SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A No. 1
(Mark one)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 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. 000-21051
CAPITAL MEDIA GROUP LIMITED
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(Exact name of small business issuer as specified in its charter)
NEVADA 87-0453100
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
In Mediapark 6B 50670
Cologne, Germany
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(Address of Principal Executive (Zip Code)
Offices)
011-49-22-157-437-600
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(Issuer's telephone number)
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
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WHICH REGISTERED
----------------
Not Applicable None
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
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Common Stock, $.001 par value
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 [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of December 18, 2002,
there were 36,032,710 shares of the Common Stock issued and outstanding.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
CAPITAL MEDIA GROUP LIMITED
2001 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
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PART I.
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 10
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 19
Item 8. Financial Statements and Supplementary Data 19
Item 9. Disagreements with Accountants on Accounting and Financial Disclosure 19
PART III.
Item 10. Directors and Executive Officers of the Company 20
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners and Management 25
Item 13. Certain Relationships and Related Transactions 26
PART IV.
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K 28
PART I
ITEM 1. DESCRIPTION OF BUSINESS
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO "CAPITAL MEDIA," "US," "WE"
AND "OUR" IN THIS ANNUAL REPORT ON FORM 10-K INCLUDES CAPITAL MEDIA GROUP
LIMITED AND ITS SUBSIDIARIES. THIS ANNUAL REPORT ON FORM 10-K CONTAINS OR MAY
CONTAIN FORWARD-LOOKING STATEMENTS, SUCH AS STATEMENT REGARDING OUR STRATEGY AND
ANTICIPATED TRENDS IN THE INDUSTRY IN WHICH WE OPERATE. THESE FORWARD-LOOKING
STATEMENTS ARE BASED ON OUR CURRENT EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF
RISKS, UNCERTAINTIES AND ASSUMPTIONS RELATING TO OUR OPERATIONS AND RESULTS OF
OPERATIONS, COMPETITIVE FACTORS, SHIFTS IN MARKET DEMAND, AND OTHER RISKS AND
UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, OUR ABILITY TO FINANCE OUR
OPERATIONS AND MAINTAIN OR INCREASE THE DISTRIBUTION OF ONYX TELEVISION ON
GERMAN CABLE SYSTEMS, THE ABILITY TO INCREASE ONYX TELEVISION'S ADVERTISING
REVENUES, CHANGES IN COSTS OF PROGRAMMING, AND MATTERS RELATING TO ONYX
TELEVISIONS' RELATIONSHIP WITH THE GERMAN MEDIA AUTHORITIES HAVING JURISDICTION
OVER ONYX TELEVISION, AS WELL AS GENERAL MARKET CONDITIONS AND COMPETITION.
SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
FROM RESULTS EXPRESSED OR IMPLIED IN ANY FORWARD-LOOKING STATEMENTS MADE BY US
IN THIS ANNUAL REPORT ON FORM 10-K. WE DO NOT UNDERTAKE ANY OBLIGATION TO REVISE
THESE FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE EVENTS OR CIRCUMSTANCES.
GENERAL
Our primary business is the broadcasting operation of Onyx Television
GmbH ("Onyx"), a music and entertainment television station in Germany dedicated
to adults. Onyx generates revenues primarily from the sale of advertising and
teleshopping space. During 2001, we undertook a significant restructuring of
Onyx in order to improve its operating performance. Such restructuring involved
cost reductions as well as a more focused allocation of our resources and
efforts to increase revenues.
We also own an interest in a joint-venture company, Onyx Plus GmbH
("Onyx+"). Onyx+ was formed in 2000 following our decision to develop and launch
thematic channels for the German digital market. Our joint venture partner in
Onyx+ is our majority shareholder, Groupe AB, S.A. ("AB Groupe"). During 2001,
our and AB Groupe's development of Onyx+ remained on hold because of delays in
the development of the digital television market in Germany. To date, Onyx+ has
not launched any channels, nor are such channels expected to be launched in the
foreseeable future.
1
In December 2001, following our decision to allocate our limited
financial resources to our media activities, we sold our technology activities
to Gilles Assouline, our former Chairman and Chief Executive Officer. See "Sale
of Technology Activities" below.
The operations of Onyx continue to be cash flow negative, and are
expected to be cash flow negative for the foreseeable future. As a result, we
anticipate needing significant additional 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 us from our operations. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Condition, Liquidity and Capital Resources" for a discussion regarding
the sources of capital available to meet our working capital requirements and
the risks associated with the availability of such funding.
Over the next twelve months, we intend to focus on improving the
current operations of Onyx and maintaining its existing distribution. In that
regard, we intend to make efforts to reposition the channel so that it is
clearly perceived in the market to be a music channel. Further, we intend to
seek to identify and bring to Onyx an appropriate German media or financial
partner. There can be no assurance that an arrangement will be reached with a
German partner or regarding the terms of any such agreement.
ONYX
Overview
Onyx commenced broadcast operations in January 1996. Its broadcasting
signal is currently received in approximately 11.5 million cable analogue homes
in Germany and an indeterminate number of satellite homes (estimated to be
approximately 2.5 million) in Germany, France, Italy and other surrounding
countries. Onyx is broadcast from the facilities of AB Groupe. AB Groupe is a
leading supplier of thematic channels to the digital pay TV market in France. AB
Groupe's channels are distributed through a variety of pay-TV operators,
including French satellite operators, as well as through cable operators in
France, Switzerland and Belgium. AB Groupe's channels are provided to
approximately 22.9 million subscribers.
Sales
Onyx's revenues are generated primarily from the sale of advertising
and teleshopping spots. As part of our recent restructuring of Onyx's
operations, the channel's advertising sales team was reinforced. Additionally,
in February 2001, Onyx entered into a 3-year teleshopping deal with RTL Shop
generating a minimum guaranteed revenue of (euro)2 million per year for Onyx as
payment for a three hour daily spot originated by RTL Shop. The amount to be
received by Onyx under its agreement with RTL Shop is directly linked to Onyx's
level of distribution.
The German advertising market is one of the largest advertising market
in Europe. Total advertising spend in Germany amounted to (euro)17 billion in
2001. Television advertising sales represented approximately 44.4% of this
revenue with press advertising representing 47.3%. The German television
advertising market, similarly to other European markets, actually decreased in
2001, falling by 5.2% (Source: AC Nielsen S+P).
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We believe that advertising and teleshopping will continue to be the
main sources of revenues for Onyx. In addition to providing access to cable
households in general, we believe that in the future, Onyx will be attractive to
advertisers and teleshopping specialists because it offers a cost effective
means of reaching its target audience. We also believe that distribution
capacity, marketing and audience awareness and an effective advertising sales
force, are key to achieving success in the advertising sales market.
The demand by advertisers for advertising time on Onyx is and may be
further affected in the future by general economic conditions, the demographic
characteristics of the audiences viewing Onyx's broadcasts, the activities of
its competitors, our ability to provide evidence to advertisers with regard to
the size of Onyx's actual viewing audience, and other factors, as well as trends
in the advertising industry. To date, Onyx has not yet obtained a substantial
amount of advertising revenue from commercials. We cannot assure you that Onyx
will ever achieve sufficient levels of advertising revenue to make the station
profitable and cash flow positive.
Programming
Onyx's programming consists of a variety of music videos and events and
other programming appealing primarily to an audience ages 14 to 49. During the
course of 2001, Onyx broadened the focus of its programming format to increase
its viewing audience. The Onyx "music only" format has been progressively
transformed into a "music entertainment" programming. In November 2001, the
channel was effectively "relaunched" with a new brand image, presenters and
programming schedule.
Programs for Onyx are acquired from a variety of sources or produced
internally. Acquired programming includes music videos, concert footage and
other live performance material. Record companies and the music industry supply
this programming to Onyx for a variety of fees ranging from nominal handling
charges for videos to negotiated license fees for concerts. In addition, Onyx
typically pays author royalties based on a percentage of its revenues. Onyx's
internal productions include interviews and topical specials that range from
profiles of specific artists to genre defined shows.
Onyx had previously planned to include movies in its programming and,
to this effect, entered into an agreement in September 2000 with Kinowelt Medien
AG ("Kinowelt"), a large movie distributor in Germany. However, this agreement
was terminated in April 2001 due to disappointing results in terms of
advertising sales and also because certain local media authorities informed Onyx
that they may not view these programming changes favorably.
Onyx also operates an internet site (www.onyx.tv) which combines
background information on the Onyx channel together with information of general
interest (weather reports, news, financial news, movie releases, etc.), personal
services (E-mail, SMS messages, discussion forums, etc.) and shopping. The
activities of this site, which had previously been managed internally, has been
subcontracted since February 2002.
Onyx intends to maintain a high quality content and technical
presentation. Onyx also expects to work with AB Groupe in developing programming
that attracts new viewership and
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increases the frequency of viewing for its current audience. We also plan to use
the Onyx's web site to assist in promoting the channel among potential viewers.
Target Market and Distribution
Our target audience in Germany for Onyx's programming is adults in the
14 to 49 year old age group. The target audience is believed to be one of the
largest demographic segments in Germany. We believe that the members of our
target audience watch more television than any other demographic group in
Germany. We also believe that the purchasing power of our target audience is
often high, which we believe should attract advertisers in the future for our
programming.
Germany is the largest cable television market in Europe, with a
population of over 82 million people and approximately 38.1 million households.
The German cable television market is substantially built-out. As of December
31, 2001, analogue cable television systems was distributed to approximately
77.5% of the households in Germany (Source: GfK). Additionally, Germany has an
estimated 12.7 million homes served by direct-to-home Satellite Delivered
Television Services and Satellite Master Antenna Television systems.
As of December 31, 2001, 2000 and 1999, respectively, Onyx's broadcast
signal was distributed to approximately 11.9 million, 11.5 million and 10.3
million cable homes in Germany. On certain cable services, Onyx shares
broadcasting time with one or more channels and is not available throughout the
day to subscribers in these homes. In addition to cable distribution, Onyx's
signal is received by an indeterminate number of homes in Germany (estimated to
be approximately 2.5 million), which are covered by direct-to-home satellite
systems.
Onyx's cable distribution primarily results from negotiations with
various cable operators to which Onyx pays carriage fees. Onyx has recently been
informed that the upgrade of the cable network in Nord-Rhein Wesphalia ("NRW")
where Onyx has developed approximately 40% of its national analogue distribution
may result in a proposition from the main cable operator to transfer Onyx to
their new digital service in 2003. In April 2001, Onyx reached an agreement with
the cable operator on a technical solution which would enable the continued
distribution of the channel within the analogue service.
In May 2002, the local media authority in NRW informed Onyx that there
was a strong risk that the outcome of their channel ranking process would result
in Onyx losing its cable distribution in that region to a new channel. This
authority recommended that Onyx negotiate a temporary distribution sharing
arrangement with a channel entitled XXP, thereby enabling the Commission to
postpone its decision until the application of a new media bill, which was under
debate in the regional Parliament at that time. In June 2002, this new media law
was enacted (see "Government Regulation").
As a result, Onyx entered into a six-month agreement with XXP which
grants this channel Onyx's distribution in this region between 7:00 pm and 12:00
pm on a daily basis with the exception of Saturdays when XXP's time slot is
between 7:00 pm and 10:00 pm. This agreement became effective on July 1, 2002.
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There can be no assurance that Onyx will be able to maintain its
current or any distribution in NRW. The failure to maintain such distribution
could have a material adverse effect on the Company's business and results of
operations.
Service Agreement With AB Groupe
Our majority stockholder, AB Groupe, provides technical services to
Onyx, including, among other services: (1) the use of a transponder capacity on
a EUTELSAT satellite, (2) uplink facilities, (3) all transmission services to
the cable head ends of each of the German cable television networks over which
our programming is broadcast, and (4) the use of a master control room and other
transmission facilities required to operate Onyx. Additionally, AB Groupe
provides us with certain executive management services.
Under our agreement, we pay (euro) 98,168 per month to AB Groupe to
provide these services, and we believe that this agreement is at least as
favorable to us as could be received from an unaffiliated third party. We
believe that our relationship with AB Groupe will remain critical to us in the
future.
