SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2001
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________
Commission File No. 001-12739
CAPITAL MEDIA GROUP LIMITED
---------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 87-0453100
- ---------------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2 rue du Nouveau Bercy
94220, Charenton, France
- ---------------------------------------- ----------------------------
(Address of Principal Executive (Zip Code)
Offices)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
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 September 5, 2001
there were 33,432,710 shares of the Common Stock issued and outstanding.
Part I. Financial Information
Item 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page
----
Consolidated Balance Sheet at March 31, 2001 (Unaudited) and December 31, 2000.................. 3
Unaudited Consolidated Statement of Operations for the three months ended March 31, 2001 and
2000............................................................................................ 4
Unaudited Consolidated Statement of Changes in Stockholders' Equity for the three months
ended March 31, 2001............................................................................ 5
Unaudited Consolidated Statement of Cash Flows for the three months ended March 31, 2001 and
2000............................................................................................ 6
Notes to Unaudited Consolidated Financial Statements............................................ 7
2
CONSOLIDATED (UNAUDITED) BALANCE SHEET AT MARCH 31, 2001 and
DECEMBER 31, 2000
Note
March 31, December 31,
2001 2000
ASSETS $ $
Cash and cash equivalents 287,805 929,913
Accounts receivable trade, net of allowances
for doubtful accounts of $30,623 1 1,299,616 1,212,781
(December 31, 2000 - $19,498)
Inventories, net 206,939 202,875
Prepaid expenses and deposits 133,882 176,460
----------- -----------
TOTAL CURRENT ASSETS 1,928,242 2,522,029
Equity in affiliated companies 91,736 68,076
Intangible assets, net of accumulated amortization of 3
$4,413,470 (December 31, 2000 - $4,276,276) 1,691,079 1,693,282
Property, plant and equipment, net 1,110,831 1,213,650
----------- -----------
TOTAL ASSETS 4,821,888 5,497,037
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable 3,717,548 3,021,802
Accrued expenses 1,537,013 1,464,360
Related parties loans repayable within one year 4 5,950,984 5,733,819
Bank debt due within one year 1,639,834 1,369,454
----------- -----------
TOTAL LIABILITIES 12,845,379 11,589,435
Minority Interest in Subsidiaries 163,738 382,057
----------- -----------
13,009,117 11,971,492
----------- -----------
Commitments and Contingencies - -
STOCKHOLDERS' DEFICIT
Common stock - 50,000,000 shares authorized:
$0.001 par value 33,432,710 (December 31, 2000 - 6 33,433 33,203
33,203,251) issued and outstanding,
Additional paid in capital 66,449,469 66,449,689
133,058 shares held by subsidiary (December 31, 2000 -
133,058) at cost (950,712) (950,712)
----------- -----------
65,532,190 65,532,180
Cumulative translation adjustment 7,804,162 7,205,017
Accumulated deficit (81,468,191) (79,211,652)
Other movements (55,390) -
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (8,187,229) (6,474,455)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 4,821,888 5,497,037
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ending March 31, 2001 and 2000
Three months Three months
ended March ended March
Note 31, 2001 31, 2000
$ $
Operating revenue 900,034 834,414
Operating costs
Staff costs 768,620 2,251,737
Depreciation and amortization 241,675 225,603
Other operating expenses 1,938,857 1,748,657
------------ ------------
(2,949,152) (4,225,997)
Operating loss (2,049,118) (3,391,583)
Other income (expense) 57,930 (44,470)
Financial (expense), net 6 (607,363) (873,281)
Equity in net loss of affiliates 23,661 (10,925)
------------ ------------
Loss before taxation (2,574,890) (4,320,259)
Income tax benefit (expense) - (302)
------------ ------------
Net loss before minority interest (2,574,890) (4,320,561)
Minority interest 318,351 -
------------ ------------
Net loss (2,256,539) (4,320,561)
============ ============
Net loss per share
- - basic ($0.07) ($0.15)
============ ============
- - diluted ($0.07) ($0.15)
============ ============
Weighted average shares - basic 33,317,980 28,725,695
============ ============
Weighted average shares - diluted 33,317,980 28,725,695
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the three months ended March 31, 2001
Cumulative
Shares Additional Other
held by paid-in comprehensive Accumulated Total
Common stock subsidiary Capital Income (deficit) deficit
Shares $ $ $ $ $ $
Balance at 33,203,251 33,203 (950,712) 66,449,689 7,205,017 (79,211,652) (6,474,455)
January 1, 2001
Shares Issued 229,459 230 - (220) 10
Translation
Adjustment 599,145 599,145
Net loss - - - - (2,256,539) (2,256,539)
-----------
Comprehensive loss (1,657,384)
Other movements (55,390)
----------- ------- --------- ----------- -------------- ------------ -----------
Balance at
March 31, 2001 33,432,710 33,433 (950,712) 66,449,469 7,804,162 (81,468,191) (8,187,229)
=========== ======= ========= =========== ============== ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
for the three months ended March 31, 2001 and 2000
Three months Three months
ended ended
March 31, 2001 March 31, 2000
$ $
Cash flows from operating activities
Net loss (2,256,539) (4,320,561)
Adjustment to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 241,675 225,604
Other income arising from disposal of subsidiary investments - -
Equity in net losses of affiliates and minority interests (242,918) 10,925
Other non-cash items
Changes in assets and liabilities:
(Increase) / Decrease in other assets and inventories 38,835 (45,148)
(Increase) / Decrease in accounts receivable (86,836) 329,972
(Decrease) / Increase in accrued expenses and other liabilities 794,405 1,282,820
---------- ----------
Net cash used in operations (1,511,378) (2,516,388)
---------- ----------
Cash flows from investing activities
Acquisition of plant and equipment 18,773 (5,900)
Acquisition of intangible assets (154,807) -
Disposal of financial assets - -
---------- ----------
Net cash (used) in investing activities (136,034) (5,900)
---------- ----------
Cash flows from financing activities
Increase in short term debt 191,169 1,960,000
Repayment of loans - -
Conversion of loans - -
Issuance of shares - 970,000
Other movements (55,390) -
---------- ----------
Net cash provided by financing activities 135,779 2,930,000
---------- ----------
Effect of exchange rate changes on cash 599,145 691,470
---------- ----------
Net (decrease) / increase in cash and cash equivalents (912,488) 1,099,182
Cash and cash equivalents at beginning of period (439,541) (1,425,655)
---------- ----------
Net (debt) / cash and cash equivalents at end of period (1,352,029) (326,473)
========== ==========
Supplemental data:
Interest paid (64,218) 58,687
Income tax paid - 302
The accompanying notes are an integral part of these consolidated financial
statements.
6
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2001
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements are
prepared in conformity with generally accepted accounting principles in
the United States of America for interim financial information and with
the instructions to Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2001 are
not necessarily indicative of the results that may be expected for the
year ended December 31, 2001. The condensed balance sheet information
as of December 31, 2000 was derived from the audited consolidated
financial statements included in the Annual Report on Form 10-KSB of
Capital Media Group Limited ("Company") for the year ended December 31,
2000 (the "Form 10-KSB"). For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Form 10-KSB.
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 three months ended March 31,
2001 and the year ended December 31, 2000, the Company incurred net
losses of $2,256,539 and $13,094,754, respectively.
At March 31, 2001, the Company had net current liabilities of
$10,917,137 and its total liabilities exceeded its total assets by
$8,187,229. These factors among others raise substantial doubt about
the Company's its ability to continue as a going concern for a
reasonable period of time. The Company anticipates that any required
funding will be made available by its majority stockholder, AB Group,
although there can be no assurance that the necessary funding will
become available.
The financial statements do not include any adjustments relating to
the recoverability and classification of the recorded asset amounts or
the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. As
described in Note 7, 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 profitable and cash flow positive
operations.
7
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2001
3. INTANGIBLE ASSETS
March 31, December 31,
2001 2000
$ $
Purchased broadcast licenses 350,850 223,642
Computer software 669,566 661,054
Other intangible assets 516,628 517,357
Goodwill 4,567,505 4,567,505
--------- ---------
6,104,549 5,969,558
Less accumulated amortization (4,413,470) (4,276,276)
--------- ---------
1,691,079 1,693,282
========= =========
Goodwill, net of amortization, is as follows:
March 31, December 31,
2001 2000
$ $
Unimedia 1,098,134 1,213,446
TopCard 307,710 336,614
Pixel 22,690 28,945
--------- ---------
1,428,534 1,579,005
========= =========
4. LOANS REPAYABLE WITHIN ONE YEAR
March 31, December 31,
2001 2000
$ $
AB Groupe S.A. 5,645,050 5,488,970
Interest accrued 305,934 244,849
--------- ---------
Related party loans 5,950,984 5,733,819
========= =========
8
The terms of AB Groupe loans are detailed in Note 7 and were received on the
following dates:
$
August 1999 327,338 (1)
May 1999 150,000 (1)
December 1999 500,000 (1)
January 2000 500,000 (1)
March 2000 1,000,000 (1)
August 2000 278,123
September 2000 133,509
October 2000 2,600,000 *
March 2001 156,080 (2)
----------------
5,645,050
*In December 2000, AB Groupe notified the Company that it had decided not to
exercise the 2.6 million warrants at $1.00 per share as scheduled in the
agreement dated October 20, 2000. The Company disputes this and believes that an
agreement had been reached with AB Groupe to exercise of the 2.6 million
warrants at the time the funds were received. However, until the dispute is
settled, the $2.6 million received from AB Groupe is being treated as a loan in
the accounts.
