SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________.
Commission File No. 0-21051
CAPITAL MEDIA GROUP LIMITED
-----------------------------------------------------------
(exact name of small business issuer in its charter)
Nevada 87-0453100
- ------------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
- ------------------------------------------- --------------------------------
2 rue du Nouveau Bercy
94220, Charenton, France
- ------------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter periods 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 18, 2000, there were
31,173,251 shares of the Common Stock issued and outstanding.
Transitional Small Business Disclosure Format.
YES [ ] NO [X]
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited financial statements for the quarter covered by this report are
attached hereto in accordance with item 310(b) of Regulation S-B.
Index to Financial Statements
Unaudited Consolidated Balance Sheet at June 30, 2000 and
December 31, 1999 3
Unaudited Consolidated Statement of Operations for the
three and six months ended June 30, 2000 and June 30, 1999 4
Unaudited Consolidated Statement of Change in Stockholders'
Equity for the six months ended June 30, 2000 and the year
ended December 31, 1999 5
Unaudited Consolidated Statement of Cash Flows
for the six months ended June 30, 2000 and June 30, 1999 6
Notes to the Unaudited Consolidated Financial Statements 7
2
UNAUDITED CONSOLIDATED
BALANCE SHEET
JUNE 30, 2000
Note
June 30, December 31,
2000 1999
(unaudited)
ASSETS $ $
Cash and cash equivalents 2 1,306,085 181,352
Accounts receivable trade, net of allowances
for doubtful accounts of $19,498 3 1,525,595 1,345,979
(December 31, 1999 - $28,234)
Inventories, net 165,740 114,744
Prepaid expenses and deposits 44,085 33,784
----------- -----------
TOTAL CURRENT ASSETS 3,041,505 1,675,859
Investments 33,099 6,985
Equity in affiliated companies 91,583 112,725
Intangible assets, net of accumulated amortization of 4 1,896,257 2,204,271
$3,463,111 (December 31, 1999 - $3,171,811)
Property, plant and equipment, net 5 1,142,675 1,085,253
----------- -----------
TOTAL ASSETS 6,205,119 5,085,093
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 2,819,286 2,223,375
Accrued expenses 1,054,132 1,620,310
Related parties loans repayable within one year 6-14 3,464,431 1,259,583
Bank debt due within one year 2,351,799 1,607,007
----------- -----------
TOTAL LIABILITIES 9,689,648 6,710,275
COMMITMENTS AND CONTINGENCIES 8-13 - -
MINORITY INTEREST IN SUBSIDIARIES 402,477 402,477
----------- -----------
10,092,125 7,112,752
----------- -----------
STOCKHOLDERS' EQUITY
Common stock - 50,000,000 shares authorized:
$0.001 par value 30,673,251 (December 31, 1999 - 1-13 30,670 28,580
28,583,251) issued and outstanding,
Additional paid in capital 58,202,834 55,771,258
166,791 shares held by subsidiary (December 31, 1999 (950,712) (950,712)
- 166,791) at cost
----------- -----------
57,282,792 54,849,126
Cumulative translation adjustment 8,159,058 5,986,265
Accumulated deficit (69,328,856) (62,863,050)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (3,887,006) (2,027,659)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 6,205,119 5,085,093
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
For the six and three months ended June 30, 2000 and June 30, 1999
Three months Three months Six months Six months
ended ended ended ended
June 30,2000 June 30,1999 June 30,2000 June 30,1999
Note (Unaudited) (Unaudited) (Unaudited) (Unaudited)
$ $ $ $
Operating revenue 729,028 879,464 1,563,442 1,464,356
Operating costs
Staff costs 680,488 508,138 1,338,377 1,119,663
Depreciation and amortization 262,167 270,814 487,771 492,469
Other operating expenses 2,517,394 1,901,754 4,266,051 3,514,611
------------ ------------ ------------ ------------
(3,460,049) (2,680,706) (6,092,199) (5,126,743)
Operating loss (2,731,021) (1,801,242) (4,528,757) (3,662,387)
Other (expense) 107,315 (84,126) 62,845 (95,214)
Financial (expense) income net 10 (1,123,173) (2,671,941) (1,978,454) (5,982,571)
Equity in net loss of affiliates (10,217) 4,714 (21,142) (50,723)
----------- ----------- ------------ ------------
Loss from continuing operations (3,757,096) (4,552,595) (6,465,508) (9,790,895)
before taxation
Income tax benefit (expense) 4 1,861 (298) 1,740
------------ ------------ ------------ ------------
(3,757,092) (4,550,734) (6,465,806) (9,789,155)
Discontinued operations 7
Loss from operation of discontinued - (14,195) - (15,895)
subsidiary
------------ ------------ ------------ ------------
Net loss before minority interest (3,757,092) (4,564,929) (6,465,806) (9,805,050)
Minority interest - 2,005 - -
------------ ------------ ------------ ------------
Net loss (3,757,092) (4,562,924) (6,465,806) (9,805,050)
============ ============ ============ ============
Net loss per share for continuing ($0.12) ($1.14) ($0.22) ($2.45)
operations - basic
============ ============ ============ ============
- - diluted ($0.12) ($1.14) ($0.22) ($2.45)
============ ============ ============ ============
Net loss per share including ($0.12) ($1.14) ($0.22) ($2.45)
discontinued operations - basic
============ ============ ============ ============
- - diluted ($0.12) ($1.14) ($0.22) ($2.45)
============ ============ ============ ============
Weighted average shares - basic 30,097,695 4,009,413 29,406,307 4,009,413
============ ============ ============ ============
Weighted average shares -diluted 30,097,695 4,009,413 29,406,307 4,009,413
============ ============ ============ ============
See notes to the consolidated financial statements.
4
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the six months ended June 30, 2000 and the year ended December 31, 1999
Cumulative
Shares Additional other
held by paid-in comprehensive Accumulated Total
Common stock subsidiary capital income (deficit) deficit
Shares $ $ $ $ $ $
Balance at
January 1, 2000 28,583,251 28,580 (950,712) 55,771,258 5,986,265 (62,863,050) (2,027,659)
Shares Issued 2,090,000 2,090 - 2,431,576 2,433,666
Commission paid
Translation adjustment 2,172,793 2,172,793
Net loss - - - - (6,465,806) (6,465,806)
-----------
Comprehensive loss (4,293,013)
---------- ------ -------- ---------- --------- ----------- -----------
Balance at
June 30, 2000 30,673,251 30,670 (950,712) 58,202,834 8,159,058 (69,328,856) (3,887,006)
========== ====== ======== ========== ========= =========== ===========
Cumulative
Shares Additional other
held by paid-in comprehensive Accumulated Total
Common stock subsidiary capital income (deficit) deficit
Shares $ $ $ $ $ $
Balance at
January 1, 1999 4,009,413 4,009 (950,712) 31,191,990 756,406 (48,238,074) (17,236,381)
Shares Issued 24,537,838 24,571 24,669,268 24,693,839
Commission paid (90,000) (90,000)
Translation - - - - 5,229,859 5,229,859
adjustment
Net loss - - - - (14,624,976) (14,624,976)
-----------
Comprehensive loss (9,395,117)
---------- ------ -------- ---------- --------- ----------- -----------
Balance at
December 31, 1999 28,583,251 28,580 (950,712) 55,771,258 5,986,265 (62,863,050) (2,027,659)
========== ====== ======== ========== ========= =========== ===========
See notes to the consolidated financial statements.
5
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30, 2000 and June 30, 1999
Restated
Six months Six months
ended ended
June 30, 2000 June 30, 1999
$ $
Cash flows from operating activities
Net loss (6,465,806) (9,805,050)
Adjustment to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 487,771 492,469
Equity in net losses of affiliates and minority interests 21,142 50,723
Changes in assets and liabilities:
(Increase) / decrease in other assets and inventories (61,017) 12,032
Decrease / (increase) in accounts receivable (179,616) 403,961
(Decrease) / increase in accrued expenses and other 154,581 810,672
liabilities
---------- ----------
Net cash used in operations (6,042,945) (8,035,193)
---------- ----------
Cash flows from investing activities
Acquisition of plant and equipment (237,289) (652,073)
Acquisition of intangible assets (170) -
Acquisition of financial assets (26,114) -
---------- ----------
Net cash received / (used) in investing activities (263,573) (652,073)
---------- ----------
Cash flows from financing activities
Increase in short term debt 2,180,000 4,777,416
Repayment of loans (100,000) (1,000,000)
Issuance of shares 2,433,666 -
---------- ----------
Net cash provided by financing activities 4,513,666 3,777,416
---------- ----------
Effect of exchange rate changes on cash 2,172,793 4,388,694
---------- ----------
Net (decrease) / increase in cash and cash equivalents 379,941 (521,156)
Cash and cash equivalents at beginning of period (1,425,655) 583,320
---------- ----------
Net (debt) / cash and cash equivalents at end of period (1,045,714) 62,164
========== ==========
Supplemental data:
Interest paid 264,852 69,442
Income tax paid 298 433
The accompanying notes are an integral part of these consolidated financial
statements.
