UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
NTN CANADA, INC.
(Exact name of registrant as specified in its charter)
New York 11-2805051
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14 Meteor Drive, Etobicoke, Ontario M9W 1A4
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (416) 675-6666
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value US$0.0467
(Title of class)
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PART I
EXCHANGE RATES
The currency amounts in this Registration Statement, including the
financial statements, are, unless otherwise indicated, expressed in Canadian
dollars ("Cdn$"). This Registration Statement contains translations of certain
amounts in Canadian dollars into United States dollars ("US$") based upon the
exchange rate in effect at the end of the period to which the amount relates, or
the exchange rate on the date specified. For such purposes, the exchange rate
means the noon buying rate in New York City for cable transfers in Canadian
dollars as certified for customs purposes by the Federal Reserve Bank of New
York (the "Noon Buying Rate"). These translations should not be construed as
representations that the Canadian dollar amounts actually represent such U.S.
dollar amounts or that Canadian dollars could be converted into U.S. dollars at
the rate indicated or at any other rate. The Noon Buying Rate at the end of each
of the five years ended August 31, 1997, the average of the Noon Buying Rates on
the last day of each month during each of such fiscal years and the high and low
Noon Buying Rate for each of such fiscal year's were as follows:
August 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
At end of period......... Cdn$1.3885 Cdn$1.3685 Cdn$1.3432 Cdn$1.3712 Cdn$1.3208
Average for period ...... 1.3676 1.3634 1.3742 1.3573 1.2718
High for period ......... 1.3942 1.3815 1.4193 1.3890 1.3208
Low for period .......... 1.3381 1.3401 1.3410 1.3095 1.1943
Item 1. Business.
Formation
NTN Canada, Inc. (the "Company") was originally incorporated under the
laws of the State of New York on May 12, 1986 under the name Triosearch Inc. On
June 9, 1988, Triosearch changed its name to NTN Canada, Inc. The Company
presently conducts its operations through a wholly owned subsidiary, NTN
Interactive Network Inc. ("NTNIN") which is the principal operating company of
the entity. On October 4, 1994, NetStar Enterprises Inc. ("NetStar") (formerly
Labatt Communications Inc.), an integrated broadcasting and communications
enterprise, acquired approximately 35% of the Company's outstanding common stock
for Cdn$4,252,500 (US$3,150,000 on October 4, 1994).
On October 2, 1996, NTNIN acquired, effective October 1, 1996, all of the
outstanding stock of Magic Lantern Communications Ltd. ("Magic"), pursuant to
which Magic became a
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wholly-owned subsidiary of NTNIN. Magic conducts its operations directly and
through its wholly-owned subsidiaries 745695 Ontario Ltd. ("Custom Video"), and
B.C. Learning Connection ("BCLC"), and its 75% ownership of the outstanding
shares of Sonoptic Technologies Inc. ("Sonoptic"). On October 10, 1996, Magic
acquired 50% of the outstanding shares of 1113659 Ontario Ltd. ("Viewer
Services"), a joint venture operated with International Tele-Film Enterprises
Ltd. Reference is hereby made to the Company's Form 8-K, filed with the
Securities and Exchange Commission on October 17, 1996, for further information
with respect to the Company's acquisition of Magic.
Recent Developments
Magic entered into an agreement dated August 18, 1997 to acquire certain
of the business assets of Image Media Ltd. and 802117 Ontario Inc., trading as
Pilot Software ("Image Media"). The agreement was completed on August 31, 1997.
On August 20, 1997, NTNIN signed a licensing agreement, through its
Hospitality Group, with the Canadian Olympic Association, in which the Company
will broadcast a weekly, half-hour interactive game called the Olympic Trivia
Challenge.
On September 10, 1997 and effective September 1, 1997, NTNIN acquired 51%
of the outstanding stock of Interlynx Multimedia, Inc., a Toronto corporation
("Interlynx"). This acquisition will be accounted for as a purchase in fiscal
1998.
Financial Information About Industry Segments
Reference is hereby made to the Business Sector Data for the years ended
August 31, 1997 and 1996 in Exhibit 23 below.
General Description of Business
The Company, through NTNIN, currently provides its products and services
through eight business units or subsidiaries. Of these eight, two are considered
to be the traditional core of the Company's business, that is, directly related
to multi-player interactive entertainment programs. The two traditional core
business units are the Hospitality Group and the Corporate Events/Home Market
Group. Five other units, collectively referred to as the "Magic Lantern Group",
include (i) NTNIN's wholly-owned subsidiary Magic, which is involved in the
marketing and distribution of Educational video and media resources, (ii)
Magic's wholly-owned subsidiary Custom Video, which is involved in the
manufacturing of videotape copies, (iii) Custom Video's wholly-owned subsidiary
BCLC, which is involved in the marketing and fulfilment services of educational
video titles, (iv) Magic's 75%-owned subsidiary Sonoptic, which is involved in
the conversion of analog video to digital video formats, and (v) Magic's
50%-owned subsidiary Viewer Services, which is involved in the inbound
telemarketing and fulfilment services for television broadcasters and others.
The eighth unit, Interlynx, is a leader in the design and development of
educational and corporate multimedia, programming for CD-ROMs and web-sites,
animation and 3-D rendering.
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The Hospitality Group is engaged in the marketing and distribution of NTN
Entertainment Network services (the "Network") throughout Canada. These
activities are being conducted through an exclusive license, covering Canada,
granted to the Company by NTN Communications, Inc. of Carlsbad, California
("Communications"). The license grants NTNIN the right to market the products
and programs of Communications throughout Canada for a 25 year term ending
December 31, 2015. Communications does not have an equity position in the
Company or in NTNIN. The former President of Communications (Daniel C. Downs) is
a director of the Company.
The Network is designed to capitalize on the growing trend for more leisure
activities through two-way interactive television ("IATV") communications.
Programming can be offered 24 hours a day and consists of two-way interactive
games. The Network features a wide variety of sports and game programs
permitting viewer interaction and participation for 16 hours each day. It is
currently available to over 3,100 subscriber sites (each a "Group Subscriber")
across North America which are primarily hotels, restaurants, taverns, colleges,
military bases and other group viewing locations. Over 500 Group Subscribers are
located in Canada. Designed to be hardware independent, the Network can be
transmitted through a variety of techniques: direct satellite, cable, gateway
service, FM sideband, Internet, TV vertical blanking interval, and telephone.
The Company's revenues have traditionally been primarily derived from the
delivery of Network programming to customer sites, typically by satellite
("broadcast services"), the rental and sale of equipment used in the reception
of broadcast services and on-subscriber-site interactive participation in
broadcasts over the Network, maintenance services, and event programming for
corporate clients. Revenue from broadcast services was Cdn$3,932,912
(US$2,832,489) for the Company's fiscal year ended August 31, 1997 ("the 1997
Fiscal Year).
Over the past two years, revenue from equipment sales has gradually
decreased, while revenue from equipment rental has risen. These changes reflect
the success of the system rental program introduced over two years ago. Revenue
from equipment sales was Cdn$144,748 (US$104,248), while revenue from equipment
rental was Cdn$1,642,305 (US$1,182,791) for the 1997 Fiscal Year.
Revenues from maintenance services grows in proportion to the number of
Hospitality Network customers, which pay a monthly fee based on the size of
their system. These revenues were Cdn$539,349 (US$388,440) the 1997 Fiscal Year.
The Corporate Events/Home Market Group is engaged in developing and
delivering interactive programs for corporate clients for use at sales and
training meetings, trade shows, and special events. Revenue from the Corporate
Events/Home Market Group's activities for the 1997 Fiscal Year were Cdn$434,965
(US$313,263).
The Magic Lantern Group is involved in marketing and distributing
Educational video and media resources, the manufacturing of videotape copies,
the marketing and fulfilment services of
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educational video titles, the conversion of analog video to digital video
formats and the inbound telemarketing and fulfilment services for television
broadcasters and others. Revenues from the Magic Lantern Group for the 1997
Fiscal Year were $2,816,152 (US$2,028,197).
The expanding revenue base from Hospitality system clients in the 1997
Fiscal Year was the major contributor to net profit of Cdn$609,387 (US$438,882).
Research and Development
The Company has not been involved in basic or applied technology research.
The Company's major contribution to the research and development efforts
involving the Network has been to provide market feedback and recommendations to
Communications on product and program developments which would improve marketing
efforts in Canada. There is little, if any, direct expense incurred in this
effort.
The Corporate Events/Home Market Group has begun business development and
liaison activities which are expected to lead to the development, marketing, and
delivery of interactive programs delivered to the home consumer market via
third-party providers, through the Internet and distribution systems being
developed by telephone and cable companies in Canada.
The NTN Entertainment Network
The products of Communications include hardware and software which enables
groups of people to interact with programming delivered to television monitors.
More than 3,100 restaurants, lounges, hotels, and other hospitality sites across
North America have installed systems capable of receiving Network broadcasts
("Subscriber Systems"). The Subscriber Systems receive satellite broadcasts
containing the Network interactive programs, such that thousands of patrons at
Group Subscriber locations can interact with the same programs simultaneously.
NTNIN markets the Network throughout Canada to the hospitality industry,
installs the systems, and provides technical and marketing support to Network
sites.
The Network is owned and operated by Communications, a company based in
Carlsbad, California. The Network uses existing technology to broadcast two-way
interactive live events to Subscriber Systems. The Network provides digital data
broadcast transmissions which enable equipment and software at Group Subscriber
locations to display text and graphics programming and to interpret responses
from Network viewers. All programming is produced at and transmitted from the
NTN Broadcast Center in Carlsbad. This facility is equipped with video,
satellite and communications equipment, and sophisticated multimedia computers.
Communications can provide simultaneous transmission of up to 16 live events for
interactive play and a multitude of interactive games and other programs,
allowing distribution of different programs to customers in different
geographical locations. The Company has no control of such facilities.
Each Group Subscriber receives a Subscriber System which includes a
satellite dish
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antenna, a signal decoder, a personal computer with fully integrated proprietary
software, a base station, and multiple hand-held wireless response units
("Playmakers") used by customers for interactive play.
The computer in each Subscriber System controls the TV monitor display
based upon instructions delivered to it over the Network. Viewer responses
entered on the Playmakers are ordinarily processed and displayed within the
Subscriber System without any need for communication to the Broadcast Center.
The Subscriber System can communicate with the Broadcast Center, however, via
modem when appropriate commands are sent over the Network, but the comparatively
small amount of data traveling inward from the Subscriber System to the
Broadcast Center makes it possible to operate the Network at minimal expense.
In addition to tabulating local Playmaker responses and communicating with
the Broadcast Center, the Subscriber System computer can generate local text
inserts at the direction of the Group Subscriber, and can call up computer
generated color graphics displays for various purposes, including advertisements
sold for broadcast on the Network, all as directed by the Broadcast Center.
Network Programming
The two-way interactive programming currently featured over the Network
includes a variety of interactive sports and trivia games. The broadcast
schedule includes between 14 and 17 hours of interactive programs per day. All
present Network programming is structured to provide time for national, regional
and local advertisements, as well as for local inserts, which permit each Group
Subscriber to display announcements of promotional prices or other events at its
business location. Communications holds licenses with major sports leagues which
enable it to produce and deliver interactive games played in conjunction with
live broadcasts of sporting events. Licenses are in place with the National
Football League, National Hockey League, Major League Baseball as well as the
Canadian Olympic Association.
NTN Play-Along Games are played in conjunction with live, televised
events. The best established of these is QB1, a game of football strategy which
attracts over 30,000 participants each week across the Network. QB1 is designed
to be played simultaneously with the broadcast of a live football game. In a
typical Group Subscriber environment, QB1 players watch the televised football
game and attempt to call the offensive play about to be played on the field. A
QB1 player may enter his or her play selection from among 20 possible plays at
any time up until the snap of the ball by pushing the appropriate keys on his
Playmaker.
As play unfolds on the field, a description of the play that actually
takes place is transmitted by the Broadcast Center. The computer in the
Subscriber System receives this information and compares it with the QB1
players' selections. Within seconds, it assigns a point value to each player's
selection depending on the accuracy of the player's prediction. A dedicated
local television monitor then displays that score, together with the names and
rankings of the other QB1 players at the Group Subscriber location. The scores
and rankings are updated after
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each play.