ONYX+
In late 1999, Onyx and AB Groupe were granted a license by the German
Media Authorities to broadcast five and seven digital cable channels,
respectively. In June 2000, AB Groupe and Onyx co-founded Onyx+, a 50/50 joint
venture dedicated to the development and the broadcast of thematic channels for
the digital television market in Germany. AB Groupe and Onyx contributed their
licenses for a total of 12 channels to Onyx+. During the course of 2000, Onyx+
prepared new formats and signed distribution contracts with two German
cable-operators for certain of these licensed channels. Indeed, unlike the
analogue cable television market where channels usually pay carriage fees to
cable operators, digital channels are expected to earn fees from cable services.
However, the launch of the Onyx+ channels in Germany initially planned
for September 2000 was cancelled because of the slower than expected development
of the digital television market in Germany. As a result, the development of
Onyx+ remained on hold during 2001 and 2002 and the acquisition by Onyx+ of
programming rights purchased and invoiced by AB Groupe during the course of 2000
was cancelled. There can be no assurance as to whether a digital cable
television market will develop in Germany sufficient to allow us to launch any
one or more of the Onyx+ channels.
In June 2001, as part of our plans to simplify our corporate structure,
we acquired the 50% stake of Onyx+ which was previously held by Onyx.
Digital Cable Television has only recently been introduced in Germany.
While digital services have been launched on a very small number of networks,
subscriber numbers remain insignificant. We cannot assure you that this type of
service will be accepted by the German viewing market, nor that any of our
digital channels, if launched, will be successful. In addition, the development
of this market strongly depends upon progress made on the privatization of the
Deutsche Telekom cable networks, which has experienced significant delays, and
on the conversion of the cable networks to digital transmission.
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GOVERNMENTAL REGULATION
We must continue to obtain and maintain the approval of German Landes
Medienanstalten (Local Media Authorities or "LMAs") in order to distribute Onyx
through German cable systems. These LMAs have authority to approve programming
lineups for cable systems in the 16 German regions known as "Bundeslanders."
Members of the LMAs are appointed by local government. Onyx has been granted the
right or partial right to distribute programming through cable networks located
in all 16 Bundeslanders in Germany.
The number of channels available to a cable system in Germany is
currently limited by analogue technology to 30 to 35. In addition to its
discussions with individual cable operators, the distribution of Onyx is
dependent in part upon maintaining its approval and good relations with each of
the LMAs who have agreed to allow broadcast of Onyx on the cable system in their
area (both to maintain existing distribution and to seek additional distribution
on those cable systems). Decisions on distribution are made annually by each
LMA, and some of the changes made to our programming grid may impact the
decision of any particular LMA. In addition, there is, at any time, a number of
channels competing with Onyx for distribution. Therefore, we cannot assure you
as to the level of distribution which Onyx might obtain and maintain in any year
and from year to year.
Onyx originally received its broadcast license from the state of
Rhineland Pfaltz. In 1999, Onyx was reissued its broadcast license by the state
of NRW, which allowed Onyx to move its headquarters to Cologne.
In September 1999, Onyx and AB Groupe received licenses for an
aggregate of 12 channels on the German digital cable network from the German
national media authority. However, because of the slower than expected
development of the digital television market in Germany, Onyx+ has not launched
any of its channels, nor are such channels expected to be launched in the
foreseeable future.
Further, as the German digital cable television market develops and
Deutsche Telekom continues to divest parts of its cable network, it is possible
that certain LMA's may force the channel to transfer from the existing Analogue
services into a digital service (to the extent that a digital service develops).
If this occurs, particularly in NRW, where Onyx has developed 40% of its
national distribution, it could significantly reduce Onyx's total distribution
and thereby adversely affect our results of operations.
In June 2002, a new media law was enacted in NRW, which provides
notably, for a reduction in the role of local media authority's in the
determination of the channels to be distributed by the cable services in this
region. According to the provisions of this new law, the authority will have the
power to determine a certain number of "must-carry" channels, with the remaining
channels to be chosen by the cable operator. The impact of these changes on
Onyx's distribution is as of yet uncertain.
In addition, television broadcast operations in Germany are subject to
extensive government regulation. This governmental regulation controls, among
other things:
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o the issuance, renewal, transfer and ownership of station licenses,
o the timing and content of programming,
o the timing, content and amount of commercial advertising permitted, and
o the determination of which stations will be permitted to broadcast on a
particular cable system and the type of content which they are
permitted to broadcast on those systems.
Germany also has regulations requiring that a particular percentage of
programming be produced or originated in local markets, which may affect us in
the future. Further, Onyx may in the future seek to expand in other countries.
This expansion may subject Onyx to substantial additional government regulation
in these countries.
Political initiatives which are being taken by the European Union to
increase the amount of European-produced programming which is being broadcast
may impact Onyx. These political initiatives could effect the types of
programming which Onyx may broadcast and the costs associated with this
programming. We cannot assure you as to the ultimate outcome of these matters
and their effect on Onyx.
The German media authorities must approve any substantial change in the
ownership of Onyx or the ownership of its stockholders. These authorities will
examine the effect of any ownership change on the ownership concentration in the
overall German television industry. The failure of the German media authorities
to approve future changes in ownership would likely result in the suspension
and/or revocation of Onyx's broadcast licenses. A suspension and/or revocation
of Onyx's broadcast licenses would have an adverse effect on our financial
condition.
COMPETITION
Competition is intense among companies providing programming services
via cable television in Germany. Onyx must compete for both viewers and for the
right to distribute programming over the various cable television networks
throughout Germany. A number of German cable television networks provide
programming designed to reach Onyx's target audience. The competition for
viewers includes broadcast television stations, satellite and wireless
programming services, radio, print media and the Internet. In connection with
its music programming and teleshopping, we compete with other broadcast
operators which provide similar programming, including MTV/VH-1, NBC and
VIVA/VIVA2. Many of Onyx's competitors have significantly greater resources than
it does.
Additionally, increased competition for viewers in the German cable
industry may result from the availability of additional channels and
programming. This availability has been made possible by technological advances,
such as digital compression technology, which allows cable systems to expand
channel capacity, the deployment of fiber optic cable, which has the capacity to
carry a much greater number of channels than coaxial cable, and "multiplexing,"
in which programming services offer more than one feed of their programming. The
increased number of choices available to our target audience as a result of
these technological advances could impact the number of persons watching Onyx's
programming.
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CORPORATE STRUCTURE
We directly own 98% of Onyx, while our wholly owned subsidiary, Capital
Media (UK) Ltd ("CM(UK)"), holds the remaining 2% of Onyx. We also directly own
50% of Onyx+.
DISPOSAL OF TECHNOLOGY ACTIVITIES
In December 2001, we sold our technology interests to Mr. Gilles
Assouline, our former Chairman and Chief Executive Officer. These activities
comprised Unimedia S.A., a holding company based in France, and two operating
subsidiaries:
(1) Pixel Ltd, an Israeli company, specialized in computer graphic and
3D animation for TV packaging, digital broadcasting and special
effects; and
(2) TopCard S.A., a French company, which has developed secured access
smart card technology.
Pursuant to the terms of the agreement with Mr. Assouline, we sold our
98.33% interest in Unimedia in return for nominal consideration and a share in
the proceeds from any sale of TopCard during the two year period following the
agreement. We also waived our rights with regard to our previous financing of
Unimedia in return for deferred payments in the event of an improvement in the
operating performance of TopCard. As a result of the sale of our technology
activities, we recorded a capital loss of approximately $1.3 million in our
consolidated financial statements for 2001.
MINORITY INTEREST IN BLINK TV
Blink TV ("Blink") is a specialized TV programming vehicle which
provides lifestyle programming on large video screens at UK concert events. This
programming consists of music videos, style and fashion, and extreme sports,
which are broadcast as a 30 minute segment immediately before live performances.
Blink has installed video screens and projection equipment at several major UK
concert venues.
We previously owned a 50% interest in Blink. In December 1999, we sold
our 50% interest in Blink to RCL Communications for a nominal sum and converted
our British Pounds 130,000 (approximately $200,000) of existing loans to Blink
into new redeemable equity. Following this change we owned approximately 19% of
Blink, which was reduced to 17% in September 2000 when Blink converted certain
of its debt to equity. If successful in the future, Blink will have to repay the
monies that we converted into equity back to us. There can be no assurance that
this will ever occur.
PERSONNEL
As of June 30, 2002, we had 33 permanent employees, 31 of whom were
employed by Onyx and 2 of whom were employed by Capital Media. During the fiscal
2001, we reduced our headcount by 15 employees in connection with our efforts to
cut costs and by 16 directly as a result of the sale of the technology
activities. We believe that our relationship with our
8
employees remains good. None of our employees is covered by a collective
bargaining agreement.
ITEM 2. PROPERTIES
Our agreement with Unimedia, under which the latter allocated office
space and human resources to us, was terminated in connection with the sale of
our technology activities. We have since entered into an agreement with Onyx to
share the office space that Onyx leases in Cologne, Germany. For information
regarding our financial obligations under our leases, see Note 9 to Consolidated
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
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 (euro)85,900 ($85,300) in respect of his 1997 salary. In December 2001,
the plaintiff increased his claim to a total of (euro)333,000 ($330,674), which
includes his salary for 1998 and 1999, as well as an indemnity related to his
departure. In June 2002, the court ruled in favor of the plaintiff. Onyx intends
to appeal this decision and believes that it has valid defenses and offsets 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. To date, all such claims have been unsuccessful. We have agreed to
indemnify our former chairman and CEO, Gilles 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 (euro) 219,860 ($195,000) starting January 2001.
Mediagate has brought legal action against Onyx+ with respect to its non-payment
of these invoices and for breach of contract. While Onyx+ has and will continue
to vigorously dispute the application of this agreement, there can be no
assurance as to the outcome of the litigation with Mediagate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the vote of the security holders during
fiscal 2001.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS
Our common stock is quoted in the "Pink-Sheets" maintained by the
National Quotations Bureau under the symbol "CPMG.PK.". We do not believe that
there is an active trading market for our common stock at this time.
The following table sets forth, for the calendar quarters indicated,
the range of high and low closing bid prices per share of our common stock. The
prices presented are bid prices, which represent prices between broker-dealers
and do not include retail mark-ups and mark-downs on any closing commission to
the broker dealer. The prices do not necessarily reflect actual transactions.
High Low
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2000
- First Quarter $3.125 $1.875
- Second Quarter 2.500 2.187
- Third Quarter 1.750 0.875
- Fourth Quarter 1.125 0.080
2001
- First Quarter 0.344 0.090
- Second Quarter 0.780 0.020
- Third Quarter 0.020 0.020
- Fourth Quarter 0.020 0.020
2002
- First quarter 0.020 0.020
- Second Quarter 0.070 0.070
- Third Quarter 0.070 0.070
- Fourth Quarter (until December 18, 2002) 0.070 0.070
As of the date of this Form 10-K, we have 300 stockholders of record.
Additionally, we have at that date an indeterminable number of stockholders who
own their shares in street name through brokerage firms.
Because our common stock is not quoted on the NASDAQ Small Cap Market,
the common stock is subject to certain regulations of the Securities and
Exchange Commission which impose sales practice requirements on broker-dealers
because our common stock has a market price of less than $5.00 per share. For
example, broker-dealers selling our securities are required, before effecting
any transaction, to provide their customers with a document which discloses the
risks of investing in our common stock. Furthermore, if the person purchasing
our securities is someone other than an accredited investor or an established
customer of the broker-dealer, the broker-dealer must also approve the potential
customer's account by obtaining information concerning the customer's financial
situation, investment experience and investment
10
objectives. The broker-dealer must also make a determination whether the
transaction is suitable for the customer and whether the customer has sufficient
knowledge and experience in financial matters to be reasonably expected to be
capable of evaluating the risks of transactions in our securities, which could
limit the number of potential purchasers of our securities. The additional
burdens imposed upon broker-dealers by these requirements may discourage
broker-dealers from effecting transactions in our common stock, which could
severely limit the market liquidity of our common stock.
COMMON STOCK PURCHASE WARRANTS
At December 31, 2001, we had the following warrants to purchase common
shares outstanding:
Description Number
- ----------- ---------
Warrants to purchase Common Stock at $40.00 per share 633,914
Warrants to purchase Common Stock at $31.25 per share 51,119
Warrants to purchase Common Stock at $25.00 per share 129,767
Warrants to purchase Common Stock at $1.00 per share 4,437,339
Warrants to purchase Common Stock at $0.60 per share 1,333,333
All of the outstanding warrants at $40.00 per share, $31.25 per share
and $25.00 per share will expire on January 19, 2003. The warrants listed above
include 3,250,000 warrants issued to our directors, executive officers and
employees for their service to Capital Media.