(1) Loans are due in two years, bearing interest at 10% per annum, with
two-year warrants to purchase shares of the common stock at an exercise
price of $1.00 per share (see Note 7).
(2) Loan was due on April 30, 2001 bearing interest at 10% per annum. AB
Groupe has agreed to lend up to $800,000 for working capital. This loan is
convertible into shares of common stock at $0.60 per share (see Note 7).
5. 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 while in July 1998 the court ruled in favor of Onyx. The
plaintiff appealed against the ruling and claimed DM168,000 (US$86,000)
in respect of his 1997 salary. The court is currently 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.
Unimedia has two minority shareholders (Oradea and Roland Pardo) who
have unsuccessfully brought numerous legal actions against Unimedia
and/or its management before a French Court. Oradea and R. Pardo have
also brought a legal action before the Court of England against Gilles
Assouline with respect to their investments in both Unimedia and
ActivCard. The Court has favorably considered an application to dismiss
the claim filed by Gilles Assouline, who believes that he has strong
and valid defenses. However there can be no assurance as to the outcome
of this claim. The Company is indemnifying Mr. Assouline with respect
to this matter.
In June 2000, Onyx+, which was planning to broadcast its digital
channels directly from Germany, signed a service agreement with
Mediagate. As a result of the numerous delays taken by the cable
operators with respect to the development of digital cable services in
Germany combined with the failure of certain conditions precedent to
the use by Onyx+ of the services provided by Mediagate, this agreement
never became applicable. Mediagate has taken the position that Onyx+
was obligated under the contract and has been invoicing Onyx+ at a
monthly rate of DM 430,000 (approximately $195,000) starting January
2001.
Onyx+ has and will continue to vigorously dispute these invoices.
Accordingly, there can be no assurance as to the outcome of Onyx+'s
dispute with Mediagate.
9
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2001
6. CAPITAL STRUCTURE
6.1 COMMON STOCK PURCHASE WARRANTS
The Company had the following issued and vested warrants to purchase
common stock outstanding at March 31, 2001 and December 31, 2000:
Description March 31, Exercised Granted December 31,
2001 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 6,537,339 - - 6,537,339
Exercisable at $1.00 (1) ______________ ______________ ______________ _____________
7,352,139 - - 7,352,139
(1) includes 1,787,339 warrants issued and vested to AB Groupe,
including 2.6 million warrants which the Company asserts AB Groupe
agreed to exercise (see Note 4), 1,600,000 issued and vested to
Diamond Productions and 150,000 warrants issued and vested to
Superstar Ventures ("Superstar").
For a description of the terms of the outstanding warrants, see Note 13.1 of
Notes to Consolidated Financial Statements in the Form 10-KSB.
6.2 COMMON STOCK PURCHASE OPTIONS
Description Outstanding at Granted / Outstanding at
March 31, 2001 Vested December 31,
2000
Executive officers options exercisable @ $5.70 37,500 -
of which vested 37,500 - 37,500
37,500
Officers options exercisable @ $25.00 fully vested 30,000 - 30,000
Executive officers options exercisable @ $3.50 400,000 -
of which vested 239,997 - 400,000
239,997
Non-employee directors options exercisable @
$3.50 fully vested 50,000 - 50,000
-------------------------------------------------
Total exercisable 517,500 - 517,500
=================================================
For a description of the terms of the outstanding options, see Note 13.2 of
Notes to Consolidated Financial Statements in the Form 10-KSB.
