first quarter of 1999 to
a profit of $52,504 for the first quarter of 2000. The company has
attained these profits by aggressively pursuing new programs and
reducing overall costs.
6
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The Company did not receive any equity in income of its joint
ventures in the first quarter 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 profit amounted to $52,504, or $0.001 per share,
for the first quarter in 2000, as compared to a net losses of $493,234,
or $(0.01) per share, for the same quarter of 1999.
Liquidity and Capital Resources
Net cash used in operating activities was $1,352,274 in 1999
compared with $268,073 in 2000. The decrease in cash used operating
activities was primarily the result of cash received through accounts
receivable.
Net cash used in investing activities in 1999 was $595,870
compared to the net cash used in investing activities of $63,513 in
2000. This change was primarily due to the reduction of expenditures
for program costs.
Net cash provided in financing activities amounted to $236,768 for
1999 as compared to $288,533 provided by financing activities for 2000.
The decrease in cash provided by financing activities was primarily the
result in a decrease in the issuance of common stock and related
warrants.
As of March 31, 1999, the Company had cash of $45,650 compared
with $2,597 as of March 31,2000. 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. As a result the Company closed its Los
Angeles office, terminated several employees, and reduced the amount of
fees paid for professional services. It also has entered into
arrangement with an independent third party to perform certain services
for the distribution formerly performed by the Company.
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
March 31, 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
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.
7
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Legal Matters
Certain legal matters in connection with the securities being
offered hereby will be passed upon for the Company by Parker Duryee
Rosoff & Haft, New York, New York 10017.
Experts
The consolidated financial statements of the Company, included in
the Company's annual report on Form 10-KSB for the fiscal year ended
December 31, 1999, which annual report has been incorporated herein by
reference, have been audited by Liebman Goldberg and Drogin LLP,
independent certified public accountants, as indicated in their report
with respect thereto, and are incorporated herein by reference in
reliance upon the report of said firm given upon their authority as
experts in accounting and auditing.
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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.
May 17, 2000: By: /s/ Myron A. Hyman
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Myron A. Hyman, Chief Executive Officer
May 17, 2000: By: /s/ Ann F. Collins
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Ann F. Collins, Chief Financial Officer
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