In July 2002, in connection with the resolution of outstanding issues
between the Company and AB Groupe, the parties entered into an agreement whereby
2.6 million warrants to purchase common stock were deemed to have been exercised
by AB Groupe at an exercise price of $1.00 per share.
COMMON STOCK PURCHASE OPTIONS
At December 31, 2001, the following options to purchase common shares
outstanding were granted and fully vested:
Description Number
- ----------- -------
Options to purchase Common Stock at $25.00 per share 30,000
Options to purchase Common Stock at $ 5.70 per share 37,500
Options to purchase Common Stock at $ 3.50 per share 316,665
Of which 266,665 were granted to executive officers and 50,000 were
granted to non employee directors
-------
Total 384,165
DIVIDEND POLICY
We have never declared a cash dividend on our common stock. Our board
anticipates that for the foreseeable future earnings if any, will be retained
for use in the business, and no cash distributions will be made on our common
stock. The payment of future cash dividends, if any,
11
will be at the discretion of our board and will depend upon earnings, our
financial requirements and such other factors as our board deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
THE FOLLOWING SELECTED INFORMATION HAS BEEN DERIVED FROM OUR FINANCIAL
STATEMENTS. THE FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEARS ENDED
DECEMBER 31, 2001, 2000 AND 1999 INCLUDED ELSEWHERE HEREIN HAVE BEEN AUDITED BY
OUR INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. THIS SECTION SHOULD BE READ IN
CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION," WHICH ARE INCLUDED ELSEWHERE IN THIS FORM 10-K.
-----------------------------------------------------------------------------
Fiscal Year Ended December 31,
-----------------------------------------------------------------------------
2001, as 2000, as 1999, as 1998 1997, as
restated(1) restated(1) restated(1) restated
- -----------------------------------------------------------------------------------------------------------------------
STATEMENT OF INCOME DATA $ $ $ $ $
Operating Revenues .................... 3,331,369 2,089,764 1,844,148 2,468,490 1,286,076
Operating Costs ....................... (8,981,652) (12,467,617) (8,895,017) (13,321,228) (16,241,460)
-----------------------------------------------------------------------------
Operating Loss ........................ (5,650,283) (11,377,853) (7,050,869) (10,852,738) (14,955,384)
Equity in net loss of affiliates ...... -- -- -- (150,808) (251,550)
Other income (expense) ................ (174,051) (10,060) 1,589,664 970,407 (2,812,292)
Financial income (expense) net ........ (2,056,737) (871,507) (11,596,413) (465,696) 441,748
-----------------------------------------------------------------------------
Loss from continued operations before
taxes and minority interest .......... (7,881,071) (12,259,420) (17,057,618) (10,498,835) (17,577,478)
Income tax benefit (expense)........... -- -- 7,445 41,552 1,658
Minority interest ..................... 615,893 453,995 -- (1,732) 1,834
-----------------------------------------------------------------------------
Loss from continuing operations ....... (7,265,178) (11,805,425) (17,050,173) (10,459,283) (17,573,986)
Loss from discontinued operations ..... (1,984,008) (1,289,329) (821,051) (308,532) (797,770)
-----------------------------------------------------------------------------
Net loss .............................. (9,249,186) (13,094,754) (17,878,824) (10,767,547) (18,371,756)
=============================================================================
Net loss per share from continuing
operations basic and diluted ......... (0.22) (0.38) (2.21) (2.61) (6.28)
-----------------------------------------------------------------------------
Net loss per share from discontinued
operations basic and diluted ......... (0.06) (0.04) (0.11) (0.08) (0.29)
Weighted average number of shares
outstanding
basic ........................... 33,432,710 30,670,751 7,707,446 4,009,413 2,796,638
diluted ......................... 33,432,710 30,670,751 7,707,446 4,009,413 2,796,638
December 31,
-----------------------------------------------------------------------------
2001(1) 2000(1) 1999 1998 1997
As restated As restated
- -----------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA: $ $ $ $ $
Working Capital/Deficit ............... (15,480,965) (8,563,534) (5,034,416) (20,607,970) (9,373,049)
Total Assets .......................... 1,648,155 3,983,667 5,085,093 6,608,642 6,302,328
Total Liabilities ..................... (16,385,139) (10,076,065) (6,710,275) (23,440,814)0 (11,611,064)
Minority Interest ..................... 187,487 (382,057) 402,477 404,209 402,477
Stockholder's Deficit ................. (14,549,497) (6,474,455) (2,027,679) (17,236,381) (5,711,213)
(1) Figures have been restated to identify operations for disposal.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
THE FINANCIAL INFORMATION INCLUDED HEREIN SHOULD BE READ IN CONJUNCTION WITH OUR
FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K,
INCLUDING THE NOTES THERETO. THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE INTENDED TO BE COVERED BY
THE SAFE HARBORS CREATED THEREBY. ALL STATEMENTS, OTHER THAN STATEMENTS OF
HISTORICAL FACT, INCLUDED IN THIS FORM 10-K THAT ADDRESS ACTIVITIES, EVENTS OR
DEVELOPMENTS THAT WE EXPECT, BELIEVE OR ANTICIPATE WILL OR MAY OCCUR IN THE
FUTURE ARE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED THAT ALL
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT
LIMITATION, OUR ABILITY TO FINANCE OUR OPERATIONS AND MAINTAIN OR INCREASE THE
DISTRIBUTION OF ONYX TELEVISION ON GERMAN CABLE SYSTEMS, THE ABILITY TO INCREASE
ONYX TELEVISION'S ADVERTISING REVENUES, CHANGES IN COSTS OF PROGRAMMING, AND
MATTERS RELATING TO ONYX TELEVISIONS' RELATIONSHIP WITH THE GERMAN MEDIA
AUTHORITIES HAVING JURISDICTION OVER ONYX TELEVISION, AS WELL AS GENERAL MARKET
CONDITIONS AND COMPETITION. FUTURE EVENTS AND ACTUAL RESULTS, FINANCIAL AND
OTHERWISE, COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN OR CONTEMPLATED BY
THE FORWARD-LOOKING STATEMENTS HEREIN. ALTHOUGH WE BELIEVE THAT THE ASSUMPTIONS
UNDERLYING THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY
OF THESE ASSUMPTIONS COULD BE INACCURATE AND, THEREFORE, THERE CAN BE NO
ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-K WILL
PROVE TO BE ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, INCLUSION OF SUCH INFORMATION SHOULD
NOT BE REGARDED AS A REPRESENTATION BY US OR ANY OTHER PERSON THAT THE
OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED.
Results of Operations
Year ended December 31, 2001 compared to year ended December 31, 2000
Total operating revenues were $3.3 million for 2001, compared to $2.1
million for 2000, an increase of 59.48%. This increase was due primarily to
growth in the teleshopping revenues generated by Onyx resulting from sales of
airtime to RTL Shop. Onyx entered into a 3-year agreement with RTL Shop in March
2001 which generates an annual minimum guaranteed revenue of (euro) 2 million
($2.1 million).
13
Our technology activities, which were sold in December 2001, generated
$1.0 million in revenues in 2001, compared to $0.7 million in 2000. We expect
that the deconsolidation of Unimedia will result in a decrease in total
operating revenues in 2002.
Operating losses, which were reduced significantly over the year,
amounted to $5.7 million compared to $11.4 million in 2000. This improvement is
explained by the decreased losses incurred by Onyx following the implementation
of a restructuring plan at the beginning of the year, which involved significant
cost reductions. The improvement in Onyx's operating performance was partially
offset by an increase in losses incurred by the corporate segment primarily as a
result of the impact of the restructuring.
We recorded financial expense of $2.1 million in 2001 compared to $0.9
million in 2000. This increase was due primarily to increased interest expenses
which amounted to $1.1 million in 2001 compared to $0.3 million for the previous
year and to the impact of a foreign exchange loss of $1.0 million in 2001,
compared to $0.6 million in 2000. Interest increased primarily because of
increased borrowings from period to period.
As a result of all of the above factors, we reported a net loss from
continuing operations of $7.3 million for the year ended December 31, 2001
compared to a net loss of $11.8 million for the year ended December 31, 2000.
The net loss per share for the year ended December 31, 2001 (basic and
diluted) from continuing operations was $0.22, compared to a net loss per share
(basic and diluted) from continuing operations of $0.38 for the year ended
December 31, 2000. Weighted average shares outstanding basic and diluted were
33,432,710 for the year ended December 31, 2001, compared to 30,670,751 for the
year ended December 31, 2000. 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 our authorized capital on a one new share
for ten existing shares. Accordingly, all references to our shares of common
stock are on a post split basis.
Year ended December 31, 2000 compared to year ended December 31, 1999
Operating revenues for the year ended December 31, 2000 were $2.1
million, an increase of $0.3 million compared to operating revenues of $1.8
million for 1999.
Operating costs from continuing operations, including staff costs,
depreciation and amortization, totaled $12.5 million for fiscal 2000, compared
to $8.9 million for fiscal 1999. The increase in operating
14
costs is primarily due to the impact of options granted to staff and directors
to subscribe to a share capital increase (approximately $1.7 million, which for
accounting purposes are considered compensatory in nature), restructuring costs,
and changes made in the Onyx operating structure including the launch of Onyx+
and the Onyx web site, ONYXNet.
Depreciation and amortization for fiscal year 2000 was $0.8 million,
compared to $0.3 million for fiscal 1999.
Financial expense for fiscal year 2000 was $871,507 including an
exchange loss of $0.6 million, compared to $11.6 million for fiscal 1999. This
decrease is primarily due (i) to lower interest fees as the Company was
essentially funded through issuance of shares, and (ii) to lower exchange losses
as these losses were finally neutralized in October 2000 pursuant to the
repayment of substantially all intercompany loans.
As a result of the above factors, the Company had a loss from
continuing operations of $11.8 million for the year ended December 31, 2000,
compared to a loss of $17.1 million for the same period in 1999, a decrease of
$4.3 million, despite the significant losses associated with the restructuring
costs and resulting from the launch of Onyx+ and ONYXNet.
The net loss per share for fiscal 2000 basic and diluted from
continuing operations was $0.38, compared to a net loss per share basic and
diluted from continuing operations of $2.21 for fiscal 1999. Weighted average
shares outstanding basic and diluted were 30,670,751 for 2000, compared to
7,707,446 for 1999.
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
December 31, 2001, we have incurred an accumulated deficit of $88.5 million
principally related to the launch and operation of Onyx Television. At December
31, 2001, we had a negative working capital of $15.5 million.
Equity Offerings and Other Financing Agreements
In December 1999, AB Groupe made a loan to us of $500,000 for general
working capital purposes. The term of the loan was two years and bears interest
at the rate of ten percent (10%) per year. In connection with the loan, we
granted AB Groupe a two year warrant to purchase 500,000 shares of common stock
at the exercise price of $1.00 per share.
In January 2000, AB Groupe and Superstar made loans to us in the
aggregate of $1,000,000. The proceeds were in part used to increase the capital
investments in Onyx by $465,000 and Topcard by $225,000. The term of the loan
was two years and accrues interest at the rate of ten percent (10%) per year. In
connection with the loan, we granted AB Groupe and Superstar a two year warrant
to purchase 1,000,000 shares of our common stock at an exercise price of $1.00
per share.
15
In March 2000, AB Groupe loaned us an additional $1,000,000 for working
capital. The term of the loan was two years with interest of ten percent (10%)
per annum. In connection with the loan, we granted AB Groupe a two year warrant
to purchase 1,000,000 shares of common stock at an exercise price of $1.00 per
share.
At a board meeting held on April 21, 2000, the board authorized the
issue of up to 500,000 shares to each AB Groupe and Superstar at $1.50 each
prior to the end of July 2000. Out of these, 780,000 shares were effectively
issued and paid. AB Groupe and Superstar purchased 480,000 and 300,000 new
shares respectively, out of which an aggregate number of 280,000 shares were
effectively subscribed prior to June 30, 2000 and 500,000 shares were
effectively subscribed in July 2000.
In August 2000 and in September 2000, AB Groupe sent (euro)306,775
($302,874) and (euro)153,388 ($151,454) respectively on behalf of the Company
for same to participate in a capital increase in Onyx+.
