-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PtoSewHLGGRx7ilKg1zRfLYSi4vFjcU3soHnGv3Omo2BdJ0p26Zc4BIF2OKZNJcJ Thzk6kWPz0g2g77vpi8DuQ== 0001005477-01-003969.txt : 20010716 0001005477-01-003969.hdr.sgml : 20010716 ACCESSION NUMBER: 0001005477-01-003969 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010531 FILED AS OF DATE: 20010713 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHELL GROUP CORP CENTRAL INDEX KEY: 0000797313 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 112805051 STATE OF INCORPORATION: NY FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18066 FILM NUMBER: 1680939 BUSINESS ADDRESS: STREET 1: 14 METEOR DR STREET 2: BLDG 18 CITY: ETOBOCOKE ONTARIO STATE: A6 ZIP: 00000 BUSINESS PHONE: 4166756666 MAIL ADDRESS: STREET 1: 14 METEOR DR CITY: ETOBICOKE ONTARIO STATE: A6 FORMER COMPANY: FORMER CONFORMED NAME: NETWORKS NORTH INC DATE OF NAME CHANGE: 19980811 FORMER COMPANY: FORMER CONFORMED NAME: NTN CANADA INC DATE OF NAME CHANGE: 19961016 10-Q 1 0001.txt FORM 10-Q FORM 10-Q Securities and Exchange Commission Washington D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended: May 31, 2001 Commission file number: 0-18066 CHELL GROUP CORPORATION f/k/a Networks North, Inc. (Exact name of registrant as specified in its charter) New York 11-2805051 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14 Meteor Drive Toronto, Ontario, Canada M9W 1A4 (Address of principal executive offices) (Zip Code) (416) 675-6666 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of July 13, 2001: 9,028,239 shares of common stock, par value $.0467 per share. CHELL GROUP CORPORATION (formerly known as Networks North Inc.) AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL INFORMATION FOR THE NINE MONTHS ENDED MAY 31, 2001 PART I - FINANCIAL INFORMATION Item 1. Financial Statements: Page ---- Consolidated Balance Sheets - as at May 31, 2001 (unaudited) and August 31, 2000 1 Consolidated Statements of Operations and Retained Earnings (Deficit) - For the Nine Months Ended May 31, 2001 and May 31, 2000 (unaudited) 2 Consolidated Statements of Operations and Retained Earnings (Deficit) - For the Three Months Ended May 31, 2001 and May 31, 2000 (unaudited) 2 Consolidated Statements of Cash Flows - For the Nine Months Ended May 31, 2001 and May 31, 2000 (unaudited) 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II - OTHER INFORMATION Item 2. Changes in Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 20 2 CHELL GROUP CORPORATION (formerly known as Networks North Inc.) CONSOLIDATED BALANCE SHEETS AS AT May 31, 2001 AND AUGUST 31, 2000 (Expressed in Canadian dollars)
================================================================================================== May 31, 2001 August 31, 2000 (unaudited) (restated - Note 14) $ $ ================================================================================================== ASSETS Current Cash and cash equivalents 190,211 1,355,613 Short-term investments 19,518 269,727 Accounts receivable, trade - net of allowance for doubtful accounts of $227,000; August - $178,000 2,494,085 3,098,808 Other receivables 223,717 216,990 Income taxes receivable 155,184 143,227 Inventory 152,318 206,216 Prepaid expenses 768,887 527,549 - -------------------------------------------------------------------------------------------------- Total current assets 4,003,920 5,818,130 - -------------------------------------------------------------------------------------------------- Property and equipment, net 8,930,414 7,689,620 Licenses, net of accumulated amortization 236,949 250,248 Goodwill, net of accumulated amortization 2,286,227 2,863,146 Notes receivable 461,100 160,000 Deposit on purchase (note 7) 1,689,710 -- Other assets, net of amortization 326,152 202,799 Net assets from discontinued operations 104,754 236,268 - -------------------------------------------------------------------------------------------------- 18,039,226 17,220,211 - -------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable - trade 2,242,188 1,379,727 Accrued liabilities 1,532,498 1,623,220 Current portion of long-term debt (note 8, 9) 3,150,262 397,632 - -------------------------------------------------------------------------------------------------- Total current liabilities 6,924,948 3,400,579 - -------------------------------------------------------------------------------------------------- Long-term debt (note 8, 9) 6,593,515 4,377,040 Deferred income taxes payable 59,173 59,173 - -------------------------------------------------------------------------------------------------- Total liabilities 13,577,636 7,836,792 - -------------------------------------------------------------------------------------------------- Contingent liabilities (note 10) Shareholders' equity Share capital (note 11) 900,000 preferred shares -- 10,917 9,028,239 common shares [August - 2,925,141] 604,110 191,122 Capital in excess of par value 14,143,532 10,454,669 Deficit (10,286,052) (1,273,289) - -------------------------------------------------------------------------------------------------- Total shareholders' equity 4,461,590 9,383,419 - -------------------------------------------------------------------------------------------------- 18,039,226 17,220,211 ==================================================================================================
The accompanying notes are an integral part of these statements 1 CHELL GROUP CORPORATION (formerly known as Networks North Inc.) CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT) (Expressed in Canadian dollars - unaudited)
========================================================================================================================== For Three Months Ended For Nine Months Ended May 31, 2000 May 31, 2000 (restated - (restated - May 31, 2001 Note 14) May 31, 2001 Note 14) $ $ $ $ - -------------------------------------------------------------------------------------------------------------------------- REVENUE Network services 1,565,610 1,561,663 4,915,072 4,884,821 Pay-TV 1,750,918 1,613,800 5,047,393 4,859,700 Event programming 139,012 212,917 336,711 422,068 Ad sponsorship 60,578 94,691 132,869 383,989 Video/software sales 1,137,261 973,052 2,967,029 3,394,517 Digital encoding 139,598 154,719 677,350 397,828 - -------------------------------------------------------------------------------------------------------------------------- 4,792,977 4,610,842 14,076,424 14,342,923 - -------------------------------------------------------------------------------------------------------------------------- COST OF SALES Network services 584,501 563,984 1,790,031 1,740,647 Pay-TV 867,426 735,400 2,182,480 1,923,300 Ad sponsorship -- 4,592 -- 15,872 Video/software sales 266,318 509,254 895,049 1,477,925 Digital encoding 3,534 32,769 17,590 78,957 - -------------------------------------------------------------------------------------------------------------------------- 1,721,779 1,845,999 4,885,150 5,236,701 - -------------------------------------------------------------------------------------------------------------------------- EXPENSES Selling, general and administrative expenses 3,421,623 2,584,925 13,625,449 7,472,134 Bad debt 21,276 3,194 88,305 118,706 Interest and bank charges 284,115 56,974 570,060 196,286 Write off of leasehold improvements -- -- 355,560 -- Depreciation and amortization 543,886 561,970 2,142,417 1,636,312 - -------------------------------------------------------------------------------------------------------------------------- Loss before undernoted (1,199,702) (442,220) (7,590,517) (317,216) Provision for (recovery of) income taxes -- (113,000) -- 110,000 Minority interest 14,483 (6,752) 49,989 (9,683) - -------------------------------------------------------------------------------------------------------------------------- Loss from continuing operations (1,214,185) (322,468) (7,640,506) (417,533) