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 SEPTEMBER 30, 1996
[ ]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.)
25 James Street, London WIM 5HY
- ---------------------------------------- ----------
(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 [ ]
Transitional Small Business Disclosure Format. YES [ ] NO [X]
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited financial statements for the quarter and the nine months covered by
this report are attached hereto by item 310(b) of Regulation S-B.
CAPITAL MEDIA GROUP LIMITED
UNAUDITED REPORT AND FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
Unaudited condensed consolidated balance sheet 3
Unaudited condensed consolidated statement of operations 4
Unaudited consolidated statement of stockholders' equity 5
Unaudited condensed consolidated statement of cash flows 6
Notes to the unaudited consolidated financial statements 7
2
CAPITAL MEDIA GROUP LIMITED
UNAUDITED REPORT AND FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
NOTE SEPTEMBER 30 DECEMBER 31,
1996 1995
$ $
ASSETS
Cash 655,950 7,537,137
Accounts receivable, net of allowances for doubtful
accounts of $16,708 (December 31, 1995 - $6,104)
4 1,302,542 530,515
Inventories 74,533 80,414
Amounts due from shareholders - 3,679
Prepaid expenses 325,772 290,299
---------------- ----------------
TOTAL CURRENT ASSETS 2,358,797 8,442,044
Investments - 34,805
Intangible assets, net of accumulated amortization
of $195,394 (December 31, 1995 - $33,272)
865,802 871,747
Property, plant and equipment, net 3 3,556,091 1,278,683
---------------- ----------------
TOTAL ASSETS 6,780,690 10,627,279
================ ================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable 1,555,019 120,004
Accrued expenses 944,920 1,711,050
Amounts due to minority shareholders 454,477 700,386
---------------- ----------------
TOTAL LIABILITIES 2,954,416 2,531,440
COMMITMENTS AND CONTINGENCIES
5,6 - -
MINORITY INTEREST IN SUBSIDIARIES
629,665 673,828
---------------- ----------------
3,584,081 3,205,268
---------------- ----------------
STOCKHOLDERS' EQUITY 8
Preferred stock - 5,000,000 shares authorized:
$0.001 par value: no shares issued and outstanding - -
Common stock - 50,000,000 shares authorized:
$0.001 par value 12,663,328 (December 31, 1995 -
9,326,664) issued and outstanding 12,663 9,327
Additional paid in capital 17,117,651 10,309,314
Subscriptions receivable (5,000) (5,000)
Cumulative translation adjustment 93,436 (59,963)
Accumulated deficit (14,022,141) (2,831,667)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 3,196,609 7,422,011
---------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 6,780,690 10,627,279
================ ================
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
CAPITAL MEDIA GROUP LIMITED
UNAUDITED REPORT AND FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
PERIOD FROM
INCEPTION
3 MONTHS 9 MONTHS 3 MONTHS (FEBRUARY 17,
ENDED ENDED ENDED 1995) TO
NOTE SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1995 1995
$ $ $ $
Revenue 491,521 1,451,326 - -
Operating costs (4,761,661) (12,859,321) (615,873) (676,558)
----------------- ------------------ ------------------ ----------------
Operating loss (4,270,140) (11,407,995) (615,873) (676,558)
Other income (5,327) 14,153 - -
Interest income net 34,705 162,501 467 467
----------------- ------------------ ------------------ ----------------
Loss before taxation (4,240,762) (11,231,341) (615,406) (676,091)
Tax provision 2 119 (461) - -
----------------- ------------------ ------------------ ----------------
Loss after taxation (4,240,643) (11,231,802) (615,406) (676,091)
Minority interest (1,006) 41,328 - -
----------------- ------------------ ------------------ ----------------
Net loss (4,241,649) (11,190,474) (615,406) (676,091)
================= ================== ================== ================
Net loss per share ($0.32) ($0.91) ($0.12) ($0.14)
Weighted average shares outstanding 12,663,328 12,257,596 5,000,000 5,000,000
================= ================== ================== ================
Results for the period ended September 30, 1995 reflect certain costs of Capital
Media (UK) Limited prior to the commencement of trading operations.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
CAPITAL MEDIA GROUP LIMITED
UNAUDITED REPORT AND FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