6
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements are prepared in
conformity with generally accepted accounting principles in the United
States of America.
Principles of consolidation
The unaudited consolidated financial statements include the accounts of
Capital Media Group Limited ("the Company") and its wholly owned
subsidiaries, Capital Media (UK) Limited (""CM(UK)"), and Onyx
Television GmbH ("Onyx"), together with the Company's 81.6% owned
subsidiary Unimedia SA ("Unimedia") and Unimedia's wholly owned
subsidiary, Pixel Limited ("Pixel"), and its 98,66% owned subsidiary
TopCard SA ("TopCard"). All inter company accounts and transactions
have been eliminated in consolidation. Pixel's 47.5% interest in Henry
Communications Limited ("Henry"), have been accounted for using the
equity method, after the elimination of all significant intercompany
balances and transactions.
Tinerama Investment AG ("Tinerama"), a 51% owned subsidiary was sold in
December 1999 (See Note 7). CM(UK)'s 50% interest in Blink TV Limited
("Blink") was sold in December 1999. Neither of these former
investments is consolidated.
Interim Adjustments
The consolidated financial statements as of, and for the periods ended
June 30, 2000 and June 30, 1999, are unaudited. The interim financial
statements reflect all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of management, necessary for a fair
statement of the results for the interim period presented. The results
of operations for the interim periods should not be considered
indicative of results expected for the full year.
Inventories
Inventories are stated at the lower of first-in, first-out cost or
market value. Inventories include both raw materials and finished
goods.
Intangible Assets
Intangible assets represent purchased broadcast licences, computer
software and goodwill arising on acquisition of subsidiary
undertakings. The amounts in the balance sheet are stated net of the
related accumulated amortization. Computer software is amortized in the
year of their acquisition. Broadcast licenses and goodwill are
amortized on a straight-line basis over periods not exceeding six
years. The Company evaluates the possible impairment of long-lived
assets, including intangible assets, whenever events or circumstances
indicate that the carrying value of the assets may not be recoverable,
by comparing the undiscounted future cash flows from such assets with
the carrying value of the assets. An impairment loss would be computed
based upon the amount by which the carrying amount of the assets
exceeds its fair value at any evaluation date.
Property, plant and equipment
Property, plant and equipment are all stated at cost. Depreciation is
recorded on a straight-line basis over the estimated useful lives of
the assets as shown below:
Fixtures, fittings and equipment 5 to 20 years
Foreign Currency
Assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates. Income statement items are
translated at the average rate for the period. The effects of these
translation adjustments are reported in a separate component of
shareholders' equity. Exchange gains and losses arising from
transactions denominated in a currency other than the functional
currency of the entity involved are included in net income.
Income taxes
Full provision is made for all deferred tax liabilities. Deferred
income tax assets are recognized for deductible temporary differences
and net operating losses, reduced by a valuation allowance if it is
more likely than not that some portion of the benefit will not be
realized.
7
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
Lease
Operating leases are charged to expense, on a straight-line basis, over
the term of the lease.
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.
Research and development costs
Research and development costs are charged to expense as incurred.
Earnings per share
Basic income per share is calculated on the basis of weighted average
outstanding shares. Diluted income per share is computed on the basis
of weighted average outstanding common shares, plus potential common
shares assuming exercised stock options and conversion of outstanding
convertible securities where issued. The computation of earnings per
share does not assume exercise of the warrants or options if they would
have an anti-dilutive effect on earnings per share.
Fair value of Financial Instruments
The fair value of certain financial instruments, including cash,
receivables, accounts payable, and other accrued liabilities,
approximate the amount recorded in the balance sheet because of the
relatively short-term maturities of these financial instruments. The
fair value of bank, insurance company and other long-term financing at
December 31, 1999 and June 30, 2000, approximate the amounts recorded
in the balance sheet based on information available to the Company with
respect to current interest rates and terms for similar debt
instruments.
Reclassifications and restatement
Certain reclassifications have been made to the June 2000 balances to
conform to the 1999 year end presentation.
On October 27, 1999, the Company effected a reverse split of its
outstanding common stock on a one share for ten share basis, and its
authorized shares remaining at 50 million shares (see Stockholders'
Meeting below). Unless otherwise stated, all per share data contained
herein has been adjusted to reflect the completion of the reverse
split.
Use of estimates
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 those estimates.
Stockholders meeting
At their meeting on October 22, 1999, the stockholders approved the
following resolutions; (i) a reverse split of the Company's outstanding
stock on a one share for ten shares basis, with the Company's
authorized shares remaining at 50 million shares; (ii) the terms of the
financial arrangements between the Company and AB Groupe S.A., and
between the Company and Superstar Ventures Limited ("Superstar") (see
Notes 13 and 14); and (iii) the grant of an option to an entity
controlled by the Company's Chairman and Chief Executive and Chief
Operating Officer to purchase 1.6 million shares of the Company's
common stock at an exercise price of $1.00 per share (see Note 13).
Following the reverse split, which was effected on October 27, 1999, in
accordance with its financial arrangements among the Company, AB Groupe
and Superstar, the Company issued 22,598,255 shares to AB Groupe and
Superstar, in conversion of $22,598,255 of outstanding convertible
debt, including $4,649,839 of accrued interest (see Note 6, 13 and 14).
At June 30, 2000, the Company has 30,673,251 shares of common stock
outstanding.
8
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
2. 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 period ended June 30, 2000 and
the year ended December 31, 1999, the Company incurred net losses of
$6,465,806 and $14,224,976 respectively.
At June 30, 2000, the Company had net current liabilities of $6,648,143
and its total liabilities exceeded its total assets by $3,887,006.
These factors among others may indicate that the Company will be unable
to continue as a going concern for a reasonable period of time.
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 14, 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.
3. ACCOUNTS RECEIVABLE
June 30, December 31,
2000 1999
$ $
Accounts receivable comprise:
Trade receivables 715,080 500,954
Taxation receivable 11,793 37,654
Other debtors receivable 798,722 807,371
--------- ---------
1,525,595 1,345,979
========= =========
4. INTANGIBLE ASSETS
June 30, December 31,
2000 1999
$ $
Purchased broadcast licenses 226,696 241,755
Computer Software 567,476 569,131
Goodwill 4,565,196 4,565,196
---------- ----------
5,359,368 5,376,082
Less accumulated amortization (3,463,111) (3,171,811)
---------- ----------
1,896,257 2,204,271
========== ==========
9
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
Goodwill net of amortization is as follows:
June 30, December 31,
2000 1999
$ $
Unimedia 1,444,070 1,674,695
TopCard 394,423 452,232
Pixel 41,455 53,965
--------- ---------
1,879,948 2,180,892
========= =========
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
June 30, December 31,
2000 1999
$ $
Fixtures, fittings and equipment 3,603,843 3,505,303
Less accumulated depreciation (2,461,168) (2,420,050)
---------- ----------
1,142,675 1,085,253
========== ==========
6. LOANS REPAYABLE WITHIN ONE YEAR
June 30, December 31,
2000 1999
$ $
Instar Holdings Ltd - 100,000
AB Groupe S.A. 2,657,339 977,339
Superstar Investments Ltd 650,000 150,000
Interest and penalty interest accrued 157,087 32,244
--------- ---------
Related party loans 3,464,426 1,259,583
========= =========
The terms of AB Groupe and Superstar loans are detailed in Note 14.
7. DISCONTINUED OPERATIONS AND DIVESTMENTS
TINERAMA
During 1998, the Company approved a decision to sell its interests in the
Romanian group of companies, Tinerama. The sale was for a nominal sum and the
transaction agreed in November 1999 and concluded in February 2000. The results
of the Tinerama business in 1999 were reported separately as a discontinued
operation.