DiamondBall is an interactive game played simultaneously with the
broadcast of a live baseball game. With the use of the Playmaker, selections are
made before the pitch which allow the player to predict the outcome. Possible
choices include fly balls, ground balls, the direction of hits, walks,
strikeouts and home runs. Points are awarded for correct calls and are tabulated
and posted in the same manner as in QB1.
PowerPlay is an interactive hockey game. Played simultaneously with a
live, televised hockey game broadcast, the object of PowerPlay is to predict
play opportunities that will result in goals or shots on goal. The game is
divided into six separate scoring segments, with the winner being determined by
the total points scored in all six segments. Participants use their Playmakers
to enter player selections as well as to choose play sequences they believe will
result in either a goal or a shot on goal.
NTN Fantasy Games are fantasy league games played in conjunction with
sporting events or rotisserie leagues. These include DreamTeam, a baseball
fantasy league which enables subscribers, through interactive television, to
draft actual baseball players and create whole teams; Hoops, a fantasy game in
which players "manage" a professional all-star basketball team; Brackets, a
basketball or hockey tournament prediction game; and Football Challenge, in
which players make a weekly selection of winners of college and professional
football games. Players playing these programs gain points based upon the level
of their players and teams.
NTN Premium Trivia Games are promotion-oriented weekly game shows that
usually require an hour of participation. Prizes are awarded to the top
finishers. Games include the following:
Showdown is designed for competition among all participating Group
Subscriber locations for major prizes. Not only do players compete among
themselves at each location, but the comparative scores of different
locations are also displayed to enhance competition. Showdown is broadcast
one night each week, 52 weeks a year. Each hour-long show includes five
separate competitive segments.
Sports Trivia Challenge is currently broadcast on Thursday evenings
and follows a format similar to Showdown, but focussed on sports. Players
are invited to play 60 minutes of sports trivia, competing with players in
other establishments across the Network.
Spotlight, broadcast on Friday evenings, quizzes players about the
world of show business and celebrities. This innovative game tests
players' knowledge of the entertainment world, and polls their opinions on
current media topics.
Playback, broadcast on Saturday evenings, challenges players to
answer questions on music news, trivia, song titles, and topics from a
variety of musical genders from
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classical to hip hop.
Trivial Pursuit Interactive, scheduled on Tuesdays and Fridays, is
the interactive television version of the popular trivia board game.
Sports IQ is a weekly sports trivia game featured on Monday
evenings.
Half-hour interactive trivia games comprise the majority of the Network's
programming. Countdown and Wipeout are designed for fast competitive play among
participants at each Group Subscriber location. The Network broadcasts Countdown
and Wipeout daily in half-hour segments. To play the game, players must answer a
series of questions using the Playmaker. The faster the questions are answered
correctly, the more points the player receives. After each question, the correct
answer is displayed on the monitors, together with each player's answer and
total score. In addition, the players' rankings are displayed. Each half-hour
segment is separate, so that the display of scores and names is reset before the
next segment begins. Other Network trivia games include:
Hockey Hall of Fame Trivia is a specialty sports trivia program
developed by the Company for exclusive distribution in Canada. Similarly,
Players Raceworld Trivia and Toronto Blue Jays Trivia were developed by
the Company in conjunction with the Players Racing Team and the Toronto
Blue Jays Baseball Club, respectively. These specialty sports trivia games
are sponsored and distributed exclusively on the Canadian portion of the
Network.
NightSide is a variety show and trivia game dealing with adult
topics. It is broadcast one night each week, but may be repeated several
times a week. Played like other Network games, players use Playmakers to
answer a series of questions which are followed by jokes, quotes and
interesting information. NightSide focuses more on entertainment than on
competition and the content of the game is designed to foster discussion
among players.
For subscribers who demand a more challenging trivia game, the
Network offers Brainbusters, in which players are asked trivia questions
of greater difficulty. Viewer's Revue is a program which features trivia
questions submitted by Network viewers.
The Company launched a new interactive trivia game on August 20,
1997 in which every Wednesday night between 8:00 PM and 8:30 PM players
are asked trivia questions pertaining to the past 100 years of Olympic
history.
Other trivia programs include Topix, half hour programs featuring
new themes each day; Retroactive, featuring pop-culture trivia with 60s,
70s and 80s content; Football Trivia; and Football Weekend Roundup, a late
evening football trivia game featured on Mondays.
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Hospitality Market
The Hospitality market remained the Company's largest traditional core
business in the 1997 Fiscal Year. The Company positions the Network to prospects
and clients as a means of attracting patrons (to play the games), retaining
their patronage (as they return to play again), and increasing the length of
time patrons stay in their establishment. As the number of repeat customers and
their length of stay increases, the hospitality establishment has an increased
opportunity to sell additional food and beverage.
The Hospitality Group sales force targets the most potent Hospitality
outlets in Canada, including a number of chain accounts. Attractive rental
packages are in place to support the Company's sales efforts. The Company
promotes the Network as one of the best and technically advanced forms of
on-premises advertising to this market, offering long term repetitive exposure
to a captive, attentive, and enthusiastic audience.
Each hospitality end user receives the Subscriber System, including the
equipment and license to the software, from the Company. In most instances, the
customer rents the equipment from the Company. The Company, in turn, purchases
equipment from several suppliers and the Playmaker devices from Communications.
Following installation, each end user pays a monthly fee to the Company for the
broadcast services.
The Network programming includes advertising, promotional spots (promoting
Network competitions and special events), and public service announcements. Ten
minutes each hour are available for advertising and promotional spots. Each of
the spots are designed to be fifteen seconds in length for a total of 40 spots
per hour. Communications, at the direction of the Company, can insert
advertising messages into its Network programming for any number or combination
of Canadian Group Subscriber locations. In addition, messages can be broadcast
over the entire Network or custom-tailored for any specific location or for
Canada only.
The advertising sales staff within the Hospitality Group sells advertising
in blocks of two-fifteen second ad spots per hour for a total of fourteen hours
per day. Selected program sponsorships are also sold, in which event the
Company's graphics artists incorporate advertisers' logos and messages within a
program's content. For example, the Player's Raceworld Trivia shows provide 30
minutes of commercial exposure each week for the Player's Racing Team. Such
sponsorships provide advertisers with premium exposure within a sponsored
program.
Advertising and sponsorship revenues for the 1997 Fiscal Year were
Cdn$246,090 (US$177,234). Canadian Network sponsors also contributed prizes for
Network game winners, with a total retail value in excess of Cdn$150,000
(US$108,030).
Corporate Market
The Corporate Events/Home Market Group continues to market, develop, and
deliver a variety of corporate training, testing, and entertainment programs to
a blue chip clientele across
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Canada and abroad. The Company promotes its products and services to this market
through a direct sales staff, as well as through event agencies whose sales
forces sell NTNIN services as part of a full service offering. These agencies
generated a number of events at national sales meetings and conferences during
the 1997 Fiscal Year. Agents which sell or resell these services do not operate
under contract to the Company or NTNIN and they are compensated, on a commission
basis, when payment is received for their "sales". None of these firms have
"exclusive" arrangements with the Company or NTNIN.
The marketing focus changed in the 1997 Fiscal Year to attract more
extended and repeat corporate events. The Corporate Events/Home Market Group is
targeting vertical markets, including the pharmaceutical, automotive, banking,
and insurance industries. These industries have diversified workforces spread
throughout the country, requiring effective and compelling communications tools,
which Management believes the Company provides.
The Group also introduced a new product in the 1997 Fiscal Year which
targeted the human resources departments of large corporations. This product
enables corporate trainers to develop interactive programs and operate the
interactive systems on their own. A monthly license fee will be charged to such
clients and will be set at an affordable rate to attract volume sales.
The Company has permanent systems installed at several high profile
venues, including one in the exhibit area of the Hockey Hall of Fame in Toronto.
Another system, located in a large kiosk at GM Place in Vancouver, quizzes
passersby about the General Motors products being promoted. These popular
installations support the Company's efforts to put its systems and programs into
interesting, involving and profitable use in a variety of Corporate and Retail
venues.
Home Market
The Corporate Events/Home Market Group has recently begun preparations to
market programs, similar to those offered on the Network, to the home consumer
market via the Internet and enhanced distribution systems being introduced by
telephone companies and cable system operators. The home market programs are
intended to provide multi-player interactive games through home computers and
televisions with access to third party services such as gateway services,
corporate and commercial World Wide Web sites, and interactive cable systems.
The Company entered into a contract with AOL Canada which is intended to
lead to providing AOL Canada with a selection of Canadian oriented interactive
game content for use by subscribers of this gateway service. AOL Canada has
approximately 200,000 subscribers.
The Company has also entered into agreements, together with
Communications, to provide interactive game content for "tsn.ca", the World Wide
Web site of TSN The Sports Network, the leading sports television specialty
service in Canada, Discovery Channel exn.net (Canada) and to provide interactive
game content for Bell Canada's broadband interactive television trials in
London, Ontario and Repentigny, Quebec. Consumer trials are expected to be
launched later in January 1998. The Company is also providing interactive game
content for
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N.B. Tel's internet service, called VIBE. The Company's games are currently
being utilized by VIBE subscribers.
The Company has also entered into an agreement with Videoway
Communications ("Videoway"), a cable service provider in Canada, pursuant to
which the Company is providing a selection of interactive games for use by
Videoway's cable subscribers.
Communications has considerable experience in providing interactive
entertainment programming to the home market through its affiliation with GTE
MainStreet, America OnLine, GEnie, and others. Communication's sizable catalogue
of interactive games, exclusive licenses for the delivery of major league
interactive sports, over twelve years of continuous development, programming,
and broadcasting of IATV programs leads the Company to believe that both
Communications and the Company are well positioned for the future in this
market.
Sales and Marketing
The marketing of the Network in Canada is conducted by the Company's
direct sales force and through a regional sublicensee. This sublicensee, in
turn, is expected to market the system to end-users, primarily Group
Subscribers.
A Sublicense agreement exists for the Province of British Columbia. The
sublicensee receives a commission based solely upon its ability to market the
Network within its exclusive territory. During the year ended August 31, 1997,
commissions of Cdn$190,107 (US$136,915) were paid to the British Columbia
sublicensee.
The sublicensee is responsible for marketing the Network to end-user
establishments in its territory in a manner consistent with the Company's
policies and directives. The sublicense agreement is generally for a ten-year
term and provides for the payment of a one-time sublicense fee and for the
payment of commissions by the Company based upon Company Group Subscriber
revenues derived from the sublicensee's exclusive region. In areas where the
Company does not have an exclusive sublicensee, the Company markets the Network
directly.
At present, Communications has distribution arrangements with gateway
services, systems which operate in conjunction with home personal computers
through telephone lines. These services currently have in excess of 15,070,000
subscribers worldwide, of which America OnLine (AOL) has approximately 10
million worldwide, and AOL Canada has approximately 200,000 in Canada. As of the
end of the 1997 Fiscal Year, the Company had only one direct agreement or
arrangement with any provider of gateway services. The Company's revenues will
include the Canadian portion of revenues received by Communications from other
gateway services.
Education
Communications has been active for several years in bringing interactive
systems and services to the education field. Through its subsidiary LearnStar
Corp. ("LearnStar"),
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Communications developed LearnStar, a system and curriculum software for
distance learning and in-class use. LearnStar's products and services were
introduced to the education market in the United States in early 1995 and has
been licensed to approximately 170 schools to date.
LearnStar's products and services are targeted at schools and teachers who
are seeking an educational tool to increase student interest in learning via
interactive competitions in the classroom. The system enables a school to
evaluate the academic proficiency of the students, while creating an enjoyable
environment in which students seem more apt to participate. Using similar
technology to that used by the Network, the LearnStar interactive learning
system can conduct academic competitions, collect data for surveys and provides
local, regional and national testing capabilities. All of these products and
services can be utilized within a single classroom, at one distinct site, or at
multiple schools throughout the country, all with instantaneous feedback.
The Company has continued to investigate market opportunities for
LearnStar in Canada. Management believes the education market could become a
growth area for the Company in the coming years. Following the acquisition of
the Magic Lantern Group in October 1996, the Company determined that plans for
the introduction of LearnStar in Canada should be developed in concert with
Magic and this process is presently underway. LearnStar has granted to the
Company the exclusive license to market its products and services for
educational applications throughout Canada.
Other Markets
Communications has created a wholly-owned subsidiary called IWN, Inc.
("IWN") which is developing interactive gaming applications. IWN's initial focus
is on pari-mutuel wagering, with planned expansion into other gaming venues. The
Company intends to periodically review IWN's development with Communications to
clarify how the Company could benefit when interactive gaming begins in Canada.