NINE MONTHS ENDED ADDITIONAL CUMULATIVE
SEPTEMBER 30, 1996 PAID-IN SUBSCRIPTION TRANSLATION ACCUMULATED
COMMON STOCK CAPITAL RECEIVABLE ADJUSTMENT DEFICIT TOTAL
SHARES $ $ $ $ $ $
Balance at December 31, 1995
9,326,664 9,327 10,309,314 (5,000) (59,963) (2,831,667) 7,422,011
Issuance of common stock 3,336,664 3,336 6,968,337 -- -- -- 6,971,673
Translation adjustment -- -- -- -- 153,399 -- 153,399
Commission paid on shares
issued -- -- (160,000) -- -- -- (160,000)
Net loss -- -- -- -- -- (11,190,474) (11,190,474)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1996 12,663,328 12,663 17,117,651 (5,000) 93,436 (14,022,141) 3,196,609
=========== =========== =========== =========== =========== =========== ===========
PERIOD FROM INCEPTION ADDITIONAL CUMULATIVE
(FEBRUARY 17, 1995) TO PAID-IN SUBSCRIPTION TRANSLATION ACCUMULATED
SEPTEMBER 30, 1995 COMMON STOCK CAPITAL RECEIVABLE ADJUSTMENT DEFICIT TOTAL
SHARES $ $ $ $ $ $
Issuance of common stock at 1 1 (1) --
inception -- --
Issuance of common stock 4,999,999 4,999 3,027,368 3,032,367
Subscription receivable -- -- -- (647,498) -- (647,498)
Net loss -- -- -- -- -- (676,091) (676,091)
---------- ---------- ---------- ---------- -------- ---------- ----------
Balance at September 30, 1995 5,000,000 5,000 3,027,368 (647,499) -- (76,091) 1,708,778
========== ========== ========== ========== ======== ========== ==========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
CAPITAL MEDIA GROUP LIMITED
UNAUDITED REPORT AND FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
PERIOD FROM
INCEPTION
9 MONTHS ENDED (FEBRUARY 17,
SEPTEMBER 30, 1995) TO
1996 SEPTEMBER 30
$ 1995
Cash flows from operating activities
Net loss (11,190,474) (676,091)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 753,945 804
Minority interest (44,163) -
Changes in assets and liabilities
Increase in inventories 5,881 -
Increase in accounts receivable (798,123) (36,788)
Decrease in prepaid expenses (35,529) (345,314)
Increase in accrued expenses and
accounts payable 988,409 229,160
Decrease in amounts due to minority
shareholders (240,627) -
---------------- ----------------
NET CASH USED IN OPERATIONS (10,560,681) (828,229)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (2,995,390) (25,640)
Acquisition of intangible assets (128,888) -
Proceeds on the sale of investments 34,805 -
---------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (3,089,473) (25,640)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares 6,971,673 2,384,869
Commission paid on issuance of shares (160,000) -
Increase in amounts due from shareholder - (1,440,001)
---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,811,673 944,868
---------------- ----------------
NET (DECREASE)/INCREASE IN CASH (6,838,481) 90,999
Effect of exchange rate movements on cash ( 42,706) -
Cash at start of period 7,537,137 -
---------------- ----------------
Cash at end of period 655,950 90,999
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITY:
Cash payments for interest - -
Cash paid for taxes 580 -
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
6
CAPITAL MEDIA GROUP LIMITED
UNAUDITED REPORT AND FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
I. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles in the United States of
America.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Capital
Media Group Limited ("the Company") and its wholly owned subsidiaries
Capital Media (UK) Limited ("CM(UK)"), Blink TV Limited and Onyx
Television GmbH ("Onyx") together with its 51% owned subsidiary Tinerama
Investment AG ("Tinerama") after the elimination of all significant
intercompany balances and transactions. See Note 10 to Notes to
Unaudited Consolidated Financial Statements.
The operating results of Tinerama and its five 51% owned subsidiaries
have been included in the consolidated financial statements from the
date of acquisition.
INTERIM ADJUSTMENTS
The condensed consolidated financial statements as of, and for the
periods ended September 30, 1996 and 1995, 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 periods presented.
The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1995 Annual Report on Form 10-KSB. The results
of operations for the interim periods should not be considered
indicative of results expected for the full year.
BASIS OF PREPARATION
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.
7
CAPITAL MEDIA GROUP LIMITED
UNAUDITED REPORT AND FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
2. INCOME TAXES
The income tax provision consisted of the following:
9 MONTHS 3 MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1996
$ $
Current tax expense 461 (119)
Deferred tax expense - -
------------------ -----------------
461 (119)
================== =================
Net operating loss carry forwards give rise to deferred tax assets as
follows:
SEPTEMBER 30, DECEMBER 31,
1996 1995
$ $
Unutilized tax losses 3,505,000 717,000
Valuation allowances (3,505,000) (717,000)
------------------------ --------------------
Total deferred tax assets - -
======================== ====================
The valuation allowance relates to deferred tax assets established under
Statement of Financial Accounting Standard No. 109 and relate to the
unutilized tax losses. These unutilized tax losses, substantially all of
which do not expire, will be carried forward to future years for
possible utilization. Because the Company has not yet achieved
profitability, it has not recognized the benefit for these unutilized
tax losses in the financial statements.
8
CAPITAL MEDIA GROUP LIMITED
UNAUDITED REPORT AND FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
3. PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT SEPTEMBER 30, DECEMBER 31,
1996 1995
CONSISTS OF: $ $
Buildings 191,550 191,550
Fixtures, fittings and equipment 4,218,294 1,322,979
------------------ ---------------
Total property, plant and equipment 4,409,844 1,514,529
Less accumulated depreciation (853,753) (235,846)
------------------ ---------------
3,556,091 1,278,683
================== ===============
4. ACCOUNTS RECEIVABLE
ACCOUNTS RECEIVABLE COMPRISE: SEPTEMBER 30, DECEMBER 31,
1996 1995
$ $
Trade receivables 144,082 142,337
VAT receivables 481,217 1,209,435
Other debtors receivable within 1 year 69,277 70,467
Other debtors receivable after 1 year 607,966 624,628
------------------ ---------------
Total 1,302,542 2,046,867
================== ===============
5. COMMITMENTS AND CONTINGENCIES
TRANSPONDER
A bank guarantee was originally provided to PTT Telecom on November 30,
1995 in the amount of ECU 2,000,000 in relation to an agreement to lease
transponder capacity in order to broadcast a television channel in
Germany. The bank guarantee as at September 30, 1996 stood at ECU
1,700,000 ($2,140,000 at September 30, 1996 exchange rates) The Company
is also committed to paying ECU 6,000,000 ($7,555,000 at September 30,
1996 exchange rates) over the next two years for use of the transponder
capacity under the terms of the agreement.
The Company was not in a position to support the guarantee. As a result,
the guarantee has been provided by Universal Independent Holdings
Limited. See Note 10 to Notes to Unaudited Consolidated Financial
Statements.
9
CAPITAL MEDIA GROUP LIMITED
UNAUDITED REPORT AND FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
LEASE COMMITMENTS
In August 1996, the Company entered into an agreement to lease studio,
post production and editing facilities in Dortmund Germany. Under the
terms of the agreement the Company is committed to paying DM 991,000 ($
658,000 at September 30, 1996 exchange rates) for the use of these
facilities until February 1997.
In January 1996, the Company entered into an agreement to lease master
control and braodcasting facilities at Ingleheim Germany. Under the
terms of the agreement the Company is committed to paying DM 1,500,000
($996,000 at September 30, 1996 exchange rates) for the use of these
facilities until January 1999.
In January 1996, the company entered into an agreement to lease uplink
capacity until January 1999, at a cost of approximately (pounds)
360,000 per year.
The Company has also entered into leases for other office space in
Germany and the UK, expiring between 1997 and 2002 at an annualized cost
of $315,000 (at September 30, 1996 exchange rates).
6. LITIGATION
On May, 9 1996 Com TV Production und Vertrieb GmbH ("Com") and Nen TV
("Nen") in relation to their litigation with the Company served Further
and Better Particulars of the Defense and Counterclaim, which provide
details of matters alleged in the Defense and Counterclaim. The most
significant detail given is that Com and Nen have quantified their
estimated damages at DM3,325,438 ($2,208,000 at September 30, 1996
exchange rates) based on a 5% share in profits over a five year period.
For additional information regarding this suit, see the Company's Annual
Report on Form 10-KSB for 1995 and Quarterly Reports on 10-QSB for the
quarters ended March 31, 1996 and June 30, 1996.
