SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 2002
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
---------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 87-0453100
- ---------------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
In Mediapark 6B 50670 Cologne,
Germany
- ---------------------------------------- ____________________________
(Address of Principal Executive (Zip Code)
Offices)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [_]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of December 18, 2002
there were 36,032,710 shares of the Common Stock issued and outstanding.
Transitional Small Business Disclosure Format (check one)
Yes [X] No [_]
Part I. Financial Information
Page
----
Item 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheet at March 31, 2002 (unaudited) and December 31, 2001 ..................... 3
Unaudited Consolidated Statement of Operations for the three months ended March 31,
2002 and March 31, 2001 ............................................................................ 4
Unaudited Consolidated Statement of Changes in Stockholders' equity for the three
months ended March 31, 2002 ........................................................................ 5
Unaudited Consolidated Statement of Cash Flows for the three months ended March 31,
2002 and 2001 ...................................................................................... 6
Notes to Unaudited Consolidated Financial Statements ............................................... 7-16
1
UNAUDITED CONSOLIDATED BALANCE
SHEET AT MARCH 31, 2002 AND
DECEMBER 31, 2001
Note March 31, December 31,
2002 2001
(unaudited) As restated
ASSETS $ $
Cash and cash equivalents 281,373 177,915
Accounts receivable trade, net of allowances
for doubtful accounts of $350,279
(December 31, 2001 - $353,852) 494,846 712,036
Prepaid expenses and deposits 11,459 14,223
----------- -------------
TOTAL CURRENT ASSETS 787,678 904,174
Intangible assets, net of accumulated amortization 3 47,835 120,081
Property, plant and equipment, net 542,207 623,900
----------- -------------
TOTAL ASSETS 1,377,720 1,648,155
=========== =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable 2,666,531 3,311,634
Accrued expenses 2,089,843 844,708
Related parties loans repayable within one year 4 12,175,018 11,972,303
Bank debt due within one year 348,281 256,494
----------- -------------
TOTAL LIABILITIES 17,279,673 16,385,139
Minority Interest in Subsidiaries (229,190) (187,487)
----------- -------------
17,050,483 16,197,652
----------- -------------
Commitments and Contingencies 5
STOCKHOLDERS' DEFICIT
Common stock - 50,000,000 shares authorized:
$0.001 par value 33,432,710 (December 31, 2001 - 6
33,432,710) issued and outstanding, 33,433 33,433
Additional paid in capital 66,449,459 66,449,459
106,000 treasury shares at cost (December 31,
2001 - 106,000) (757,381) (757,381)
----------- -------------
65,725,511 65,725,511
Cumulative translation adjustment 8,399,524 8,185,830
Accumulated deficit (89,797,798) (88,460,838)
----------- -------------
TOTAL STOCKHOLDERS' DEFICIT (15,672,763) (14,549,497)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 1,377,720 1,648,155
=========== =============
The accompanying notes are an integral part of these consolidated financial
statements.