The Company has not invested any funds in the gaming application development
project, has not evaluated the interactive gaming market in Canada, and has made
no commitments or plans to expand into lotteries, casinos, and pari-mutuel
betting.
Dependency Upon NTN Communications, Inc.
All programming for the Network is furnished by Communications and is
supplied through independent transmission companies. In addition, Communications
is the Company's sole supplier of selected components of Network subscriber
systems including Playmakers. The Company has no equity interest in
Communications and the long term viability of the Company's Network business is
dependent upon the continued availability of broadcast services originating at
Communications' Broadcast Center. If Communications ceases operations or
terminates broadcast services, the Company believes, but cannot assure, that
services of the nature, quantity, and quality currently provided by
Communications would become available from others. Any interruption in broadcast
services would result in an interruption in those broadcast services normally
delivered to Group Subscriber. Other Company services would continue, including
the availability of interactive programmes and games. The Company has not
formulated plans for
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action which would be taken should Communications cease operations or alter the
availability or terms of continued availability of broadcast services.
Accordingly, the Company is substantially dependent upon the continued
existence of Communications. Based upon its Annual Report on Form 10-K for its
fiscal year ended December 31, 1996, Communications reported a net income (loss)
of approximately US$(22,952,000), US$(3,948,000) and US$707,000 for the years
ended December 1996, 1995 and 1994, respectively. According to its latest
Quarterly Report on Forms 10-Q, Communications reported a net loss of
approximately US$9,709,000 for the nine months ended September 30, 1997 and had
shareholders' equity of US$4,344,000 and a working capital deficiency of
US$5,838,000 at September 30, 1997.
Competition
The Company currently operates in a number of markets. The traditional
core businesses focus on the Hospitality industry, to which the Company markets
the Network as a revenue generating marketing tool; and the broader corporate
market, to which the Company offers its technology and programs as an effective
medium with which to deliver interactive training and testing programs, and as a
compelling information and entertainment medium for corporate events and trade
shows.
During the 1996 Fiscal Year, the Hospitality Group became aware of a new
entertainment system attempting to enter the Hospitality market. Called Sports
Active, this system offers only two programs, a football game and a trivia game.
The football game, for which players are charged a per game fee, can be played
by only two customers at a time, is based on prerecorded game simulations
between non-professional "generic" football teams, and lasts approximately 30
minutes. The trivia game is a variation of a CD-Rom based game released to the
retail market approximately one year ago. While it is visually entertaining, it
requires audio and the Company believes this is a significant drawback in the
restaurant environment in which it is being marketed. The Company does not
believe this will be a significant competitive entry.
The Company has not experienced the impact of any direct competition in
its corporate market to date. The Company defines "direct competition" as other
providers of products or services which offer similar features and benefits to
customers. The Company is not aware of other companies marketing interactive
television services of a comparable nature, within its client base or target
groups, in any manner which competes with the Company. NTNIN tries to position
its products and services so they are not directly comparable to any products or
services available elsewhere.
Magic Lantern Group
The Magic Lantern Group of companies operates in five principal markets.
Magic Lantern Communications Ltd. markets and distributes an exclusively
licensed library of educational video titles to schools, school boards, and
Ministries of Education across Canada. Compared to the total
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business volumes of the 28 members of the Canadian Media Producers and
Distributors Association of Canada trade association, it is believed Magic has
approximately a 20% share of the grades K-12 market, making it the dominant
player in this, Magic's primary market. Magic's exclusive distribution rights
enable it to not compete for the sale of specific titles, but for a share of the
available media buying budget within each educational jurisdiction. Several
years ago, Magic began accumulating digital delivery rights for the titles it
distributes, and approximately 75% of all titles in its library include such
rights. It is believed that this extensive library of titles with digital
delivery rights will favorably position Magic as distribution technologies and
delivery systems migrate to digital formats - a process which is already
underway in Canada.
Custom Video provides video dubbing and conversion services, primarily in
the Southern Ontario market. Dozens of competitors exist in this area, and
Custom Video's market share is unknown. Approximately 45-50% of Custom Video's
current business is from Magic and its subsidiary, BCLC. The remainder is from a
growing number of repeat commercial clients which rely on Custom Video to
provide timely delivery of quality duplications at competitive prices, and from
a small amount of walk-in business traffic. In the past twelve months, Custom
Video has upgraded and increased its capacity in order to ensure it satisfies
the steady increase in demand for its services.
B.C. Learning Connection has traditionally operated under an exclusive
arrangement with the British Columbia Ministry of Education to provide marketing
and fulfilment services for educational videos in the B.C. school system. The
Company is presently negotiating to extend the term of this arrangement.
Sonoptic Technologies Inc., located in Saint John, New Brunswick, operates
a digital video facility which converts analog video to digital video formats
suitable for distribution through the Internet, as well as through broadband
distribution networks being established by telephone and cable companies in
Canada and elsewhere. This is a relatively new type of business and, while there
are numerous "low-end" service providers entering the market in North America,
there are no clear leaders or dominant players which have emerged. Sonoptic has
been granted preferential supplier status by NBTel, the provincial telephone
company in New Brunswick, for the conversion of video materials which will be
delivered on its broadband network, now being introduced in the province.
Sonoptic is also positioning itself as the premier source for digital video
consulting and conversion services within the key markets which are expected to
emerge in the next two to three years.
Viewer Services, a new joint venture company 50% owned by Magic, was
created to assume the inbound telemarketing and product fulfilment business
previously operated by TVOntario, the provincial educational television
broadcaster in Ontario. Viewer Services began operations in November 1996 and
focuses on assuming and building the fulfilment services associated with
TVOntario programming. It has expanded its base of broadcast clients and now
provides similar services for VISION TV and the Knowledge Network. In this
regard it has no direct competition.
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Interlynx Multimedia
The Company, effective as of September 1, 1997, acquired 51% of the shares
of Interlynx Multimedia, Inc. of Toronto ("Interlynx"). The acquisition was paid
for with a combination of cash and issuance of shares.
Interlynx is a leader in designing and developing educational and
corporate multimedia, programming for CD-ROMS and Web Sites and animation and
3-D rendering. Their sales are targeted for both local and international
markets. The acquisition is designed to bolster the Company's production
capabilities and assist in the development of high-speed broadband contracts.
Interlynx also owns 60% of Interlynx International, Inc, the marketing and
sales arm of Interlynx which is responsible for the international distribution
of all CD-ROM products, licensing and partnerships in other countries.
Employees
The Company has 99 employees in the 8 subsidiaries consisting of 10
executives, 19 salespersons, 30 persons involved in technical and warehouse
services, 12 involved in graphic development, 12 clerical staff, 7 in marketing
and 9 individuals involved in finance and administration. Employee relationships
are solid and the Company believes its planned staff to be adequate for its
anticipated needs.
Risk Factors
Prospective investors should carefully consider the following factors, in
addition to the other information contained in this Registration Statement, in
evaluating an investment in the Securities offered hereby. This Registration
Statement contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Registration Statement.
The ownership and trading of shares of common stock of the Company are
speculative and offer a high degree of risk, including, but not necessarily
limited to, the risk factors described below. One should carefully consider the
following risk factors inherent and affecting the business of the Company before
making an investment decision.
Reliance on NTN Communications, Inc. All programming for the Network is
furnished by Communications and is supplied through independent transmission
companies. In addition, Communications is the Company's sole supplier of
selected components of Network subscriber systems including Playmakers. The
Company has no equity interest in Communications and the
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long term viability of the Company's Network business is dependent upon the
continued availability of broadcast services originating at Communications'
Broadcast Center. If Communications ceases operations or terminates broadcast
services, the Company believes, but cannot assure, that services of the nature,
quantity, and quality currently provided by Communications would become
available from others. Any interruption in broadcast services would result in an
interruption in those broadcast services normally delivered to Group
Subscribers. Other Company services would continue, including the availability
of interactive programmes and games. The Company has not formulated plans for
action which would be taken should Communications cease operations or alter the
availability or terms of continued availability of broadcast services.
Accordingly, the Company is substantially dependent upon the
continued existence of Communications. Based upon its Annual Report on Form 10-K
for its fiscal year ended December 31, 1996, Communications reported a net
income (loss) of approximately US$(22,952,000), US$(3,948,000) and US$707,000
for the years ended December 1996, 1995 and 1994, respectively. According to its
latest Quarterly Report on Forms 10-Q, Communications reported a net loss of
approximately US$9,709,000 for the nine months ended September 30, 1997 and had
shareholders' equity of US$4,344,000 and a working capital deficiency of
US$5,838,000 at September 30, 1997..
Credit Risk of Customer Base. In common with many businesses, credit risk is
dependent upon the type of customer which the Company supplies. A large
percentage of the Company's customers are in the food and beverage industry.
This industry traditionally has a higher than average failure rate, which could
result in the inability to collect substantial sums of monies owed to the
Company each year.
Satellite Malfunctions. Due to the dependence on satellite technologies, an
operating failure to one or more of the broadcast satellites depended upon by
the Company could conceivably render the whole network useless for an indefinite
period of time.
Dependence upon Licenses with Sports Leagues or other Companies. Pursuant to
licenses with Major League Baseball, National Football League, National Hockey
League, and the Canadian Olympic Authority, the Company produces and delivers
interactive games played in conjunction with live broadcasts of sporting events.
There is no guarantee that upon the expiration of the license with the sports
leagues that the licenses will be renewed. The inability to renew any of these
licenses may have material adverse effects upon the Company. The Company
additionally has licensed educational software through its LearnStar Corp.
subsidiary to approximately 170 schools throughout Canada. The inability to
renew any of these licenses may have material adverse effects upon the Company.
Advertising. While the Company is not wholly dependant upon advertising revenue,
any adverse economic condition can cause advertising and sponsorship revenues to
fall to levels that could adversely affect the Company's financial condition.
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No Dividends. To date, the Company has not paid any dividends on its Common
Stock and it does not expect to declare or pay dividends on the Common Stock in
the foreseeable future.
Dilution. As at August 31, 1997, there are 363,000 shares of Common Stock
reserved for issuance upon the exercise of stock options outstanding under the
Company's Stock Option Plan (the "Long-Term Incentive Plan"). All of the
foregoing options are currently exercisable. To the extent the market price of
Common Stock at the time of exercise exceeds the exercise price, the exercise of
the foregoing options will have a dilutive effect on the Company's shareholders.
In accordance with the Share Purchase Agreement and two
Non-negotiable Promissory Notes dated the 1st day of October 1996, the Company
could potentially issue 147,290 shares of the Common Stock of the Company to the
sellers of Magic Lantern, in lieu of cash payment. The issuance of the 147,290
shares will have a dilutive effect on the shares of the Company.
The Company has in the past and may in the future acquire one or
more companies with payment with the Company's stock in lieu of cash payment.
Such acquisitions will have a dilutive effect on the shares of the Company.
Indemnification of Directors and Officers. The Company has taken out insurance
for each director and officer of the Company against liabilities imposed upon
him (including reasonable amounts paid in settlement) and expenses incurred by
him in connection with any claim made against him or any action, suit or
proceeding to which he may be a party by reason of his being or having been a
director or officer of the Company. The foregoing may reduce the likelihood of
derivative litigation against directors and may discourage or deter shareholders
or management from suing directors for breaches of their duty of care, even
though such an action, if successful, might otherwise benefit the Company and
its shareholders. See "Management -- Indemnification of Directors and Officers."
Technological Change. The computer and interactive industries are subject to
rapid and significant technological change, and the ability of the Company to
compete is dependent in large part upon its continued ability to enhance and
improve its products and technologies. In order to do so, the Company must
effectively utilize and expand its research and development capabilities, and,
once developed, expeditiously convert new technology into products and processes
which can be commercialized. The Company's competitors may succeed in tapping
into markets previously monopolized by the Company by developing technologies,
products and processes that render the Company's processes and products
obsolete. The Company's development efforts are subject to all the risks
inherent in the development of new products and technologies, including
unanticipated delays, expenses, technical problems or difficulties, as well as
the possible insufficiency of funds to satisfactorily complete development,
which could result in abandonment or substantial change in product
commercialization. There can be no assurance that product development efforts
will be successfully completed on a timely basis, or at all, or that
unanticipated events will not occur which would result in increased costs or
material delays in product development or commercialization. See "Business --
Competition;" "Business --
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Research & Development."
