SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of the earliest event reported): October 2, 1996
NTN CANADA, INC.
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(Exact name of registrant as specified in its charter)
New York 0-18066 11-2805051
- ---------------------------- ----------- -------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
14 Meteor Drive
Etobicoke, Ontario M9W 1A4
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (416) 675-6666
Item 2. Acquisition or Disposition of Assets.
On October 2, 1996, NTN Canada, Inc. (the "Registrant"),
through its wholly-owned subsidiary NTN Interactive Network Inc.
("Interactive"), acquired, effective as of October 1, 1996, all of the
outstanding capital stock of Magic Lantern Communications Ltd., a Canadian
corporation ("Magic Lantern"), pursuant to a Share Purchase Agreement, dated
October 1, 1996 (the "Agreement"), among Interactive, Connolly-Daw Holdings Inc.
("Connolly-Daw"), 1199846 Ontario Ltd. ("1199846") and Douglas Connolly and
Wendy Connolly (jointly, the "Connollys"), a copy of the Agreement being annexed
hereto as Exhibit "10.1", and is incorporated herein by reference thereto. The
aggregate purchase price was $1,450,000 (Canadian), $200,000 (Canadian) of which
was paid in cash to Connolly-Daw. The balance of the aggregate purchase price
was satisfied by the delivery of a Non-Negotiable Promissory Note (the
"Connolly-Daw Note") in the principal amount of $703,133 (Canadian) and payable
to Connolly-Daw, and a Non-Negotiable Promissory Note (the "1199846 Note" and,
together with the Connolly-Daw Note, the "Notes") in the amount of $546,867 and
payable to 1199846. Copies of the Connolly-Daw Note and 1199846 Note are annexed
hereto as Exhibits "10.2" and "10.3", respectively, and are incorporated herein
by reference thereto.
Under the terms of the Notes, Interactive has the right (the
"Share Payment Option") to deliver to Connolly-Daw and 1199846 (the "Vendors"),
respectively, in lieu of payment of the principal amounts of the Notes, such
shares of the common stock, par value $.0467 per share (the "Common Stock") of
the Registrant, in accordance with a specified schedule therein. Pursuant to the
provisions of the Notes, Interactive, the Registrant and Connolly-Daw have
entered into an option agreement (the "Connolly-Daw Option Agreement"), a copy
of which is annexed hereto as Exhibit "10.4" and is incorporated herein by
reference thereto, and Interactive, the Registrant and 1199846 have entered into
an option agreement (the "1199846 Option Agreement"), a copy of which is annexed
hereto as Exhibit "10.5" and is incorporated herein by reference thereto,
pursuant to which the Registrant, at each of the Vendors' option, shall be
obligated to purchase from the Vendors (the "Put Option"), and each of the
Vendors, at the Registrant's option, shall be obligated to sell to the
Registrant (the "Call Option"), a specified number of shares of Common Stock at
a price (i) equal to 90% of the average closing price of Registrant's Common
Stock during the 20-day period ending on the business day preceding the exercise
of such Put Option, and (ii) equal to 110% of the average closing price of
Registrant's Common Stock for the 20-day period ending on the business day
preceding the exercise of such Call Option. In addition, the Vendors have the
right to require Interactive to deliver shares of Common Stock in lieu of
payment of the amounts due pursuant to the Notes. The Registrant has guaranteed
the delivery of the aforesaid shares to either, or both, of Connolly-Daw and
1199846 if such election is made.
Pursuant to a Registration Rights Agreement, dated October 1,
1996 (the "Registration Rights Agreement"), a copy of which is annexed hereto as
Exhibit "10.6" and is incorporated herein by reference thereto, the Registrant
has granted certain registration rights under the Securities Act of 1933 with
respect to the shares issuable upon exercise of the Put Option, Call Option or
Share Payment Option.