The Company has filed a Reply and Defense to the Counterclaim and
believes that the Counterclaim is without merit and intends to
vigorously contest the same. The Company will shortly issue a summons
for directions from the court, which will set out a timetable for the
steps to be taken by each party through trial. There can be no assurance
as to the outcome of this claim.
7. TINERAMA
Tinerama has an option to acquire up to a further 10% of the total
issued shares of each of its 51% owned Romanian subsidiary companies for
a price of Lei 1,000,000 ($325 at September 30, 1996). The option is
valid for a period of six months from the date of finalization of the
1995 financial statements of the Romanian subsidiaries (June 7, 1996).
TIAG has formally confirmed its intention to exercise its option to
acquire the full 10%.
10
CAPITAL MEDIA GROUP LIMITED
UNAUDITED REPORT AND FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
8. WARRANTS
The Company has the following warrants (all of which expire 36 months
from the date of their effective registration) outstanding at September
30, 1996.
Description Number
Warrants for common stock exercisable at $4.00 5,200,000
Warrants for common stock exercisable at $3.125 2,033,328
Warrants for common stock exercisable at $2.50 2,200,000
9. RE-DOMESTICATION OF COMPANY
The Company intends to re-domesticate its legal status to Bermuda or
another non-U.S. jurisdiction as soon as reasonably practicable.
10. SUBSEQUENT EVENTS
On October 31, 1996, CM (UK) entered into an agreement to borrow up to
$2.0 million from Instar Holdings, Inc. to fund working capital
requirements. The loan is due on December 31, 1996, or such earlier date
as the Company raises additional funds to repay the loan. The loan is
guaranteed by the Company and Onyx, and is secured by a charge on
substantially all of the Company's assets. Interest is payable monthly
on the loan, at the rate of 2% above Lloyd Bank's base rate.
On October 31, 1996, CM (UK) entered into a deed of counter-indemnity
("Deed") with Universal Independent Holdings Limited, a BVI corporation
("Universal"). The Deed secures the obligation of CM (UK) to repay
Universal if Universal is called upon to make payment on its transponder
guaranty. See Note 5 to Notes to Unaudited Consolidated Financial
Statements. CM (UK)'s obligations under the Deed are guaranteed by the
Company and Onyx, and are secured by a charge on substantially all of
the Company's assets.
Instar and Universal have agreed that their liens on the Company's
assets shall rank parri-passu.
On November 6, 1996, the Company' subsidiary , Blink TV, entered into a
joint venture arrangement with Mirror Group PLC ("Mirror"). Mirror has
agreed that for 50% of the share capital of Blink, Mirror will: (i)
provide working capital to Blink; and (ii) purchase equipment, which
equipment will be leased to Blink for use in its business.
In connection with the agreement, the Company has agreed that for 50%
of Blink TV, it will invest (pounds) 66,731 in Blink and will convert
its outstanding loans to Blink TV in the amount of (pounds) 183,269
into equity.
Subsequent to this agreement, the Company and Mirror will jointly
control and manage Blink TV.
11
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. CERTAIN OF
THE DATA CONTAINED HEREIN INCLUDES FORWARD-LOOKING INFORMATION AND ACTUAL
RESULTS COULD DIFFER FROM THAT SET FORTH BELOW. THIS DISCUSSION SHOULD BE READ
IN CONJUNCTION WITH THE INFORMATION CONTAINED IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-KSB FOR 1995 (THE "FORM 10-K") AND QUARTERLY REPORTS ON FORM 10-
QSB FOR THE QUARTERS ENDED MARCH 31, 1996 AND JUNE 30, 1996 (THE "FORM 10-
Qs").
RESULTS OF OPERATIONS
ONYX TELEVISION
Onyx began transmission on January 6, 1996. The primary income to be derived
from operating a television station is from advertising sales. The primary
expenses incurred in operating a television station are programming costs,
broadcast studio expenses, transmission expenses, employee salaries and
general and administrative expenses. During the nine months of 1996, Onyx has
operated within management's initial projections of operating costs.
Advertising sales during the first nine months of the year have been
substantially lower than was anticipated when Onyx was launched. This reflects
the fact that Onyx has taken longer than anticipated to establish itself in
the advertising market, in part, because of delays in obtaining more extensive
distribution of its channel on various German cable networks. Onyx has
recently obtained distribution in Nord Rhein Westphalia. This brings total
distribution to approximately 7 million cable and satellite households.