Industry Factors. Sales of the Company's products, especially the Hospitality
Market, are dependant on discretionary spending by consumers, which may be
adversely affected by unfavorable economic conditions. Any decrease in the level
of consumer spending on Network Programming, corporate spending on the Corporate
Market, or adverse conditions on any corporation or company relied upon in any
way by the Company could adversely affect the Company's proposed business and
prospects. The Company's future operating results will depend on numerous
factors beyond its control, including the popularity of the sports leagues
licensing products to the Company, the continued financial health of NTN
Communications, Inc., the renewal of LearnStar Corp.'s school licenses, local
economic conditions, changes in consumer demographics, the availability and
relative popularity of other forms of entertainment, and public tastes and
preferences, which may change rapidly and cannot be predicted.
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Item 2. Financial Information
The following table sets forth a summary of selected financial
information regarding the Company and its subsidiaries, consolidated, for each
of the five fiscal years ended August 31, 1997. For the convenience of the
reader, the selected financial information is also given in U.S. dollars,
converted at the Noon Buying Rate in effect at the end of the period to which
the amount relates. (For applicable Noon Buying Rates, see "Exchange Rates"
preceding Item 1 above.)
Statement of Operations Data (Canadian Dollars):
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues..................... Cdn$10,351,689 Cdn$6,318,251 Cdn$4,559,382 Cdn$3,147,980 Cdn$2,770,479
Cost of sales.......................... 3,395,898 2,223,916 1,701,629 1,244,462 1,268,250
Gross profit........................... 6,955,791 4,094,335 2,857,753 1,903,518 1,502,229
Net income............................. 609,387 541,059 357,535 75,694 55,811
Net income per share................... .23 .23 .17 .05 .07
Weighted average number of
shares outstanding.................... 2,694,734 2,392,548 2,146,226 1,517,348 779,097
Balance Sheet Data (Canadian Dollars):
August 31,
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Total assets........................... Cdn$14,287,602 Cdn$9,883,093 Cdn$8,352,670 Cdn$3,575,115 Cdn$3,043,832
Long-term obligations.................. 2,185,249 -0- -0- -0- 18,804
Shareholders' equity................... 9,488,648 8,877,434 7,536,411 2,338,277 2,148,719
Statement of Operations Data (United States Dollars):
Year Ended August 31,
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Operating revenues..................... US$7,455,304 US$4,616,917 US$3,394,418 US$2,295,785 US$2,097,576
Cost of sales.......................... 2,445,731 1,830,963 1,266,847 907,571 960,214
Gross profit........................... 5,009,573 2,785,954 2,127,571 1,388,214 1,137,363
Net income............................. 438,882 395,366 266,182 55,203 42,255
Net income per share................... .16 .17 .12 .04 .05
Weighted average number of
shares outstanding.................... 2,694,734 2,392,548 2,146,226 1,517,348 779,097
Balance Sheet Data (United States Dollars):
August 31,
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Total assets........................... US$10,289,955 US$7,221,844 US$6,218,486 US$2,607,289 US$2,304,537
Long-term obligations.................. 1,573,820 -0- -0- -0- 14,237
Shareholders' equity................... 6,833,740 6,486,981 5,610,788 1,705,278 1,626,831
</TABLE>
No cash dividends have been declared for any of the fiscal years
presented above.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Introduction
The financial statements of the Company and the information contained in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations are expressed in Canadian dollars. For the convenience of the reader,
in this Management's Discussion and Analysis, certain financial amounts are also
given in U.S. dollars, converted at the Noon Buying Rate in effect at the end of
the period to which the amount relates, or the exchange rate on the date
specified herein. (For applicable Noon Buying Rates, see "Exchange Rates"
preceding Item 1 above). As the Noon Buying Rate fluctuates daily, financial
comparisons between periods expressed in U.S. dollars do not accurately reflect
the true difference in the Company's financial position or results of operations
between periods. Accordingly, the comparisons between periods presented below,
both in dollar amounts and as percentages from prior periods, are expressed in
Canadian dollars only.
The Company's acquisitions of Magic and Viewer Services were made
effective October 1, 1996 and October 10, 1996, respectively. Both acquisitions
were accounted for as purchases. Accordingly, the Company's results of
operations for the 1997 Fiscal Year reflect the operating results of the Magic
Lantern Group, while the Company's results of operations for the 1996 Fiscal
Year do not reflect the operating results of the Magic Lantern Group.
Results of Operations
Year Ended August 31, 1997 Compared to Year Ended August 31, 1996
Revenues. Revenues from program content services for the 1997 Fiscal Year
were Cdn$3,932,912 (US$2,832,490), compared to Cdn$3,520,814 (US$2,572,754) for
the Company's fiscal year ended August 31, 1996 (the "1996 Fiscal Year"), an
increase of Cdn$412,098 or 11.7%. This increase is primarily the result of an
increase in the average number of sites outstanding in 1997 when compared to the
average number of sites outstanding in 1996.
Revenues from equipment rental were Cdn$1,642,305 (US$1,182,791), compared
to Cdn$959,153 (US$700,879) for the 1996 Fiscal Year, an increase of Cdn$683,152
or 71.2%. This increase is primarily the result of an increase in the average
number of rental systems outstanding in 1997 when compared to the average number
of rental systems outstanding in 1996.
Revenues from event programming for the 1997 Fiscal Year were Cdn$434,965
(US$313,263), compared to Cdn$409,722 (US$299,395) for the 1996 Fiscal Year, an
increase of Cdn$25,243 or 6.2%. This increase is due primarily to increased
initiatives in this area in 1997.
Revenues from maintenance services were Cdn$539,349 (US$388,440) for the
1997 Fiscal Year, compared to Cdn$476,533 (US$348,216) for the 1996 Fiscal Year,
an increase of Cdn$62,816 or 13.2%. This increase is primarily the result of an
increase in the average number
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of systems and rental Playmakers outstanding in 1997 when compared to the
average number outstanding in 1996.
Revenues from equipment sales, which were Cdn$144,748 (US$104,248),
remained relatively constant when compared to Cdn$148,330 (US$108,389) for the
1996 Fiscal Year, a decrease of Cdn$3,582 or 2.4%. This decrease is reflective
of the Company's initiatives in introducing a rental equipment program over 2
years ago.
Revenues from ad sponsorship were Cdn$246,090 (US$177,234) for the 1997
Fiscal Year, compared to Cdn$198,989 (US$145,407) for the 1996 Fiscal Year, an
increase of Cdn$47,101 or 23.7%. This increase is primarily the result of
increased initiatives in this area.
Revenues from video sales and video dubbing, as earned by the Magic
Lantern Group, were Cdn$2,277,768 (US$1,640,452) and Cdn$399,082 (US$287,420)
respectively, for the 1997 Fiscal Year, the first year of ownership by the
Company.
Other revenues, as earned by NTNIN and NTN Canada Inc., which consist
primarily of revenue from internet services and interest income, were
Cdn$595,168 (US$428,641), compared to Cdn$604,710 (US$441,878) for the 1996
Fiscal Year, a decrease of Cdn$9,542 or 1.6%. Other revenues, as earned by the
Magic Lantern Group, consist primarily of revenue from video conversion
services. Revenues in this area were Cdn$139,302 (US$100,326) for the 1997
Fiscal Year, the first year of ownership by the Company.
As a result of the foregoing, the Company's total revenues were
Cdn$10,351,689 (US$7,455,304), compared to Cdn$6,318,251 (US$4,616,917) for the
1996 Fiscal Year, an increase of Cdn$4,033,438 or 63.8%. Excluding total
revenues from the Magic Lantern Group of Cdn$2,816,152 (US$2,028,197), revenues
were Cdn$7,535,537 (US$5,427,106) for the 1997 Fiscal Year, compared to revenues
of Cdn$6,318,251 (US$4,616,917) from the 1996 Fiscal Year, an increase of
Cdn$1,217,286 or 19.3%.
Cost of Sales. Commissions for the 1997 Fiscal Year were Cdn$1,757,922
(US$1,266,058), compared to Cdn$1,549,729 (US$1,132,429) for the 1996 Fiscal
Year, an increase of Cdn$208,193 or 13.4%. This increase is primarily the result
of an increase in the average number of sites outstanding in 1997 compared to
the average number outstanding in 1996. Since the amount the Company is billed
by Communications is a direct function of the number of sites, an increase in
the number of average sites outstanding in 1997 would result in higher
commissions payable to Communications in 1997, than the level experienced in
1996. As a percentage of the Company's total revenues, such costs decreased to
17.0% for the 1997 Fiscal Year from 24.5% for the 1996 Fiscal Year. This
decrease is primarily the result of an increase in sales which are not
commissionable, including sales made by the Company's direct sales force who do
not receive commission, and revenues from the Magic Lantern Group for the year.
Equipment costs were Cdn$258,701 (US$186,317), compared to Cdn$298,243
(US$217,934) for the 1996 Fiscal Year, a decrease of Cdn$39,542 or 13.2%. As a
percentage of
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the Company's total revenues, such costs decreased to 2.5% for the 1997 Fiscal
Year from 4.7% for the 1996 Fiscal Year. This decrease, both in total amount and
as a percentage of total revenue, is primarily the result of a decreased level
of equipment sales, in 1997 when compared to the level of equipment sales in
1996, resulting from the continued success of the rental program.
Video and video dubbing costs, originating from the Magic Lantern Group,
were Cdn$797,636 (US$574,459) and Cdn$212,072 (US$152,735), for the 1997 Fiscal
Year. As a percentage of the Company's total revenues, these costs were 7.7% and
2.0%.
Other costs, originating from activities of NTNIN, were Cdn$359,886
(US$259,190), compared to Cdn$375,944 (US$274,712) for the 1996 Fiscal Year, a
decrease of Cdn$16,058 or 4.3%. As a percentage of the Company's total revenues,
such costs decreased to 3.5% for the 1997 Fiscal Year from 6.0% for the 1996
Fiscal Year. Other costs, originating from the activities of the Magic Lantern
Group, were Cdn$9,681 (US$6,972) for the 1997 Fiscal Year, which were 0.1% of
the Company's total revenues.
As a result of the foregoing, the Company's total cost of sales was
Cdn$3,395,898 (US$2,445,731), compared to Cdn$2,223,916 (US$1,625,076) for the
1996 Fiscal Year, an increase of Cdn$1,171,982 or 52.7%. Excluding the Magic
Lantern Group's cost of sales of Cdn$1,019,389 (US$734,166), cost of sales were
Cdn$2,376,509 (US$1,711,566) in the 1997 Fiscal Year, compared to Cdn$2,223,916
(US$1,625,076) in the prior year, an increase of $152,593 or 6.9%. Total gross
margins improved to 67.2% in the 1997 Fiscal Year from 64.8% in the 1996 Fiscal
Year, and excluding the Magic Lantern Group, the gross margin improved to 68.5%
in the 1997 Fiscal Year.
Expenses. Selling, general and administrative expenses for the 1997 Fiscal
Year were Cdn$4,786,519 (US$3,447,259), compared to Cdn$2,642,853 (US$1,931,204)
for the 1996 Fiscal Year, an increase of Cdn$2,143,666 or 81.1%. These expenses
for the 1997 Fiscal Year, excluding those of the Magic Lantern Group of
Cdn$1,394,541 (US$1,004,351), totaled Cdn$3,391,978 (US$2,442,908), compared to
Cdn$2,642,853 (US$1,931,204) for the 1996 Fiscal Year, an increase of
Cdn$749,125 or 28.3%. As a percentage of the Company's total revenues, total
selling, general and administrative expenses increased to 46.2% for the 1997
Fiscal Year from 41.8% for the 1996 Fiscal Year. This increase in percentage is
primarily the result of the addition of staff and rising salaries in 1997, when
compared to 1996.
Bad debts expense was Cdn$48,284 (US$34,774), compared to Cdn$54,990
(US$40,183) for the 1996 Fiscal Year, a decrease of Cdn$6,706 or 12.2%. As a
percentage of the Company's total revenues, such costs decreased to 0.5% for the
1997 Fiscal Year from 0.9% for the 1996 Fiscal Year. This decrease is primarily
the result of an overall improvement in the management of the Company's accounts
receivable.
Interest and bank charges for the 1997 Fiscal Year were Cdn$109,834
(US$79,103), compared to Cdn$8,657 (US$6,326) for the 1996 Fiscal Year, an
increase of Cdn$101,177 or 1168.7%. As a percentage of the Company's total
revenues, such costs increased to 1.1% for the
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1997 Fiscal Year from 0.1% for the 1996 Fiscal Year. This increase is the result
of the increased debt load assumed upon the Magic Lantern Group Acquisition.