10
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2001
6.3 ISSUANCE OF COMPANY SHARES
In March 2000, the Company granted the right to purchase up to 6.5
million shares to certain shareholders including the management as
detailed below:
Purchase Price Gilles Michel Jean-Francois David Ho Total
Assouline Assouline Klein
$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 of the Company's board 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). These warrants (other than those relating to the
shares issued to FA Television Holdings) expired unexercised on
December 31, 2000.
On April 21, 2000, the Board authorized the issuance of up to 500,000
shares to each AB Groupe and Superstar at $1.50 each prior to July
2000. Of these shares, 780,000 shares were effectively issued and paid.
AB Groupe and Superstar purchased 480,000 and 300,000 new shares,
respectively, out of which an aggregate number of 280,000 shares were
effectively subscribed for prior to June 30, 2000 and 500,000 shares
were effectively subscribed for in July 2000.
In September 2000, Superstar exercised 650,000 warrants and 650,000
shares of common stock were issued by the Company to Superstar.
In October 2000, FA Television Holdings LLC, a joint venture company
among Allied Capital, Gilles Assouline and Michel Assouline, subscribed
to purchase 600,000 shares of common stock for an aggregate purchase
price of $840,000 with all such shares being issued from the 6.5
million shares reserved for certain shareholders including the
management in March 2000. In October 2000, 600,000 new shares of the
Company were issued to FA Television Holdings LLC. By a board decision
of September 25, 2000, the Company agreed to register these shares.
After all of these share issuance's, March 31, 2001 the Company has
33,432,710 shares of common stock outstanding and AB Groupe's and
Superstar's stock holding represented 53.6% and 31.29%, respectively.
Including warrants and options, the total potential number of shares
would be 41,302,350.
6.4 The fair value of the options and warrants issued is calculated using
the Black-Scholes option-pricing model at the date of grant which takes
into account the stock price at the grant date, the exercise price, the
expected life of option, the volatility of the underlying stock and the
expected dividends on it, and the risk-free interest rate over the
expected life of the option.
11
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS For the three
months ended March 31, 2001
This date is summarized in the table below:
---------------------------------------------------------------------------------------------
Stock compensation and third Debt issued
parties warrants with warrants
or options
---------------------------------------------------------------------------------------------
Dividends yield 0 0
---------------------------------------------------------------------------------------------
Expected volatility 45-50 45 -50 %
---------------------------------------------------------------------------------------------
Interest rate 4.59% - 6.58% 5.38 % - 6.48 %
---------------------------------------------------------------------------------------------
Expected life 0,2 - 3 years 2 years
---------------------------------------------------------------------------------------------
Marketability discount 75% 75%
---------------------------------------------------------------------------------------------
Fair value $1,744,744 $230,757
---------------------------------------------------------------------------------------------
7. 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.
In January 2000, AB Groupe and Superstar made loans to the Company in
the amount of $500,000 each. The loans are due in January 2002 and
carry interest at the rate of 10% per annum. In connection with the
loans, the Company granted a warrant exercisable until January 2002 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 March 2002 with interest of ten
percent (10%) per annum. In connection with the loan, the Company
granted AB Groupe a warrant exercisable in March 2002 to purchase
1,000,000 shares of Common Stock at an exercise price of $1.00 per
share.
On April 21, 2000, the Company's Board of Directors authorized the
issuance of up to 500,000 shares to each AB Groupe and Superstar at
$1.50 each prior to the end of July 2000. Out of these, 780,000 shares
were effectively issued and paid. AB Groupe and Superstar purchased
480,000 new shares and 300,000, shares respectively, out of which an
aggregate number of 280,000 shares were effectively subscribed for
prior to June 30, 2000 and 500,000 shares were effectively subscribed
for in July 2000.
On September 25, 2000 the Board of the Company authorized a euro 38.9
million capital injection into Onyx to be funded through (i) a short
term loan from AB Groupe in the amount of euro 36,200,000 and (ii) the
exercise by AB Groupe of 2.6 million warrants at $1 each resulting in
the issue of 2.6 million new shares of the Company's Common Stock
pursuant to an agreement entered between the Company and AB Groupe on
October 20, 2000. Euro 36.5 million were wired by the Company into the
Onyx capital reserve and euro 2.4 million of new Onyx shares were
subscribed by the Company for a total funding consideration of euro
38.9 million in the aggregate. After this capital increase, the Company
directly owned 66.7% of Onyx while its wholly owned subsidiary CM (UK)
owned 33.33% of Onyx.
12
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2001
On September 25, 2000, Superstar exercised 650,000 warrants and 650,000
shares of Common Stock were issued by the Company to Superstar.