Management now believes that distribution will reach approximately 7.5 million
homes by the end of 1996.
Management believe that distribution, marketing and audience qualification are
the key to achieving success in the advertising sales market. The Company is
making extensive changes in its operation to seek to achieve acceptable levels
of advertising sales. The Company believes that seven million households now
exceeds the critical mass of homes which can be marketed to advertising
consumers. The Company also believes that Onyx's broadcast product has been
well received within the broadcasting industry, and amongst advertisers and
consumers and that over time it will be able to validate to advertisers the
levels of audiences watching its programming. There can be no assurance that
the Company will succeed in developing significant advertising revenues,
although the Company believes that prospects for advertising sales in the next
financial year are significantly stronger.
Notwithstanding the Company believes that Onyx's operating losses in 1996 will
be approximately $13 million. See "Liquidity and Capital Resources" below.
However, there can be no assurance
12
that Onyx's operating loss will not exceed this amount, in that this estimate
assumes a certain level of advertising revenue which may not be met. Moreover,
such estimate has not been reviewed or audited by an independent third party
and might be underestimated.
Onyx Television has recently moved its principal operations from Studio
Dortmund to Television Communication Center Dortmund. This move will
substantially enhance Onyx's production capabilities. In Dortmund, Onyx
Television has entered into several commitments in connection with production,
editing and post-production requirements and studio and office facilities, and
leases for facilities and equipment. The cost of these commitments is
DM991,000 ($658,000). In addition, Onyx is committed to leasing facilities and
equipment in Ingleheim, Germany at an annualized cost of approximately DM
1,500,000 ($996,000).
Further, for the transmission of the television channel via satellite, a
transponder has been secured at a cost of $2,800,000 for the first year. In
the case of the transponder, Capital Media (UK) Limited ("CM (UK)") must
provide a guaranty of one year's lease payment for this obligation. See Notes
5 and 10 to Notes to Unaudited Consolidated Financial Statements.
In January 1996, the Company entered into an agreement to lease uplink
capacity until January 1999, at the cost of approximately (pound)360,000 per
year.
The Company has entered into discussions for a heads of agreement with VIVA
Fernsehen GMBH & Co (known as "VIVA") to create a strategic alliance between
VIVA and Onyx in Germany. The details of this arrangement have not yet been
finalized and Management believe that whilst an agreement will be sought,
there is no guarantee that an agreement will be reached.
TINERAMA
CM (UK) holds a controlling interest in Tinerama Investments AG (TIAG), a
holding company holding a 51% interest in the Tinerama Companies, a group of
five media-related companies based in Bucharest, Romania. During the nine
months ended September 30 1996, each of the Tinerama Companies continue to
operate at either a small profit or experienced a small loss.
There has been a slow-down in the Romanian market for print media which may
adversely affect the profitability of Tinerama's publishing interests during
the remainder of this financial year. In response to this economic situation,
Tinerama has introduced new titles to seek to maintain profitability levels.
13
TIAG has an option to acquire up to a further 10% of the total issued shares
of each of its 51% owned Romanian subsidiary companies for a price of Lei
1,000,000 ($325 @ 30 June 1996 exchange rates) from Dr Max Banush. The option
is valid for 6 months from the date of finalization of the 1995 financial
statements (June 7, 1996). TIAG has formally confirmed its intention to
exercise its option to acquire the full 10%. Upon exercise TIAG will own 61%
of the Tinerama Companies.
BLINK TV
The Company intends to launch Blink TV during the fourth quarter of 1996.
Blink TV will provide lifestyle programming on large video screens at concert
events. On 6 November 1996, a joint venture agreement was signed with Mirror
Group PLC ("Mirror") for the Mirror to subscribe for 50% of the share capital
of Blink TV Limited ("Blink"). In return, the Mirror will provide working
capital funding to Blink TV. In addition, Mirror will purchase equipment,
which will be leased to Blink TV for use in its business. The Company now
owns 50% of Blink (for which it will contribute (pounds) 66,731 to Blink TV
and convert outstanding loans to Blink TV into equity in the amount of
(pounds) 183,269. Additionally, the Company and the Mirror have granted a
five-year option to RCL Communications ("RCL") allowing RCL to acquire up to
33% of Blink from the Company and Mirror, contingent upon Blink TV meeting
certain objectives over the term of the agreement.