2
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended March 31, 2002 and 2001
3 months 3 months
ended ended
March 31, 2002 March 31, 2001
Note (Unaudited) (Unaudited)
As restated
$ $
Operating revenue 932,102 614,992
Operating costs
Staff costs (407,626) (591,785)
Depreciation and amortization (155,503) (78,682)
Other operating expenses (1,402,598) (1,736,882)
------------ ------------
(1,965,727) (2,407,349)
Operating loss (1,033,625) (1,792,357)
Other income (expense) 30,564 14,165
Financial (expense) income net (380,688) (529,291)
------------ ------------
Loss before taxes and minority
interest (1,383,749) (2,307,483)
Income tax benefit (expense) - -
Minority interest 46,789 318,351
------------ ------------
Loss from continuing operations (1,336,960) (1,989,132)
Loss from discontinued operations - (267,400)
------------ ------------
Net loss (1,336,960) (2,256,532)
Net loss per share from continuing
operations basic and diluted ($0.04) ($0.06)
Net loss per share from discontinued
operations basic and diluted - ($0.01)
============ ============
Weighted average shares - basic 33,432,710 33,317,980
============ ============
Weighted average shares - diluted 33,432,710 33,317,980
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the three months ended March 31, 2002
Cumulative
Additional other
Common stock Treasury paid-in comprehensive Accumulated
Shares shares Capital Income (deficit) deficit Total
$ $ $ $ $ $
Balance at
January 1, 2002 33,432,710 33,433 (757,381) 66,449,459 8,185,830 (88,460,838) (14,549,497)
Shares Issued
Translation
Adjustment 213,694 213,694
Net loss (1,336,960) (1,336,960)
------------
Comprehensive loss (1,123,266)
----------- ------- --------- ----------- ---------- ------------ ------------
Balance at
March 31, 2002 33,432,710 33,433 (757,381) 66,449,459 8,399,524 (89,797,798) (15,672,763)
=========== ======= ========= =========== ========== ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
UNAUDITED CONSOLIDATED STATEMENT OF
CASH FLOWS
For the three months ended March 31, 2002, and 2001
3 months ended 3 months ended
March 31, March 31,
2002 2001
As restated
$ $
Cash flows from operating activities
Net loss (1,336,960) (2,256,532)
Adjustment to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 151,929 78,682
Equity in net losses of affiliates and minority interests (46,789) (218,319)
Changes in assets and liabilities :
(Increase) / Decrease in other assets and inventories - 47,389
(Increase) / Decrease in accounts receivable 208,213 (200,585)
(Decrease) / Increase in accrued expenses and other liabilities 644,011 925,056
(Decrease) / Increase in net assets from discontinued operations - (34,347)
------------- ------------
Net cash used in operating activities (379,596) (1,658,656)
------------- ------------
Cash flows from investing activities
(Acquisition) / Disposal of plant and equipment (1,666) 44,453
Acquisition of intangible assets (6,689) (17,911)
Disposal of financial assets 8,951 -
------------- ------------
Net cash provided by investing activities 596 26,542
------------- ------------
Cash flows from financing activities
Increase in short term debt 389,586 217,165
Other movements - (55,390)
------------- ------------
Net cash provided by financing activities 389,586 161,775
------------- ------------
Effect of exchange rate changes on cash 1,086 599,145
------------- ------------
Net (decrease) / increase in cash and cash equivalents 11,672 (871,194)
Cash and cash equivalents at beginning of period (78,579) 21,110
------------- ------------
Net (debt) / cash and cash equivalents at end of period (66,907) (850,084)
============= ============
Supplemental data :
Interest paid 0 (64,218)
Income tax paid 0 0
The accompanying notes are an integral part of these consolidated financial
statements.
5
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2002
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements are
prepared in conformity with generally accepted accounting principles in
the United States of America for interim financial information and with
the instructions to Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
Management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2002 are
not necessarily indicative of the results that may be expected for the
year ended December 31, 2002. The condensed balance sheet information
as of December 31, 2001 was derived from the audited consolidated
financial statements, as restated, included in the Annual Report on
Form 10-K of Capital Media Group Limited ("Company") for the year ended
December 31, 2001 (the "Form 10-K"). For further information, refer to
the consolidated financial statements and footnotes thereto included in
the Form 10-K.
2. GOING CONCERN
The accompanying financial statements have been prepared on the going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown
in the financial statements, during the three months ended March 31,
2002 and the year ended December 31, 2001, the Company incurred net
losses of $1,336,960 and $9,249,186, respectively.
At March 31, 2002, the Company had net current liabilities of
$16,491,995 and its total liabilities exceeded its total assets by
$15,672,763. These factors among others raise substantial doubt about
the Company's ability to continue as a going concern for a reasonable
period of time. The Company anticipates that any required funding will
be made available by its majority stockholder, AB Groupe, although
there can be no assurance that the necessary funding will become
available.
The financial statements do not include any adjustments relating to the
recoverability and classification of the recorded asset amounts or the
amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. 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.
6
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2002
3. INTANGIBLE ASSETS
March 31, December 31,
2002 2001
$ $
Purchased broadcast licenses 213,475 217,248
Computer Software 803,887 800,720
Goodwill 2,309 2,309
------------ ------------
1,019,671 1,020,277
Less accumulated amortization (971,836) (900,196)
------------ ------------
47,835 120,081
============ ============
4. LOANS REPAYABLE WITHIN ONE YEAR
March 31, December 31,
2002 2001
$ $
AB Groupe S.A. 10,841,084 10,899,330
Interest accrued 1,333,934 1,072,973
------------ ------------
Related party loans 12,175,018 11,972,303
============ ============
7
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2002
AB Groupe loans were received on the following dates :
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 133,815 (2)(4)(5)
August 2000 267,631 (2)(5)
September 2000 133,815 (2)(5)
October 2000 2,600,000 (1)
October 2000 4,362 (2)(5)
-------------------
4,639,623
-------------------
February 2001 191,802 (2)(7)
March 2001 446,051 (2)(7)
July 2001 3,908,840 (2)(8)
September 2001 52,344 (2)(9)
November 2001 100,326 (2)(9)
December 2001 524,759 (2)(9)
-------------------
5,224,122
-------------------
Total 10,841,084
===================
- --------------------------------------------------------------------------------
(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.
(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 7, 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
6.1.
(8) Loan was 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
5. 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 ($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 appealed this decision and believes that it has valid
defense and/or offsets to this claim. However, there can be no assurance as to
the outcome of the matter. In November 2002, Onyx was obliged to freeze
(euro)401,112 ($402,756) pending the outcome of the appeal. The next court
proceedings are not expected until April 2003.
Unimedia, a company sold in December 2001, has two minority shareholders who
have brought numerous legal actions against Unimedia and/or its management. To
date, all of these actions have been unsuccessful. The Company is indemnifying
Gilles Assouline, its former chairman and chief executive officer, with respect
to these claims. In November 2002, the Company was informed by Mr. Assouline
that he had signed a settlement agreement with these minority shareholders, in
which they renounce the pursuit of legal actions against Mr. Assouline and vice
versa. However, Mr. Assouline's co-defendant in this legal action has not
settled with these minority shareholders and has asked the court to consider
that Mr. Assouline should be liable in part for any successful claim against the
co-defendant. As a result, there can be no assurance that Mr. Assouline will not
incur further legal expenses related to this action and/or that he would not be
liable in part for a successful claim against the co-defendant.
In June 2000, Onyx+, which was planning to broadcast its digital channels
directly from Germany, signed a service agreement with Mediagate. As a result of
the numerous delays taken by the cable operators with respect to the development
of digital cable services in Germany combined with the failure of certain
conditions precedent to the use by Onyx+ of the services provided by Mediagate,
this agreement never became applicable. Mediagate has taken the position that
Onyx+ was obligated under the contract, and has been invoicing Onyx+ at a
monthly rate of DM 430,000 (approximately $220,756) starting January 2001.
Mediagate has brought legal action against Onyx+ with respect to its non-payment
of these invoices and for breach of contract. While Onyx+ has and will continue
to vigorously dispute the application of this agreement, there can be no
assurance as to the outcome of the pending litigation with Mediagate.
9
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2002
6. CAPITAL STRUCTURE
6.1 COMMON STOCK PURCHASE WARRANTS
The Company had the following issued and vested warrants to purchase common
stock outstanding at March 31, 2002 and December 31, 2001:
Description March 31, Lapsed Granted December 31,
2002 2001
Warrants for common stock 633,914 633,914
Exercisable at $40.00
Warrants for common stock 51,119 51,119
Exercisable at $31.25
Warrants for common stock 129,767 129,767
Exercisable at $25.00
Warrants for common stock 3,750,000 (687,339) 4,437,339
Exercisable at $1.00
Warrants for common stock 1,333,333 1,333,333
Exercisable at $0.60
-------------- -------------- -------------- -------------
5,898,133 (687,339) 6,585,472
For a description of the terms of the outstanding warrants, see Note 14.1 of
Notes to Consolidated Financial Statements in the Form 10-K.