In September 2000, Superstar exercised 650,000 warrants and 650,000
shares of Common Stock were issued by us to Superstar.
In October 2000, AB Groupe purportedly exercised 2.6 million warrants
at an exercise price of $1.00 per share. AB Groupe disputed their exercise of
these warrants and the accounts at December 31, 2001 include this amount as a
loan from AB Groupe. As discussed below, as part of a recent resolution of
outstanding issues between us and AB Groupe, AB Groupe exercised these options.
In October 2000, FA Television Holdings LLC, a United States company
acting on behalf of Gilles and Michel Assouline was authorized by our board held
on September 25, 2000 to subscribe 480,000 shares at $1.50 each and 120,000
shares at $1.00 each thus 600,000 new issued shares for an aggregate purchase
price of $840,000.
In February 2001, we accepted a funding proposal of $800,000 from AB
Groupe. AB Groupe loaned the Company (euro)731,147 ($644,360) which was required
to support the Company's operations. The loan was due on April 30, 2001. Since
the loan was not repaid by that date, the loan is, at AB Groupe's option,
convertible into shares of Common Stock at a conversion price of $0.60 per
share.
In June 2001, we entered into a borrowing agreement with AB Groupe for
up to (euro)3.5 million ($3.5 million). Under this agreement, we could borrow up
to this amount prior to December 31,2001. The loan bears interest at 10% per
annum and was due on June 25, 2002. As of December 31, 2001, we had borrowed
(euro)3.5 million ($3.5 million) pursuant to this agreement with AB Groupe.
In November 2001, the Company accepted a funding proposal from AB
Groupe to enable meet the immediate financing requirements of the technology
activities and conclude an agreement regarding their sale. As a result, the
Company borrowed a total of (euro) 776,511 ($684,339). This loan, which bears
10% interest per annum, is due in December 2002.
16
In March 2002, we accepted a proposal from AB Groupe to provide
additional funding under the same terms and conditions as the loans provided to
us by AB Groupe in 2001.
As of September 10, 2002, we owed AB Groupe an aggregate of
(euro)12,218,818 (principal of (euro)10,510,033 plus (euro)1,708,785 in fees due
to AB Groupe under the services agreement). As part of our resolution of
outstanding issues with AB Groupe, we have consolidated all outstanding loans
into a single promissory note that will bear interest at the rate of 10% per
annum. The principal amount of (euro)10,510,033 and all accrued and unpaid
interest will be due and payable in full on the earlier of a sale of our assets,
a refinancing of our outstanding debt, or March 31, 2003. Additionally, AB
Groupe is loaning to us (euro)1,708,785 to pay outstanding fees due to AB Groupe
for services rendered through this date. Such amount is represented by a
promissory note on the same terms as the above referenced loan.
In addition, absent the occurrence of a material adverse change in the
business, operations or financial condition of Onyx, AB Groupe has committed to
provide an additional (euro)2.0 million in loans under the same terms and
conditions as the loans described above.
Liquidity and Capital Resources
We believe that additional capital will be required, along with
anticipated revenues from operations, to fund our operations for the next 12
months. We anticipate that the required fundings will come from the fundings
already committed by AB Groupe, as described above. We cannot assure you as to
whether such fundings will be sufficient to meet our working capital
requirements, because (i) the amounts of required funding will, in large
measure, be impacted by the level of revenues achieved by Onyx Television and
(ii) the amount of funding we may receive is conditioned upon the absence of any
material adverse change in the business, operations or financial condition of
Onyx. Further, while AB Groupe has committed to make the funding described
above, AB Groupe has not agreed to fund amounts in excess of those already
committed, and there can be no assurance that AB Groupe will fund amounts in
excess of the funds already committed if we were to require such additional
funding. We may also consider issuing additional shares of our common stock, or
shares of the capital stock of our subsidiaries, to meet our anticipated capital
requirements.
CMG accounting principles
CMG consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America.
CMG critical accounting estimates
Uncertainties resulting from the use of estimates are described in note
1 to the consolidated financial statements. It reads as follows:
"The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and
17
expenses during the reporting period. Actual results could differ from these
estimates and assumptions."
Estimates and assumptions are particularly significant with respect to
estimating liabilities such as provisions and accruals for litigations. They are
also significant with respect to assessing the recoverability of the carrying
value of property, plant and equipment, intangible assets and deferred tax
assets, which, to a large extent, is based on estimates of expected future net
income or cash flows. Considering the factors specific to the main businesses of
the Company, estimates of future net income and cash flows could vary
significantly from actual results.
Basis of the estimates
Estimates of expected future net income or cash flows, which are used
to assess the recoverability of assets, are primarily extracted from the plans
prepared by us and updated every year. If estimates are needed for periods
beyond the plan horizon, projected future net income or cash flows are
determined on a case-by-case basis using relevant data available to management
at the time of the estimate.
Revenue Recognition
Sales are recognized when products and services are delivered and when
advertisements are broadcast and thereby invoiced to the customer. Inter-company
charges are eliminated on consolidation and not included in revenues.
Use of Estimates
Management's discussion and analysis of financial condition and results
of operations is based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of our financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosure of
contingent assets and liabilities. On an ongoing basis, management evaluates
these estimates, including, among other things, those related to estimated
losses on disposal of discontinued operations, the realizability of its
investment in affiliates and allowances for doubtful accounts receivable.
Management bases their estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions and
conditions.
Adoption of accounting policies
In the past three years, CMG did not adopt new accounting policies
having a significant impact on the Group's financial position or result of
operations, except for the adoption, in 2000, of SFAS 123 relating to Accounting
for stock-based compensation.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) finalized
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
141 requires the use of the purchase method of accounting for business
combinations initiated after June 30, 2001. SFAS 141 also requires that the
Company recognize acquired intangible assets apart from goodwill if the acquired
intangible assets meet certain criteria. SFAS 141 applies to all business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142, that the Company reclassify the carrying amounts of intangible
assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually.
In addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142. The adoption of SFAS 141 and
SFAS 142 has no significant impact on the financial position and results of
operations of the Company.
In August 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-lived Assets." This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement supersedes FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment a business" (as previously defined
in that Opinion). The provisions of this Statement are effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years, with early adoption encouraged. The
provisions of this Statement generally are to be applied prospectively.
Currently the Company is assessing but has not yet determined how the adoption
of SFAS 144 will impact its financial position and results of operations.
18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks due to changes in currency exchange
rates. Our revenues and net worth are affected by foreign currency exchange
rates because its subsidiaries do business in various countries and because each
subsidiary owns assets and conducts business in its local currency. Upon
consolidation, the subsidiaries' financial results are impacted by the value of
the U.S. dollar at a time of the translation. A uniform 10% strengthening as of
January 1, 1999 in the value of the dollar would have resulted in reduced
revenues of $306,163 for the year ended December 31, 2001. A uniform 10%
strengthening as of January 1, 2000 in the value of the dollar would have
resulted in reduced revenues of $253,409 for the year ended December 31, 2000. A
uniform 10% strengthening as of December 31, 2001 in the value of the dollar
would have resulted in a reduction of our consolidated net worth by $124,357. A
uniform 10% strengthening as of December 31, 2000 in the value of the dollar
would have resulted in a reduction of our consolidated net worth by $48,911. We
periodically evaluate the materiality of foreign exchange risk and the financial
instruments available to mitigate this exposure. We attempt to mitigate its
foreign exchange exposures by maintaining assets in the exposed currency
wherever possible. We find it impractical to hedge foreign currency exposure and
as a result will continue to experience foreign currency gains and losses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is included elsewhere in
this report (see Part IV, Item 14).
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT FINANCIAL DISCLOSURE
None.
19
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following persons presently serve as our directors and executive
officers:
NAME Age Position
- ---- --- --------
Alain Krzentowski 54 Chairman, President, Chief Executive Officer
Jean-Francois Klein 35 Director and Chief Financial Officer
Claude Berda 54 Director
David Ho 51 Director
Patrick Ho 44 Director
Orla Noonan 32 Director
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
Alain Krzentowski was named our Chairman of the Board, President and
Chief Executive Officer on December 21, 2001. Since July 2001, Mr. Krzentowski
also serves as Chairman and director representative of YTV, a company which
operates a television channel in Belgium and is 25% owned by AB Groupe. From
1992 to 2000, Mr. Krzentowski had served as Chairman of Amaury Sports
Organization, parent company of Societe du Tour de France. During this period,
he also served as Chairman of Thierry Sabine Organization, Athletism
Organization and Sierra Production.
Claude Berda is the controlling shareholder of AB Groupe. He has served
as Chairman and Chief Executive Officer of AB Groupe since its inception in
1977. Mr. Berda has served on our board since December 26, 2000. See "Item 13.
Certain Relationships and Related Transactions."
David Ho is the founder of Caltex South China Investments Limited and
holds the position of Executive Vice Chairman of this petroleum firm, where he
has been employed for more than the last five years. Mr. Ho, through a private
venture capital fund, also has interests in other Asia Pacific companies with
extensive interests in manufacturing, leisure, construction, meat processing and
real estate. Mr. Ho is also a director of Regency Worldwide Holdings Limited.
Mr. Ho has served on our board since 1997.
Patrick Ho is the President of Caltex South China Investments Limited,
where he has been employed for more than the last five years. Mr. Ho is also a
director of Regency Worldwide Holdings Limited. Patrick Ho is the brother of
David Ho. Mr. Ho has served on our board since 2000.
Jean-Francois Klein has been employed by AB Groupe for more than the
last five years and is currently Executive Vice President and Chief Financial
Officer of AB Groupe. See "Certain Relationships and Related Transactions." Mr.
Klein has served as our Chief Financial Officer since January 2000 and on our
board since 1996. Mr. Klein has also served as a managing director of Onyx.
20
Orla Noonan is Executive Vice President and Secretary of AB Groupe. She
joined AB Groupe in 1996 with responsibility for business development and
investor relations. She was appointed to her current position in 1999. Orla
Noonan previously worked at Salomon Brothers International. Ms. Noonan has
served on our board since December 26, 2000.
RECENT EVENTS REGARDING OUR BOARD AND OFFICERS
Effective December 21, 2001, Gilles Assouline resigned from his
positions as our Chairman of the Board, President and Chief Executive Officer
pursuant to a Termination Agreement between Mr. Assouline and us. Pursuant to
the Termination Agreement, Mr. Assouline received his salary until March 31,
2002, during which period he served on a part-time basis as consultant for the
Company.
Roger Orf resigned as a member of our board on October 23, 2001.
Denis Bortot, Richard Maroko and Jean-Michel Fava resigned as members
of our board in July 2002.
COMMITTEES OF THE BOARD
Our Board of Directors has established Committees to assist it in the
discharge of its responsibilities. These Committees, their principal
responsibilities, and the current members of each are described below.
AUDIT COMMITTEE. The Audit Committee, which consists of David Ho,
Patrick Ho and Jean-Francois Klein, recommends the firm to be appointed as
independent accountants to audit our financial statements and to perform
services related to the audit, reviews the scope and results of the audit with
the independent accountants, reviews with management and the independent
accountants our year-end operating results and considers the adequacy of our
internal accounting procedures.
COMPENSATION COMMITTEE. The Compensation Committee, which consists of
David Ho, Patrick Ho and Jean-Francois Klein, reviews and recommends the
compensation arrangements for all directors and officers and approves such
arrangements for other senior level employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
To our knowledge, no compensation committee interlocks currently exist
between our management and its directors.
BOARD COMPENSATION
In January 2000, three of our directors, Gilles Assouline, Michel
Assouline and David Ho, were each granted 250,000 warrants to purchase our
common stock and another director, Jean-Francois Klein, was granted 650,000
warrants to purchase our common stock. The warrants to purchase our common stock
are exercisable for a three-year period at an exercise price of $1.00 per share.
The warrants were granted for their services to Capital Media. No other
21
directors received compensation for their service as a director. The directors
are also reimbursed for travel expenses incurred in attending meetings of our
board of directors and its committees.
BOARD MEETINGS
Our board of directors held a total of 3 meetings during the fiscal
year ended December 31, 2001. Each of the directors attended at least 75% of the
aggregate number of meetings of the board of directors.
FAMILY RELATIONSHIPS
David Ho and Patrick Ho both directors are brothers.