BLINK
In December 1999, the 50% interest in Blink was sold to RCL Communications Ltd,
the other joint investor for a nominal sum and converted our (pound)130,000
(approximately $200,000) of existing loans to Blink into new redeemable equity
equating to 19% of Blink. If successful in the future, Blink will be obligated
to repay the redeemable equity.
10
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments
In October 1999, the Company entered into a monthly agreement to lease
offices, as well as the use of studio, post production and editing
facilities in Cologne, Germany. Under the terms of the office agreement
the Company is committed to paying DM 180,000 ($88,000 at June 30, 2000
exchange rates) per annum.
The Company has also entered into leases for office space in France,
expiring between 1999 and 2002 at an annualized cost of $95,000 (at
June 30, 2000 exchange rates).
The total rental expense in 1999, including transponders and lease
commitments as above, is $2,288,870.
Minimum lease payments under operating leases as of June 30, 2000 are
as follows:
Years ending December 31,
$
2000 2,267,000
2001 267,000
2002 267,000
2003 267,000
2004 and thereafter 317,000
----------
$3,385,000
==========
The Company is committed to pay to its directors under employment
agreements an aggregate of $550,000 during the year ended December 31,
2000.
RETIREMENT INDEMNITIES AND PENSION PLANS
Retired employee benefits from State or Government sponsored pension
schemes. Contributions by employers to these sponsored schemes are
expensed as incurred. There are no specific supplemental pension plans
operated by the Company or any subsidiary. There is no liability
arising from retirement indemnity.
9. RESEARCH AND DEVELOPMENT COSTS
TopCard is involved in the development of specific applications based
upon smart card technology including remote security Internet access
and infra-red contactless smart card technology.
June 30, June 30,
2000 1999
$ $
Research and development costs 106,419 111,402
======= =======
11
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
10. FINANCIAL EXPENSE
6 months ended 6 months
June 30, ended
2000 June 30,
$ 1999
$
Interest expense / (income) 264,852 2,060,284
Foreign currency exchange loss 1,713,602 3,922,287
--------- ---------
1,978,454 5,982,571
========= =========
The foreign currency exchange loss in 2000 and in 1999 arose primarily from the
exchange differences arising in the inter-company loan between CM(UK) and Onyx
recorded in pounds sterling and German Marks, respectively.
11. INCOME TAXES
Net operating loss carry forwards which give rise to deferred tax
assets at June 30, 2000 and December 31, 1999 are as follows:
June 30, December 31,
2000 1999
$ $
Deferred tax asset on unrealized tax losses 25,102,000 23,251,000
Timing differences 409,000 409,000
----------- -----------
Valuation allowances (25,511,000) (23,660,000)
Total deferred tax assets - -
=========== ===========
The Company has significant deferred tax assets (approximately
$25,100,000) corresponding to tax losses arising primarily from the
operating losses incurred by Onyx, in Germany. These tax losses are
available to be carried forward indefinitely to be set off against
future profits in Germany. However, at the end of 1999 and in June
2000, the management forecast that the Company will not be profitable
in 2000 and therefore no credit for income tax was recorded. The
Company will continue to review its tax valuation allowance in future
periods.
12
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
12. LITIGATION
In June 1997, a former managing director of Onyx 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 favour of Onyx. The
plaintiff appealed against the ruling and has claimed DM168,000
(US$86,000) in respect of his 1997 salary. The court is now considering
new evidence put forward by Onyx which believes that it has valid
defenses to this claim. However, there can be no assurance as to the
outcome of the matter.
In May 1998, TV Strategies, a US Dallas based television services
company, obtained a default judgement against Onyx for DM300,000
($154,000), plus interest, relating to services which TV Strategies
alleged that they provided to Onyx. In March 1999, the default
judgement was set aside by the Texas Appeals Court and in February
2000, Onyx paid $235,000 in full settlement of the dispute.
Unimedia has minority shareholders (Oradea and Roland Pardo) who have
advised Unimedia that they do not believe that the reorganization of
Unimedia with the Company was in the best interest of Unimedia and its
stockholders. In the past three years, these shareholders have
unsuccessfully brought numerous legal actions against Unimedia and / or
its management. Among these actions is the one they took through the
courts in France and Israel to safeguard their potential rights over
certain assets of Unimedia in order to secure repayment of unsecured
loans made by them to Unimedia, pursuant to which they were recently
condemned by the French Court to pay damages to Unimedia for having
maintained (See Note 8) abusive leans on all Unimedia assets after
Unimedia complied with the French courts rulings and repaid the loans
in July 1999.
Oradea and R. Pardo also brought a legal action through the Court of
England against Gilles Assouline and Montague Koppel with respect to
their investment in both Unimedia and ActivCard. The Court will soon
consider new evidence put forward by Gilles Assouline who believes that
he has strong and valid defense. However there can be no assurance as
to the outcome of the matter.
For information regarding the legal action recently brought by Gralec
Establishment against Unimedia, see Note 13.
13
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
13. CAPITAL STRUCTURE
At the Stockholder's Meeting on October 22, 1999, the Stockholders
approved a reverse split of the Company's authorized capital on a one
new share for ten old shares basis, with the Company's authorized
shares remaining at 50 million shares. Unless otherwise noted, all
share and per share references herein reflected completion of the
reverse split on October 27, 1999.
The Company has the following issued and vested warrants to purchase
common stock outstanding at June 30, 2000 and December 31, 1999:
Description June 30, Granted December 31,
2000
Warrants for common stock 633,914 633,914
exercisable at $40.00 *
Warrants for common stock 51,119 51,119
exercisable at $31.25 *
Warrants for common stock 129,767 129,767
exercisable at $25.00 *
Warrants for common stock 7,187,339 3,650,000 3,537,339
exercisable at $1.00
--------- --------- ---------
8,002,139 3,650,000 4,352,139
========= ========== =========
<FN>
* registered with the SEC
</FN>
All outstanding registered warrants expire on January 19, 2003, being
36 months from the date of the effective registration of their
underlying shares. The warrants for $25.00, $31.125 and $40.00 were
issued in connection with a Private Placement Offering ("the Offering")
which took place in December 1995 and January 1996. Warrants to
purchase 420,000 and 100,000 shares of common stock at exercise prices
of $40.00 and $25.00 per share were issued to investors in the
Offering. In September 1996, 10,000 shares and warrants to purchase an
additional 10,000 shares at an exercise prices of $25.00 were issued to
a director for consulting services. The Company was obligated to issue
to the former Unimedia stockholders, 113,914, 7,787 and 19,767 warrants
to purchase shares of common stock at exercise prices of $40.00, $31.25
and $25.00 respectively.
On December 18, 1998, the Board approved the grant of a two year
warrant to purchase an aggregate of 1,600,000 shares at an exercise
price of $1.00 per share to Diamond Production, a company owned by two
executive directors. This grant was approved at the stockholders'
meeting on October 22, 1999.
In May 1999, AB Groupe and Superstar made a loan to the Company in the
aggregate amount of $300,000 and In August 1999, AB Groupe made a loan
to the Company in the aggregate of $327,339. The loans are due in two
years and carry interest at the rate of 10% per annum. In connection
with the loan, the Company granted two-year warrants to purchase an
aggregate of 627,339 shares of the Common Stock at an exercise price of
$1.00 per share.
In September 1999, AB Groupe provided to a bank a form of guaranty for
half of a DM3 million (approximately $1.6 million) bank facility
granted to Onyx Television. In connection with the guaranty, the
Company granted AB Groupe a two year warrant to purchase 810,000 shares
of Common Stock at an exercise price of $1.00 per share. In the event
that the bank guaranty is called upon, the Company will be obligated to
issue to AB Groupe such number of shares of common stock at $1.00 per
share as is equal to the amount paid by AB Groupe under its guaranty.
In December 1999, AB Groupe made a loan to the Company in the amount of
$500,000. The loan is due in two years and carries interest at the rate
of 10% per annum. In connection with the loan, the Company granted a
two-year warrant to purchase500,000 shares of the Common Stock at an
exercise price of $1.00 per share.
