Capital Media 10Q 2002 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 000-21051

CAPITAL MEDIA GROUP LIMITED

(Exact name of small business issuer as specified in its charter)

NEVADA		87-0453100
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

In Mediapark 6B 50670 Cologne, Germany

(Address of Principal Executive Offices)(Zip Code)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such 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.

Yesx 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 December 18, 2002 there were 36,032,710 shares of the Common Stock issued and outstanding.

Transitional Small Business Disclosure Format (check one)

Yesx No¨

Part I. Financial Information

		Page
Item 1.	FINANCIAL STATEMENTS

	INDEX TO FINANCIAL STATEMENTS


	Consolidated Balance Sheet at September 30, 2002 (unaudited) and December 31, 2001	3

	Unaudited Consolidated Statement of Operations for the three and nine months ended September 30, 2002 and September 30, 2001	4

	Unaudited Consolidated Statement of Changes in Stockholders’ equity for the nine months ended September 30, 2002	5

	Unaudited Consolidated Statement of Cash Flows for the nine months ended September 30, 2002 and 2001	6

	Notes to Unaudited Consolidated Financial Statements	7-16

UNAUDITED CONSOLIDATED BALANCE

SHEET AT SEPTEMBER 30, 2002 AND

DECEMBER 31, 2001

	Note	September 30, 2002			December 31, 2001 As restated
		(unaudited)
ASSETS
Cash and cash equivalents		$	313,505		$	177,915
Accounts receivable trade, net of allowances for doubtful accounts of $400,508 (December 31, 2001 – $353,852)			560,023			712,036
Prepaid expenses and deposits			9,516			14,223

TOTAL CURRENT ASSETS			883,044			904,174
Intangible assets, net	3		47,259			120,081
Property, plant and equipment, net			462,014			623,900

TOTAL ASSETS			1,392,317			1,648,155

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Accounts payable			3,648,478			3,311,634
Accrued expenses			2,045,956			844,708
Related parties loans repayable within one year	4		12,185,546			11,972,303
Bank debt due within one year			19,029			256,494

TOTAL LIABILITIES			17,899,009			16,385,139
Minority Interest in Subsidiaries			(316,752	)		(187,487	)

			17,582,757			16,197,652

Commitments and Contingencies	5
STOCKHOLDERS’ DEFICIT
Common stock – 50,000,000 shares authorized:
$0.001 par value 36,032,710 (December 31, 2001 – 33,432,710) issued and outstanding,	6		36,033			33,433
Additional paid in capital			69,046,859			66,449,459
106,000 treasury shares at cost (December 31, 2001 – 106,000)			(757,381	)		(757,381	)

			68,325,511			65,725,511
Cumulative translation adjustment			7,083,939			8,185,830
Accumulated deficit			(91,599,390	)		(88,460,838	)

TOTAL STOCKHOLDERS’ DEFICIT			(16,189,940	)		(14,549,497	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT			1,392,317			1,648,155

The accompanying notes are an integral part of these consolidated financial statements.

UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS

For the three months and nine months ended September 30, 2002 and 2001

	Note	3 months ended September 30, 2002			3 months ended September 30, 2001			9 months ended September 30, 2002			9 months ended September 30, 2001
		(Unaudited)			As restated (Unaudited)			(Unaudited)			As restated (Unaudited)
Operating revenue		$	1,153,534		$	847,169		$	3,050,599		$	2,252,879
Operating costs
Staff costs			(442,117	)		(452,434	)		(1,224,747	)		(1,451,298	)
Depreciation and amortization			(105,313	)		(85,244	)		(341,408	)		(239,954	)
Other operating expenses			(1,546,137	)		(1,858,850	)		(4,336,743	)		(5,164,452	)

			(2,093,567	)		(2,396,528	)		(5,902,898	)		(6,855,704	)
Operating loss			(940,033	)		(1,549,359	)		(2,852,299	)		(4,602,825	)
Other income (expense)			(41,510	)		32,605			85			222,425
Financial (expense) income net			498,243			52,113			(357,935	)		(728,275	)

Loss before taxes and minority interest			(483,300	)		(1,464,641	)		(3,210,149	)		(5,108,675	)
Income tax benefit (expense)			—			—			—			—
Minority Interest			18,940			262,419			71,597			605,678

Loss from continuing operations			(464,360	)		(1,202,222	)		(3,138,552	)		(4,502,997	)
Loss from discontinued operations			—			(579,884	)		—			(1,836,435	)