- 2 -
In addition, pursuant to a Share Purchase Agreement, dated
October 1, 1996, Interactive acquired 1,000 Class A special shares of Magic
Lantern owned by Telesat Canada for $250,000 (Canadian). A copy of this
agreement is annexed hereto as Exhibit "10.7", and is incorporated herein by
reference thereto.
The following schedules to the Agreement are not annexed
hereto, but the Registrant, upon request, shall provide a copy of any omitted
schedule:
Schedule "A" - Financial Statements
Schedule "B" - Particulars of Purchased Shares; Information re:
Authorized and Issued Capital
Schedule "C" - List of Subsidiaries and Share Capital Thereof
Schedule "D" - Undisclosed Liabilities
Schedule "E" - Liens, Charges and Encumbrances
Schedule "F" - Equipment and Other Personal Property Leases
Schedule "G" - Real Property Leases
Schedule "H" - Legal Descriptions of Real Property Owned
Schedule "I" - Standard Form Distribution Rights Agreement
Schedule "J" - Employment Contracts, Directors, Officers, Employees and
Independent Contractors
Schedule "K" - Other Material Contracts
Schedule "L" - Litigation
Schedule "M" - Description of Insurance Policies
Schedule "N" - Bank Accounts
Schedule "O" - Intellectual and Industrial Property
Schedule "P" - Vehicular Equipment Owned or Leased
Schedule "Q" - Addresses of Company and Subsidiaries
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Item 7. Financial Statements and Exhibits.
(a) The following financial statements and supplementary
financial information are filed as part of this Annual Report on Form 10-K:
Financial Documents Location
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1. Financial Statements of Magic Lantern Communications Ltd.
Report of Independent Chartered Accountants............................................... 6
Consolidated Balance Sheets............................................................... 7
Consolidated Statement of Income.......................................................... 9
Consolidated Statement of Deficit......................................................... 10
Consolidated Statement of Changes in Financial Position................................... 11
Notes to Consolidated Financial Statements................................................ 12
2. Pro Forma Condensed Consolidated Financial Statements
Introductory Comment...................................................................... 22
Pro Forma Condensed Consolidated Balance Sheets........................................... 23
Pro Forma Condensed Statement of Operations............................................... 24
Notes to Pro Forma Condensed Financial Statements......................................... 25
(b) Set forth below is a list of the Exhibits applicable to
this Current Report on Form 8-K, numbered in accordance with Item 601 of
Regulation S-K.
10.1 Share Purchase Agreement, dated the 1st day of October, 1996, by and
between Connolly-Daw Holdings Inc., 1199846 Ontario Ltd., Douglas
Connolly and Wendy Connolly and NTN Interactive Network Inc.+
10.2 Non-Negotiable Promissory Note, dated October 1, 1996, by and between NTN
Interactive Network Inc., as Debtor, and Connolly-Daw Holdings Inc., as
Creditor.+
10.3 Non-Negotiable Promissory Note, dated October 1, 1996, by and between NTN
Interactive Network Inc., as Debtor, and 1199846 Ontario Ltd., as
Creditor.+
10.4 Registration Rights Agreement, dated October 1, 1996, by and between NTN
Canada, Inc., Connolly-Daw Holdings Inc. and 1199846 Ontario Ltd.+
10.5 Option Agreement, dated the 1st day of October , 1996, by and between
Connolly-Daw Holdings Inc., NTN Interactive Network Inc. and NTN Canada,
Inc.+
10.6 Option Agreement, dated the 1st day of October, 1996, by and between
1199846 Ontario Ltd., NTN Interactive Network Inc. and NTN Canada, Inc.+
10.7 Share Purchase Agreement, dated the 1st day of October, 1996 by and
between NTN
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Interactive Network Inc. and Telesat Canada.+
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+ Previously filed as exhibits to the original Current Report on Form 8-K
(Date of Report: October 2, 1996) of the Registrant (Commission File
Number: 0-18066), filed October 17, 1996.