On January 19, 2000, the Company has offered to the warrant holders
the right, for a period of 9 months, to exercise their warrants and
receive two shares of Common Stock at an exercise price of $3.00 per
share, with the exception of one of its warrant holders, Auric
Investments Limited ("Auric"). Auric was given the right to subscribe
to purchase 156,416 shares of Common Stock on the basis of two shares
for each of the 78,208 warrants which they hold, but at an exercise
price of $2.00 per share. Auric was granted this lower price due to
14
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
the assistance which they provided to the Company in assisting the
Company to re-obtain the quotation on the Bulletin Board maintained by
NASD.
If the holders of the outstanding warrants do not exercise this right,
the warrants will remain outstanding on their original terms until
their expiration date.
In January 2000, the Company granted a two year warrants to purchase
1,650,000 shares at an exercise price of $ 1.00 per share. These
warrants were granted to staff members for 250,000; to Jean Francois
Klein for 650,000; to David Ho for 250,000; to Gilles Assouline for
250,000 and to Michel Assouline for 250,000. These warrants were
converted in March into warrant to purchase Company common stock at a
purchase price of $1.00 per share exercisable from March 17,2000 until
a three year period following the effective registration of all
warrants.
In January 2000, AB Groupe and Superstar made loans to the Company in
the aggregate of $1,000,000. The loan is due in two years and carries
interest at the rate of 10% per annum. In connection with the loan, the
Company granted a two-year warrant to purchase 1,000,000 shares of the
Common Stock at an exercise price of $1.00 per share.
In March 2000, Groupe AB loaned the Company an additional $1,000,000
for working capital. The loan is due in two years and carries interest
at the rate of 10% per annum. In connection with the loan, the Company
granted a two-year warrant to purchase 1,000,000 shares of the Common
Stock at an exercise price of $1.00 per share.
In April 2000, Groupe AB and Superstar agreed to subscribe for up to
US $750,000 each to new issued Company shares at US $1.50 each prior
to July 15, 2000. As of today, Groupe AB and Superstar purchased
480,000 new shares and 300,000 shares respectively, out of which an
aggregate number of 280,000 shares were effectively subscribed prior to
June 30, 2000.
15
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
COMMON STOCK PURCHASE OPTIONS
Description Outstanding at Granted Outstanding at
June 30, December 31,
2000 1999
Exercisable @ $1.00 600,000 600,000
Executive officers options exercisable @ $5.70
of which vested 37,500 37,500
30,000 30,000
Officers options exercisable @ $25.00 30,000 30,000
of which vested 30,000 30,000
Executive officers options exercisable @ $3.50 400,000 400,000
of which vested 239,996 79,998 159,998
Non-employee directors options exercisable @ $3.50 50,000 50,000
of which vested 50,000 50,000
---------------------------------------------
Total exercisable 1,117,500 517,500
=============================================
In 1998, Unimedia transferred 154,000 shares of Common Stock to Gralec
Establishment for an aggregate purchase price of $500,000. The shares
of Common Stock transferred to Gralec have now been registered,
according to a registration rights agreement. The Company, however,
failed to register the Common Stock by November 30, 1999 as required
under this registration rights agreement. In order to extend the period
during which registration of the Common Stock could be completed, the
Board approved on December 29, 1999; (1) to sell to Gralec 220,000
shares against transfer of the net proceeds from the sale of 50,000
ActivCard shares previously sold by Unimedia to Gralec in 1996, and (2)
to grant Gralec Establishment an additional option to purchase 600,000
shares of our authorized but issued Common Stock at an exercise price
of $1.00 per share for a period of nine months. On January 19, 2000 all
shares and options granted to Gralec were effectively registered thus
opening the nine month option period from there. Gralec recently
brought an action through the French Court against Unimedia, on the
basis that Gralec alleges to still own the right to purchase 50,000
ActivCard shares from Unimedia for an aggregate purchase price of
US$650,000, which allegation is firmly denied by Unimedia which
believes that it has valid defenses against Gralec's claim.
On August 1, 1997, the Company entered into three year employment
agreements with the executive officers providing for them to receive in
addition to other compensations, options to purchase 20,000 and 17,500
shares of common stock at an exercise price of $5.70 per share, the
price at which transactions were effected at that time. The options
vested 2/5 upon the effective date of the agreement and will vest 1/5
on each of the first, second and third anniversaries, respectively, of
the agreement. These options expire 36 months from the date of their
effective registration. It is expected that the employment agreements
will be renewed in September.
The Chief Financial Officer as part of his service agreement was
entitled to receive options in each of the years 1996, 1997 and 1998 to
purchase in aggregate, 30,000 common shares of the Company at $25.00
per share, the price at which transactions were effected at the time.
These options expire 36 months from the date of their effective
registration.
On March 10, 1998, the Board of Directors granted options to four
executive officers of the Company to purchase an aggregate of 400,000
shares of common stock at an exercise price of $3.50 per share (the
price at which common stock was negotiated on the date of grant). On
the same date, non-employee directors were granted options to purchase
an aggregate of 50,000 shares at the same price. The options vested to
executive officers, 20,000 each in 1998, with the balance over 3 years,
and to non-employee directors immediately. The options are valid for 5
years and expire on March 10, 2003.
16
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
ISSUANCE OF COMPANY SHARES
In March 2000, the Company granted management the right to purchase up
to 6.5 million shares as detailed below:
-------------------------------------------------------------------------------------------------------------
Purchase price Gilles Assouline Michel Assouline Jean-Francois Klein David Ho Total
-------------------------------------------------------------------------------------------------------------
$1 per share 750,000 1,100,000 750,000 750,000 3,350,000
-------------------------------------------------------------------------------------------------------------
$1.50 per share 250,000 300,000 250,000 250,000 1,050,000
-------------------------------------------------------------------------------------------------------------
$2 per share 250,000 300,000 250,000 250,000 1,050,000
-------------------------------------------------------------------------------------------------------------
$2.50 per share 250,000 300,000 250,000 250,000 1,050,000
-------------------------------------------------------------------------------------------------------------
Total 1,500,000 2,000,000 1,500,000 1,500,000 6,500,000
-------------------------------------------------------------------------------------------------------------
The terms and conditions of this proposed share issuance were
recommended by the audit committee on March 17, 2000. In concluding
this price to be the fair value for the shares, the audit committee
took into consideration the level of funding of the Company required
until the end of 2000 and the poor level of trading activity of the
Company's shares on the market (making, in their view, the market price
of the Common Stock unreliable as a factor in determining value). The
audit committee further considered the placement of new issued shares
under similar terms and conditions in favor of the non-affiliate
shareholders of the Company and recommended this be done in the future.
The Board intends that such a placement will be proposed during the
next shareholder's meeting.
The Board held April 21,2000 authorized the issue of up to 500,000
shares to each Group AB and Superstar at $1.50 each prior to June 30,
2000. Out of these, 200,000 shares were effectively issued in June
2000.
In May 2000, the Board proposed to issue 1,000,000 Company shares
to Roger Orf at a purchase price of $2.50 per share prior to July 31,
2000. As of August 18, 2000, Roger Orf did not purchase these shares.
PRO-FORMA NET LOSS AND NET LOSS PER SHARE
The Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation" and, as permitted under SFAS
No.123 applies Accounting Principles Board Opinion ("APB") No 25 and
related interpretations in accounting for its stock options. Since the
Company awarded the stock options with no discount as compared with the
market price at the time of the grants, there was no related
compensation costs for any of the years presented based on the
estimated grant date fair value as defined by FAS 123.
The Company pro-forma net loss and loss per share for the six months
ended June 30, 2000 and 1999 are as follows:
June 30, 2000 June 30, 1999
$ $
Pro forma net loss (6,465,806) (9,805,050)
Basic and diluted
Pro forma net loss per share ($0.22) ($2.45)
Basic and diluted
17
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
CONVERTIBLE DEBT
On October 22, 1999 the Company's Stockholders approved a reverse stock
split of the Common Shares of the Company, with the Company's
authorized shares remaining at 50 million shares, thereby automatically
increasing the authorized but unissued common shares available for
issuance. Following approval, the derivative securities outstanding at
that date (principal and interest accrued - see below ) were exercised
and automatically converted into common stock (See Note 1). The
following derivative securities outstanding as at December 31, 1999.