Net loss			(464,360	)		(1,782,106	)		(3,138,552	)		(6,339,432	)

Net loss per share from continuing operations basic and diluted		$	(0.01	)	$	(0.04	)	$	(0.09	)	$	(0.13	)

Net loss per share from discontinued operations basic and diluted			—		$	(0.02	)		—		$	(0.05	)

Weighted average shares – basic			34,010,488			33,432,710			33,624,592			33,432,710

Weighted average shares – diluted			34,010,488			33,432,710			33,624,592			33,432,710

The accompanying notes are an integral part of these consolidated financial statements.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the nine months ended September 30, 2002

	Common stock Shares			Treasury shares			Cumulative Additional paid-in Capital		Other comprehensive Income (deficit)			Accumulated deficit			Total
Balance at January 1, 2002	33,432,710	$	33,433	$	(757,381	)	$	66,449,459	$	8,185,830		$	(88,460,838	)	$	(14,549,497	)
Shares Issued	2,600,000		2,600					2,597,400								2,600,000
Translation adjustment										(1,101,891	)					(1,101,891	)
Net loss													(3,138,552	)		(3,138,552	)

Comprehensive loss																(4,240,443	)

Balance at September 30, 2002	36,032,710	$	36,033	$	(757,381	)	$	69,046,859	$	7,083,939		$	(91,599,390	)	$	(16,189,940	)

The accompanying notes are an integral part of these consolidated financial statements.

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

For the nine months ended September 30, 2002, and 2001

	9 months ended September 30, 2002			9 months ended September 30, 2001
				as restated
Cash flows from operating activities
Net loss	$	(3,138,552	)	$	(6,339,432	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		383,445			239,954
Equity in net losses of affiliates and minority interests		(71,597	)		(469,538	)
Changes in assets and liabilities:
(Increase) / Decrease in accounts receivable and other assets		235,701			(4,462	)
(Decrease) / Increase in accrued expenses and other liabilities		246,503			67,334
(Increase) / Decrease in net assets from discontinued operations		—			1,116,697

Net cash used in operating activities		(2,344,500	)		(5,389,447	)

Cash flows from investing activities
(Acquisition) / disposal of plant and equipment		(7,696	)		37,253
Acquisition of intangible assets		(12,970	)		(29,718	)
Increase in financial assets		(36,105	)		—

Net cash (used) in investing activities		(56,771	)		7,535

Cash flows from financing activities
Increase in short term debt		2,743,500			5,515,565
Conversion of debt in share capital		(2,600,000	)		—
Issue of new stock		2,600,000			—

Net cash provided by financing activities		2,743,500			5,515,565

Effect of exchange rate changes on cash		30,826			(69,708	)

Net (decrease) / increase in cash and cash equivalents		373,055			63,945
Cash and cash equivalents at beginning of period		(78,579	)		21,110

Net (debt) / cash and cash equivalents at end of period		294,476			85,055

Supplemental data:
Interest		0			456,947
Income tax		0			0

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended September 30, 2002

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements are prepared in conformity with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. The condensed balance sheet information as of December 31, 2001 was derived from the audited consolidated financial statements, as restated, included in the Annual Report on Form 10-K of Capital Media Group Limited (“Company”) for the year ended December 31, 2001 (the “Form 10-K”). For further information, refer to the consolidated financial statements and footnotes thereto included in the Form 10-K.

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 nine months ended September 30, 2002 and the year ended December 31, 2001, the Company incurred net losses of $3,138,552 and $9,249,186 respectively.

At September 30, 2002, the Company had net current liabilities of $17,015,965 and its total liabilities exceeded its total assets by $16,189,940. These factors among others raise substantial doubt about the Company’s its ability to continue as a going concern for a reasonable period of time. The Company anticipates that any required funding will be made available by its majority stockholder, AB Groupe, although there can be no assurance that the necessary funding will become available.