6.2 COMMON STOCK PURCHASE OPTIONS
Description Outstanding at Lapsed Granted Outstanding at
March 31, 2002 /Vested December 31,
2001
Executive officers options exercisable @ $5.70 37,500 37,500
fully vested
Officers options exercisable @ $25.00 fully 30,000 30,000
vested
Executive officers options exercisable @ $3.50 266,665 266,665
fully vested
Non-employee directors options exercisable @ 50,000 50,000
$3.50 fully vested
-------------------------------------------------------
Total exercisable 384,165 384,165
=======================================================
For a description of the terms of the outstanding options, see Note 14.2 of
Notes to Consolidated Financial Statements in the Form 10-K.
10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2002
6.3 ISSUANCE OF COMPANY SHARES
As of March 31, 2002, 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 39,715,008 and the respective
holdings would be 58.36% and 31.28%.
7. SUBSEQUENT EVENTS
In September 2002, the Company entered into a global resolution of
outstanding issues between itself and AB Groupe, which provides for the
following with respect to all currently outstanding loans:
(1) The 2.6 million warrants (seen note 4-(6)) 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, the Company 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). 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.
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
11
material adverse change in the business, operations or financial
condition of Onyx. As of November 30, 2002, CMG had drawn down
(Euro)1,081,756 of this amount, of which (Euro)401,112 (US$402,756)
has been frozen pending the outcome of Onyx's appeal of the Muller
litigation (see litigation).
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.
As of November 30, 2002, CMG owed AB Groupe a total of (Euro)13,365,928
including (Euro)1,774,138 of accumulated interests and excluding
outstanding fees for services rendered through this date. This debt is
entirely due on March 31, 2003.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Financial Information included herein should be read in conjunction with the
consolidated financial statements, including the notes thereto, included
elsewhere in this Form 10-Q. Certain of the data contained herein includes
forward looking information and results could differ from that set forth below.
This discussion and analysis should be read in conjunction with the information
contained in the Form 10-K.
Results of Operations
Three months ended March 31, 2002 compared to three months ended March 31, 2001
Operating revenues for the three months ended March 31, 2002 were $932,102, an
increase of $317,110 (51.6%) compared to operating revenues of $614,992 for the
same period in 2001. This increase in revenues is due primarily to revenues
generated by Onyx's teleshopping contract with RTL Group, which became effective
in the beginning of March 2001, as well as to a significant increase in audio
text and talk line revenues.
Operating costs, including staff costs, depreciation and amortization totaled
$1,965,727 for the three months ended March 31, 2002 compared to $2,407,349 for
the three months period ended March 31, 2001. This decrease is due primarily to
decreased selling, general and administrative expenses partially offset by
increased programming costs.
Financial expense for the three months ended March 31, 2002 was $380,688
(including an exchange loss of $119,340), compared to $529,291 (including an
exchange loss of $500,766) for the same period in 2001.
As a result of all of the above factors, the Company incurred a net loss of
$1,336,960 for the three months ended March 31, 2002 compared to $2,256,532
for the same period in 2001. The Company's loss for the first quarter of 2001
included losses of $267,400 from discontinued operations, incurred by the
Company's technology activities, which were sold in December 2001.
The net loss per share for the three months ended March 31, 2002 (basic and
diluted) for the continuing operations was $0.04, compared to a net loss per
share (basic and diluted) for the continuing operations of $0.06 for the three
months ended March 31, 2001. Weighted average shares outstanding basic and
diluted were 33,432,710 for the three months ended March 31, 2002, compared to
33,317,980 for the corresponding period in 2001.
12
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 March
31, 2002, we have incurred an accumulated deficit of approximately $89.8
million, principally related to the launch and operation of Onyx. At March 31,
2002, we had a negative working capital of $15.7 million.
The Company will require significant financing over the next twelve
months in order to remain a going-concern, the amount of which will depend in
part on the revenues generated by the Company. There can be no assurance that
the Company will be successful in securing the necessary funds to finance its
operations through 2002. Funding is expected to come from AB Groupe, the
Company's majority stockholder, although there can be no assurance that AB
Groupe will fund the amounts required.