COMPLIANCE WITH SECTION 16(a)
Our officers, directors and more than 10% holders are required to make
filings with the SEC on Forms 3, 4 and, if required, 5 under Section 16(a) of
the Securities Exchange Act of 1934, to report their beneficial ownership of our
securities at the time they became officers, directors and more than 10%
stockholders of Capital Media, and each month thereafter that such ownership
changes. All of our current officers, and all of our current directors have made
all of their required filings for 1999 and for periods prior thereto. All of the
filings required of all of the Company's current officers, directors and more
than 10% stockholders relating to periods subsequent to December 31, 1999 will
be filed in the near future.
22
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information about the compensation paid
or accrued during 2001 to our former Chief Executive Officer and to each of our
other most highly compensated executive officers whose aggregate direct
compensation exceeded $100,000. As of the date of this Form 10-K, the
compensation to be paid to Alain Krzentowski has not yet been determined.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
Other Annual All Other
Name Year Salary Bonus Compensation Options Compensation
($) ($) ($) (#) ($)
Gilles Assouline 2001 250,000 -- -- -- --
2000 250,000 -- -- -- --
1999 250,000 -- -- -- --
OPTION GRANTS DURING LAST FISCAL YEAR
No options to purchase shares of our common stock were granted during
2001 to those persons named in the Summary Compensation Table. For information
regarding certain rights which were granted to purchase share which were not
exercised in 2000, see Item 7 "Management's Discussion - Financial Condition,
Liquidity and Capital Resources."
AGGREGATED OPTIONS EXERCISED, LAST FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the exercise of
stock options to purchase shares of our common stock during the 2001 fiscal year
and the value of unexercised stock options to purchase shares of our common
stock at the end of the 2001 fiscal year for the persons named in the Summary
Compensation Table.
Number of Value of Unexercised
Unexercised Options In-the-Money Options at
Name At Fiscal Year End Fiscal Year End ($) *
- --------------- ------------------------- -------------------------
Number of Shares
Acquired on
Exercise Value Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
------------------- ------------------ ------------------------- -------------------------
Gilles Assouline -- -- 100,000/20,000 0/0
Alain Krzentowski -- -- -- --
* Computed based upon the difference between the closing price of CMG
Common Stock at December 31, 2001 and the exercise price. No value has
been assigned to options, which are not in-the-money.
23
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
We previously had an employment agreement with Gilles Assouline. This
agreement was terminated in December 2001 in connection with Mr. Assouline's
purchase of the Company's technology activities. As provided for in the
termination agreement, Mr. Assouline was paid the equivalent of his previous
salary on a monthly basis until March 31, 2002, in return for making himself
available on a part-time basis to CMG.
24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date of this Form 10-K, there were 36,032,710 shares of our
common stock outstanding. The following table sets forth, as of such date, the
share ownership of common stock by (i) each person who owns beneficially more
than 5% of our outstanding common stock; (ii) each of our directors and
executive officers; and (iii) all of our directors and executive officers as a
group:
PERCENT OF
SHARES BENEFICIALLY OUTSTANDING
NAME OF BENEFICIAL OWNER OWNED COMMON STOCK
- ------------------------------------------------------- ------------------- ----------------
Alain Krzentowski 0 *
David Ho (1) 10,539,983 29.04%
Jean-Francois Klein (2) (3) 838,570 2.38%
Patrick Ho 0 *
AB Groupe (4) 21,911,785 58.36%
Claude Berda (2) (4) 22,270,355 59.03%
Orla Noonan 0 *
Directors and Executive Officers as a group 33,648,908 87.07%
(5 persons) (5)
* Less than 1%.
(1) Substantially all of these shares are owned of record by two entities
controlled by Mr. Ho, Unbeatable and Superstar. Also includes vested
options and warrants to purchase 260,000 shares.
(2) Includes 178,570 shares owned of record by two entities, BIMAP and
Media Venture. Mr. Klein co-controls (with Mr. Berda) the power to vote
and dispose of the shares of common stock owned by these entities, and
may therefore be deemed to be a beneficial owner of these shares for
U.S. securities law purposes. However, the ultimate benefit from the
shares owned of record by these entities and MMI (an entity partially
held by BIMAP owned by Claude Berda and of which Gilles Assouline is
the Chairman) is held by Claude Berda who is also an officer, director
and principal shareholder of AB Groupe. See "Item B. Certain
Relationships and Related Transactions" and footnote (4) below. Also
includes vested options and warrants to purchase 660,000 shares.
(3) While Mr. Klein serves as an executive officer of AB Groupe, he
disclaims beneficial ownership over the shares and warrants owned by AB
Groupe. See footnote (4) below.
(4) 20,398,452 shares are owned by AB Groupe. Bimap and Media Venture own
collectively 178,570 shares. Also includes AB Groupe's warrants to
purchase (i) 180,000 shares of our common stock at an exercise price of
$40.00 per share and (ii) 1,333,333 shares of our common stock at an
exercise price of $0.60 per share. Mr. Berda is deemed to be the
beneficial owner of the shares and warrants owned by AB Groupe by
virtue of his being a principal stockholder, officer and director of
that entity, although he only benefits from his proportionate share of
such securities. He is also deemed to be the beneficial owner of the
shares owned by Bimap and Media Venture. AB Groupe's business address
is 132 Avenue du President Wilson, 93213 La Plaine Saint Denis, France.
(5) Includes vested warrants and options to purchase an aggregate of
2,613,333 shares.
25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 26, 2001, the Board agreed that AB Groupe shall continue to
provide Onyx with broadcasting services, including the play out, the uplink and
the transponder facilities, as well as certain management services, in exchange
for a monthly payment of (euro)98,168.
In February 2001, we accepted a funding proposal of $800,000 from AB
Groupe. AB Groupe loaned the Company (euro)731,147 ($644,360) which was required
to support the Company's operations. The loan was due on April 30, 2001. Under
the terms of the agreements relating to this loan, since the loan was not repaid
by that date, the loan is, at AB Groupe's option, convertible into shares of
Common Stock at a conversion price of $0.60 per share.
In June 2001, we entered into a borrowing agreement with AB Groupe for
up to (euro)3.5 million ($3.5 million). Under this agreement, we could borrow up
to this amount prior to December 31, 2001. The loan bears interest at 10% per
annum and was originally due on June 25, 2002. As of December 31, 2001, we had
borrowed (euro)3.5 million ($3.5 million) pursuant to this agreement with AB
Groupe.
In November 2001, we accepted a funding proposal from AB Groupe to
enable us to meet the immediate financing requirements of our technology
activities and conclude an agreement regarding their sale. As a result, we
borrowed a total of (euro) 776,511 ($684,339) from AB Groupe. This loan, which
bears 10% interest per annum, was originally due in December 2002.
In March 2002, we accepted a proposal from AB Groupe to provide
additional funding under the same terms and conditions as the loans provided to
us by AB Groupe in 2001.
In September 2002, we entered into a global resolution of outstanding
issues between ourselves and AB Groupe which provides for the following with
respect to all currently outstanding loans:
(1) The 2.6 million warrants as to which AB Groupe had previously
disputed their obligation to exercise will be deemed to have been exercised and
the loan converted into equity with an issue price of $1.00 per share as of
September 2002;
(2) All currently outstanding loans, advances and fees due will bear
interest at the rate of 10% per annum; and
(3) As of September 10, 2002, we owed AB Groupe an aggregate (excluding
interest) of (euro)12,218,818 (principal of (euro)10,510,033 plus
(euro)1,708,785 in fees due to AB Groupe under the services agreement). All
outstanding loans will be consolidated into a single promissory note that will
bear interest at the rate of 10% per annum. The principal amount of
(euro)10,510,033 and all accrued and unpaid interest will be due and payable in
full on the earlier of a sale of our assets, a refinancing of our outstanding
debt, or March 31, 2003. Additionally, AB Groupe will loan to us (euro)1,708,785
to pay outstanding fees due to AB Groupe for services rendered through this
date. Such amount will be represented by a promissory note on the same terms as
the above referenced loan.
26
In addition, absent the occurrence of a material adverse change in the
business, operations or financial condition of Onyx, AB Groupe has committed to
provide an additional (euro) 2.0 million in loans under the same terms and
conditions as the loans described above.
Further, as part of the settlement arrangement, we and AB Groupe also
settled an outstanding dispute relating to two invoices which had been presented
to us by AB Groupe. The first, relating to a proposed $600,000 charge for
broadcast services during the fourth quarter of 2000 was compromised to
$420,000. The full amount of the disputed invoice is included in accounts
payable at December 31, 2001, and $180,000 of such amount will be reversed at
June 30, 2002. The second, relating to services which AB Groupe allegedly
rendered to Onyx+, in the amount of $140,000, was also resolved, and such
invoice remains due and payable.
We believe that the terms of our loan and services arrangements with AB
Groupe are at least as favorable to us as could be obtained from an unaffiliated
third party.
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) The consolidated balance sheets as of December 31, 2000 and 2001 and the
related consolidated statements of operations, stockholders equity and cash
flows or each of the three years in the period ended December 31, 2001 are filed
as part of this report.
- --------------------------------------------------------------------------------
(i) Financial Statements
Independent Accountant's Report of PricewaterhouseCoopers
to the Board of Directors and Stockholders of Capital
Media Group Limited F-2
Consolidated Balance Sheet at December 31, 2001 and 2000 F-3
Consolidated Statement of Operations for the years ended
December 31, 2001, 2000 and 1999 F-4
Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 2001, 2000 and 1999 F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 F-7
Notes to the Consolidated Financial Statements F-9
(ii) Financial Statement Schedules
Included in Financial Statements
(iii) Exhibits
3.1 Amendment to Articles of Incorporation (incorporated by reference from
the Company's Current Report on Form 8-K dated December 29, 1995).
4.1 Certificate of Designations, Preferences and Rights of series A
Preferred Stock (incorporated by reference from the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1997).
4.2 Form of registrant's common stock purchase warrants (1).
4.3 Amendment to Articles of Incorporation, dated as of March 16, 2000
canceling the Series A preferred Stock (2).
10.1 Services Agreement between Onyx Television and AB Groupe (3).
10.2 Purchase Agreement, dated as of December 19, 2001, by and between the
Company and Gilles Assouline (4).
10.3 Termination Agreement, dated as of November 28, 2001 by and between the
Company and Gilles Assouline (4).
28
22.1 Subsidiaries
99.1 Certifying Statement of the Chief Executive Officer to Section 1350 of
Title 18 of the United States Code
99.2 Certifying Statement of the Chief Financial Officer pursuant to Section
1350 of Title 18 of the United States Code
- --------------------------
(1) Incorporated by reference to our Annual Report on Form 10-KSB for the
year ended December 31, 1995.
(2) Incorporated by reference to our Annual Report on Form 10-KSB for the
year ended December 31, 1999.
(3) Incorporated by reference to our Annual Report on Form 10-KSB for the
year ended December 31, 1997.
(4) Incorporated by reference to our Current Report on Form 8-K dated
January 3, 2002.
(B) REPORTS ON FORM 8-K
The Company filed a Form 8-K in December 2001 reporting, under Item 5,
the disposition of its technology operations and change of President and Chief
Executive Officer.
(C) EXHIBITS
See Item 14(a)(iii) above.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant certifies that it caused this Annual Report
to be signed on its behalf by the undersigned, thereunto duly authorized, on
December 20, 2002.
CAPITAL MEDIA GROUP LIMITED
By: /s/ Alain Krzentowski
--------------------------------------
Alain Krzentowski, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed by the following persons in the capacities
and on the dates indicated:
Signature Title Date
Chairman, President and December 20, 2002
/s/ ALAIN KRZENTOWSKI Chief Executive Officer
----------------------------------------- (Principal Executive Officer)
Alain Krzentowski
/s/ DAVID HO Director December 20, 2002
-----------------------------------------
David Ho
/s/ PATRICK HO Director December 20, 2002
-----------------------------------------
Patrick Ho
/s/ JEAN-FRANCOIS KLEIN Director and Chief Financial Officer December 20, 2002
-----------------------------------------
Jean-Francois Klein
/s/CLAUDE BERDA Director December 20, 2002
-----------------------------------------
Claude Berda
/s/ORLA NOONAN Director December 20, 2002
-----------------------------------------
Orla Noonan
30
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Alain Krzentowski, certify that:
1. I have reviewed this annual report on Form 10-K of Capital Media Group
Limited;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report.