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 4, 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 successful operations.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended September 30, 2002

INTANGIBLE ASSETS

	September 30, 2002			December 31, 2001
Purchased broadcast licenses	$	234,948		$	217,248
Computer Software		919,729			800,720
Goodwill		2,309			2,309

		1,156,986			1,020,277
Less accumulated amortization		(1,109,727	)		(900,196	)

		47,259			120,081

LOANS REPAYABLE WITHIN ONE YEAR

	September 30, 2002		December 31, 2001
AB Groupe S.A.	$	10,443,504	$	10,899,330
Interest accrued		1,742,043		1,072,973

Related party loans		12,185,546		11,972,303

As of September 10, 2002, the Company owed AB Groupe an aggregate of €12,218,818 (principal of €10,510,033 plus €1,708,785 in fees due to AB Groupe under the services agreement). All outstanding loans were consolidated into a single promissory note that will bear interest at the rate of 10% per annum. The principal amount of €10,510,033 and all accrued and unpaid interest will be due and payable in full on the earlier of a sale of our assets, a refinancing of our outstanding debt, or March 31, 2003. Additionally, AB Groupe agreed to loan the Company €1,708,785 to pay outstanding fees due to AB Groupe for services rendered as of August 31, 2002. Such amount is represented by a promissory note on the same terms as the above referenced loan.

AB Groupe also agreed to fund up to an additional €2.0 million to the Company, on the same terms as described above. However, AB Groupe will not be obligated to advance additional funds in the event of a material adverse change in the business, operations or financial condition of Onyx. As of September 30, 2002, CMG had drawn down €81,756 ($80,611) of this amount.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended September 30, 2002

LITIGATION

In June 1997, a former managing director of Onyx, Mr. Müller, 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 favor of Onyx. The plaintiff appealed against the ruling and claimed €85,900 ($86,252) in respect of his 1997 salary. In December 2001, the plaintiff increased his claim to a total of €333,000 ($334,365), which includes his salary for 1998 and 1999, as well as an indemnity regarding his departure. In June 2002, the court ruled in favor of the plaintiff. Onyx has appealed this decision and believes that it has valid defense and/or offsets to this claim. However, there can be no assurance as to the outcome of the matter. In November 2002, Onyx was obliged to freeze €401,112 ($402,756) pending the outcome of the appeal. The next court proceedings are not expected until April 2003.

Unimedia, a company sold in December 2001, has two minority shareholders who have brought numerous legal actions against Unimedia and/or its management. To date, all of these actions have been unsuccessful. The Company is indemnifying Gilles Assouline, its former chairman and chief executive officer, with respect to these claims. In November 2002, the Company was informed by Mr. Assouline that he had signed a settlement agreement with these minority shareholders, in which they renounce the pursuit of legal actions against Mr. Assouline and vice versa. However, Mr. Assouline’s co-defendant in this legal action has not settled with these minority shareholders and has asked the court to consider that Mr. Assouline should be liable in part for any successful claim against the co-defendant. As a result, there can be no assurance that Mr. Assouline will not incur further legal expenses related to this action and/or that he would not be liable in part for a successful claim against the co-defendant.

In June 2000, Onyx+, which was planning to broadcast its digital channels directly from Germany, signed a service agreement with Mediagate. As a result of the numerous delays taken by the cable operators with respect to the development of digital cable services in Germany combined with the failure of certain conditions precedent to the use by Onyx+ of the services provided by Mediagate, this agreement never became applicable. Mediagate has taken the position that Onyx+ was obligated under the contract, and has been invoicing Onyx+ at a monthly rate of DM 430,000 (approximately $220,756) starting January 2001. Mediagate has brought legal action against Onyx+ with respect to its non-payment of these invoices and for breach of contract. While Onyx+ has and will continue to vigorously dispute the application of this agreement, there can be no assurance as to the outcome of the pending litigation with Mediagate.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended September 30, 2002

CAPITAL STRUCTURE

6.1

COMMON STOCK PURCHASE WARRANTS

The Company had the following issued and vested warrants to purchase common stock outstanding at September 30, 2002 and December 31, 2001:

Description	September 30, 2002	Lapsed		Exercised		Granted	December 31, 2001
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 (1)	1,150,000	(687,339	)	(2,600,000	)	—	4,437,339
Warrants for common stock Exercisable at $0.60	1,333,333	—		—		—	1,333,333

	3,298,133	(687,339	)	(2,600,000	)	—	6,585,472

(1) In September 2002, the Company entered into a global resolution of outstanding issues between itself and AB Groupe. As a result, 2.6 million warrants have been exercised by AB Groupe and the loan converted into equity with an issue price of $1.00 per share as of September 10, 2002.

For a description of the terms of the outstanding warrants, see Note 14.1 of Notes to Consolidated Financial Statements in the Form 10-K.

6.2

COMMON STOCK PURCHASE OPTIONS

Description	Outstanding at September 30, 2002	Lapsed	Granted / Vested	Outstanding at December 31, 2001
Executive officers options exercisable @ $5.70 fully vested	37,500			37,500
Officers options exercisable @ $25.00 fully vested	30,000			30,000
Executive officers options exercisable @ $3.50 fully vested	266,665			266,665
Non-employee directors options exercisable @ $3.50 fully vested	50,000			50,000

Total exercisable	384,165			384,165

For a description of the terms of the outstanding options, see Note 14.2 of Notes to Consolidated Financial Statements in the Form 10-K.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the nine months ended September 30, 2002

6.3

ISSUANCE OF COMPANY SHARES

As of September 30, 2002, the Company has 36,032,710 shares of common stock outstanding and AB Groupe’s and Superstar’s stock holding represented 56.61% and 28.53%, respectively. Including warrants and options, the total potential number of shares would be 39,715,008 and the respective holdings would be 58.36% and 29.04%.

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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-K. 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 Form 10-KSB.

Results of Operations

Nine months ended September 30, 2002 compared to nine months ended September 30, 2001

Operating revenues for the nine months ended September 30, 2002 were $3,050,599, an increase of $797,720 (+35.41%) compared to operating revenues of $2,252,879 for the same period in 2001. This increase is due primarily to revenues generated by Onyx’s teleshopping contract, which became effective in the beginning of March 2001, as well as a significant increase in audiotext and talk line revenues.

Operating costs, including staff costs, depreciation and amortization totaled $5,902,898 for the nine months ended September 30, 2002 compared to $6,855,704 for the first nine months of 2001. This decrease is due primarily to decreased selling, general and administrative expenses partially offset by increased programming costs.

Financial expense for the nine months ended September 30, 2002 was $357,935 (including an exchange gain of $172,898) compared to $728,275 (including an exchange loss of $401,996) for the same period in 2001.

As a result of all of the above factors, the Company incurred a net loss of $3,138,552 for the nine months ended September 30, 2002 compared to $6,339,432 for the same period in 2001. The Company’s loss for the first nine months of 2001 included losses of $1,836,435 from discontinued operations, incurred by the Company’s technology activities, which were sold in December 2001.

The net loss per share for the nine months ended September 30, 2002 (basic and diluted) for continuing operations was $0.09, compared to a net loss per share (basic and diluted) for continuing operations of $0.13 for the nine months ended September 30, 2001. Weighted average shares outstanding basic and diluted were 33,634,592 for the nine months ended September 30, 2002 compared to 33,432,710 for the corresponding period in 2001.

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, we have financed our capital requirements through sales of our equity securities and through debt financing. Since inception through September 30, 2002, we have incurred an accumulated deficit of approximately $91.6 million, principally related to the launch and operation of Onyx. At September 30, 2002, we had a negative working capital of $17 million.

The Company will require significant financing over the next twelve months in order to remain a going-concern, the amount of which will depend in part on the revenues generated by the Company. There can be no assurance that the Company will be successful in securing the necessary funds to finance its operation through 2002. Funding is expected to come from AB Groupe, the Company’s majority stockholder, although there can be no assurance that AB Groupe will fund the amounts required.

Equity Offerings and Other Financing Agreements

In December 1999, AB Groupe made a loan to us of $500,000 for general working capital purposes. The term of the loan was two years and bears interest at the rate of ten percent (10%) per year. In connection with the loan, we granted AB Groupe a two year warrant to purchase 500,000 shares of common stock at the exercise price of $1.00 per share.

In January 2000, AB Groupe and Superstar made loans to us 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 term of the loan was two years and accrues interest at the rate of ten percent (10%) per year. In connection with the loan, we granted AB Groupe and Superstar a two-year warrant to purchase 1,000,000 shares of our common stock at an exercise price of $1.00 per share.

In March 2000, AB Groupe loaned us an additional $1,000,000 for working capital. The term of the loan was two years with interest of ten percent (10%) per annum. In connection with the loan, we granted AB Groupe a two year warrant to purchase 1,000,000 shares of common stock at an exercise price of $1.00 per share.

At a board meeting held on April 21, 2000, the board authorized the issue of up to 500,000 shares to each AB Groupe and Superstar at $1.50 each prior to the end of July 2000. Out of these, 780,000 shares were effectively issued and paid. AB Groupe and Superstar purchased 480,000 and 300,000 new shares respectively, out of which an aggregate number of 280,000 shares were effectively subscribed prior to June 30, 2000 and 500,000 shares were effectively subscribed in July 2000.

In August 2000 and in September 2000, AB Groupe sent €306,775 ($302,874) and €153,388 ($151,454) respectively on behalf of the Company for same to participate in a capital increase in Onyx+.

In September 2000, Superstar exercised 650,000 warrants and 650,000 shares of Common Stock were issued by us to Superstar.

In October 2000, AB Groupe purportedly exercised 2.6 million warrants at an exercise price of $1.00 per share. AB Groupe disputed their exercise of these warrants and the accounts at December 31, 2001 include this amount as a loan from AB Groupe. As discussed in Note 7 to the Financial Statements included herein, as part of a recent resolution of outstanding issues between us and AB Groupe, AB Groupe exercised these options.

In October 2000, FA Television Holdings LLC, a United States company acting on behalf of Gilles and Michel Assouline was authorized by our board held on September 25, 2000 to subscribe 480,000 shares at $1.50 each and 120,000 shares at $1.00 each thus 600,000 new issued shares for an aggregate purchase price of $840,000.

In February 2001, we accepted a funding proposal from AB Groupe to loan the Company $800,000. AB Groupe loaned the Company €731,147 ($644,360) which was required to support the Company’s operations. The loan was due on April 30, 2001. Since the loan was not repaid by that date, the loan is, at AB Groupe’s option, convertible into shares of Common Stock at a conversion price of $0.60 per share.

In June 2001, we entered into a borrowing agreement with AB Groupe for up to €3.5 million ($3.5 million). Under this agreement, we could borrow up to this amount prior to December 31, 2001. The loan bears interest at 10% per annum and was due on June 25, 2002. As of December 31, 2001, we had borrowed €3.5 million ($3.5 million) pursuant to this agreement with AB Groupe.

In November 2001, the Company accepted a funding proposal from AB Groupe to enable meet the immediate financing requirements of the technology activities and conclude an agreement regarding their sale. As a result, the Company borrowed a total of € 776,511 ($684,339). This loan, which bears 10% interest per annum, is due in December 2002.

In March 2002, we accepted a proposal from AB Groupe to provide additional funding under the same terms and conditions as the loans provided to us by AB Groupe in 2001.

As of September 10, 2002, we owed AB Groupe an aggregate of €12,218,818 (principal of €10,510,033 plus €1,708,785 in fees due to AB Groupe under the services agreement). As part of our resolution of outstanding issues with AB Groupe, we have consolidated all outstanding loans into a single promissory note that will bear interest at the rate of 10% per annum. The principal amount of €10,510,033 and all accrued and unpaid interest will be due and payable in full on the earlier of a sale of our assets, a refinancing of our outstanding debt, or March 31, 2003. Additionally, AB Groupe agreed to loan us €1,708,785 to pay outstanding fees due to AB Groupe for services rendered through this date. Such amount is represented by a promissory note on the same terms as the above referenced loan.

In addition, absent the occurrence of a material adverse change in the business, operations or financial condition of Onyx, AB Groupe committed to provide an additional €2.0 million in loans under the same terms and conditions as the loans described above. As of November 30, 2002, CMG had drawn down €1,081,756 of this amount, of which €402,112 ($402,756) has been frozen pending the outcome of Onyx’s appeal of the Müller litigation (see litigation). At such time, CMG owed AB Groupe a total of €13,365,928 including €1,774,138 of accumulated interests and excluding outstanding fees for services rendered through this date. This debt is entirely due on March 31, 2003.

Other matters

As part of its agreement with AB Groupe, the Company also settled an outstanding dispute relating to two invoices, which had been presented to the Company by AB Groupe. The first, relating to a proposed $600,000 charge for broadcast services during the fourth quarter of 2000 was compromised to $420,000. The full amount of the disputed invoice is included in accounts payable at December 31, 2001, and $180,000 of such amount will be reversed at December 31, 2002. The second, relating to services, which AB Groupe allegedly rendered to Onyx+, in the amount of $140,000, was also resolved, and such invoice remains due and payable.

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 come from the fundings already committed by AB Groupe, as described above. We cannot assure you as to whether such fundings will be sufficient to meet our working capital requirements, because (i) the amounts of required funding will, in large measure, be impacted by the level of revenues achieved by Onyx

Television and (ii) the amount of funding we may receive is conditioned upon the absence of any material adverse change in the business, operations or financial condition of Onyx. Further, while AB Groupe has committed to make the funding described above, AB Groupe has not agreed to fund amounts in excess of those already committed, and there can be no assurance that AB Groupe will fund amounts in excess of the funds already committed if we were to require such additional funding. We may also consider issuing additional shares of our common stock, or shares of the capital stock of our subsidiaries, to meet our anticipated capital requirements.