Equity Offerings and Other Financing Agreements
In December 1999, AB Groupe made a loan to us of $500,000 for general
working capital purposes. The term of the loan was two years and bears interest
at the rate of ten percent (10%) per year. In connection with the loan, we
granted AB Groupe a two year warrant to purchase 500,000 shares of common stock
at the exercise price of $1.00 per share.
In January 2000, AB Groupe and Superstar made loans to us in the
aggregate of $1,000,000. The proceeds were in part used to increase the capital
investments in Onyx by $465,000 and TopCard by $225,000. The term of the loan
was two years and accrues interest at the rate of ten percent (10%) per year. In
connection with the loan, we granted AB Groupe and Superstar a two-year warrant
to purchase 1,000,000 shares of our common stock at an exercise price of $1.00
per share.
In March 2000, AB Groupe loaned us an additional $1,000,000 for working
capital. The term of the loan was two years with interest of ten percent (10%)
per annum. In connection with the loan, we granted AB Groupe a two year warrant
to purchase 1,000,000 shares of common stock at an exercise price of $1.00 per
share.
At a board meeting held on April 21, 2000, the board authorized the
issue of up to 500,000 shares to each AB Groupe and Superstar at $1.50 each
prior to the end of July 2000. Out of these, 780,000 shares were effectively
issued and paid. AB Groupe and Superstar purchased 480,000 and 300,000 new
shares respectively, out of which an aggregate number of 280,000 shares were
effectively subscribed prior to June 30, 2000 and 500,000 shares were
effectively subscribed in July 2000.
In August 2000 and in September 2000, AB Groupe sent (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 in Note 7 to the Financial Statements included
herein, as part of a recent resolution of outstanding issues between us and AB
Groupe, AB Groupe exercised these options.
In October 2000, FA Television Holdings LLC, a United States company
acting on behalf of Gilles and Michel Assouline was authorized by our board held
on September 25, 2000 to subscribe 480,000 shares at $1.50 each and 120,000
shares at $1.00 each thus 600,000 new issued shares for an aggregate purchase
price of $840,000.
13
In February 2001, we accepted a funding proposal from AB Groupe to loan
the Company $800,000. 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.
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 agreed to loan 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 committed to
provide an additional (Euro)2.0 million in loans under the same terms and
conditions as the loans described above. As of November 30, CMG had borrowed
(Euro)1,081,756 under this financing arrangement.
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:
14
"The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates and assumptions."
Estimates and assumptions are particularly significant with respect to
estimating liabilities such as provisions and accruals for litigations. They are
also significant with respect to assessing the recoverability of the carrying
value of property, plant and equipment, intangible assets and deferred tax
assets, which, to a large extent, is based on estimates of expected future net
income or cash flows. Considering the factors specific to the main businesses of
the Company, estimates of future net income and cash flows could vary
significantly from actual results.
Basis of the estimates
Estimates of expected future net income or cash flows, which are used
to assess the recoverability of assets, are primarily extracted from the plans
prepared by us and updated every year. If estimates are needed for periods
beyond the plan horizon, projected future net income or cash flows are
determined on a case-by-case basis using relevant data available to management
at the time of the estimate.
Revenue Recognition
Sales are recognized when products and services are delivered and when
advertisements are broadcast and thereby invoiced to the customer. Inter-company
charges are eliminated on consolidation and not included in revenues.
Use of Estimates
Management's discussion and analysis of financial condition and results
of operations is based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of our financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosure of
contingent assets and liabilities. On an ongoing basis, management evaluates
these estimates, including, among other things, those related to estimated
losses on disposal of discontinued operations, the realizability of its
investment in affiliates and allowances for doubtful accounts receivable.
Management bases their estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions and
conditions.