Date: December 20, 2002
Capital Media Group Limited
By: /s/Alain Krzentowski
-----------------------
Alain Krzentowski
Chief Executive Officer
31
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Jean-Francois Klein, certify that:
1. I have reviewed this annual report on Form 10-K of Capital Media Group
Limited;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report.
Date: December 20, 2002
Capital Media Group Limited
By: /s/ Jean-Francois Klein
------------------------
Jean-Francois Klein
Chief Financial Officer
32
INDEX TO FINANCIAL STATEMENTS
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Years ended December 31, 2001, 2000 and 1999
Independent Accountant's Report of PricewaterhouseCoopers to the Board
of Directors and Stockholders of Capital Media Group Limited F-2
Consolidated Balance Sheet at December 31, 2001 and 2000 F-3
Consolidated Statement of Operations for the years ended December 31,
2001, 2000 and 1999 F-4
Consolidated Statement of Changes in Stockholders' Equity for the
years ended December 31, 2001, 2000 and 1999 F-5
Consolidated Statement of Cash Flows for the years ended December 31,
2001, 2000 and 1999 F-7
Notes to the Consolidated Financial Statements F-9
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
the Stockholders of Capital Media Group Limited
In our opinion, the consolidated balance sheets and the related consolidated
statements of operations, of changes in stockholders' equity and of cash flows
presented on pages F-3 through F-30, present fairly, in all material respects,
the financial position of Capital Media Group Limited and its subsidiaries (the
"Company") at December 31, 2001 and 2000 and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States of America. These consolidated financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. Management's plans concerning
these matters are also described in Notes 7 and 19. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 16.1 to the consolidated financial statements, the
accompanying consolidated balance sheets as of December 31, 2001 and 2000, and
the related consolidated statement of operations, stockholders' equity and cash-
flows for the three years then ended have been restated.
PricewaterhouseCoopers
Paris, July 17, 2002, except for note 19, dated September 30, 2002 and Note 16.1
dated December 9, 2002
F-2
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2001 AND 2000
December 31,
--------------------------------
Note 2001 2000
(as restated) (as restated)
ASSETS $ $
Cash and cash equivalents 177,915 880,681
Accounts receivable, net 3 712,036 485,000
Prepaid expenses and deposits 14,223 146,856
---------------------------------
TOTAL CURRENT ASSETS 904,174 1,512,537
Intangible assets, net 4 120,081 114,272
Property, plant and equipment, net 623,900 942,115
Net asset from discontinued operations 16.1 - 1,414,743
---------------------------------
TOTAL ASSETS 1,648,155 3,983,667
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable 3,311,634 2,764,702
Accrued expenses 844,708 717,973
Related parties loans repayable within one year 11,972,303 5,733,819
Bank debt due within one year 256,494 859,571
---------------------------------
16,385,139 10,076,065
Minority interest in subsidiaries (187,487) 382,057
---------------------------------
16,197,652 10,458,122
---------------------------------
Commitments and contingencies - -
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - 50,000,000 shares authorized:
$0.001 par value 33,432,710 (December 31, 2000 - 33,203,251,
issued and outstanding, 33,433 33,203
Additional paid in capital 66,449,459 66,449,689
106,000 treasury shares (December 31, 2000 - 133,058), at cost (757,381) (950,712)
---------------------------------
65,725,511 65,532,180
Accumulated other comprehensive income 8,185,830 7,205,017
Accumulated deficit (88,460,838) (79,211,652)
---------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (14,549,497) (6,474,455)
---------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) 1,648,155 3,983,667
=================================
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
------------------------------------------------
2001, 2000, 1999
Note as restated as restated (as restated)
$ $ $
Operating revenue 16.1 3,331,369 2,089,764 1,844,148
Operating costs
Staff costs 1,893,499 4,037,290 1,798,850
Depreciation and amortization 310,377 839,141 346,730
Other operating expenses 6,777,776 8,591,186 6,749,437
-------------------------------------------------
(8,981,652) (12,467,617) (8,895,017)
Operating loss (5,650,283) (11,377,853) (7,050,869)
Other (expense) income (174,051) (10,060) 1,589,664
Financial expense net 9 (2,056,737) (871,507) (11,596,413)
-------------------------------------------------
Loss from continuing operations before
income taxes and minority interest (7,881,071) (12,259,420) (17,057,618)
Income tax benefit (expense) - - 7,445
Minority interest 615,893 453,995 -
-------------------------------------------------
Loss from continuing operations (7,265,178) (11,805,425) (17,050,173)
Losses from discontinued operations (1,984,008) (1,289,329) (821,051)
-------------------------------------------------
Net loss (9,249,186) (13,094,754) (17,878,824)
=================================================
Net loss per share from continuing operations
basic and diluted (0.22) (0.38) (2.21)
=================================================
Net loss per share from discontinued
operations basic and diluted (0.06) (0.04) (0.11)
=================================================
Weighted average shares - basic 33,432,710 30,670,751 7,707,446
=================================================
Weighted average shares - diluted 33,432,710 30,670,751 7,707,446
=================================================
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 AS RESTATED
Cumulative
Common stock Treasury Shares Additional other
paid-in comprehensive Accumulated
capital income (deficit) deficit Total
Shares $ $ $ $ $ $
Balance at
January 1, 2001 33,203,251 33,203 (950,712) 66,449,689 7,205,017 (79,211,652) (6,474,455)
Shares issued 229,459 230 - (230) 0
Other movements 193,331 (11,305) 182,026
Translation adjustment 992,118 992,118
Net loss - - - - (9,249,186) (9,249,186)
-----------
Comprehensive loss (8,268,373)
--------------------------------------------------------------------------------------------------
Balance at
December 31, 2001 33,432,710 33,433 (757,381) 66,449,459 8,185,830 (88,460,838) (14,549,497)
==================================================================================================
Cumulative
Common stock Shares held Additional other
by a paid-in comprehensive Accumulated
subsidiary capital income (deficit) deficit Total
Shares $ $ $ $ $ $
Balance at
January 1, 2000 28,583,251 28,583 (950,712) 59,025,103 5,986,265 (66,116,898) (2,027,659)
Shares Issued 4,620,000 4,620 - 5,449,045 - - 5,453,665
Warrants/Options Issued - - - 1,975,541 - - 1,975,541
Translation adjustment - - - - 1,218,752 1,218,752
Net loss - - - - (13,094,754) (13,094,754)
-----------
Comprehensive loss (11,876,002)
--------------------------------------------------------------------------------------------------
Balance at
December 31, 2000 33,203,251 33,203 (950,712) 66,449,689 7,205,017 (79,211,652) (6,474,455)
==================================================================================================
(continues on next page)
The accompanying notes are part of these consolidated financial statements.
F-5
Cumulative
Common stock Shares held Additional other
by a paid-in comprehensive Accumulated
subsidiary capital income (deficit) deficit Total
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 24,573,838 24,574 - 24,669,265 - - 24,693,839
Commission paid - - - (90,000) - - (90,000)
Convertible debt - - - 2,694,535 - - 2,694,535
Warrants and options
issued - - - 559,313 - - 559,313
Translation adjustment - - - - 5,229,859 - 5,229,859
Net loss - - - - - (17,878,824) (17,878,824)
-----------
Comprehensive loss (12,648,965)
--------------------------------------------------------------------------------------------------
Balance at
December 31, 1999
As restated (see note
16) 28,583,251 28,583 (950,712) 59,025,103 5,986,265 (66,116,898) (2,027,659)
==================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Year ended Year ended Year ended
December 31, December 31, December 31,
2001 2000 1999
$ $ As restated
As restated As restated (1)
$
Cash flows from operating activities
Net loss (9,249,186) (13,094,754) (17,878,824)
Adjustment to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 310,377 836,832 485,192
Goodwill amortization - 2,309 604,189
Loss arising from disposal of subsidiary investments 437,477 - 1,212,145
Equity in net losses of affiliates and minority interests (589,090) 130,907 2,543
Other non-cash items - - 5,616,415
Changes in assets and liabilities:
(Increase) / Decrease in other assets and inventories 132,627 (142,345) (14,587)
(Increase) / Decrease in accounts receivable (580,888) (304,602) 769,604
(Decrease) / Increase in accrued expenses and other liabilities 673,667 173,279 (7,617,030)
(Increase) / Decrease in net assets from discontinued operations 1,608,074 1,187,714 -
--------------------------------------------
Net cash used in operating activities (7,256,942) (11,210,660) (16,820,353)
--------------------------------------------
Cash flows from investing activities
Acquisition of plant and equipment (46,924) (390,006) (642,866)
Acquisition of intangible assets (24,223) (617,913) -
Loan granted (310,786) - -
Disposal of tangible assets 9,525 - -
Disposal of financial assets net of cash - 6,985 -
--------------------------------------------
Net cash used in investing activities (372,408) (1,000,934) (642,866)
--------------------------------------------
Cash flows from financing activities
Increase in short term debt 6,698,552 4,600,071 10,746,339
Repayment of loans - (250,000) (3,100,000)
Issuance of warrants/options and convertible loans - 1,975,541 2,668,046
Issuance of shares - 5,453,665 -
Commission paid - - (90,000)
--------------------------------------------
Net cash provided by financing activities 6,698,552 11,779,277 10,224,385
--------------------------------------------
Effect of exchange rate changes on cash 831,109 1,218,752 5,229,859
--------------------------------------------
Net (decrease) / increase in cash and cash equivalents (99,689) 786,435 (2,008,975)
Cash and cash equivalents at beginning of period 21,110 (765,325) 583,320
--------------------------------------------
Net (debt) / cash and cash equivalents at end of period (78,579) 21,110 (1,425,655)
============================================
(continues on next page)
F-7
Year ended Year ended Year ended
December 31, December 31, December 31,
2001 2000 1999
As restated As restated As restated
$ $ (1)
$
Supplemental data:
Interest received 0 54,919 -
Conversion in capital of interest payable - 5,114,839
Conversion of loans into capital - 19,579,000
Income tax paid 0 9,689 1,581
The accompanying notes are an integral part of these consolidated financial statements.
(1) The cash flow for the year ended December 31, 1999 has not been restated in
the 2002 restatement.
F-8
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. 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)"), Onyx Television GmbH ("Onyx") and Onyx's 50%
affiliate Onyx Plus GmbH ("Onyx+").
The balance sheet at December 31, 2001 no longer includes the accounts
of Unimedia SA ("Unimedia"), which was previously a 98.33% owned subsidiary of
the Company, and Unimedia's wholly owned subsidiary, Pixel Limited ("Pixel"),
and its 98.66% owned subsidiary Topcard SA ("Topcard"), which were sold on
December 31, 2001. See Notes 10 and 16.
In December 1999, the 50% interest in Blink held by CM(UK) was sold to
RCL Communications Ltd, the other joint investor for a nominal sum and CM(UK)
converted its (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.
Intangible Assets
Intangible assets represent purchased broadcast licenses, 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 are 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.
F-9
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
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. Statement of operations data is
translated at the average rate for the period. The effects of these translation
adjustments are reported in a separate component of stockholders' equity.
Exchange gains and losses arising from transactions denominated in a currency
other than the functional currency of the entity involved are included in the
consolidated statement results from operations.
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.
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 and reverse split
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.
On October 27, 1999, the Company effected a reverse split of its
outstanding common stock on a one share for ten shares basis, with its
authorized shares remaining at 50 million
F-10
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
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.
Accounting for Stock-Based Compensation
As of January 1, 2000 the Company has adopted the recognition
provisions of SFAS N(degree). 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 Principles
Board Opinion N(degree)25 "Accounting for Stock Issued to Employees" ("APB 25")
in accounting for its stock options, prior to January 1, 2000.
Last Stockholders' Meeting
At a Stockholders' Meeting held 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
Groupe AB, S.A. ("AB Groupe"), and between the Company and Superstar
Ventures Limited ("Superstar"); and
(iii) the grant of an option to an entity controlled by the Company's
former Chairman and Chief Executive and former Chief Operating
Officer to purchase 1.6 million shares of the Company's common stock
at an exercise price of $1.00 per share.