In October 2000, FA Television Holdings LLC, a joint venture Company among
Allied Capital, Gilles Assouline and Michel Assouline, subscribed to purchase
600,000 shares for an aggregate purchase price of $840,000. See Note 6.3.
In December 2000, AB Groupe notified the Company that it had decided not to
exercise the 2.6 million warrants at $1 as scheduled in the agreement dated
October 20, 2000. See Note 4. The Company disputes this and believes that an
agreement had been reached with AB Groupe to exercise of the 2.6 million
warrants at the time the funds were received. However, until the dispute is
settled, the $2.6 million received from AB Groupe is being treated as a loan
in the Company's accounts.
In February 2001, the Company accepted a funding proposal from AB Groupe to
loan the Company US $800,000, which funds were required to support the
Company's operations. The loan bears interest at 10% per annum and was due on
April 30, 2001. Since the loan was not repaid by that date, it is, at AB
Groupe's option, convertible into shares at a conversion price of US $0.60
per share. The Company is currently exploring alternative funding solutions
and available capital formation options to repay this loan and to otherwise
meet the Company's working capital requirements.
In June 2001, AB Groupe agreed to loan the Company up to Euro 3.5 million for
working capital. The loan is a one-year loan with interest at the rate of 10%
per annum.
8. CHANGE IN ACCOUNTING POLICY
As of January 1, 2000 the Company has adopted the recognition provisions of
SFAS No. 123 - "Accounting for Stock Based Compensation" ("SFAS 123"). Under
SFAS 123, the fair value of an option on the date of the grant is amortized
over the vesting periods of the options. The recognition provisions of SFAS
123 are applied prospectively upon adoption. As a result, the recognition
provisions are applied to all stock awards granted in the year of adoption
and are not applied to awards granted in previous years unless those awards
are significantly modified. The adoption of SFAS 123 resulted in non-cash
charges to operations of $1,744,744 in 2000. The Company applied Accounting
Principles Board option No. 25 - Accounting for Stock Issued to Employees"
("APB 25") in accounting for its stock options, prior to January 1, 2000.
Since the application of FAS 123 represents a change in accounting policy,
the impact on the quarterly consolidated statement of operation previously
published is as follows:
As published As recalculated
Three months ended March 31, 2000
Staff cost (657,889) (2,251,737)
Operating loss (1,797,735) (3,391,583)
Financial expense net (855,281) (873,281)
Loss from continuing operations before taxation (2,708,411) (4,320,259)
Net loss (2,708,713) (4,320,561)
Net loss per share basic and diluted $(0.09) $(0.15)
13
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The financial information included herein should be read in conjunction with the
consolidated financial statements, including the notes thereto, included
elsewhere in this Form 10-Q. Certain of the data contained herein includes
forward looking information and results could differ from that set forth below.
This discussion and analysis should be read in conjunction with the information
contained in the Form 10-KSB.
Results of Operations
Three months ended March 31, 2001 compared to three months ended March 31, 2000
Operating revenues for the three months ended March 31, 2001 were $900,034, an
increase of $65,620 (7.9%) compared to operating revenues of $834,414 for the
same period in 2000. Revenues at Onyx Television and Onyx+ for the three months
ended March 31, 2001 totaled $614,996, compared to $633,605 for the same period
in 2000, an decrease of 2.94%.
Operating costs, including staff costs, depreciation and amortization totaled
$2,949,152 for three months ended March 31, 2001 compared to $4,225,997 for the
three-month period ending March 31, 2000. First quarter 2000 operating expenses
includes $1,593,848 in non-cash stock based compensation. See Notes 6.3 and 8 of
Notes to the Unaudited Consolidated Financial Statements. Without these costs,
operating costs increased approximately $317,000, or 12%, from period to period.
Financial expense for the three months ended March 31, 2001 was $607,363
(including an exchange loss of $500,766), compared to $873,281 (including an
exchange loss of $749,720) for the same period in 2000, a decrease of $265,928.
Interest expense (excluding exchange losses) was relatively flat from period to
period.
As a result of the above factors, the Company incurred a loss of $2,256,539 for
the three months ended March 31, 2001, compared to $4,320,561 for the same
period in 2000, a decrease of $2,064,022.