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A U D I T O R S ' R E P O R T
To the Shareholders of
Magic Lantern Communications Ltd.
We have audited the consolidated balance sheet of Magic Lantern Communications
Ltd. as at August 31, 1996 and the statements of income and deficit and changes
in financial position for the eleven month period then ended. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, except for the fact that comparative figures have not been
presented, as outlined in Note 16, these consolidated financial statements
present fairly, in all material respects, the financial position of the company
as at August 31, 1996 and the results of its operations and the changes in its
financial position for the eleven month period then ended in accordance with
generally accepted accounting principles.
HARENDORF, LEBANE, MOSS
December 6th, 1996 Chartered Accountants
Toronto, Canada
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MAGIC LANTERN COMMUNICATIONS LTD.
(Incorporated under the laws of Canada)
CONSOLIDATED BALANCE SHEET
AS AT AUGUST 31, 1996
A S S E T S
Current
Cash in bank and term deposits $ 527,361
Accounts receivable 667,670
Cash surrender value of life insurance
policies (Note 2) 187,389
Grant receivable 48,135
Inventory 137,116
Income taxes recoverable 25,275
Producer advances 25,000
Sundry assets and prepaid expenses 155,374 $ 1,773,320
-------
Long-term
Loans receivable, related companies (Note 3) 161,268
Producer advances 54,444
Accounts receivable 26,274 241,986
-------
Capital (Note 4) 1,595,756
Deferred start-up costs 35,936
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$ 3,646,998
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MAGIC LANTERN COMMUNICATIONS LTD.
(Incorporated under the laws of Canada)
CONSOLIDATED BALANCE SHEET
AS AT AUGUST 31, 1996
L I A B I L I T I E S
Current
Bank indebtedness (Note 5) $ 754,628
Accounts payable and accrued liabilities 934,462
Current portion of long-term debt 280,316 $ 1,969,406
--------
Long-term debt (Note 6)
Debenture 656,907
Loans payable 1,809,178
Lien notes payable 132,936
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2,599,021
Less current portion 280,316 2,318,705
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Deferred income taxes 38,404
Minority interest (85,055)
S H A R E H O L D E R S ' D E F I C I E N C Y
Capital stock (Note 7) 33,418
Deficit (627,880) (594,462)
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$ 3,646,998
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See accompanying notes.
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MAGIC LANTERN COMMUNICATIONS LTD.
CONSOLIDATED STATEMENT OF INCOME
ELEVEN MONTH PERIOD ENDED AUGUST 31, 1996
Sales $ 2,656,365
Cost of sales 1,038,267
---------
Gross profit 1,618,098
Operating expenses $ 1,822,666
Amortization of capital assets 197,353 2,020,019
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Operating loss (401,921)
Other expenses
Interest expense, net 96,191
Loan to related company 66,257
Amortization of start-up costs 30,407 192,855
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Loss before taxes and minority interest (594,776)
Income taxes recoverable 69,912
---------
Loss before minority interest (524,864)
Minority interest share of loss (81,438)
---------
Net loss $ (443,426)
---------
See accompanying notes.
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MAGIC LANTERN COMMUNICATIONS LTD.
CONSOLIDATED STATEMENT OF DEFICIT
ELEVEN MONTH PERIOD ENDED AUGUST 31, 1996
Deficit, beginning of period $ (233)
Adjustment arising on amalgamation of
subsidiary company (9,221)
Prior period adjustment (Note 14) (175,000)
Net loss for the period (443,426)
----------
Deficit, end of period $ (627,880)
----------
See accompanying notes.