PAYEE $ Conversion Shares Shares
Price ($) issuable on issued on
conversion conversion
following
Stockholder's
Meeting
Superstar Ventures Ltd - 1.00 - 1,250,000
Superstar Ventures Ltd - 1.00 - 400,000
AB Groupe - 1.00 - 2,000,000
Superstar Ventures Ltd - 1.00 - 5,000,000
AB Groupe (1) 240,000 1.00 240,000 3,720,000
AB Groupe (2) 1.00 5,578,416
Interest and penalty interest accrued 1.00 4,649,839
------------ ------------- --------------
240,000 240,000 22,598,255
============ ============= ==============
<FN>
(1) The debt is part of a convertible note under which AB Groupe is
providing services with a value of $6,640,000 over 2 years. See Note 8
- Lease commitments. Shares will be issued at the rate of 260,000
shares per month at $1.00 per share. The total shares of common stock
to be issued under this note are 6,640,000.
</FN>
18
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
BASIC EPS COMPUTATION
June 30, June 30,
2000 1999
Net income of continuing operations (6,465,806) (9,789,155)
------------------ ------------------
Net loss (6,465,806) (9,805,050)
------------------ ------------------
Weighted Average number of Shares 29,406,307 40,094,139
------------------ ------------------
Basic EPS Net loss of continuing operations ($0.22) ($0.24)
------------------ ------------------
Basic EPS Net loss including discontinued operations ($0.22) ($0.24)
------------------ ------------------
DILUTED EPS COMPUTATION
Weighted average shares 29,406,307 40,094,139
Warrants (1) - -
Convertible debt - 240,000 shares (1) - -
Board options - 1,949,996 vested in 1998 and 1999 - -
------------------ ------------------
29,406,307 40,094,139
------------------ ------------------
Diluted EPS Net loss of continuing operations $0.22 ($0.24)
------------------ ------------------
Diluted EPS Net loss including discontinued operations $0.22 ($0.24)
------------------ ------------------
<FN>
(1) The computation does not assume exercise of the warrants or options
since it would have an antidilutive effect on earnings per share. In
addition to the above, loans of $477,339 and $150,000 received from AB
Groupe and Superstar respectively, are repayable in two years and bear
interest at 10% per annum. The Company has granted the lenders a two
year warrant to purchase 627,339 shares of Common Stock at an exercise
price of $1.00 per share.
</FN>
14. LIQUIDITY AND CAPITAL RESOURCES
The Company has continued to use its cash reserves to fund its
operations. The ownership, development and operation of media
interests, including the Onyx television station requires substantial
funding. Due to the poorer than expected advertising revenues at Onyx
in its second and third years of operation, the funds raised by the
Company since commencement were expended earlier than anticipated. To
date the Company has historically financed itself through sales of
equity securities and debt financing.
On June 16, 1998, the Company entered into two Memorandum of
Understanding Agreements ("MOU") with AB Groupe ("AB") and Superstar to
continue to fund the Company's operations. These new agreements were to
provide up to $11.64 million in funding, $5.4 million in the form of
cash investment to be infused over a one year period and $6.24 million
through providing operating services to the Company over a period of
two years. This funding was initially in the form of debt and that
received as at October 31, 1999 was automatically converted into shares
of common stock at $1.00 per share upon and after approval of an
increase in the Company's authorized capital at the stockholders
meeting, held on October 22, 1999. (See Note 13)
On March 10, 1999, the Company entered into a new $6 Million
Convertible Promissory Note Agreement with AB to provide additional
funding for the Company's operations including $690,000, for the
purchase of certain technical equipment necessary to implement the
Service Agreement dated July 27, 1998; $3.1 million loaned in cash and
the balance of $2.2 million of the Note was utilized for the settlement
of the Instar loan, (See above). The Note bears interest at the rate of
10% per annum, and was automatically converted into the Company's
Common Stock on the basis of one share of Common Stock for each $1.00
of principal and interest. This funding was initially in the form of
debt and that received as at October 31, 1999 was automatically
converted into shares of common stock at $1.00 per share upon and after
approval of an increase in the Company's authorized capital at the
Stockholder's Meeting, held on October 22, 1999 (See Note 13). The
balance of this Loan Note was received after the Stockholder's Meeting
and were converted into equity on the same basis.
19
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
In May 1999, AB Groupe and Superstar made a loan to the Company in the
aggregate amount of $300,000. The loan was due in two years and carries
interest at the rate of 10% per annum. In connection with the loan, the
Company granted two-year warrants to purchase an aggregate of 300,000
shares of the Common Stock at an exercise price of $1.00 per share.
In August 1999, AB Groupe made a loan to the Company in the aggregate
of $327,339. In connection with the loan, the Company granted a
two-year warrant to purchase 327,339 shares of the Common Stock at an
exercise price of $1.00 per share.
The Company's Stockholders special meeting was held on October 22,
1999. The Stockholders approved the following resolutions; (i) a
reverse split of the Company's outstanding stock on a one for ten
basis; (ii) the terms of the financial arrangements between the Company
and AB Groupe, and between the Company and Superstar Ventures; (iii)
the grant of an option to an entity controlled by the Company's
Chairman and Chief Executive to purchase 1.6 million post reverse split
shares of the Company's common stock at an exercise price of $1.00 per
share; and additionally the stockholders elected five directors.
Following the reverse split, in accordance with its financial
arrangements with AB Groupe and Superstar, the Company issued
22,598,255 post reverse split shares in conversion of $22,598,255 of
outstanding convertible debt, including $4,649,839 of accrued interest.
The Company also issued 789,999 additional shares in conversion of
$790,000 of certain sundry loans (see Note 8) and also issued 344,000
additional shares to other parties to which it was obligated, including
Instar Holdings Inc. which received 200,000 shares as part of its
settlement with the Company (see Note 16). After all of these shares
issuances, at December 31, 1999 the Company has 27,741,667 shares of
common stock outstanding and AB Groupe's and Superstar's stock holding
represented 50.4% and 34%, respectively.
In December 1999, AB Groupe made a loan to the Company in the amount of
$500,000. The loan is due in two years and carries interest at the rate
of 10% per annum. In connection with the loan, the Company granted a
two-year warrant to purchase500,000 shares of the Common Stock at an
exercise price of $1.00 per share.
In January 2000, AB Groupe and Superstar made loans to the Company in
the aggregate of $1,000,000. The loan is due in two years and carries
interest at the rate of 10% per annum. In connection with the loan, the
Company granted a two-year warrant to purchase 1,000,000 shares of the
Common Stock at an exercise price of $1.00 per share.
In March 2000, AB Groupe loaned the Company an additional $1,000,000
for working capital. The loan is due in two years and carries interest
at the rate of 10% per annum. In connection with the loan, the Company
granted a two-year warrant to purchase 1,000,000 shares of the Common
Stock at an exercise price of $1.00 per share.
Subject to compliance with applicable US securities laws and the
approval of an increase in the Company's authorized Common Stock to
allow for such action, the Company has offered to the warrant holders
the right, for a period of 9 months expiring on September 19, 2000, to
exercise their warrants and receive two shares of Common Stock at an
exercise price of $3.00 per share (as further described in the
Company's Form SB-2 filed on January 18, 2000), with the exception of
one of its warrant holders, Auric Investments Limited ("Auric"). Auric
will be given the right to subscribe to purchase 156,416 shares of
Common Stock on the basis of two shares for each of the 78,208 warrants
which they hold, but at an exercise price of $2.00 per share. Auric was
granted this lower price due to the assistance which they provided to
the Company in assisting the Company to re-obtain the quotation on the
Bulletin Board maintained by NASD.
If the holders of the outstanding warrants do not exercise this right ,
the warrants will remain outstanding on their original terms until
their expiration date.
15. SEGMENT INFORMATION BY ACTIVITY AND GEOGRAPHIC AREA
The following financial information is summarized by business segment
and country.
- The television media segment contains the operations of Onyx;
and
- The technology segment contains the operations of Unimedia,
Pixel and TopCard.
Capital Media Group's activities are concentrated in Germany, France
and Israel (Revenues account for: to June 2000 - approximately 74%, 13%
and 13% respectively, to June 1999 - approximately 65%, 20% and 15%
respectively).