Depreciation and amortization for the 1997 Fiscal Year were Cdn$952,145
(US$685,736), compared to Cdn$383,776 (US$280,436) for the 1996 Fiscal Year, an
increase of Cdn$568,369 or 148.1%. As a percentage of the Company's total
revenues, such costs increased to 9.2% for the 1997 Fiscal Year from 6.1% for
the 1996 Fiscal Year. This increase is the result of both depreciation on the
increased amount of rental equipment in the field, attributable to an increased
number of average rental sites outstanding in 1997, and amortization of goodwill
associated with the purchase of the Magic Lantern Group.
Income Taxes. Provision for income taxes was Cdn$433,900 (US$312,495) for
the 1997 Fiscal Year, compared to Cdn$463,000 (US$338,327) for the 1996 Fiscal
Year, a decrease of Cdn$29,100 or 6.3%. The provision for taxes is lower in 1997
when compared to the 1996 provision due to a lower level of taxable income
experienced in 1997.
Net Income. As a result of all of the above, the Company's net income for
the 1997 Fiscal Year was Cdn$609,387 (US$438,882), compared to Cdn$541,059
(US$395,366) for the 1996 Fiscal Year, an increase of Cdn$68,328 or 12.6%. This
represents a decrease in net income as a percentage of total revenues to 5.9% in
the 1997 Fiscal Year from 8.6% in the 1996 Fiscal Year.
Year Ended August 31, 1996 Compared to Year Ended August 31, 1995
Revenues. Revenues from program content services for the 1996 Fiscal Year
were Cdn$3,520,814 (US$2,572,754), compared to Cdn$2,772,319 (US$2,063,966) for
the Company's fiscal year ended August 31, 1995 (the "1995 Fiscal Year"), an
increase of Cdn$748,495 or 27%. This increase was primarily the result of a net
increase of 100 Network locations during the year.
Revenues from equipment rental were Cdn$959,153 (US$700,879), compared to
Cdn$517,950 (US$385,609) for the 1995 Fiscal Year, an increase of Cdn$441,203 or
85.2%. This increase was primarily the result of an increase in the number of
rental systems and an increase in the number of Playmakers per system installed
in Group Subscriber locations.
Revenues from event programming for the 1996 Fiscal Year were Cdn$409,722
(US$299,395), compared to Cdn$373,477 (US$278,050) for the 1995 Fiscal Year, an
increase of Cdn$36,245 or 9.7%. This increase was primarily the result of sales
efforts leading to a greater number of higher revenue-producing events.
Revenues from maintenance services were Cdn$476,533 (US$348,216), compared
to Cdn$381,008 (US$283,657) for the 1995 Fiscal Year, an increase of Cdn$95,525
or 25.1%. This increase was primarily the result of an increase in the number of
systems and rental Playmakers installed in Group Subscriber locations.
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Revenues from equipment sales were Cdn$148,330 (US$108,389), compared to
Cdn$215,152 (US$160,179) for the 1995 Fiscal Year, a decrease of Cdn$66,822 or
31.1%. This decrease was primarily the result of a majority of Group Subscribers
preferring the system rental program which was begun two years earlier, as
evidenced by the increase in revenues from equipment rental.
Ad sponsorship revenues increased to Cdn$198,989 (US$145,407) in Fiscal
Year 1996 from Cdn$18,414 (US$13,709) in the prior year, an increase of
Cdn$180,575 or 980.6%. this increase was primarily due to increased advertising
and sponsorship revenues from a larger number of advertisers.
Other revenues, consisting primarily of interest income and revenues from
internet services, were Cdn$604,710 (US$441,878), compared to Cdn$281,062
(US$209,248) for the 1995 Fiscal Year, an increase of Cdn$323,648 or 115.2%.
This increase is primarily the result of increased revenues from internet
services, which were new in 1996.
As a result of the foregoing, the Company's total revenues were
Cdn$6,318,251 (US$4,616,917), compared to Cdn$4,559,382 (US$3,394,418) for the
1995 Fiscal Year, an increase of Cdn$1,758,869 or 38.6%.
Cost of Sales. Commissions for the 1996 Fiscal Year were Cdn$1,549,729
(US$1,132,429), compared to Cdn$1,340,196 (US$997,764) for the 1995 Fiscal Year,
an increase of Cdn$209,533 or 15.6%. As a percentage of the Company's total
revenues, such costs decreased to 24.5% for the 1996 Fiscal Year from 29.4% for
the 1995 Fiscal Year. This decrease is primarily the result of an increase in
sales which are not commissionable, including sales made by the Company's direct
sales force who do not receive commission.
Equipment costs were Cdn$298,243 (US$217,934), compared to Cdn$198,344
(US$147,665) for the 1995 Fiscal Year, an increase of Cdn$99,899 or 50.4%. As a
percentage of the Company's total revenues, such costs increased to 4.7% for the
1996 Fiscal Year from 4.4% for the 1995 Fiscal Year. This increase, both in
total amount and as a percentage of total revenue, is primarily the result of
increased refurbishing costs related to equipment at Group Subscriber locations.
Other costs were Cdn$375,944 (US$274,712), compared to Cdn$163,089
(US$121,418) for the 1995 Fiscal Year, an increase of Cdn$212,855 or 130.5%. As
a percentage of the Company's total revenues, such costs increased to 6.0% for
the 1996 Fiscal Year from 3.6% for the 1995 Fiscal Year. This increase is
primarily the result of costs associated with advertising and sponsorships and
event programming which were new in the 1996 Fiscal Year.
As a result of the foregoing, the Company's total costs of sales were
Cdn$2,223,916 (US$1,625,076), compared to Cdn$1,701,629 (US$1,266,847) for the
1995 Fiscal Year, an increase of Cdn$522,287 or 30.7%, and total gross margins
improved to 64.8% in the 1996 Fiscal Year from 62.7% in the 1995 Fiscal Year.
24
<PAGE>
Expenses. Selling, general and administrative expenses for the 1996 Fiscal
Year were Cdn$2,642,853 (US$1,931,204), compared to Cdn$2,043,369 (US$1,521,269)
for the 1995 Fiscal Year, an increase of Cdn$599,484 or 29.3%. As a percentage
of the Company's total revenues, such expenses decreased to 41.8% for the 1996
Fiscal Year from 44.8% for the 1995 Fiscal Year. This decrease in percentage is
primarily the result of improved utilization of staff and resources, as well as
the Company's existing physical premises having the capacity to serve it without
additional cost as revenues increased.
Bad debts expense was Cdn$54,990 (US$40,183), compared to Cdn$57,653
(US$42,922) for the 1995 Fiscal Year, a decrease of Cdn$2,663 or 4.6%. As a
percentage of the Company's total revenues, such costs decreased to 0.9% for the
1996 Fiscal Year from 1.3% for the 1995 Fiscal Year. This decrease is primarily
the result of an overall improvement in the management of the Company's accounts
receivable.
Interest and bank charges for the 1996 Fiscal Year were Cdn$8,657
(US$6,326), compared to Cdn$28,311 (US$21,077) for the 1995 Fiscal Year, an
decrease of Cdn$19,654 or 69.4%. As a percentage of the Company's total
revenues, such costs decreased to 0.14% for the 1996 Fiscal Year from 0.62% for
the 1995 Fiscal Year. This decrease is primarily the result of the full payment
of a mortgage on the Company's building in October 1995.
Depreciation and amortization for the 1996 Fiscal Year were Cdn$383,776
(US$280,436), compared to Cdn$231,785 (US$172,562) for the 1995 Fiscal Year, an
increase of Cdn$151,991 or 65.6%. As a percentage of the Company's total
revenues, such costs increased to 6.1% for the 1996 Fiscal Year from 5.1% for
the 1995 Fiscal Year.
Income Taxes. Provision for income taxes were Cdn$463,000 (US$338,327) for
the 1996 Fiscal Year, compared to Cdn$139,100 (US$103,559) for the 1995 Fiscal
Year, an increase of Cdn$323,900 or 232.9%. The provision for taxes is higher in
1996 when compared to the 1995 provision due to a higher level of taxable income
experienced in 1996.
Net Income. As a result of all of the above, the Company's net income for the
1996 Fiscal Year was Cdn$541,059 (US$395,366), compared to Cdn$357,535
(US$266,182) for the 1995 Fiscal Year, an increase of Cdn$183,524 or 51.3%. This
represents an increase in net income as a percentage of total revenues to 8.6%
in the 1996 Fiscal Year from 7.8% in the 1995 Fiscal Year.
Liquidity and Capital Resources
At August 31, 1997, the Company had working capital of Cdn$3,499,862
(US$2,520,606), a decrease of Cdn$2,586,294 from working capital of
Cdn$6,086,156 (US$4,447,319) at August 31, 1996. This decrease is primarily due
to the increased debt load assumed on the acquisition of the Magic Lantern
Group.
For the 1997 Fiscal Year, the Company had a net increase in cash flow of
Cdn$643,908
25
<PAGE>
(US$463,744), an increase from its net decrease in cash flow of Cdn$1,320,251
(US$964,743) for the 1996 Fiscal Year. Net positive cash flow for the 1995
Fiscal Year was Cdn$1,486,036 (US$1,106,340). The increase in net cash flow for
the 1997 Fiscal Year was primarily due to cash provided from operations.
Cash provided by operating activities for the 1997 Fiscal Year was
Cdn$3,814,770 (US$2,747,404), an increase of Cdn$4,168,913 from cash used by
operating activities for the 1996 Fiscal Year. The major factors contributing to
this increase from the 1996 Fiscal Year include: an increase in net income
before depreciation and amortization of Cdn$636,697 (US$458,550); a decrease in
short-term investments of Cdn$1,872,137 (US$1,348,316); a decrease in inventory
of Cdn$180,134 (US$129,733), due to an increased level of inventory converted to
rental equipment during the year; a decrease in prepaid expenses of Cdn$253,487
(US$182,562); and increases in accounts payable and accrued liabilities and
income taxes payable of Cdn$92,744 (US$66,794) and Cdn$108,197 (US$77,924)
respectively, due mainly to expanding operations, higher debt load, and higher
effective tax rates in 1997, respectively. These sources of operating cash were
mitigated by the use of cash resulting from the increase in accounts receivable
of Cdn$286,008 (US$205,983), which resulted from increased sales levels in 1997.
Cash used by operations for the 1996 Fiscal Year decreased by Cdn$1,626,179 from
the cash used in operations in the 1995 Fiscal Year, primarily due to an
increase in net income before depreciation and amortization of Cdn$335,515
(US$245,170), as well as increases in accounts payable and accrued liabilities
of Cdn$251,329 (US$183,653) resulting from growth in the Company's operations.
Income taxes payable increased Cdn$162,294 (US$118,593) from the prior year as a
result of increased taxable income. These sources of operating cash were offset
by the use of cash in increasing short-term investments by Cdn$1,525,770
(US$1,114,921). Also, inventory increased by Cdn$75,915 (US$55,473), as required
to service the increase in Group Subscriber locations, prepaid expenses
increased by Cdn$11,732 (US$8,573), and accounts receivable increased by
Cdn$99,184 (US$72,476) in the 1996 Fiscal Year, primarily due to increased sales
levels.
Cash used in investing activities in both the 1997 Fiscal Year and 1996
Fiscal Year was Cdn$3,092,057 (US$2,226,905) and Cdn$1,521,849 (US$1,112,056),
respectively. Cash used in the 1997 Fiscal Year was greater than in the prior
fiscal year primarily due to the Company's purchase of the Magic Lantern Group
totaling Cdn$1,644,497 (US$1,184,369), the investment in Viewer Services of
Cdn$38,305 (US$27,587) by Magic and the purchase of certain of the business
assets and the resulting goodwill of Image Media by Magic for Cdn$590,000
(US$424,919). The above uses of cash were somewhat offset by the decrease in
notes receivable in the 1997 Fiscal Year of Cdn$221,510 (US$159,532).
Cash used in financing activities in the 1997 Fiscal Year was Cdn$78,805
(US$56,755) which decreased by Cdn$634,546 from the amount provided by financing
activities of Cdn$555,741 (US$406,095) in the 1996 Fiscal Year. This decrease
was primarily due to the fact that in the 1996 Fiscal Year, the Company received
net proceeds of Cdn$799,964 (US$584,555) on the issuance of 385,386 shares of
its Common Stock compared to only Cdn$1,827 (US$1,316) of net proceeds received
on 375 shares issued in the 1997 Fiscal Year.