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MAGIC LANTERN COMMUNICATIONS LTD.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
ELEVEN MONTH PERIOD ENDED AUGUST 31, 1996
Operating activities
Net loss $ (443,426)
Items not involving cash
Amortization of capital assets 197,353
Amortization of start-up costs 30,407
Deferred income taxes (787)
Minority interest (81,438)
----------
(297,891)
Prior period adjustment (175,000)
Net changes in non-cash working
capital balances 149,659 $ (323,232)
----------
Financing activities
Increase in bank indebtedness 284,846
Increase in long-term debt 333,227
Issuance of capital stock 10 618,083
---------
Investing activities
Long-term accounts receivable 26,274
Increase in loans receivable 93,453
Capital asset additions 359,832
Decrease in producer advances (38,731) 440,828
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Decrease in cash in bank (145,977)
Cash in bank and term deposits, beginning of period 673,338
---------
Cash in bank and term deposits, end of period $ 527,361
---------
See accompanying notes.
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MAGIC LANTERN COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
1. Summary of significant accounting policies
(a) Principles of consolidation
The consolidated financial statements include the accounts of
Magic Lantern Communications Ltd. together with the following
subsidiaries:
i) 79.9% interest in 745695 Ontario Limited together
with its wholly-owned subsidiary B.C. Learning
Connection Inc., and
ii) 75% interest in Sonoptic Technologies Inc.
(b) Revenue Recognition
Income from the sale of rights is recognized at the time the
rights are initially made available to the customer. Revenue
from the sale of products is recognized at the time goods are
shipped to the customer or, in certain circumstances, at the
time they are available for shipment to customers.
(c) Inventory
Inventory is valued at the lower of cost and net realizable
value. Cost is determined generally on a first-in, first-out
basis.
(d) Producer advances
The company maintains separate individual accounts in respect
of advances to each producer. Royalties payable by the
company on sales of these products are initially offset
against each such account to recover these advances and
costs.
(e) Capital assets and amortization
These assets are stated at cost. Amortization is recorded on
the following annual rates:
Buildings 4% diminishing balance
Masters and libraries 30% diminishing balance
Equipment and furniture 20% diminishing balance
Computer equipment 30% diminishing balance
Automobile 30% diminishing balance
Leasehold improvements 20% straight line
(f) Deferred start-up costs
The initial start-up costs of B.C. Learning Connection Inc.
were capitalized and are being amortized over a three year
period on a straight line basis, commencing October 1, 1994.
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MAGIC LANTERN COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.)
AUGUST 31, 1996
2. Cash surrender value of life insurance policies
Policies totalling $168,000. were redeemed in October, 1996 and the
related loans (Note 6(b)(iii)) repaid.
3. Loans receivable, related companies
Parent company - Connolly-Daw Holdings Inc. $ 139,890
Other 21,378
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$ 161,268
--------
These loans are unsecured, non-interest bearing and payable on demand.
The company has no intention of calling for payment of any material
amount during the next twelve months. Accordingly, these loans are
classified as non-current assets in the financial statements.
4. Capital assets
Accumulated
Cost Amortization Net
------------ ------------ ------------
Land $ 282,000 $ - $ 282,000
Buildings 824,112 167,271 656,841
Masters and libraries 724,157 548,815 175,342
Equipment and furniture 565,495 375,500 189,995
Computer equipment 427,554 160,349 267,205
Automobile 24,056 13,897 10,159
Leasehold improvements 50,389 36,175 14,214
----------- ----------- -----------
$ 2,897,763 $ 1,302,007 $ 1,595,756
----------- ----------- -----------
Capital assets include leased assets with a net book value at August
31, 1996 of $ 135,000.
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MAGIC LANTERN COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.)
AUGUST 31, 1996
5. Bank indebtedness
The bank indebtedness, including the amount included as long-term debt
(Note 6(a)) is secured by a fixed debenture in an amount of
$1,000,000., hypothecated to the company's land and buildings, and
general security agreements covering all of the company's assets not
otherwise encumbered. In addition, a priority agreement and
subordination agreement has been entered into with the company's
principal bank, Royal Bank of Canada and Business Development Bank of
Canada respectively (see Note 6(b)(i)).
As at August 31, 1996, the company was in breach of certain covenants
provided to its bank. The bank has indicated its willingness to
tolerate the principal breach pending completion of the sale of the
company by its shareholders and consequent refinancing (see Note 11)
while at the same time reserving all of its rights and remedies in the
event of default.
6. Long-term debt
(a) Debenture, - Royal Bank of Canada - $ 656,907.
This loan, due on demand, bears interest at the prime rate of
the company's bank plus 1 1/2%, payable monthly and is
repayable in monthly principal amounts of $ 1,500. plus
interest. The security for the debt is outlined in Note 5.
and was initially established to acquire the company's land
and buildings.
(b) Loans payable
i) Term loan - Business Development Bank of Canada -
$192,000. This loan bears interest at 9 3/4%
payable monthly and is repayable in monthly
principal amounts of $ 4,000. The interest rate is
fixed until March, 2000.
The loan is secured by a charge over the assets of
the company. It is subject to priority and
subordination agreements between the company,
Business Development Bank of Canada and Royal Bank
of Canada (See Note 5).
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MAGIC LANTERN COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.)
AUGUST 31, 1996
6. Long-term debt (Cont'd.)
(b) Loans payable (Cont'd.)
ii) Shareholders - $ 241,000.
An amount of $ 212,000. bears interest at 11.39% per
annum and is repayable in monthly principal amounts of
$ 2,000. plus interest. The loan has been subordinated
in favour of the amounts due by the company to its
bankers. The remaining amounts totalling $ 29,000. bear
varying rates of interest.
During October and November, 1996 all of these loans
were repaid from the proceeds of advances by the new
parent company (Note 11), these subsequent advances
being equivalent to long-term debt. In the
circumstances, the above loans are still included as
long-term debt.
iii) Life insurance company - $ 125,168.
These loans (three) bear interest at fluctuating rates
and were repaid from the proceeds of the policies which
were cashed in October, 1996.
iv) NTN Interactive Network Inc. - $ 350,000.
This loan bears interest at prime bank rate plus 2%,
payable quarterly, and is due for repayment 30 days
after demand is made by the lender.
As security for the indebtedness, a general security has
been registered over the assets of the company.
The lender has indicated that it is unlikely that any
repayments of principal will be called for over the next
twelve months. Accordingly, this loan is classified as
long-term.
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MAGIC LANTERN COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.)
AUGUST 31, 1996
6. Long-term debt (Cont'd.)
(b) Loans payable (Cont'd.)
Provincial Holdings Ltd. ("PHL") - $ 750,000
In June, 1995, PHL advanced to Sonoptic Technologies
Inc. $ 750,000. This loan is secured by a demand
promissory note signed by Sonoptic Technologies Inc.
and bears interest at 6% per annum, compounded
annually, commencing October, 1995.
The loan is subject to a loan agreement dated March
15, 1995 which, inter alia, provides for repayment in
full of principal plus interest at the earlier of:
a) the commencement of redemption of shares
pursuant to a redemption agreement (see Note
8.(c)) or;
b) September 30, 2002 subject to any extension
agreed to, or;
c) any breach of the company's obligations
under the loan agreement or any other
agreement with PHL.
Province of New Brunswick ("PNB") - $ 100,000
In June, 1995, PNB advanced to Sonoptic
Technologies Inc. $ 100,000.. The loan is subject
to a loan agreement dated May 25, 1995 and is
secured by a demand promissory note which bears
interest at 9 7/10% per annum, calculated half
yearly, not in advance. Subject to a forgiveness
agreement (see below), the principal plus
interest is repayable at the earlier of:
a) January 31, 1998 or earlier at the option of
the company or;
b) Any breach of the company's obligations
under the loan agreement.
A forgiveness agreement dated May 24, 1995 provides
that the principal plus interest may be forgiven in
part or in whole, the amount dependant upon the
company's number of full time employees during
calendar year 1997. No amounts are included as
forgiven in these financial statements and no
interest has been accrued on the advance as it is
likely that any forgiveness will exceed interest to
be paid.
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MAGIC LANTERN COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.)
AUGUST 31, 1996
6. Long-term debt (Cont'd.)
(b) Loans payable - other (Cont'd.)
vii) Atlantic Canada Opportunities Agency (ACOA) - $ 51,010.
This loan, advanced to Sonoptic Technologies Inc.
in April, 1996, is interest free and is repayable
in fifteen equal quarterly instalments commencing
April, 2000.
During the period and at the period end, the company was in
breach of certain conditions attaching to the loans in (v),
(vi) and (vii) above. Certain breaches were rectified prior
to August 31, 1996. As at the date of issue of these
financial statements, no action has been taken by the
lenders.
(c) Lien notes payable
These notes are secured by a charge against the automobile
and certain equipment and are repayable in monthly blended
payments of principal and interest. Approximate annual
principal payments required pursuant to these obligations are
as follows:
Year ended August 31
1997 $ 78,123
1998 36,301
1999 22,208
2000 22,477
---------
159,109
Less deferred interest 26,173
---------
Balance of the obligation $ 132,936
---------
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MAGIC LANTERN COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.)
AUGUST 31, 1996
7. Capital stock
Authorized:
Unlimited Non-voting, non-cumulative,
non-participating, redeemable
floating rate Class "A" special
shares
Unlimited Voting non-cumulative, non-
participating, redeemable,
retractable, floating rate Class
"B" special shares
Unlimited Common shares
Issued:
33,363 Common shares $ 33,408
1,000 Class "A" special shares 10
--------
$ 33,418
========
The Class "A" special shares, having a stated and paid-up capital of $
0.01 each were issued to Telesat Canada in October, 1995 as
consideration for the acquisition of the then 35% minority interest in
the company's subsidiary - Canadian Satellite Learning Services Inc.
("CSLS'). Under an agreement dated October 13, 1995 between the company
and Telestat Canada, the Class "A" special shares were given certain
dividend and redemption rights. These Class "A" shares were
subsequently acquired by NTN (See Note 11) along with 100% of the
common shares at which time the agreement dated October 13, 1995 lapsed
along with the dividend and redemption rights referred to.
CSLS was amalgamated with the company on April 1, 1996.
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MAGIC LANTERN COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.)
AUGUST 31, 1996
8. Commitments
(a) Future office equipment rentals are estimated as follows:
Year ended August 31,
1997 $ 27,000
1998 27,000
1999 17,000
(b) Future annual rents payable under premises leases are estimated as
follows:
Year ended August 31,
1997 $ 44,000
1998 38,000
1999 35,000
2000 26,000
(c) Redemption of shares of subsidiary
Sonoptic Technologies Inc. ("STI"), a subsidiary, has entered
into a redemption agreement dated March 15, 1995 with its
minority shareholder (25 common shares held), Provincial
Holdings Ltd. ("PHL").
Shares held by PHL may be redeemed by STI in minimum numbers
of five after December 31, 1997 provided STI has repaid all
indebtedness to PHL and Province of New Brunswick ("PNB")
(Notes 6.(b)(v) and (vi)), or the PNB indebtedness has been
forgiven, and must be redeemed in full on or before September
20, 2002
The redemption price is calculated at the higher of:
a) the purchase price per share (.04(cent)), or;
b) the purchase price per share plus the increase per share
in retained earnings of the corporation to the date of
redemption, calculated as follows:
i) by adding back to the retained earnings the pro
rata share applicable to the number of shares
being redeemed, of all interest paid or accrued
on the loan by PHL to the corporation in the
amount of $ 750,000.
ii) deducting therefrom the interest actually paid,
pro rata to the number of shares being redeemed.
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MAGIC LANTERN COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.)