Subsequent to this agreement, the Company and Mirror will jointly control
and manage Blink TV.
Blink TV is currently planning the installation of the video screens and
projection equipment at UK concert venues. At present, Blink TV has signed
contracts with four venues. Purchase orders have also been issued for
equipment and installation to a value of approximately (pound)270,000
($420,000 at 30 September 1996).
In addition to gaining access to the concert venues, Blink must secure the
agreement of concert promoters and organizers to provide programming at
individual events. At present, 30 dates have been confirmed, out of a
projected 46 events remaining to the end of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company is currently using its cash reserves to fund its operations. Due
to the poorer than expected advertising revenues at Onyx Television and higher
than planned capital expenditures in connection with the launch and first year
operation of Onyx Television, the funds raised by the Company in late 1995 and
early 1996 have been expended earlier than anticipated.
To fund its operations beyond the end of 1996, the Company will need to raise
significant additional capital. At present the Company is considering various
options to raise additional funding for its capital resources, however, other
than as set forth herein, no arrangements have been entered into to date.
There can be no assurance that additional working capital will be available
on terms acceptable to the Company. The failure to obtain the additional
funding required will almost certainly have a material and adverse impact on
the Company's operations and financial position.
14
On October 31, 1996, CM (UK) entered into an agreement to borrow up to $2.0
million (the "Loan") from Instar Holdings, Inc. ("Instar"), a corporation
organized in the Marshall Islands. Certain members of the Company's Board of
Directors (Messrs. Townsley, Hauptman and Leitner) have an interest in the
Loan as part of the lending group. See Note 10 to Notes to Unaudited
Consolidated Financial Statements.
The Loan is due on the earlier of December 31, 1996 or the date on which the
Company raises additional capital. The Loan bears interest at the rate of 2%
above Lloyd Bank's base rate, and interest is payable monthly. The Loan is
guaranteed by the Company and Onyx and is secured by a charge on substantially
all of the Company's assets. At this date, $750,000 of the principal amount of
the Loan is outstanding and the balance remains available to the Company.
The Company believes that the commercial terms of the Loan are at least as
favorable to the Company as could have been obtained from an unaffiliated
third party.
The Company's failure to raise sufficient funds to repay this loan will likely
have a significant and adverse impact on the Company's financial position, and
could result in the Company's loss of its operating assets, including its
interest in Onyx.
15
PART 2
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in several lawsuits all relating to the relationship
between CM (UK) and John Garman. The background to these lawsuits is provided
in the Form 10-K and Form 10-Q filings.
ENGLISH PROCEEDINGS BETWEEN CM (UK), COM TV PRODUCTION UND VERTRIEB GMBH
("COM TV") AND NEN TV LIMITED ("NEN TV")
CM (UK) is engaged in dispute with COM TV and NEN TV in the High Court of
Justice, Queen's Bench Division in the United Kingdom, seeking a declaration
that the heads of agreement dated March 9, 1995 ("the Heads of Agreement") and
the letter of agreement dated March 31, 1995 (collectively, "the TV
Agreements") entered into by CM (UK), COM TV and John Garman, were discharged
upon breach by COM TV.
On November 24, 1995, COM TV and NEN TV filed a Defense and Counter claim in
response to CM (UK)'s Writ and Statement of Claim. In Defense and Counter
claim, COM TV and NEN TV denied that they are in breach of the TV Agreements.
Further, COM TV and NEN TV claim damages in an equal amount to the alleged
loss of future profits which would have been payable with respect to a 5%
shareholding in Onyx Television. COM TV and NEN TV further claim that CM (UK)
has used confidential information, documentation, records, research and data
provided by COM TV and NEN TV, and that they are entitled to an account of any
profits realized by CM (UK) for use of such items.
CM (UK) has filed a Reply and Defense to Counter claim and CM (UK) believes
the counter claim to be without merit and intends to vigorously contest the
same. The Company will shortly issue a summons for directions from the court,
which will set out a timetable for the steps to be taken by each party through
trial. There can be no assurance as to the outcome of this claim.