26
<PAGE>
The Company believes that its working capital position provides the
required liquidity on both a short and long term basis and that its will not
require external financing for its operating activities during the 1998 Fiscal
Year, as based upon the Company's present plans for the 1998 Fiscal Year.
However, any changes in such plans may require the Company to seek outside
financing. No arrangements are presently in place for outside financing should
the need arise.
Inflation
The rate of inflation has little impact on the Company's operations or
financial position during the three fiscal years ended August 31, 1997 and is
not expected to have a significant impact on the Company's operations or
financial position during the 1998 Fiscal Year.
The Company pays a number of its suppliers, including its licensor and
principal supplier, NTN Communications, Inc., in US dollars. Therefore,
fluctuations in the value of the Canadian dollar against the US dollar will have
an impact on gross profits as well as the net income for the Company. If the
value of the Canadian dollar falls against the US dollar, the cost of sales of
the Company will increase thereby reducing the Company's gross profits and net
income. Conversely, if the value of the Canadian dollars rises against the US
dollar, gross profit and net income will increase.
Item 3. Properties.
In November 1994, the Company acquired an approximately 25,000 square foot
parcel of land in Etobicoke, Ontario, Canada, on which a 12,500 square-foot,
free-standing, one-story building was previously erected. The Company presently
utilizes this building as its principal place of business. The Company owns the
Etobicoke property and building free of any liens, the purchase mortgage for the
property having been paid in full and satisfied on October 2, 1995.
Magic owns three office units, comprising an aggregate 8,000 square feet
of office space, in a building located in Oakville, Ontario, Canada. These
properties, which collectively serve as Magic's principal executive offices, are
pledged as security for a demand instalment loan, from the Royal Bank of Canada,
due on demand with an outstanding principal amount of Cdn$641,000 (US$461,649)
as of August 31, 1997. Magic and its subsidiaries also lease (or are negotiating
leases for) additional properties as follows:
<TABLE>
<CAPTION>
Location Purpose Square Lease Annual Rent
-------- ------- Feet Expiration -----------
---- ----------
Date
----
<S> <C> <C> <C> <C> <C>
Saint John, New Brunswick Offices 2,342 6/30/00 Cdn$35,130 US$25,670
Langley, British Columbia Offices 1,048 12/31/97 8,400 6,138
Oakville, Ontario Offices and warehouse 4,000 12/01/98 15,970 11,742
Vancouver, British Columbia Offices and warehouse 8,451 8/31/00 78,171 57,119
</TABLE>
27
<PAGE>
The Company believes that the facilities of the Company and Magic are adequate
for their present requirements.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
Set forth in the table below is information concerning the ownership, as of the
close of business on August 31, 1997, of the Common Stock by each person who is
known to the Company to be the beneficial owner of more than five (5%) percent
of the Common Stock, the Company's directors and Named Executive Officers, and
all directors and executive officers as a group.
Amount and Nature of Percent of
Name and Address Beneficial Ownership Class (1)
- ---------------- -------------------- ---------
NetStar Enterprises Inc. (2) ....................... 1,578,091 (3) 51.0%
James R. Newell (4) ................................ 1,578,091 (5) 51.0
James Thompson (4) ................................. 1,578,091 (5) 51.0
Peter Rona (6) ..................................... 360,357 (7) 12.9
Anor Management Ltd. (8) ........................... 192,857 (8) 7.3
Douglas Connolly ................................... 38,158 (9) 0.1
Adrian P. Towning .................................. 5,250 (10) 0.0
Daniel C. Downs .................................... 750 (10) 0.0
Dale G. Smith ...................................... 750 (10) 0.0
All directors and executive officers as a group
(7 persons) .................................. 1,983,356(11) 57.8%
(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities which may be acquired by such person within
60 days from the date on which beneficial ownership is to be determined,
upon the exercise of options, warrants or convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
options, warrants and convertible securities that are held by such person
(but not those held by any other person) and which are exercisable within
such 60 day period, have been exercised.
(2) The address for NetStar Enterprises Inc. (formerly, Labatt Communications
Inc.) ("NetStar") is 2225 Sheppard Avenue East - Suite 100, North York,
Ontario, Canada, M2J 5C2.
(3) Includes (a) 925,787 shares held of record by NetStar and (b) 652,304
shares (subject to adjustment) issuable upon exercise of an option (the
"NetStar Option") granted pursuant to a Stock Purchase Agreement, dated as
of October 4, 1994 (the "NetStar Agreement"),
28
<PAGE>
between the Company and NetStar. The NetStar Agreement also grants NetStar
the right (the "NetStar Ownership Maintenance Right"), exercisable in the
event the Company seeks to issue additional shares of Common Stock or any
options, warrants, shares of preferred stock or other rights entitling the
holder thereof to acquire Common Stock, to purchase from the Company such
additional shares of Common Stock so as to permit NetStar to maintain the
its then percentage ownership of outstanding Common Stock. The NetStar
Option expires on April 4, 1998. The NetStar Ownership Maintenance Right
is exercisable as long as NetStar owns any shares of Common Stock.
(4) The address for Messrs. Newell and Thompson is c/o NetStar Communications
Inc., 2225 Sheppard Avenue East - Suite 100, North York, Ontario, Canada,
M2J 5C2.
(5) Includes the 1,578,091 shares of Common Stock beneficially owned by
NetStar, of which Mr. Newell is Senior Vice President of Finance and Chief
Financial Officer and Mr. Thompson is President and Chief Operating
Officer.
(6) The address for Messrs. Rona is c/o NTN Canada, Inc., 14 Meteor Drive,
Etobicoke, Ontario, Canada, M9W 1A4.
(7) Includes (a) 192,857 shares of Common Stock issuable upon conversion of
the 900,000 shares of Convertible Preferred Stock held of record by Anor
Management, Ltd. ("Anor") and (b) 167,500 shares issuable upon exercise of
options granted to Mr. Rona which are currently exercisable. Mr. Rona is
the President, sole director and sole shareholder of Anor. Additionally,
an additional 18,750 shares underlying options which are exercisable
within the next 60 days.
(8) The address for Anor is c/o Peter Rona, NTN Canada, Inc., 14 Meteor Drive,
Etobicoke, Ontario, Canada, M9W 1A4. Includes 192,857 shares of Common
Stock issuable upon conversion of the 900,000 shares of Convertible
Preferred Stock held of record by Anor. The 900,000 shares of Convertible
Preferred Stock have the equivalent voting power to 192,857 shares of
Common Stock.
(9) Represents the first payment of stock in lieu of cash based upon two
promissory notes controlled by Mr. Connolly. The stock certificate
representing the 38,158 shares of common stock are beneficially owned by
1199846 Ontario, Ltd., of which Mr. Connolly is the President. The
remaining stock payments due under the promissory notes are not due within
the next 60 days.
(10) Includes 750 shares of Common Stock issuable upon exercise of options,
which vested on 4/29/97, granted to each of Messrs Towning, Downs and
Smith. Does not include an additional 750 shares of Common Stock issuable
upon exercise of options granted to each of Messrs. Towning, Downs and
Smith, which are not exercisable within the next 60 days.
(11) Includes 968,521 shares issuable upon conversion of the Convertible
Preferred Stock and
29
<PAGE>
the exercise of the options and rights referred to in notes (5) and (7)
above.
Item 5 Directors and Executive Officers of the Registrant.
The table below sets forth the names and ages of the directors and
executive officers of the Company and its subsidiaries, all positions and
offices held by such persons and, if applicable, their years of service as
directors of the Company. All directors shall hold their positions until the
next Annual Meeting of the Shareholders of the Company and until their
successors are duly elected and qualified.
Director
Name Age Principal Positions with the Company Since
- ---- --- ------------------------------------ -----
Peter Rona 51 President, Chief Executive Officer, 1987
Principal Financial and Accounting Officer
and Chairman of the Board of Directors of
the Company
Douglas R. Connolly 44 President of Magic Lantern Communications 1996
Ltd.; Director of the Company
Daniel C. Downs 58 Director of the Company 1993
James R. Newell 40 Director of the Company 1994
James Thompson 55 Director of the Company 1997
Dale G. Smith 48 Director of the Company 1993
Adrian P. Towning 53 Director of the Company 1994
Mark Truman 42 Acting Secretary of the Company N/A
Peter Rona has been the President, Chief Executive Officer, Principal
Financial and Accounting Officer and a director of the Company since September
1, 1987. He has been President of NTN Interactive Network, Inc. (formerly, NTN
Sports, Inc. until 1993) from 1985 to 1991 and February 1993 to present. Mr.
Rona has also been the President, sole director and sole shareholder of Anor
Management, Ltd., a personal holding company since 1987.
Douglas Connolly has been the President and a director of Magic Lantern
Communications Ltd. (and its predecessor corporation) since 1985. On October 2,
1996, the Company acquired all of the outstanding stock of Magic. Mr. Connolly
also has been President, director and a principal shareholder of Connolly-Daw
Holdings Inc. (since 1987) and 1199846 Ontario Ltd. (since September 1996), two
personal holding companies.
Daniel C. Downs has been Executive Vice-President (1983 to April 1994),
Chief Operating Officer (1983 to October 1996), President (April 1994 to March
1997) and a Director (1985 to June 1997) of NTN Communications, Inc., a
developer and distributor of interactive programs. Under a License Agreement,
dated March 23, 1990 (the "License Agreement"), between Communications and
NTNIN, the Company, through NTNIN, holds the exclusive
30
<PAGE>
license to market the products and programs of Communications throughout Canada
through December 31, 2015. Mr. Downs was an independent marketing consultant
from 1981 to 1983, during which time he also worked on the development of the
interactive game QB1. From 1979 to 1981, he served as Executive Vice-President
and General Manager of Hollywood Park Race Course. From 1974 to 1979, he served
as Executive and General Manager for the Southern California Racing Association
at Los Alamitos Race Course.
James R. Newell is the Senior Vice President of Finance and Chief
Financial Officer (October 1993 to present) of NetStar Communications Inc.
(formerly, Labatt Communications Inc.), a company involved in broadcast
operations. Mr. Newell was the Assistant Treasurer (1986 to 1987), Treasurer
(1987 to 1989) and Vice President of Finance and Chief Financial Officer (1989
to October 1993) of Gandalf Technologies Inc., a manufacturer of data
communications products. He was an auditor with KPMG (formerly, Peat Marwick
Mitchell), an international firm of chartered accountants from 1980 to 1986. Mr.
Newell is currently a director of The Discovery Channel (since March 1995).
James Thompson is the President (since January 1997) of NetStar
Communications, Inc. (formerly Labatt Communications, Inc.), President (since
June 1994) of TSN The Sports Network ("TSN"), a cable network providing sports,
news and entertainment programming throughout Canada and an affiliate of
NetStar. Mr. Thompson also served as General Manager (July 1988 to January
1997), Vice-President (July 1988 to June 1994), Vice President of Programming
(January 1986 to July 1988) and Program Director (July 1985 to January 1986) of
TSN. Prior to joining TSN, Mr. Thompson was employed for over twenty years by
the Canadian Broadcasting Corporation, serving in positions of increasing
responsibility up to the level of Executive Producer.
Dale G. Smith has been an officer and part owner of Montebello Farms Inc.,
the world's second largest breeders of Straight Egyptian Arabian Horses, since
1990. From 1988 to 1990, he was the President of Oden Capital Corporation, a
privately owned venture capital company. From 1969 to 1988, he was a member of
Deloitte & Touche, chartered accountants, having been elected a partner in 1980.
Adrian P. Towning is a private, independent investor in several companies
involved in the communications industry. As a result of his investments, he has
served as a director of some of these companies, including Medical
Communications Corporation ("MCC") (1994 to July 1996). On May 14, 1996, MCC
filed a petition under Chapter 7 of the United States Bankruptcy Code and the
Bankruptcy Court appointed a Trustee of MCC on July 11, 1996. On July 16, 1996,
MCC was dissolved. From 1983 to 1989, he established and managed
Anglo-Massachusetts Investments Incorporated, with offices in Boston and London,
which was involved in providing financial advice to Europeans.
Mark Truman has been the Controller of the Company since December of 1994.
Pursuant to a Designation Agreement, dated as of October 4, 1994, among
the Company,
31
<PAGE>
NTNIN and NetStar, the Company has granted NetStar the right to designate
one-third (1/3) of the members of the Company's Board of Directors so long as
NetStar is the owner of at least 20% and not greater than 50% of the outstanding
Common Stock. Should NetStar's ownership be at least 10% and less than 20% of
the outstanding Common Stock, NetStar would be entitled to designate one-sixth
(1/6) of the members of the Company's Board. Further, should NetStar's ownership
exceed 50% of the outstanding Common Stock, NetStar shall be entitled to
designate one-half (1/2) of the members of the Company's Board. In accordance
with the terms of the Designation Agreement, James R. Newell and James Thompson
have been designated by NetStar as directors of the Company.
Item 6. Executive Compensation.
Summary Compensation Table
The following table sets forth information concerning the compensation
paid or accrued by the Company during the four years ended August 31, 1997 to
those individuals who served as Chief Executive Officer of the Company during
the 1997 Fiscal Year and all other executive officers of the Company or any of
its subsidiaries at August 31, 1997 who received total annual salary and bonuses
in excess of $100,000 during the 1997 Fiscal Year (collectively, the "Named
Executive Officers").
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Awards
----------------------------------- -----------
Name and Principal Position Year Ended Securities
--------------------------- August 31, Salary Bonus Other Annual Underlying
---------- ------ ----- Compensation Options
------------ -------
<S> <C> <C> <C> <C> <C>
Peter Rona, President and Chief 1997 US$119,103 US$34,030 $ -0- 25,000
Executive Officer 1996 115,090 10,961 3,483 37,500
1995 111,674 11,167 -0- 75,000
</TABLE>
During the three year period ended August 31, 1994, the Company did not
grant any restricted stock awards or stock appreciation rights, nor did the
Company have any long-term incentive plan. Additionally, all of the Company's
group life, health, hospitalization, medical reimbursement or relocation plans,
if any, do not discriminate in scope, terms or operation, in favor of the Named
Executive Officers and are generally available to all salaried employees.
Further, no Named Executive Officer received, in any of the periods specified in
the Summary Compensation Table, perquisites and other personal benefits,
securities or property in an aggregate amount in excess of the lesser of $50,000
or 10% of the total salary and bonus reported for the Named Executive Officer in
the fiscal year in which such benefits were received, and no single type of
perquisite or other personal benefits exceeded 25% of the total perquisites and
other benefits reported for the Named Executive Officer in the applicable fiscal
year.
32
<PAGE>
Option Grants Table
The following table sets forth (a) the number of shares underlying options
granted to each Named Executive Officer during the 1997 Fiscal Year, (b) the
percentage the grant represents of the total number of options granted to all
Company employees during the 1997 Fiscal Year, (c) the per share exercise price
of each option, (d) the expiration date of each option, and (e) the potential
realized value of each option based on: (i) the assumption of a five (5%)
percent annualized compounded appreciation of the market price of the Common
Stock from the date of the grant of the subject option to the end of the option
term, and (ii) the assumption of a ten (10%) percent annualized compounded
appreciation of the market price of the Common Stock from the date of the grant
of the subject option to the end of the option term.
<TABLE>
<CAPTION>
Potential Realized Value
at Assumed Rates of Stock
Price Appreciation for
Option Term
-------------------------
Name Number of Percentage of Exercise Expiration 5% 10%
- ---- Shares Total Options Price Date -- ---
Underlying Granted to ----- ----
Options Employees in
Granted Fiscal Year
------- -----------
<S> <C> <C> <C> <C> <C> <C>
Peter Rona 25,000 30% US$4.875 11/25/01 US$33,672 US$74,406
</TABLE>
Options Exercised and Remaining Outstanding
Set forth in the table below is information, with respect to each of the
Named Executive Officers, as to the (a) number of shares acquired during the
1997 Fiscal Year upon each exercise of options granted to such individuals, (b)
the aggregate value realized upon each such exercise (i.e., the difference
between the market value of the shares at exercise and their exercise price),
(iii) the total number of unexercised options held on August 31, 1997,
separately identified between those exercisable and those not exercisable, and
(iv) the aggregate value of in-the-money, unexercised options held on August 31,
1997, separately identified between those exercisable and those not exercisable.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at August 31, 1997 In-the-Money Options at
August 31, 1997
-------------------------- --------------------------
Name Shares Value Exercisable Unexercisable Exercisable Unexercisable
- ---- Acquired Realized ----------- ------------- ----------- -------------
on Exercise --------
-----------
<S> <C> <C> <C> <C> <C> <C>
Peter Rona -0- -0- 167,500 -0- US$162,600 -0-
</TABLE>
33
<PAGE>
Director's Remuneration
Each director not otherwise a full time employee of the Company is
eligible to receive Cdn$500 for each meeting of the Board of Directors or
committee thereof which they attend, along with the reimbursement of their
reasonable expenses incurred on the Company's behalf. The NetStar designees on
the Company's Board have declined such compensation in the 1997 Fiscal Year and
in previous fiscal years.
On April 7, 1997, the following directors were awarded five-year options
to purchase 1,500 shares of Common Stock each, at $3.875 per share: Daniel C.
Downs, Dale G. Smith and Adrian P. Towning.
Employment Contracts with Named Executive Officers
As of September 1, 1997, NTNIN extended by two years its employment
agreement (the "Rona Employment Agreement") with Peter Rona, its President and
Chief Executive Officer, originally dated as of September 1, 1994. Mr. Rona is
also the President, Chief Executive Officer, Chief Financial and Accounting
Officer and Chairman of the Board of Directors of the Company. NTNIN's
obligations under the Rona Employment Agreement have been guaranteed by the
Company. Mr. Rona does not receive any compensation from the Company other than
pursuant to the Rona Employment Agreement.
The Rona Employment Agreement provides for a base compensation of
Cdn$165,375 with annual increases to be subject to review by the Board of
Directors, but in no event less than the proportional increase in the Consumer
Price Index as published by Statistics Canada, plus a bonus equal to a
percentage of the annual base compensation paid to Mr. Rona determined by
reference to the excess of NTNIN's actual net income before taxes over specified
amounts set forth in the Rona Employment Agreement. The Rona Employment
Agreement further provides for the granting to Mr. Rona of stock options at the
discretion of the Board of Directors. The Board awarded Mr. Rona stock options
to purchase 25,000 shares of Common Stock as of November 26, 1996. In all other
respects, the basic provisions of the Rona Employment Agreement remains the
same.
Magic has entered into two separate Employment Agreements, each dated
October 1, 1996, with Douglas Connolly and Wendy Connolly. These Employment
Agreements each have two year terms commencing on September 1, 1997 and
terminating on August 31, 1999, and pursuant to which Mr. and Ms. Connolly shall
receive annual base salaries of Cdn$125,000 (US$90,025 at August 31, 1997) and
Cdn$70,000 (US$50,414), respectively, together with automotive expenses of
Cdn$12,000 (US$8,624) and Cdn$8,400 (US$6,050), respectively. There is a
provision in each Employment Agreement for a cost-of-living adjustment to their
base salaries for the second year of the term. In addition, under their
respective Employment Agreements, Mr. and Ms. Connolly shall each be entitled to
a bonus, not to exceed Cdn$50,000 (US$36,010) and Cdn$28,000 (US$20,166),
respectively (subject to a cost-of living adjustment for the second year
34
<PAGE>
of their respective terms), to be based upon the actual net income before taxes,
if any, of Magic during each year of the terms of the Employment Agreements. The
D. Connolly Employment Agreement further provides for Mr. Connolly to serve as
President and Chief Operating Officer of Magic during its term.
NTNIN has entered into an Employment Agreement, dated August 15, 1997,
with Don Pagnutti. This employment agreement has a two-year term, commencing on
September 15, 1997 and terminating on September 14, 1999, with a revolving term
to be reviewed annually at the anniversary of the commencement date. The
agreement provides for an initial base compensation of $Cdn137,500 with annual
reviews, together with automobile expenses of Cdn$9,000 plus a bonus equal to a
percentage of the annual base compensation paid to Mr. Pagnutti determined by
reference to the excess of NTNIN's actual net income before taxes over specified
amounts set forth in the agreement. This agreement further provides for the
granting to Mr. Pagnutti of stock options at the discretion of the Board of
Directors. This agreement also provides for Mr. Pagnutti to serve as Executive
Vice President and Chief Operating Officer of NTNIN during its term.
Neither the Company or NTNIN has any other employment agreement in effect
with any other executive employee.
Compensation Committee Interlocks and Insider Participation
The Company's Audit and Compensation Committee currently consists of James
Newell and Dale G. Smith. Neither Messrs. Newell or Smith are officers or
employees of the Company, and have not served in such capacities in the past. No
executive officer of the Company served as a director or member of the
compensation committee (or group performing similar functions) of another
entity, one of whose executive officers served on the Audit and Compensation
Committee or as a director of the Company.
Item 7. Certain Relationships and Related Transactions.
Set forth below is a description of certain transactions between the
Company and its directors, executive officers, beneficial owners of five percent
or more of the outstanding Common Stock, or member of the immediate family of
any of the foregoing persons, as well as certain business relationships between
the Company and its directors, which occurred or existed during the 1997 Fiscal
Year.
(a) During the 1997 Fiscal Year, both pursuant to the License
Agreement and otherwise, the Company paid Communications an aggregate
Cdn$1,757,922 (US$1,266,058) as commissions. Under the License Agreement,
the Company, through NTNIN, holds the exclusive license to market the
products and programs of Communications throughout Canada through December
31. 2015. Daniel C. Downs, a director of the Company, is a former
President, Chief Operating Officer of
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Communications.
(b) On October 2, 1996, pursuant to a Stock Purchase Agreement,
dated October 1, 1996 (the "Magic Lantern Purchase Agreement"), the
Company, through NTNIN, acquired all of the outstanding stock of Magic. As
consideration for the purchase of such stock the Company delivered
Cdn$200,000 (US$146,800 on October 1, 1996) and a Non-Negotiable
Promissory Note (the "Connolly-Daw Note") in the principal amount of
Cdn$703,133 (US$516,099) to Connolly-Daw Holdings Inc.("Connolly-Daw") and
a Non-Negotiable Promissory Note (the "1199846 Note") in the principal
amount of Cdn$546,867 (US$401,400) to 1199846 Ontario Ltd ("1199846"). The
Connolly Note requires principal payments of Cdn$78,133 (US$57,350),
Cdn$312,500 (US$229,375) and Cdn$312,500 (US$229,375) on August 31, 1998,
1999, and 2000, respectively. In lieu of such cash payments, the Company
has the option to tender payment to Connolly-Daw, and Connolly-Daw has the
option to demand payment, in the form of 12,276, 49,097 and 49,096 shares
of Common Stock (collectively, the "Connolly-Daw Shares"), respectively.
The 1199846 Note requires principal payments of Cdn$312,500 (US$229,375)
and Cdn$234,367 (US$172,025) on August 31, 1997 and 1998, respectively. In
lieu of such cash payments, the Company has the option to tender payment
to 1199846, and 1199846 has the option to demand payment, in the form of
49,097 and 36,821 shares of Common Stock (collectively, the "1199846
Shares"), respectively. Also pursuant to the Magic Lantern Purchase
Agreement, Connolly- Daw, NTNIN and the Company entered into an Option
Agreement, dated October 1, 1996, and 1199846, NTNIN and the Company
entered into an Option Agreement, dated October 1, 1996 (together, the
"Option Agreements"). Under the terms of the Option Agreements, in the
event that either Magic or Mr. Connolly choose not to extend the term of
the D. Connolly Employment Agreement beyond its initial term expiring on
August 31, 1999, on or after September 1, 1999 and on or before September
30, 1999, Connolly-Daw and 1199846 shall each have the right to cause the
Company to purchase any of the Connolly-Daw Shares or 1199846 Shares, as
the case may be, then held by Connolly-Daw or 1199846 at a price equal to
90% of the market value (as defined in the Option Agreements) of such
shares (Connolly-Daw having been granted the right in this event to cause
acceleration of the September 1, 2000 payment under the Connolly-Daw Note
to August 31, 1999) and the Company shall have the right to cause the
Connolly-Daw and 1199846 to sell to the Company any of the Connolly-Daw
Shares or 1199846 Shares, as the case may be, then held by Connolly-Daw or
1199846 at a price equal to 110% of the market value (as defined in the
Option Agreements) of such shares (Connolly-Daw having been granted the
right in this event to cause acceleration of the September 1, 2000 payment
under the Connolly-Daw Note to August 31, 1999). Douglas Connolly, a
director of the Company and President of Magic, is the President and a
principal shareholder of both Connolly-Daw and 1199846.