The net loss per share for the three months ended March 31, 2001 (basic and
diluted) was $0.07, compared to a net loss per share (basic and diluted) of
$0.15 for the three months ended March 31, 2000. Weighted average shares
outstanding basic and diluted were 33,317,980 for the three months ended March
31, 2001, compared to 28,725,695 for the corresponding period in 2000.
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, the Company has financed its capital requirements through sales of
equity securities and through debt financing. Since inception through March 31,
2001, the Company has incurred an accumulated deficit of approximately $81.5
million, principally related to the launch and operation of Onyx. At March 31,
2000, the Company had a negative working capital of $8.2 million.
The Company will require significant financing over the next twelve months in
order to remain a going-concern, the amount of which will depend in part on the
revenues generated by the Company. There can be no assurance that the Company
will be successful in securing the necessary funds to finance its operation
through 2001. Funding is expected to come from AB Groupe, the Company's majority
stockholder, although there can be no assurance that AB Groupe will fund the
amounts required.
14
Other Matters
David Ho, a director and 31.3% beneficial owner of the Company, has
disputed certain recent actions taken by the Company and the propriety of
certain recent actions taken by AB Groupe with respect to the Company, including
actions relating to the management, the funding and the operations of the
Company and to the provision of services to the Company (including charges
therefore). AB Groupe strongly disagrees with David Ho's allegations. The
Company, AB Groupe and David Ho have discussed these issues in an effort to
resolve them to the satisfaction of all parties. To date, this dispute has not
been resolved, but has not resulted in any litigation. However, there can be no
assurance that litigation will not result in the future or that this dispute
will not have an adverse effect on the Company.
Certain of the Company's directors have disputed the Company's
determination that the 6.5 million options granted in 2000 were compensatory in
nature, or, even if compensatory, whether they had any value. There can be no
assurance as to the impact of this dispute on the Company.
In June 2000, David Ho, on behalf of himself and entities under his
control, including Superstar Ventures, granted AB Groupe S.A. an option to
purchase all of the 10,279,983 shares of the Company's common stock owned by
them for $0.70 per share. The option expires on [August 15, 2001].
Equity Offerings by Capital Media
For information regarding issuances of Company securities during 2000
and 2001, see Note 6 of Notes to Unaudited Consolidated Financial Statements and
the Form 10-KSB.
Liquidity and Capital Resources
The Company believes that additional capital will be required, along
with anticipated revenues, to fund operations for the next 12 months. The
Company anticipates that the required funding will be made available by its
majority stockholder AB Groupe, although there can be no assurance that the
necessary funding will become available, particularly in light of certain
disputes (see above). Further, required amounts of funding will be impacted in
part by the level of revenues achieved, particularly at Onyx. The Company will
likely issue additional shares of Common Stock, or shares of the capital stock
of its subsidiaries, to meet capital requirements.
Item 2. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks due to changes in currency
exchange rates. The Company's revenues and net worth are affected by foreign
currency exchange rates because its subsidiaries do business in various
countries and because each subsidiary owns assets and conducts business in its
local currency. Upon consolidation, the subsidiaries' financial results are
impacted by the value of the U.S. dollar at a time of the translation. A uniform
10% strengthening as of January 1, 2000 in the value of the dollar would have
resulted in reduced revenues of $253,409 million for the year-ended December 31,
2000. A uniform 10% strengthening as of January 1, 1999 in the value of the
dollar would have resulted in reduced revenues of $248,063 for the year-ended
December 31, 1999. A uniform 10% strengthening as of December 31, 2000 in the
value of the dollar would have resulted in a reduction of the consolidated
Company's net worth by $48,911. A uniform 10% strengthening as of December 31,
1999 in the value of the dollar would have resulted in a reduction of the
consolidated Company's net worth by $76,807. The Company periodically evaluates
the materiality of foreign exchange risk and the financial instruments available
to mitigate this exposure. The Company attempts to mitigate its foreign exchange
exposures by maintaining assets in the exposed currency wherever possible. The
Company finds it impractical to hedge foreign currency exposure and as a result
will continue to experience foreign currency gains and losses.
15
PART II - Other Information
Item 1. Legal Proceedings
For information regarding the status of the Company's
currently outstanding litigation, see Note 5 of Notes to
Unaudited Consolidated Financial Statements included herein
and Item 3. "Legal Proceedings" in the Form 10-KSB.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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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 5th day of September, 2001.
CAPITAL MEDIA GROUP LIMITED
BY: /s/ Gilles Assouline
-----------------------------------
Gilles Assouline, President and
Chief Executive Office
17