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 and penalty as detailed in the following table:
F-11
PAYEE $ Shares issued on
debt conversion
AB Groupe:
Debt converted 11,298,416 11,298,416
Interest and penalty 2,358,452 2,358,452
----------
13,656,868
==========
Superstar:
Debt converted 6,650,000 6,650,000
Interest and penalty 2,291,387 2,291,387
----------
8,941,387
==========
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) finalized
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
141 requires the use of the purchase method of accounting for business
combinations initiated after June 30, 2001. SFAS 141 also requires that the
Company recognize acquired intangible assets apart from goodwill if the acquired
intangible assets meet certain criteria. SFAS 141 applies to all business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142, that the Company reclassify the carrying amounts of intangible
assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually.
In addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142. The adoption of SFAS 141 and
SFAS 142 has no significant impact on the financial position and results of
operations of the Company.
In August 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or
F-12
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
Disposal of Long-lived Assets." This Statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment a business" (as previously defined
in that Opinion). The provisions of this Statement are effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years, with early adoption encouraged. The
provisions of this Statement generally are to be applied prospectively.
Currently the Company is assessing but has not yet determined how the adoption
of SFAS 144 will impact its financial position and results of operations.
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 years ended December 31, 2001, 2000 and 1999, the Company
incurred net losses of ($9,249,186), ($13,094,754) and ($17,878,824),
respectively. Additionally, at December 31, 2001, the Company had net current
liabilities of $15,480,965 and its total liabilities exceeded its total assets
by $14,549,497. 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
Company anticipates that any required funding will be made available by its
majority stockholder, AB Groupe, although there can be no assurance that the
necessary funding will become available.
The financial statements do not include any adjustments relating to the
recoverability and classification of the recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. As described in Note 15, 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, NET
December 31,
-----------------------------------------------------
Accounts receivable comprise: 2001 2000 1999
As restated As restated As restated
$ $ $
Trade receivables 523,100 321,569 130,445
Taxation receivable - - -
Other debtors receivable 542,788 163,431 49,953
Allowance for doubtful accounts (353,852) - -
-----------------------------------------------------
712,036 485,000 180,398
=====================================================
F-13
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
4. INTANGIBLE ASSETS, NET
December 31,
-------------------------------------------------------
2001 2000 1999
As restated As restated As restated
$ $ $
Purchased broadcast licenses 217,248 223,642 241,755
Computer Software 800,720 798,542 210,448
Other intangible assets - - -
Goodwill (1) 2,309 2,309 -
-------------------------------------------------------
1,020,277 1,024,493 452,203
Less accumulated amortization (1) (900,196) (910,216) (428,825)
-------------------------------------------------------
120,081 114,277 23,378
=======================================================
(1) The goodwill relating to the Company's interest in Unimedia and its
subsidiaries was entirely written-off following the disposal of that
entity in December 2001. See Note 10.
5. RESEARCH AND DEVELOPMENT COSTS
December 31,
-----------------------------------------------------
2001 2000 1999
$ $ $
Research and development costs (1) 109,709 218,639 287,804
=====================================================
(1) Research and development costs related to the Company's technology
businesses which were disposed of in December 2001. The costs are included
in the caption "losses from discontinued operations". See Note 10.
6. PROPERTY, PLANT AND EQUIPMENT
December 31,
-----------------------------------------------------
2001 2000 1999
As restated As restated As restated
Property, plant and equipment consists
of:
$ $ $
Fixtures, fittings and equipment 1,979,699 2,083,137 1,531,897
Less accumulated depreciation (1,355,799) (1,141,022) (663,733)
-------------------------------------------------------
623,900 942,115 868,164
-------------------------------------------------------
Depreciation charge for the period 366,904 289,843 202,666
F-14
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
7. LOANS REPAYABLE WITHIN ONE YEAR
December 31,
----------------------------------------------------
2001 2000 1999
$ $ $
Instar Holdings Ltd - - 100,000
AB Groupe S.A. 10,899,330 5,488,970 977,339
Superstar Investments Ltd - - 150,000
Interest accrued 1,072,973 244,849 32,244
----------------------------------------------------
Related party loans 11,972,303 5,733,819 1,259,583
====================================================
The AB Groupe loans were received on the following dates (see Note 19
for a description of a recent restructuring of amounts due AB Groupe):
Date loan received Amount in $
------------------------------------------------------
May 1999 150,000 (1)(3)(6)
August 1999 327,339 (1)(3)(6)
December 1999 500,000 (1)(3)(6)
----------
977,339
----------
January 2000 500,000 (1)(3)(6)
March 2000 1,000,000 (1)(3)(6)
June 2000 135,180 (2)(4)(5)
August 2000 270,360 (2)(5)
September 2000 135,180 (2)(5)
October 2000 2,600,000 (1)
October 2000 4,407 (2)(5)
----------
4,645,127
----------
February 2001 193,759 (2)(7)
March 2001 450,601 (2)(7)
July 2001 3,948,164 (2)(8)
September 2001 52,877 (2)(9)
November 2001 101,350 (2)(9)
December 2001 530,113 (2)(9)
----------
5,276,865
----------
Total 10,899,330
==========
- --------------------------------------------------------------------------------
(1) Loans were made in U.S. Dollars.
(2) Loans were made in German Marks and Euros and translated to U.S. dollars at
the exchange rate on the date of the loan.
(3) Loans bear interest at the rate of 10% per annum. Loans were originally two
year loans. Loans are currently due on demand.
(4) Amount was classified as a trade payable at December 31, 2000, but has been
reclassified as a loan.
F-15
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
(5) Loans are due on demand with interest at the rate of 10% per annum.
(6) 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 an
agreement dated October 20, 2000. The Company disputed this and believed
that an agreement had been reached with AB Groupe to exercise of the 2.6
million warrants at the time the funds were received. As described in Note
19, the dispute was recently settled and these warrants were exercised in
September 2002.
(7) Loans bear interest at 10% per annum and were originally due on April 30,
2001. Loans are currently due on demand. Loan is convertible through the
exercise of a corresponding warrant, at the option of the holder, into
shares of Common Stock at a conversion price of $0.60 per share. See Note
14.1.
(8) Loan is due on June 25, 2002 bearing interest at 10% per annum and
repayable in cash.
(9) Loans bear interest at the rate of 10% per annum. Loans are due two years
from the date of the loan.
8. ACCOUNTS PAYABLE
Accounts payable includes (euro) 1,890,000 due to AB Groupe for
broadcast services. Effective January 1, 2001, the Company agreed to pay AB
Groupe a fee of (euro) 98,168 per month to provide the broadcast services
required by the Company and to provide certain senior management services. See
Notes 7 and 19.
9. COMMITMENTS AND CONTINGENCIES
In October 1999, the Company entered into a monthly agreement to lease
offices, as well as the use of studio, postproduction and editing facilities in
Cologne, Germany. Under the terms of this lease agreement, the Company is
committed to paying (euro) 92,032 ($81,108 at December 2001 exchange rates) per
annum until October 31, 2004.
The Company has agreed to pay AB Groupe monthly fees of (euro) 82,829
for broadcast services and (euro) 15,339 for management services.
The Company had employment agreements with its former Chairman and
Chief Executive Officer and former Chief Operating Officer. These agreements
were terminated in December 2001 and January 2001, respectively. At December 31,
2001, the Company was obligated to pay these former employees an aggregate of
$150,320 during fiscal 2002 relating to the termination of their employment
agreements.
Retired employees benefit 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.
10. DISCONTINUED OPERATIONS AND DIVESTMENTS
Effective December 21, 2001, the Company transferred its 98.33%
interest in Unimedia, S.A. to its former former Chairman and Chief Executive
Officer. Unimedia's businesses historically constituted the Company's technology
activities. The sale was for nominal consideration and a share in the proceeds
from any sale of one of Unimedia's subsidiaries, TopCard, S.A., during the two
year period following the agreement. The Company also agreed
F-16
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
to forgive payment for $925,040.51 of financing due to the Company from Unimedia
at the date of the transfer in return for deferred payments in the event of an
improvement in the operating performance of TopCard. As a result of the sale of
its technology activities, the Company recorded a charge of $1.3 million which
is included in "Losses from discontinued operations" for 2001.
11. FINANCIAL EXPENSE
Financial expense is comprise of the followings
Years Ended December 31,
-------------------------------------------------
2001 2000 1999
As restated As restated As restated
$ $ $
Effect of warrants/options and
convertible loans issued 33 (100,244) (2,694,535)
Interest income 111,571 202,543 -
Interest expense (1,129,860) (331,177) (4,137,242)
Foreign currency exchange loss (1,038,481) (642,629) (4,764,636)
-------------------------------------------------
(2,056,737) (871,507) (11,596,413)
=================================================
Results of operations for 2001 include a foreign currency exchange loss
on disposal of Unimedia in the amount of $784,000. In 2000 and 1999, the foreign
currency exchange loss 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. In September 2000, actions were taken to
recapitalize ONYX and permit the reimbursement of amounts borrowed from CM (UK)
by ONYX. The reimbursement rates were contractually fixed as those at January 1,
2000 resulting in a reversal of some of the exchanges losses already recorded.
These inter-company loans were effectively reimbursed in October 2000.
F-17
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
12. INCOME TAXES
Net operating loss carry forwards which give rise to deferred tax
assets are as follows:
December 31,
-----------------------------------------------------
2001 2000 1999
$ $ $
Deferred tax asset on unrealized tax losses 33,787,000 26,909,000 23,251,000
Timing differences 409,000 409,000 409,000
------------ ----------- -----------
Valuation allowances (34,196,000) (27,519,000) (23,660,000)
------------ ----------- -----------
Total deferred tax assets - - -
============ =========== ===========
The Company has significant deferred tax assets (approximately
$33,787,000) 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,
since the Company has never been profitable since its inception and since
management is forecasting that the Company will not be profitable in 2002, no
credit for income tax has been recorded. The Company will continue to review its
tax valuation allowance in future periods.
13. LITIGATION
In June 1997, a former managing director of Onyx, Mr. Muller, whose
employment was terminated brought suit in Germany for alleged wrongful early
termination of his employment. Onyx maintained that the action taken was lawful
and in July 1998, the court ruled in favor of Onyx. The plaintiff appealed
against the ruling and claimed (euro)85,900 (US$86,252) in respect of his 1997
salary. In December 2001, the plaintiff increased his claim to a total of
(euro)333,000 ($334,365), which includes his salary for 1998 and 1999, as well
as an indemnity regarding his departure. In June 2002, the court ruled in favor
of the plaintiff. Onyx has appeal this decision and believes that it has valid
defense and/or offsets to this claim. However, there can be no assurance as to
the outcome of the matter. In November 2002, Onyx was obliged to freeze (euro)
401,112 ($402,756) pending the outcome of the appeal. The next court proceedings
are not expected until April 2003.
Unimedia has two minority shareholders who have brought numerous legal
actions against Unimedia and/or its management. To date, all of these actions
have been unsuccessful. The Company is indemnifying Gilles Assouline, its former
Chairman and CEO, with respect to these claims. In November 2002, the Company
was informed by Mr. Assouline that he had signed a settlement agreement with
these minority shareholders, in which they renounce the pursuit of legal actions
against Mr. Assouline and vice versa. However, Mr. Assouline's co-defendant in
this legal action has not settled with these minority shareholders and has asked
the court to consider that Mr. Assouline should be liable in part for any
successful claim against the co-defendant. As a result, there can be no
assurance that Mr. Assouline will not incur further legal expenses related to
this action and/or that he would not be liable in part for a successful claim
against the co-defendant.
In June 2000, Onyx+, which was planning to broadcast its digital
channels directly from Germany, signed a service agreement with Mediagate. As a
result of the numerous delays taken by the cable operators with respect to the
development of digital cable services in Germany combined with the failure of
certain conditions precedent to the use by Onyx+ of the services provided by
Mediagate, this agreement never became applicable. Mediagate has taken the
position that Onyx+ was obligated under the contract, and has been invoicing
Onyx+ at a
F-18
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
monthly rate of DM 430,000 (approximately $220,756) starting January 2001.
Mediagate has brought legal action against Onyx+ with respect to its non-payment
of these invoices and for breach of contract. While Onyx+ has and will continue
to vigorously dispute the application of this agreement, there can be no
assurance as to the outcome of the pending litigation with Mediagate.
14. CAPITAL STRUCTURE
At a stockholders' meeting held 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.