On September 5, 1997, the Company issued 38,158 shares of the Common
Stock of the Company and Cdn$65,000 to 1199846 in lieu of the August 31,
1997 payment pursuant to the 1199846 Note.
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(c) At the time of the Company's acquisition of Magic, Connolly-Daw
was indebted to Magic in the amount of Cdn$160,000 (US$117,440 on October
1, 1996). This indebtedness is represented by a Promissory Note, dated
October 1, 1996 (the "Magic Lantern Note"), in the principal amount of
such indebtedness. The Magic Lantern Note is due on demand and bears
interest, at a specified bank prime rate, payable monthly.
(d) The Company purchased 51% of the outstanding shares of Interlynx
Multimedia, Inc. effective September 1, 1997. Cross reference is made
hereby to Item 1, page 15, in this Form 10 for further information on
Interlynx Multimedia, Inc.
Item 8. Legal Proceedings.
Set forth below is a description of material pending litigation to which
the Company is a party.
(a) On June 12, 1992, the Company, together with Communications and
NTNIN, commenced a lawsuit against Interactive Network, Inc.
("Interactive") and its president, David Lockton, in the Federal Court of
Canada, Trial Division, in Montreal, Quebec, under the title NTN
Communications, Inc., NTN Sports, Inc. and NTN Canada, Inc. v. David
Lockton and Interactive Network, Inc. (the "Company Action").
The Company Action seeks a declaration of non-infringement with
respect to Canadian Patent No. 1,274,903 held by Interactive (the
"Interactive Patent") and to establish that the Company, Communications
and NTNIN have properly done business in Canada since the fall of 1986.
The basis for the Company's claim in the Company Action is that the
systems used by the Company to produce interactive programming are not
within the scope of the claims of the Interactive Patent. The Company
thereafter amended its complaint to include a claim of invalidity of the
Interactive Patent based upon untrue and materially misleading claims made
by Interactive in its petition for the Interactive Patent. Except for the
aforementioned pleadings, no proceedings or discovery have been undertaken
in the Company Action.
(b) Subsequent to the commencement of the Company Action, and on
June 18, 1992, Interactive commenced a lawsuit against the Company,
Communications and NTNIN in the Federal Court of Canada, Trial Division,
Montreal, Quebec, under the titled Interactive Network, Inc. v. NTN
Communications, Inc., NTN Sports, Inc. and NTN Canada, Inc. (the
"Interactive Action"). The Interactive Action alleges that Interactive
granted Communications the right to use the Interactive Patent, which
right Communications then improperly licensed to the Company and NTNIN.
Interactive alleges that the license agreement between Communications and
the Company and NTNIN infringes upon the Interactive Patent. The
Interactive Action seeks a declaration
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of the validity of the Interactive Patent, an injunction restraining the
Company from further infringement, and either damages (in an unspecified
amount) or an accounting of profits derived from certain games used in
Canada. Except for the aforementioned pleadings, no proceedings or
discovery have been undertaken in the Interactive Actions.
Management believes that the licenses granted to the Company by
Communications are valid and that the patent infringement claims underlying the
Interactive Action will ultimately be proven to be unfounded. The Company
intends to vigorously defend its position in the Interactive Action and to
prosecute its position in the Company Action; however, there can be no assurance
that any or all of these actions will be decided in favor of the Company. The
Company believes, based in part upon the advice of outside, independent counsel,
that the costs of defending and prosecuting these actions will not have a
material adverse effect upon the Company's financial position.
In its Quarterly Report on Form 10-Q, for the quarter ended September 30,
1996, Communications stated that "[w]ith the courts [sic] assistance,
[Communications] and [Interactive] have been able to reach a resolution of all
pending disputes in the United States and have agreed to private arbitration
regarding any future licensing, copyright or infringement issues which may arise
between the parties." The disputes referred to in the Communications Form 10-Q
involved litigation in the United States involving allegations similar to the
allegations underlying the Company Action and Interactive Action. In the
Communication Form 10-Q, Communications also noted that "no substantive action
has been taken in the furtherance of" the Company Action or Interactive Action.
The Company and its property are not a party or subject to any other
material pending legal proceedings, other than ordinary routine litigation
incidental to its business.
To the knowledge of the Company no proceedings of a material nature have
been or are contemplated against the Company.
Item 9. Market Price for the Registrant's Common Equity and Related Stockholder
Matters.
Market Information
The common stock of the Company, par value $.0467 per share (the "Common
Stock"), is traded in the over-the-counter market and is quoted on the Nasdaq
SmallCap Market ("Nasdaq"), under the symbol "NTNC." Set forth below is the
range of high and low bid prices for shares of Common Stock for each full
quarterly period within the Company's two most recent fiscal years, as derived
from reports furnished by the National Association of Securities Dealers, Inc.,
as adjusted to give retroactive effect to the Company's three-for-two (3:2)
stock split made effective August 15, 1996. The information reflects
inter-dealer prices, without retail mark-ups, mark-downs or commissions and may
not necessarily represent actual transactions.
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Bid Prices
--------------------------------
Quarters Ended High Low
- -------------- ---- ---
November 30, 1995............................... US$4-5/12 US$3-1/4
February 29, 1996............................... 5-1/12 3-1/12
May 31, 1996.................................... 6-1/2 4-7/12
August 31, 1996................................. 7-1/8 4-1/4
November 30, 1996............................... 8 4-7/8
February 29, 1997............................... 5-1/4 3-7/8
May 31, 1997.................................... 4-5/8 2-7/8
August 31, 1997................................. 6-5/8 3-7/16
Holders
As of the close of business on August 31, 1997 there were 379 holders of
record of Common Stock. The Company believes that there are approximately 600
beneficial holders of Common Stock.
Dividends
Since its inception in 1987, the Company has not paid any cash dividends
on its Common Stock. However, the Company has, in the past, declared certain
stock dividends and stock splits. The Company intends to retain earnings, if
any, to finance operations and, therefore, does not expect to declare or pay any
cash dividends on the Common Stock in the foreseeable future.
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Item 10. Recent Sales of Unregistered Securities.
The following sets forth certain information with respect to all
unregistered sales of the Common Stock, $.0467 par value, issued by the Company
during the 3 years preceding the date of filing of this registration statement.
Aggregate Price
Date of Stock No. of Purchase Per
Name of Transferee Transfer Shares Price Share
- ------------------ -------- ------ ----- -----
1199846 Ontario, Ltd. (1) 09/04/97 38,158 $312,500 $8.19
Karen L. Anderson &
Gary A. Woodill (2) 09/08/97 55,209 n/a n/a
Joan Dwyer (3) 09/08/97 250 $1,312.50 $5.25
(1) Pursuant to a Non-Negotiable Promissory Note dated October 1, 1996
between the Company and 1199846 Ontario, Ltd., ("1199846") the Company, in lieu
of cash payment totaling $546,867.00, issued 38,158 shares of the Company's
Common Stock to 1199846 on September 4, 1997. Furthermore, either the Company or
1199846 can elect to issue to 1199846 36,821 shares of Common Stock on August
31, 1998 in lieu of a cash payment of $234,367.
(2) As of September 8, 1997, the Company bought 51% of the outstanding
shares of Interlynx Multimedia. The consideration for the sale includes, in
addition to a cash payment, 55,209 shares of the Company's common stock, which
were issued to Karen L. Anderson and Gary A. Woodill, as joint tenants with
rights of survivorship.
(3) Issued pursuant to options granted pursuant to the Company's Long Term
Incentive Plan. Reference is made hereby to the Company's Form 10-K for the
fiscal year ended August 31, 1997, Item 14, Location F-1 "Report of Independent
Auditors" for a description of the Company's Long Term Incentive Plan.
These shares were issued without registration under the Securities Act of
1933, as amended, and exemption for such sales from registration under that Act
is claimed in reliance upon the exemption provided under Section 4(2) thereof on
the basis that such sales were transactions not involving any public offering or
an equivalent exemption under the Act. Appropriate precautions against transfer
were taken.
Item 11. Description of Registrant's Securities to be Registered.
The Company is registering the following shares of Common Stock of the
Company:
A. 93,367 shares of Common Stock issued pursuant to an exemption under the
Securities Act of 1933. Reference is made hereby to Item 10 "Recent Sales of
Unregistered Securities" for a
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description of the owners of such shares.
B. 925,787 shares of Common Stock held of record by NetStar Enterprises,
Inc. (formerly Labatt Communications, Inc.) granted pursuant to a Stock Purchase
Agreement dated as of October 4, 1994. Messrs. James R. Newell and James
Thompson, directors of the Company, are Senior Vice President of Finance and
Chief Financial Officer, and President and Chief Operating Officer, of NetStar,
respectively.
C. 192,857 shares of Common Stock issuable upon conversion of 900,000
shares of Convertible Preferred Stock held of record by Anor Management, Ltd.,
which is in turn wholly owned by Peter Rona, the Company's president.
D. 363,250 shares of Common Stock issuable pursuant to the Company's Long
Term Incentive Plan, of which 250 shares of Common Stock have been redeemed
pursuant to the Plan. Reference is made hereby to the Company's Form 10-K for
the fiscal year ended August 31, 1997, Item 14, Location F-1 "Report of
Independent Auditors" for a description of the Company's Long Term Incentive
Plan.
Description of Common Stock
The Company's Articles of Incorporation authorize the issuance of
20,000,000 shares of Common Stock, par value of US$0.0467 per share. As of
August 31, 1997, the Company had 2,441,617 shares of Common Stock issued and
outstanding, held of record by approximately 600 beneficial holders of Common
Stock. The holders of Common Stock are entitled to one vote for each share held.
The affirmative vote of a majority of common shares is sufficient to effect any
corporate action upon which shareholders may or must vote, except as otherwise
provided by law. Common Shares do not carry cumulative voting rights, thus
holders of more than 50% of the Common Stock have the power to effect any
corporate action as provided by the Certificate of Incorporation, the Company's
bylaws or as otherwise provide by law. Holders of Common Stock are not entitled
to preemptive rights, and the Common Stock is not subject to redemption.
A special meeting of shareholders may be called by the Board of Directors
or by the President or Secretary at the written request of the holders of 50% of
the shares then outstanding and entitled to vote thereat, or as otherwise
required under the provisions of the New York Business Corporation law. Holders
of Common Stock are entitled to receive, pro rata, dividends when and as
declared by the Board of Directors out of funds legally available therefor. Upon
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in the Company's assets legally available for
distribution to its shareholders after payment or liquidation preference and
outstanding redemption rights (if any) on any Preferred Stock outstanding and
are not subject to further calls or assessments.
Description of Preferred Stock
The Company is authorized by its Certificate of Incorporation to issue a
maximum of 1,500,000 shares of Preferred Stock, in one or more series and
containing such rights, privileges and
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limitations, including conversion privileges and/or redemption rights, as may,
from time to time be determined by the Board of Directors of the Company.
Holders of Preferred Stock are entitled to 3 votes for every 14 shares of
Preferred Stock held of record. The effect of such Preferred Stock is that the
Company's Board of Directors alone, within the bounds and subject to the federal
securities laws and New York law, may be able to authorize the issuance of
Preferred Stock which could have the effect of delaying, deferring or preventing
a change in control of the Company without further action by the stockholders
and may adversely affect the rights of holders of Common Stock. Holder of
Preferred Stock are not entitled to preemptive rights, and the Preferred Stock
is not subject to redemption.
Item 13. Financial Statements and Supplementary Data.
Reference is hereby made to Item 8 Financial Statements and Supplementary
Data on page 32 of the Annual Report Form 10-K for the fiscal year ended August
31, 1997 (commission file number 0-18066), for information with respect to
financial conditions for the fiscal year ended August 31, 1997.
Item 15. Financial Statements and Exhibits.
Reference is hereby made to Item 14 Exhibits, Financial Statement
Schedules and Reports on Form 8-K page 43 of the Annual Report Form 10-K for the
fiscal year ended August 31, 1997 (commission file number 0-18066), for the
Company's financial statements and certain exhibits.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
NTN Canada, Inc.
(Registrant)
Date: September , 1997 By: /s/ Peter Rona
--------------------------------
Peter Rona, President
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