AUGUST 31, 1996
9. Related party transactions
Transactions with related parties during the period are as follows:
- Management and consulting fees paid
- To parent company $ 192,000
-------
- Other $ 7,500
---------
- Interest paid on advances by shareholders $ 26,000
---------
10. Contingent liability
By way of a shareholders' agreement, the company may be required, under
specific circumstances, to repurchase the shares of a minority
shareholder. This shareholders' agreement lapsed with the acquisition
of the company (Note 11).
11. Subsequent events
In October, 1996, the company and 100% of its subsidiaries (except for
the 25% minority interest in Sonoptic Technologies Inc.) were acquired
by a subsidiary of NTN Canada Inc.
Pursuant to this transaction, NTN, interalia:
a) Purchased the issued Class "A" shares from the holder, Telesat
Canada;
b) Advanced additional monies to the company to repay shareholders'
loans amounting to approximately $ 241,000., and
c) Advanced an additional $ 200,000. to the company to reduce its
bank indebtedness.
12. Income taxes
At August 31, 1996, the company and its subsidiaries had operating
losses available aggregating approximately $ 1,007,000.. These losses
are available to reduce taxable income in future years and expire as
follows:
Year ended August 31,
1997 $ 307,000
1998 63,000
1999 20,000
2000 116,000
2001 9,000
2002 90,000
2003 402,000
-----------
$ 1,007,000
===========
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MAGIC LANTERN COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.)
AUGUST 31, 1996
13. Grants
Non repayable government assistance receivable during the period has
been credited in the accounts as follows:
Operating expenses $ 71,400
Equipment and furniture 7,800
-------
$ 79,200
========
14. Prior period adjustment
Certain costs were not expensed and accrued in prior period financial
statements. The amounts have been reflected as a prior period
adjustment in these financial statements.
15. Generally accepted accounting principles in Canada and the United
States
The company follows Canadian generally acepted accounting principles
(GAAP) which are different in some respects from those applicable in
the United States (U.S.). The material difference is described below:
The company has available tax losses of approximately $
1,007,000.. Under U.S. GAAP, the future benefit of these losses,
net of a valuation reserve, would be set up in the accounts of
the company. The amount of the deferred tax asset, net of a
valuation allowance, recognized in the current year under U.S.
GAAP would be $ 148,000.
16. Comparative figures
Comparative figures have not been presented as audited financial
statements were not prepared for the prior period.
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NTN Canada Inc.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Expressed in Canadian dollars)
On October 2, 1996, NTN Canada, Inc. ("NTN"), through its wholly-owned
subsidiary NTN Interactive Network Inc. ("Interactive"), acquired, effective as
of October 1, 1996, all of the outstanding capital stock of Magic Lantern
Communications Ltd., a Canadian corporation ("Magic Lantern"). The aggregate
purchase price was $1,700,000, satisfied by $450,000 in cash and the issue of
two non-interest bearing promissory notes with a maturity value of $1,250,000.
The acquisition will be accounted for using the purchase method of
accounting, with the assets acquired and the liabilities assumed recorded at
fair values. The results of operations of Magic Lantern will be included with
those of NTN as of the acquisition date. The pro forma condensed consolidated
balance sheet as of August 31, 1996 is based on the historical balance sheet of
NTN and Magic Lantern as of that date. The pro forma condensed statement of
operations for the year ended August 31, 1996 is based on the historical
statement of operations of NTN and Magic Lantern for that period. The pro forma
condensed statement of operations assumes the acquisition took place on August
31, 1996.
The pro forma condensed financial statements are not intended to be
indicative of the financial position or results of operations which actually
would have been realized had the acquisition occurred at the date assumed, nor
of the future results of operations of the combined entities. The accompanying
pro forma condensed financial statements should be read in conjunction with the
historical financial statements and notes of NTN and Magic Lantern.