14.1 WARRANTS
The Company has the following issued and vested warrants to purchase common
stock outstanding at December 31, 2001, 2000 and 1999:
Description December 31, Lapsed Granted December 31, Excercised Granted December 31,
2001 2000 1999
As restated As restated As restated
Warrants for common stock
Exercisable at $40.00 (1)(2) 633,914 - - 633,914 - - 633,914
Warrants for common stock
Exercisable at $31.25 (2) 51,119 - - 51,119 - - 51,119
Warrants for common stock
Exercisable at $25.00 (2) 129,767 - - 129,767 - - 129,767
Warrants for common stock
Exercisable at $1.00 4,437,339 (2,100,000) - 6,537,339 (650,000) 3,650,000 3,537,339
(3)(4)(5)
Warrants for common stock
Exercisable at $0.60 (6) 1,333,333 - 1,333,333 - - - -
-----------------------------------------------------------------------------------------------------
6,585,472 (2,100,000) 1,333,333 7,352,139 (650,000) 3,650,000 4,352,139
=====================================================================================================
(1) Includes 180,000 warrants issued and vested to AB Groupe.
(2) Warrants expire January 19, 2003.
(3) Warrants outstanding at December 31, 1999 included a warrant to
purchase 1.6 million shares for $1.0 per share. This warrant
expired in October 2001.
(4) Warrants granted in 2000 include 1,500,000 warrants issued and
vested to AB Groupe, 500,000 warrants issued and vested to
Superstar and 1,650,000 warrants issued and vested to Company's
former officers and staff members.
(5) Warrant to purchase 650,000 shares was exercised in 2000 by
Superstar. There is a dispute as to whether AB Groupe exercised a
warrant to purchase 2.6 million shares during the same period.
See Note 7. See also Note 19.
(6) Shares issuable on conversion of a convertible loan through the
exercise of this warrant. See Note 7.
The Company offered generally to warrant holders whose warrants have an
exercise price of $25.00 per share, $31.25 per share and $40.00 per share the
right, for a period of nine months expiring on October 19, 2000, to exercise
their warrants and receive two shares of Common Stock at an exercise price of
$3.00 per share. For the same period, the Company also granted its warrant
holders 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
F-19
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
$2.00 per share. No warrants were exercised during this period and the exercise
price of these warrants remains at $25.00, $31.25 and $40.00 per share,
respectively.
In January 2000, the Company granted warrants to purchase 1,650,000
shares at an exercise price of $1.00 per share. Of these warrants, 250,000 were
granted to staff members, 650,000 were granted to Jean Francois Klein, the
Company's Chief Financial Officer and the Chief Financial Officer of AB Groupe,
250,000 were granted to David Ho, 250,000 were granted to Gilles Assouline and
250,000 were granted to Michel Assouline. These warrants are exercisable for a
three year period following the effective registration of these warrants.
In January 2000, AB Groupe and Superstar made a loan to the Company in
the aggregate of $1,000,000. 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 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.
14.2 OPTIONS
Outstanding Granted / Outstanding
Description Outstanding at Vested Lapsed at Vested at
December 31, December 31, December 31,
2001 2000 1999 (2)
Exercisable at $1.00 (1) - - - 600,000 -
Executive officers options 37,500 - 37,500 - 37,500
exercisable @ $5.70 of which vested 37,500 - 37,500 7,500 30,000
Officers options exercisable @ 30,000 - 30,000 - 30,000
$25.00 fully vested
Executive officers options 266,665 - (133,335) 400,000 - 400,000
exercisable @ $3.50 of the 400,000
options initially granted from which
133,335 lapsed due to
resignations
of which vested 266,665 26,668 239,997 79,998 159,998
Non-employee directors options 50,000 - 50,000 - 50,000
exercisable @ $3.50
fully vested
---------- ---------- -------------- ------------ --------------- ------------------
Total exercisable 384,165 26,668 (133,335) 517,500 687,498 517,500
========== ========== ============== ============ =============== ==================
(1) Options to purchase 600,000 shares at $1.00 per share were granted in
January 2000 to Gralec Establishment. None of these options had been
exercised when they expired in October 2000.
(2) No options were granted during fiscal year 1999. 80,000 options to
executive officers at $3.50 per share and 7,500 options at $5.70 per
share vested in the period.
F-20
CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
On August 1, 1997, the Company entered into employment agreements with
two of its former 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 were vested 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.
The former 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.
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. These options expired unexercised on
October 19, 2000.
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CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
14.3 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
========= ========= ========= ========= =========
These warrants 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 300,0000 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, purchased 600,000
shares of common stock for an aggregate purchase price of $840,000. The Company
has agreed to register these shares.
After all of these share issuances, at December 31, 2001 the Company
has 33,432,710 shares of common stock outstanding and AB Groupe's and
Superstar's stock holding represented 53.24% and 30.75%, respectively. Including
warrants and options, the total potential number of shares would be 40,402,347
and the respective holdings would be 59.11% and 31.28%.
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CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
14.4 FAIR VALUE OF THE OPTIONS AND WARRANTS ISSUED
The fair value of the options and warrants issued has been calculated
using Black-Scholes option-pricing model at the date of grant. This model takes
into account the stock price at the grant date, the exercise price, the expected
life of the 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.
This data is summarized in the table below:
Stock compensation and third parties
warrants or options Debt issued with warrants
---------------------------------------------------------------------------
Dividend 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 $230,797
15. LIQUIDITY AND CAPITAL RESOURCES
The ownership, development and operation of a television station
requires substantial funding. The Company has never been cash flow positive or
profitable since inception and has historically funded its working capital
requirements from sales of equity securities and debt financing.
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 and penalties. The Company also
issued 789,999 additional shares in conversion of $790,000 of certain sundry
loans and 344,000 additional shares to other parties to which it was obligated,
including Instar Holdings Inc., which received 200,000 shares as part of a
settlement of certain litigation with the Company.
For a description of the loans to the Company by AB Groupe since
January 1, 2000, see Note 7. See also Note 14 for a description of share
issuances during 2000 and 2001.
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 with an exercise price of $1 per share. After
this capital increase, the Company directly owned 66.7 % of Onyx while its
wholly owned subsidiary, CM (UK), continued to own 33.33 % of Onyx. See Note 18.
In December 2000, AB Groupe notified the Company that it had decided not to
exercise the 2.6
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CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
million warrants at $1 as scheduled in the agreement dated October 20, 2000. See
Notes 7 and 19.
In February 2001, the Company accepted a funding proposal from AB
Groupe to loan the Company $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 $0.60 per
share. The Company is also 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 November 2001, the Company accepted a funding proposal from AB
Groupe to enable the Company to meet the immediate financing requirements of is
technology activities and conclude an agreement regarding their sale. As a
result, the Company borrowed a total of $684,339. This loan, which bears 10%
interest per annum, is due in December 2002.
See Note 19 for a description of recent changes in the funding
agreement between the Company and AB Groupe.
16. RESTATEMENT
16.1 Restatement of Previously Filed 2001 Financial Statements
As described in note 10, the Company sold its interests in Unimedia in
December 2001. As a result, Unimedia and its subsidiaries which previously
constituted the "technology" segment and which had been reported as part of the
continuing operations, are now treated as discontinued operations in accordance
with APB 30. The financial statements for 1999 through 2001 have been restated.
106,000 of the Company shares previously included in the 133,058 "shares held by
a subsidiary" are now shown as "treasury shares" the balance having been sold
with Unimedia. In addition, some clerical errors on Note 14.1 have been
corrected.
16.2 Restatement of 1999 Financial Statements
The Company previously had not recognized a charge for the beneficial
conversion features ("BCF") embedded in certain convertible loans issued in 1999
(the effective date of EITF 98-5), and measured as the difference between the
quoted market price and the subscription price at the date of issuance. Such
BCF, amounting to $2,668,046, has been recorded and amortized as additional
interest expense from the date of issuance through October 22, 1999, which was
the date the loans were first convertible. In addition, the Company issued debt
with detachable warrants in 1999, but did not apply the requirements of APB 14 -
Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants.
The debt discount associated with those warrants amounts to $187,592 of which
$26,489 should have been recognized in 1999. Finally, options and warrants
issued to third parties in 1999 were not valued and recorded as expense. The
expense associated with those options and warrants amounted to $559,313.
Accordingly the 1999 financial statements have been restated to reflect an
additional charge of $3,253,848 as follows:
As reported As restated
($) ($)
Year ended December 31, 1999
Operating loss (7,503,198) (8,062,511)
Financial expense net (8,980,325) (11,674,860)
Loss from continuing operations before taxation (14,682,703) (17,936,551)
Net loss (14,624,976) (17,878,824)
Net loss per share basic and diluted $ (1.90) $ (2.32)
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CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
17. SEGMENT INFORMATION BY ACTIVITY AND GEOGRAPHIC AREA
As a result of the disposal of Unimedia activities in late 2001, the
Company operates in a single segment ("television broadcasting") and all its
operations are located in Germany.
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CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
18. QUARTERLY FINANCIAL DATA (UNAUDITED AND RESTATED)
Restated results for the quarterly periods in the years ended December
31, 2001 and 2000 are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
2001
Operating Revenues 614,992 790,718 847,169 1,078,490
Total operating expenses (2,407,349) (2,051,827) (2,396,528) (2,125,948)
Operating Loss (1,792,357) (1,261,109) (1,549,359) (1,047,458)
Loss from discontinued
operations (267,400) (989,151) (579,884) (147,573)
Net loss (2,256,539) (2,300,797) (1,782,116) (2,909,754)
Net loss per diluted share
from continuing operations (0.06) (0.04) (0.04) (0.09)
Net loss per diluted share
from discontinuing operations (0.01) (0.03) (0.02) --
First Second Third Fourth
Quarter Quarter Quarter Quarter
2000
Operating Revenues 653,605 305,226 383,431 747,502
Total operating expenses (3,932,928) (2,838,260) (2,601,693) (4,095,336)
Operating Loss (3,279,323) (2,533,034) (2,217,662) (3,347,834)
Profit/(loss) from
discontinued operations (176,694) (486,041) 87,064 (713,618)
Net loss (4,230,561) (3,935,992) (2,367,145) (2,561,056)
Net loss per diluted share (0.15) (0.11) (0.08) (0.05)
from continuing operations
Net loss per diluted share (0.01) (0.02) - (0.02)
from discontinuing operations
NOTE 19. SUBSEQUENT EVENTS
In July 2002, the Company entered into an agreement with AB Groupe
which provides for the following with respect to the unpaid loans:
(1) The 2.6 million warrants will be deemed to have been exercised and
the loan converted into equity with an issue price of $1.00 per share as of
September 2002;
(2) The loans will all bear interest at the rate of 10% per annum;
(3) As of September 10, 2002, we owed AB Groupe an aggregate (excluding
interest) of (euro)12,218,818 (principal of (euro)10,510,033 plus
(euro)1,708,785 in fees due to AB Groupe under the services agreement). All
outstanding loans will be consolidated into a single promissory note that will
bear interest at the rate of 10% per annum. The principal amount of
(euro)10,510,033 and all accrued and unpaid interest will be due and payable in
full on the earlier of a sale of our assets, a refinancing of our outstanding
debt, or March 31, 2003. Additionally, AB Groupe is currently loaning to us
(euro)1,708,785 to pay outstanding fees due to AB Groupe for services rendered
through this date. Such amount will be represented by a promissory note on the
same terms as the above referenced loan.
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CAPITAL MEDIA GROUP LIMITED AND SUBSIDIARIES
AB Groupe has also agreed to fund up to an additional (euro)2.0 million
to the Company, on the same terms as described above. However, AB Groupe will
not be obligated to advance additional funds in the event of a material adverse
change in the business, operations or financial condition of Onyx.
As part of the agreement, the Company and AB Groupe also settled an
outstanding dispute relating to two invoices which had been presented to the
Company by AB Groupe. The first, relating to a proposed $600,000 charge for
broadcast services during the fourth quarter of 2000 was compromised to
$420,000. The full amount of the disputed invoice is included in accounts
payable at December 31, 2001, and $180,000 of such amount will be reversed at
December 31, 2002. The second, relating to services which AB Groupe allegedly
rendered to Onyx+, in the amount of $140,000, was also resolved, and such
invoice remains due and payable.
F-27
Exhibit Index
Exhibit Number Exhibit Description
21.1 Subsidiaries
99.1 Certifying Statement of the Chief Executive Officer to
Section 1350 of Title 18 of the United States Code
99.2 Certifying Statement of the Chief Financial Officer pursuant
to Section 1350 of Title 18 of the United States Code