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SETTLEMENT OF WRIT WITH POTENTIAL ACQUISITION CANDIDATE
In October 1996, a writ was issued by a potential acquisition candidate and
its shareholders alleging certain breaches of undertakings relating to a
non-binding heads of agreement signed between the Company and the potential
acquisition candidate. After a due diligence review, the Board decided it was
not in the best interests of the Company to proceed with the contemplated
acquisition, at which time the potential acquisition candidate and its
shareholders filed suit against the Company and Charles Koppel, the Company's
President and Chief Executive Officer, seeking costs and unspecified damages.
An agreement has been reached in settlement of the claim, as to which the
Company and Mr. Koppel do not admit any liability, and a Notice of
Discontinuance of the action will be released upon the Company making three
payments totaling (pound)100,000 ($165,000 at September 30, 1996) by 31
December 1996.
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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 during the quarter covered by this report
ITEM 5. OTHER INFORMATION
The Company intends to complete a redomestication from Nevada to Bermuda or to
another non-US jurisdiction. The redomestication will occur as soon as
reasonably practicable.
On September 20, 1996, Stephen Kornfeld was appointed to the Company's Board
of Directors. Mr. Kornfeld also became Co-Chairman of the Board at that time.
Mr. Kornfeld, age 56, has been, since September 1993, an investor and a
consultant to several companies. From January 1989 until September 1993,, Mr.
Kornfeld was the Chief Operating Officer of JWP International, Inc. and its UK
subsidiary, Drake and Skull Engineering. JWP International was during that
period one of the worlds leading mechanical, electrical and facilities
managements contractors.
In connection with Mr. Kornfeld's providing services to the Company, Kornfeld
Associates International Inc. will receive a grant of 200,000 shares of the
Company's common stock (100,000 of which are anticipated to be issued by the
Company and the balance of which are expected to be transferred from several
of the Company's founding shareholders). Additionally, Kornfeld Associates
International Inc. will be granted options to purchase an additional 200,000
shares of Common Stock at an exercise price of $2.50 per share (100,000 of
which are anticipatd to be issued by the Company and the balance of which are
expected to be transfered from several of the Company's founding
shareholders).
In October 1996, Martin Loat resigned from the Company's Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1. Facility letter dated October 31, 1996 made between Instar
Holdings, Inc. (1) and Capital Media (UK) Limited (2);
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10.2. Debenture dated October 31, 1996 made between Instar
Holdings, Inc. (1) and Capital Media (UK) Limited (2);
10.3. Security Assignment dated October 31, 1996 made between
Capital Media (UK) Limited (1) and Instar Holdings, Inc. (2);
10.4. Charge over Shares and Securities dated October 31, 1996 made
between Capital Media Group Limited (1) and Instar Holdings,
Inc. (2);
10.5. Guarantee dated October 31, 1996 made between Instar
Holdings, Inc. (1) and the Guarantors (2);
10.6. Deed of Counter-Indemnity dated October 31, 1996 made
between Capital Media (UK) Limited (1) and Universal
Independent Holdings Limited (2);
10.7. Side letter to the Deed of Counter-Indemnity dated October
31, 1996 from Universal Independent Holdings Limited (1) to
Capital Media (UK) Limited (2);
10.8. Debenture dated October 31, 1996 made between Universal
Independent Holdings Limited (1) and Capital Media (UK)
Limited (2);
10.9. Security Assignment dated October 31, 1996 made between
Capital Media (UK) Limited (1) and Universal Independent
Holdings Limited (2);
10.10. Charge over Shares and Securities dated October 31, 1996
made between Capital Media Group Limited (1) and Universal
Independent Holdings Limited (2);
10.11. Guarantee dated October 31, 1996 made between Universal
Independent Holding Limited (1) and the Guarantors (2);
10.12. Deed of priorities dated October 31, 1996 made between
Instar Holdings, Inc. (1) and Universal Independent Holdings
Limited (2) and Capital Media (UK) Limited (3); and
10.13. Deed of priorities dated October 31, 1996 made between
Instar Holdings, Inc. (1) and Universal Independent Holdings
Limited (2) and Capital Media Group Limited (3).
27. Financial data Schedule
(b) No reports on Form 8-K were filed during the third quarter of 1996.
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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 day of November 19th, 1996.
CAPITAL MEDIA GROUP LIMITED
By: /s/ CHARLES KOPPEL
-------------------------------------
Charles Koppel, President and
Chief Executive Officer
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