20
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
Six months ended June 30, 2000 Television Technology Elimination & TOTAL
Media Corporate
Revenues 1,158,668 404,774 - 1,563,442
Inter-segment revenues - - -
----------- ----------- ----------- -----------
Total revenues 1,158,668 404,774 - 1,563,442
Income (losses) from operations (3,253,674) (473,386) (801,697) (4,528,757)
Other income (expense) 233,790 20,312 (191,257) 62,845
Interest expenses (62,106) (77,969) (124,777) (264,852)
Other financial income (expense), net 1,083,214 (110,304) (2,686,511) (1,713,601)
Equity in net losses of affiliates - (21,142) - (21,142)
Income tax benefit (53) (245) - (298)
----------- ----------- ----------- -----------
Net loss (1,998,829) (662,734) (3,804,243) (6,465,806)
----------- ----------- ----------- -----------
Total assets 2,634,728 1,815,404 1,754,987 6,205,119
----------- ----------- ----------- -----------
Capital expenditure 203,111 80,765 - 283,876
----------- ----------- ----------- -----------
Depreciation of fixed assets 135,343 43,322 922 179,587
----------- ----------- ----------- -----------
Germany France Israel Other Corporate TOTAL
Revenues 1,158,668 205,447 199,327 - 1,563,442
Inter-segment revenues - - - - -
----------- ----------- ----------- ----------- -----------
Total revenues 1,158,668 205,447 199,327 - 1,563,442
Income (losses) from operations (3,253,674) (508,872) 35,486 (801,697) (4,528,757)
Other income (expense) 233,790 20,312 (191,257) 62,845
Interest expenses (62,106) (47,060) (30,909) (124,777) (264,852)
Other financial income (expense), net 1,083,214 (238,103) 127,799 (2,686,511) (1,713,601)
Equity in net losses of affiliates - 0 (21,142) - (21,142)
Income tax benefit (53) (245) - - (298)
----------- ----------- ----------- ----------- -----------
Net loss (1,998,829) (773,968) 111,234 (3,804,243) (6,465,806)
----------- ----------- ----------- ----------- -----------
Total assets 2,634,728 277,607 1,537,797 1,754,987 6,205,119
----------- ----------- ----------- ----------- -----------
Capital expenditure 203,111 80,765 - - 283,876
----------- ----------- ----------- ----------- -----------
Depreciation of fixed assets 135,343 20,697 22,625 922 179,587
----------- ----------- ----------- ----------- -----------
21
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
Six months ended June 30, 1999 Television Technology Elimination & TOTAL
Media Corporate
Revenues 950,248 514,108 - 1,464,356
Inter-segment revenues - - - -
----------- ----------- ----------- -----------
Total revenues 950,248 514,108 - 1,464,356
Income (losses) from operations (2,235,484) (142,140) (1,284,763) 3,662,387)
Other income (expense) 67,143 (162,357) - (95,214)
Interest expenses (23,065) (43,202) (1,994,017) (2,060,284)
Other financial income (expense), net (1,923,350) 82,548 (2,081,485) (3,922,287)
Equity in net losses of affiliates - 37,155 (87,878) (50,723)
Loss in discontinued business - - (15,895) (15,895)
Income tax benefit 2,173 (433) - 1,740
----------- ----------- ----------- -----------
Net loss (4,112,583) (228,429) (5,464,038) (9,805,050)
----------- ----------- ----------- -----------
Total assets 1,557,880 2,984,362 1,376,368 5,918,610
----------- ----------- ----------- -----------
Capital expenditure 652,073 0 0 652,073
----------- ----------- ----------- -----------
Depreciation of fixed assets 128,789 59,365 6,625 194,779
----------- ----------- ----------- -----------
Germany France Israel Other Corporate TOTAL
Revenues 950,248 288,996 225,112 - 1,464,356
Inter-segment revenues - - - - -
----------- ----------- ----------- ----------- -----------
Total revenues 950,248 288,996 225,112 - 1,464,356
Income (losses) from operations (2,235,484) (200,870) 58,730 (1,284,763) (3,662,387)
Other income (expense) 67,143 (162,357) - - (95,214)
Interest expenses (23,065) (2,642) (40,560) (1,994,017) (2,060,284)
Other financial income (expense), net (1,923,350) 82,548 - (2,081,485) (3,922,287)
Equity in net losses of affiliates - - 37,155 (87,878) (50,723)
Loss in discontinued business - - - (15,895) (15,895)
Income tax benefit 2,173 (433) - - 1,740
----------- ----------- ----------- ----------- -----------
Net loss (4,112,583) (283,754) 55,325 (5,464,038) (9,805,050)
----------- ----------- ----------- ----------- -----------
Total assets 1,557,880 2,424,369 559,993 1,376,388 5,918,610
----------- ----------- ----------- ----------- -----------
Capital expenditure 652,073 0 0 0 652,073
----------- ----------- ----------- ----------- -----------
Depreciation of fixed assets 128,789 40,429 18,936 6,625 194,779
----------- ----------- ----------- ----------- -----------
22
16. RELATED PARTY TRANSACTIONS
See Notes 6, 8, 13 and 14, for information regarding related party
transactions.
23
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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-QSB. 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 Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999 (the "Form 10-KSB").
Results of Operations
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Operating revenues for the three months ended June 30, 2000 were $729,028, a
decrease of $150,436 compared to operating revenues of $879,464 million for the
same period in 1999.
Revenues at Onyx Television in the three month period ended June 30, 2000
totalled $505,063, compared to $624,056 for the same period of 1999, a decrease
of 19%. Onyx management believes that the last awareness campaign and the
ongoing changes in the Onyx programming grid, including the improvement of the
content quality, combined with a successful multiple alliance strategy with
media companies and cable operators have contributed to further increase in its
network distribution and revenue opportunity and that, although there can be no
assurance, Onyx should be able to further increase the development of its
revenue over the next six months.
The German media authorities have officially confirmed that Onyx`s rating in
Germany is ahead of its two main competitors VH-1 and VIVA 2 and it is planned
that Onyx will be in a position to further increase its technical reach in
Germany during the third and fourth quarters of 2000. At the present time, Onyx
Television reaches approximately 11.5 million cable homes and an indeterminable
number of direct satellite homes, previously estimated at 2.5 million, in
Germany. See the information contained in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999.
Operating costs, including staff costs, depreciation and amortization totaled
$3,460,049 for three months ended June 30, 2000 compared to $2,680,706 million
for the three month period ending June 30, 1999. The increase in operating
costs were primarily at Onyx.
Depreciation and amortization for the three months ended June 30, 2000 was
$262,167 compared to $270,814 for the three month period ended June 30, 1999.
The decrease of $1.52 million in financial expense relates primarily to lower
levels of debt. Financial expense for the three months ended June 30, 2000 was
$1.12 million compared to $2.67 million for the same period in 1999.
As a result of all of the above factors, the Company reports a loss from
continuing operations of $3,757,096 for three months ended June 30, 2000, a
decrease of $795,499, from $4,552,595 for the same period in 1999.
The net loss per share for three months ended June 30, 2000 (basic and diluted)
was $0.12, compared to a net loss per share (basic and diluted) of $1.14 for
three months ended June 30, 1999. Weighted average shares outstanding basic and
24
diluted were 30,097,695 for three months ended June 30, 2000 compared to
4,009,413 for the corresponding period in 1999. As described in the Notes to
the Financial Statements, a Stockholder's Meeting was held on October 22, 1999,
wherein it was resolved to effect a reverse split of the Company's authorized
capital on a one new share for ten existing shares. Consequently the authorized
capital of the Company remains at 50,000,000 shares of common stock. Accordingly
all references to the Company's shares of Common Stock are on a post split
basis.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Operating revenues for the six months ended June 30, 2000 were $1.56 million,
an increase of $0.1 million over the same period in 1999. Revenues at Onyx
Television in the six month period ended June 30, 2000 totalled $1.16 million,
compared to $0.95 million for the same period of 1999, an increase of 22%.
Operating costs, including staff costs, depreciation and amortization totaled
$6.09 million for six months ended June 30, 2000 compared to $5.13 million for
the six month period ending June 30, 1999. The small increase in operating costs
being primarily at Onyx.
Depreciation and amortization for the six months ended June 30, 2000 was
$487,771 compared to $492,469 for 1999.
The decrease in financial expense relates primarily to lower interest expense.
Interest expense for the six months ended June 30, 2000 was $264,852 compared to
$2,060,284 for the same period in 1999. In addition, financial expense includes
a charge in respect of non cash foreign exchange loss of $1.71 million for the
six months ended June 30, 2000, as compared to a loss of $3.92 million for six
months ended June 30, 1999. The foreign exchange losses arise from changes in
currency exchange rates at June 30, 2000 as compared to exchange rates at
December 31, 1999.