CMG accounting principles

CMG consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America.

CMG critical accounting estimates

Uncertainties resulting from the use of estimates are described in note 1 to the consolidated financial statements. It reads as follows:

“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 these estimates and assumptions.”

Estimates and assumptions are particularly significant with respect to estimating liabilities such as provisions and accruals for litigations. They are also significant with respect to assessing the recoverability of the carrying value of property, plant and equipment, intangible assets and deferred tax assets, which, to a large extent, is based on estimates of expected future net income or cash flows. Considering the factors specific to the main businesses of the Company, estimates of future net income and cash flows could vary significantly from actual results.

Basis of the estimates

Estimates of expected future net income or cash flows, which are used to assess the recoverability of assets, are primarily extracted from the plans prepared by us and updated every year. If estimates are needed for periods beyond the plan horizon, projected future net income or cash flows are determined on a case-by-case basis using relevant data available to management at the time of the estimate.

Revenue Recognition

Sales are recognized when products and services are delivered and when advertisements are broadcast and thereby invoiced to the customer. Inter-company charges are eliminated on consolidation and not included in revenues.

Use of Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these estimates, including, among other things, those related to estimated losses on disposal of discontinued operations, the realizability of its investment in affiliates and allowances for doubtful accounts receivable. Management bases their estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Adoption of accounting policies

In the past three years, CMG did not adopt new accounting policies having a significant impact on the Group’s financial position or result of operations, except for the adoption, in 2000, of SFAS 123 relating to Accounting for stock-based compensation.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks due to changes in currency exchange rates. Our revenues and net worth are affected by foreign currency exchange rates because its subsidiaries do business in various countries and because each subsidiary owns assets and conducts business in its local currency. Upon consolidation, the subsidiaries’ financial results are impacted by the value of the U.S. dollar at a time of the translation. A uniform 10% strengthening as of January 1, 2001 in the value of the dollar would have resulted in reduced revenues of $306,163 for the year ended December 31, 2001. A uniform 10% strengthening as of January 1, 2000 in the value of the dollar would have resulted in reduced revenues of $253,409 for the year ended December 31, 2000. A uniform 10% strengthening as of December 31, 2001 in the value of the dollar would have resulted in a reduction of our consolidated net worth by $124,357. A uniform 10% strengthening as of December 31, 2000 in the value of the dollar would have resulted in a reduction of our consolidated net worth by $48,911. We periodically evaluate the materiality of foreign exchange risk and the financial instruments available to mitigate this exposure. We attempt to mitigate its foreign exchange exposures by maintaining assets in the exposed currency wherever possible. We find it impractical to hedge foreign currency exposure and as a result will continue to experience foreign currency gains and losses.

ITEM 4. CONTROLS AND PROCEDURES

In order to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis, the Company has formalized its disclosure controls and procedures. The Company’s principal executive officer and principal financial officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Exchange Act Rules 13a-14(c) and 15d-14(c), as of a date within 90 days prior to the filing date of this report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective in timely alerting them to material information relating to the Company (and its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. Since the Evaluation Date, there have not been any significant changes in the internal controls of the Company, or in other factors that could significantly affect these controls subsequent to the Evaluation date.

Part II. Other Information

Item 1. LEGAL PROCEEDINGS

Item 2. CHANGE IN SECURITIES

None

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


99.1		CEO Certificate

99.2		CFO Certificate

(b)

Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant certifies that it caused this quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized, on December20, 2002.

CAPITAL MEDIA GROUP LIMITED

By:		/s/Alain Krzentowski
		Alain Krzentowski, President and Chief
		Executive Officer



By:		/s/ Jean-Francois Klein
		Jean-Francois Klein
		Chief Financial Officer

CERTIFICATION

I, Alain Krzentowski, certify that:

I have reviewed this quarterly report on Form 10-Q of Capital Media Group Limited;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: December 20, 2002						/s/ Alain Krzentowski
						Alain Krzentowski Chief Executive Officer

CERTIFICATION

I, Jean-Francois Klein, certify that:

I have reviewed this quarterly report on Form 10-Q of Capital Media Group Limited;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


Date: December 20, 2002				/s/ Jean-Francois Klein
				Jean-Francois Klein Chief Financial Officer

Exhibit Index

Exhibit Description

Exhibit Number

99.1		CEO Certificate

99.2		CFO Certificate

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. sophomore Avg

Capital Media (CPMG) Inactive 10-Q2002 Q3 Quarterly report

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