Adoption of accounting policies
In the past three years, CMG did not adopt new accounting policies
having a significant impact on the Group's financial position or result of
operations, except for the adoption, in 2000, of SFAS 123 relating to Accounting
for stock-based compensation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks due to changes in currency exchange
rates. Our revenues and net worth are affected by foreign currency exchange
rates because its subsidiaries do business in various countries and because each
subsidiary owns assets and conducts business in its local currency. Upon
consolidation, the subsidiaries' financial results are impacted by the value of
the U.S. dollar at a time of the translation. A uniform 10% strengthening as of
January 1, 2001 in the value of the dollar would have resulted in reduced
revenues of $306,163 for the year ended December 31, 2001. A uniform 10%
strengthening as of January 1, 2000 in the value of the dollar would have
resulted in reduced revenues of $253,409 for the year ended December 31, 2000. A
uniform 10%
15
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.
16
Part II. Other Information
Item 1. LEGAL PROCEEDINGS
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 ($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 appealed this decision and believes that it has valid
defense and/or offsets to this claim. However, there can be no assurance as to
the outcome of the matter. In November 2002, Onyx was obliged to freeze
(Euro)401,112 ($402,756) pending the outcome of the appeal. The next court
proceedings are not expected until April 2003.
Unimedia, a company sold in December 2001, has two minority shareholders who
have brought numerous legal actions against Unimedia and/or its management. To
date, all of these actions have been unsuccessful. The Company is indemnifying
Gilles Assouline, its former chairman and chief executive officer, with respect
to these claims. In November 2002, the Company was informed by Mr. Assouline
that he had signed a settlement agreement with these minority shareholders, in
which they renounce the pursuit of legal actions against Mr. Assouline and vice
versa. However, Mr. Assouline's co-defendant in this legal action has not
settled with these minority shareholders and has asked the court to consider
that Mr. Assouline should be liable in part for any successful claim against the
co-defendant. As a result, there can be no assurance that Mr. Assouline will not
incur further legal expenses related to this action and/or that he would not be
liable in part for a successful claim against the co-defendant.
In June 2000, Onyx+, which was planning to broadcast its digital channels
directly from Germany, signed a service agreement with Mediagate. As a result of
the numerous delays taken by the cable operators with respect to the development
of digital cable services in Germany combined with the failure of certain
conditions precedent to the use by Onyx+ of the services provided by Mediagate,
this agreement never became applicable. Mediagate has taken the position that
Onyx+ was obligated under the contract, and has been invoicing Onyx+ at a
monthly rate of DM 430,000 (approximately $220,756) starting January 2001.
Mediagate has brought legal action against Onyx+ with respect to its non-payment
of these invoices and for breach of contract. While Onyx+ has and will continue
to vigorously dispute the application of this agreement, there can be no
assurance as to the outcome of the pending litigation with Mediagate.
Item 2. CHANGE IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 CEO Certificate
99.2 CFO Certificate
(b) Reports on Form 8-K
Current Report on Form 8-K filed January 3, 2001
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant certifies that it caused this quarterly Report to be
signed on its behalf by the undersigned, thereunto duly authorized, on December
20, 2002.
CAPITAL MEDIA GROUP LIMITED
By: /s/ Alain Krzentowski
--------------------------------------
Alain Krzentowski, President and Chief
Executive Officer
By: /s/ Jean-Francois Klein
--------------------------------------
Jean-Francois Klein
Chief Financial Officer
18
Certification by the Chief Executive Officer pursuant to Sarbanes-Oxley Section
302(a):
I, Alain Krzentowski, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Capital
Media Group Limited;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
Date: December 20, 2002 By: /s/ Alain Krzentowski
-------------------------------------
Alain Krzentowski
President and Chief Executive Officer
19
Certification by the Chief Financial Officer pursuant to Sarbanes-Oxley Section
302(a):
I, Jean-Francois Klein, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Capital
Media Group Limited;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
Date: December 20, 2002 By: /s/ Jean-Francois Klein
----------------------------
Jean-Francois Klein
Chief Financial Officer
20
Exhibit Index
Exhibit Number Exhibit Description
99.1 CEO Certificate
99.2 CFO Certificate