As a result of all of the above factors, the Company`s reports a loss from
continuing operations of $6.47 million for six months ended June 30, 2000, a
decrease of $3.32 million from $9.79 million for the same period in 1999.
The operations in France, including TopCard, reported an increased net loss of
$773,968 for six months ended June 30, 2000 as compared to a loss of $283,754
for the same period in 1999. Topcard activity in the first two quarters of 2000
has been primarily to test and complete new developments. Operations in Israel,
including Pixel, reported a profit of $111,234, for June 30, 2000 compared to a
profit of $55,325 for six months ended June 30, 1999.
The net loss per share for six months ended June 30, 2000 (basic and diluted)
was $0.22, compared to a net loss per share (basic and diluted) of $2.45 for six
months ended June 30, 1999. Weighted average shares outstanding basic and
diluted were 29,406,307 for six months ended June 30, 2000 compared to 4,009,413
for the corresponding period in 1999. As described in the Notes to the Financial
Statements, all references to the Company's shares of Common Stock are on a post
split basis.
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 to
June 30, 2000, we have incurred an accumulated deficit of approximately $69.3
million, principally related to the launch and operation of Onyx Television. At
June 30, 2000, we had a negative working capital of $6.65 million and a
negative net worth of $3.89 million.
25
Instar Loan
In October 1996, our UK subsidiary, Capital Media (UK), entered into an
agreement to borrow $2.0 million (the "Instar Loan") from Instar Holdings, Inc.
("Instar") to fund our working capital requirements. Interest was payable
monthly on the Instar Loan, at the rate of 2% above Lloyds Bank base rate until
December 31, 1997 and 13% per annum thereafter. The Instar Loan was guaranteed
by Capital Media and Onyx Television and was secured by a charge on all of
Capital Media (UK)'s assets and a pledge of the stock of Capital Media (UK).
Additionally, this same collateral was simultaneously pledged to support the
guaranty by Universal Independent Holdings Limited ("Universal") of Onyx
Television's transponder lease.
On July 21, 1999, Capital Media and Instar settled this loan (the "Instar
Settlement"). Under the Instar Settlement, we paid Instar $2.2 million and
issued to them 200,000 shares of Common Stock. As part of the settlement,
Universal agreed that Capital Media shall no longer be liable to it regarding
its guaranty of the transponder lease. Additionally, as part of the settlement:
(i) the liability of Latitude Investments, Ltd. ("Latitude") to Capital Media
has been extinguished; (ii) Capital Media and Instar, Universal and Latitude
have entered into mutual releases regarding their respective obligations in
connection with these matters, and (iii) we and Charles Koppel, our former Chief
Executive Officer, have entered into a mutual general release. As part of the
settlement, Instar and Universal have released their charges against Capital
Media (UK)'s assets and the stock of Capital Media (UK).
Equity Offerings by Capital Media
In 1995, our founders organized Excalibur Communications Limited (n/k/a
(Capital Media (UK)) to develop Onyx Television and to own an interest in
Tinerama Investment AG. In December 1995, our founders exchanged their shares in
Excalibur for shares of Common Stock. Simultaneously, in late 1995 and early
1996, we raised net proceeds of $14.4 million in a private placement of our
securities.
On March 3, 1997, we closed a private placement in which we raised net
proceeds of $5.85 million. The funds from this placement were used to fund the
continuing operation of Onyx Television and for general corporate purposes. We
issued an aggregate of 1.2 million shares of Common Stock in this private
placement ($5.00 per share), including 400,000 shares of Common Stock subscribed
by Unimedia, S.A. At the time of this private placement, Unimedia was not an
affiliate of Capital Media.
On June 25, 1997, we accepted a subscription for $4.0 million from
Unimedia. In this subscription, we agreed to issue an aggregate of 701,754
shares of Common Stock at a purchase price of $5.70 per share. On June 30, 1997,
$1,500,000 of the proceeds of the subscription was received by Capital Media and
the balance of $2,500,000 was released to Capital Media from escrow on July 31,
1997, simultaneously with the closing of the share exchange between certain of
the stockholders of Unimedia and Capital Media, as described below. In
connection with this private placement, we paid Unimedia a fee of $240,000,
which was netted against the purchase price of the shares. At the time of this
private placement, Unimedia was not our affiliate.
Simultaneously with and immediately after this placement, Unimedia
transferred 610,914 of our shares which it owned to eight investors at prices
ranging from $5.70 to $7.50 per share. One of these investors was an entity
controlled by David Ho, who at the time of this transaction was not an affiliate
of Capital Media. That entity, Unbeatable Investments Limited, acquired 438,596
of these shares. None of the other investors who purchased shares from Unimedia
at this time were affiliates of Capital Media or Unimedia. In connection with
the transfer of these shares, Unimedia paid a fee to Valfab for its services in
connection with introducing Unimedia to certain of these investors. The fee
consisted of $195,000 in cash and 10,666 shares of our Common Stock owned by
Unimedia.
On July 31, 1997, we acquired 50.3% of the outstanding common stock of
Unimedia in exchange for 433,300 shares of Common Stock. Stockholders of
Unimedia who did not participate in the first closing of the Unimedia share
exchange had until September 5, 1997 to convert their Unimedia securities into
shares of Common Stock and on September 5, 1997, we acquired an additional 31.3%
of Unimedia's common stock in exchange for an additional 269,360 shares of our
Common Stock. Shares issued in the Unimedia share exchange were valued on our
books at
26
$5.70 per share. We acquired Unimedia based on our belief that the merged entity
would cross fertilize Internet development activities and television
distribution in order to poise Capital Media at the convergence of thematic
entertainment television and the Internet. Additionally, Unimedia and investors
identified by Unimedia provided significant financing for use in our business.
At the time of the closing of the Unimedia share exchange, Unimedia held
490,840 shares of our Common Stock. Subsequent to the closing of the Unimedia
share exchange, Unimedia has transferred 324,048 of these shares to investors in
several private transactions, as follows:
Transferee Shares Transferred
Transferees not affiliated with Capital Media and Unimedia..... 124,448
Stockholders of TopCard(1)..................................... 45,600
Gralec Establishment(2)........................................ 154,000
-------
324,048
=======
<FN>
(1) Shares were transferred to the stockholders of TopCard in
connection with Unimedia's acquisition of 80% of TopCard's
outstanding shares. None of the TopCard stockholders were
affiliates of Capital Media or Unimedia at the time that these
shares were transferred to the stockholders of TopCard.
(2) During the first half of 1998, Unimedia transferred 154,000
shares of our Common Stock to Gralec Establishment for an
aggregate purchase price of $500,000. We have registered the
shares of Common Stock transferred to Gralec, pursuant to a
registration rights agreement. We, however, failed to register
the Common Stock by November 30, 1999, as required under the
registration rights agreement. In order to extend the period
during which registration of the Common Stock could be
completed, we agreed to (i) sell Gralec Establishment 220,000
shares of Common Stock for a purchase price equal to the net
proceeds from the sale of certain shares held by Unimedia
(50,000 ActivCard shares), and (2) grant Gralec Establishment
an option to purchase 600,000 shares of our authorized but
unissued Common Stock at an exercise of $1.00 per share for a
period of eighteen (18) months. These additional shares and
shares underlying the option have also been registered. On
January 19, 2000, all shares and options granted to Gralec
were effectively registered and the eighteen month exercise
period for the options started on February 19, 2000.
</FN>
These transfers were effected to raise funds for Capital Media's and
Unimedia's operations and to complete the acquisitions of TopCard and Pixel.
As of the date of the Form 10-KSB, Unimedia continues to own 166,791
shares of our Common Stock, including 60,000 shares which have been pledged by
Unimedia to Bank Hapoalin to secure Unimedia's guarantee to that bank of certain
indebtedness of Pixel.
Our short term funding requirements were also met during the fourth
quarter of 1997 through direct private placements by Capital Media to four
non-U.S. investors of an aggregate of 79,333 shares of our Common Stock (raising
$586,000 at prices between $6.00 and $7.50 per share).
Funds Borrowed Subsequent to the Unimedia Share Exchange from David Ho
and Groupe AB
In September 1997, Capital Media (UK) borrowed $500,000 of short term
working capital from Unbeatable, an entity controlled by David Ho. The debt was
payable with interest of 10% per annum in April 1998 and was convertible into
shares of Common Stock at the rate of $5.70 per share.