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NTN Canada Inc.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
August 31, 1996
(Unaudited - Expressed in Canadian dollars)
MAGIC
NTN LANTERN ADJUSTMENTS PRO FORMA
--------- --------- ----------- ---------
ASSETS
Current
Cash and cash equivalents 1,777,889 527,361 (450,000)(1) 1,897,632
42,382 (3)
Short-term investments 3,577,151 187,389 (168,000)(3) 3,596,540
Accounts receivable 913,601 928,622 (350,000)(2) 1,492,223
Inventory and other current
assets 793,174 317,490 1,110,664
- -------------------------------------------------------------------------------------------------------------
Total current assets 7,061,815 1,960,862 8,097,059
- -------------------------------------------------------------------------------------------------------------
Property and equipment, net 2,447,937 1,595,756 4,043,693
Goodwill and other
intangibles 373,341 90,380 2,094,462 (1) 2,564,859
6,676 (4)
- -------------------------------------------------------------------------------------------------------------
9,883,093 3,646,998 14,705,611
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and
accrued liabilities 975,659 934,462 1,910,121
Bank debt and current
long-term debt -- 1,034,944 312,500 (1) 671,826
(200,000)(1)
350,000 (2)
(125,618)(3)
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 975,659 1,969,406 2,581,947
- -------------------------------------------------------------------------------------------------------------
Long-term debt, less current 30,000 2,357,109 937,500 (1) 3,324,609
- -------------------------------------------------------------------------------------------------------------
Total liabilities 1,005,659 4,326,515 5,906,556
- -------------------------------------------------------------------------------------------------------------
Minority interest (85,055) 6,676 (4) (78,379)
Shareholders' equity/ 8,877,434 (594,462) 594,462 (1) 8,877,434
(deficit)
- -------------------------------------------------------------------------------------------------------------
9,883,093 3,646,998 14,705,611
=============================================================================================================
See accompanying notes to pro forma condensed financial statements.
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NTN Canada Inc.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Year ended August 31, 1996
(Unaudited - Expressed in Canadian dollars)
MAGIC
NTN LANTERN ADJUSTMENTS PRO FORMA
--------- ----------- ----------- ---------
Net sales 6,318,251 2,656,365 8,974,616
Cost of sales 2,505,673 1,038,267 3,543,940
- ---------------------------------------------------------------------------------------------------
3,812,578 1,618,098 5,430,676
- ---------------------------------------------------------------------------------------------------
General and administrative
expenses 2,808,519 2,212,874 5,021,393
- ---------------------------------------------------------------------------------------------------
1,004,059 (594,776) 409,283
Provision for taxes 463,000 (69,912) 393,088
- ---------------------------------------------------------------------------------------------------
Net income before minority
interest 541,059 (524,864) 16,195
Minority interest share of loss (81,438) (81,438)
- ---------------------------------------------------------------------------------------------------
Net income(loss) 541,059 (443,426) 97,633
===================================================================================================
Pro forma information:
Earnings per share 0.22 0.04
Shares used in per
share calculation 2,392,548 2,392,548
See accompanying notes to pro forma condensed financial statements.
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NTN Canada Inc.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
August 31, 1996
(Unaudited - Expressed in Canadian dollars)
1. Pro forma adjustments to record the purchase of Magic Lantern:
Components of purchase price:
Cash $450,000
Promissory notes - current 312,500
- long-term 937,500
---------
1,700,000
Allocation of purchase price:
Reduction of bank debt (200,000)
Deficit of Magic Lantern 594,462
---------
Goodwill and other intangibles 2,094,462
----------
2. Pro forma adjustment to eliminate inter-company receivable in existence prior
to acquisition.
3. Pro forma adjustment to record disposition of temporary investment and
retirement of related long-term debt which occurred after the purchase.
4. Pro forma adjustment to remove a minority interest eliminated by the
acquisition transactions.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NTN CANADA, INC.
Date: December 16, 1996 By: /s/ Peter Rona
---------------------------------
Peter Rona, President
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