27
On January 9, 1998, Capital Media (UK) borrowed an aggregate of
$1,250,000 from Superstar Ventures Limited, which is also controlled by Mr. Ho.
Such loan was evidenced by two 13% Convertible Secured Promissory Notes in the
original principal amounts of $750,000 and $500,000, respectively. Of the
aggregate proceeds, $500,000 was used to replace a loan previously made to
Capital Media (UK) (see above) by Unbeatable. The notes bore interest at the
rate of 13% per annum and were convertible into shares of Common Stock on the
basis of one share of Common Stock for each $5.00 of outstanding principal and
accrued interest on the notes; provided, however, that the notes were not to be
convertible until we had held a stockholders meeting to increase our shares
available for issuance to allow for conversion of the notes. The notes were due
and payable on March 31, 1998 and were secured by the same collateral securing
the Instar loan, as well as by pledge of our 81.6% interest in Unimedia.
David Ho received a fee of 20,000 shares of Common Stock for arranging
the original loan made by Unbeatable and a fee of 40,000 shares of Common Stock
for arranging the January 1998 Superstar loan.
On March 23, 1998, AB Groupe made available to us a line of credit
pursuant to which we borrowed $2,000,000. Outstanding principal and accrued
interest of 13% per annum was originally due and payable on December 31, 1998.
As further consideration for granting the line of credit, AB Groupe was granted
the right, until March 31, 2000, to purchase shares of our authorized but
unissued Common Stock at a $2.00 per share. On March 25, 1998, Superstar loaned
Capital Media an additional $400,000, payable on the same terms as the line of
credit made available by AB Groupe.
In August 1998, we entered into agreements with Superstar and AB Groupe
pursuant to which Superstar agreed to make available $5.0 million and AB Groupe
agreed to provide cash and services aggregating $6.64 million ($400,000 in cash
which was payable to Capital Media in August 1998 and $6.24 million in services
over a two year period). Such funding was initially in the form of debt (bearing
interest at the rate of 13% per annum), but was automatically to be converted
into equity at the rate of $1.00 per share following approval by our
stockholders of an increase in our Common Stock available for issuance.
In December 1998, when we did not meet our contractual obligation to
hold a stockholders' meeting to obtain an increase in Common Stock available for
issuance by November 30, 1998, Superstar and AB Groupe demanded that we: (i)
reduce the conversion price on all of the outstanding convertible debt of
Capital Media which they held to $1.00 per share; and (ii) that we pay a penalty
of 2% of the outstanding principal amount of the loans (payable in shares at
$1.00 per share) for each month during which we did not hold our special
stockholders meeting. On December 18, 1998, the Board agreed to these changes.
Superstar and AB Groupe also agreed, as part of the amendment to the terms of
their loans, that all of the convertible debt which they then held would
automatically convert into Common Stock upon the approval by our stockholders of
an increase in our shares of Common Stock available for issuance.
In March 1999, AB Groupe agreed to fund an additional $6.0 million to
Capital Media for working capital, including the funds required to complete the
settlement of the Instar loan. Such amount was to be funded over a one year
period and would automatically convert into Common Stock at $1.00 per share.
In May 1999, AB Groupe and Superstar made a loan to Capital Media in
the aggregate amount of $300,000, the proceeds of which were used to fund the
settlement of the Fontal loan. The loan is due in two years and bears interest
at the rate of 10% per annum. In connection with the loan, Capital Media granted
the lenders a two-year warrant to purchase 300,000 shares of the Common Stock at
an exercise price of $1.00 per share.
In September 1999, AB Groupe provided a guarantee to a bank for half of
a DM 3 million (approximately $1.6 million) bank facility obtained by Onyx
Television. In connection with the guaranty, we granted AB Groupe a two year
warrant to purchase 810,000 shares of Common Stock at an exercise price of $1.00
per share. In the event the bank guarantee is called upon, we will be obligated
to issue to Groupe AB such number of shares of Common Stock at $1.00 per share
as is equal to the amount paid by AB Groupe under its guaranty.
On October 27, 1999, $22.6 million which represented substantially all
of the convertible debt due to AB Groupe and Superstar, was converted into
Common Stock. Following conversion, AB Groupe and David Ho
28
(who controls Superstar) owned 47.8% and 32.2%, respectively, of our outstanding
Common Stock. In December 1999, AB Groupe received an additional 841,584 shares
of Common Stock in consideration for $400,000 for services provided and $120,000
cash advanced in November and December 1999 under the August 1998 agreement
described above, in consideration for $200,000 paid with respect of the
settlement of the Instar Loan and $121,584 for cash received. In March 2000,
AB Groupe received an additional 700,000 shares of Common Stock in consideration
for $600,000 received for services provided under the August 1998 agreement
described above and $100,000 being the final Instar Loan in payment made by
AB Groupe on our behalf under the March 1999 agreement above. AB Groupe and
David Ho currently own 50.3% and 30.5% respectively, of the 31,173,251 shares
outstanding of Common Stock.
In January 2000, AB Groupe made a loan to the Company of $500,000 for
general working capital purposes. The loan is due in two years and bears
interest at the rate of ten percent (10%) per year. In connection with the loan,
the Company 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 the Company 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 loan is due
in 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 the Common Stock at an exercise price of $1.00
per share.
In March 2000, AB Groupe loaned the Company an additional $1,000,000
for working capital. The loan is due in 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.
Debt due from Latitude Investments Limited
Our balance sheet at December 31, 1998 included a debt due from a
stockholder of $313,691. This amount represented an amount due from Latitude
Investments Limited, one of our founding stockholders. This amount was initially
presented to us as a deposit paid by Latitude to PTT Telecom on behalf of
Capital Media (UK) and Latitude received credit for the amount of such deposit
in connection with its original 1995 subscription to purchase shares of Capital
Media (UK)'s stock (which shares were exchanged for shares of Common Stock in
December 1995). We had determined that no deposit was ever paid by Latitude to
PTT Telecom and that therefore the shares of Common Stock owned by Latitude were
not fully paid as presented. Subsequently, our obligation has been deemed
satisfied as part of our settlement of the Instar loan.
In August 1999, AB Groupe made a loan to Capital Media in the aggregate
amount of $327,339, the proceeds of which were used to fund the settlement of
the outstanding amounts due to KPN Telecom. The loan is due in two years and
bears interest at the rate of 10% per annum. In connection with the loan, we
granted AB Groupe a two-year warrant to purchase 327,339 shares of Common Stock
at an exercise price of $1.00 per share.
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 be made available by
AB Groupe or Mr. Ho, or from other sources, although we cannot assure you that
the necessary funding will become available. Further, required amounts of
funding will be impacted in part by the level of revenues achieved, particularly
at Onyx Television. We will likely issue additional shares of Common Stock, or
shares of the capital stock of our subsidiaries, to meet our anticipated capital
requirements.
Recent Developments
Roger Orf was named to the Company's board of directors in April 2000.
Jean-Francois Klein, a director of the Company, has been named the Company's
Chief Financial Officer.
Onyx TV and AB Groupe (a major television and production company in France) were
recently granted by the German Media authorities, a license to broadcast twelve
additional digital channels and turn into an independent television platform in
Germany, poised at the convergence of television, digital interactive
broadcasting and Internet.
In April 2000, Gralec brought a legal action in France against Unimedia, with
respect to Gralec's right to purchase 50,000 ActivCard shares from Unimedia for
an aggregate purchase price of $650,000. This allegation has been denied by
Unimedia which believes it has a strong and valid defense against Gralec's
claim. However, there can be no assurances as to the outcome of this matter.
29
PART 2
Item 1. Legal Proceedings
For information regarding the status of the Company's
currently outstanding litigation, see Note 12 of Notes to
Unaudited Consolidated Financial Statements included herein
and Item 3. "Legal Proceedings" in the Company's 1999 Form
10-KSB.
Item 2. Change in Securities
See Note 13 of Notes to Unaudited Consolidated Financial
Statements included herein and Item 2. "Management's
Discussion and Analysis or Plan of Operation" included herein
for information regarding changes in securities.
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
27.1 - Financial Data Schedule
(b) Reports on Form 8-K
None
30
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 21st day of August, 2000.
CAPITAL MEDIA GROUP LIMITED
By: /s/ Gilles Assouline
--------------------
Gilles Assouline, President and Chief Executive Officer
31
Exhibit Index
Exhibit No. Exhibit Description
- ----------- -------------------
27.1 Financial Data Schedule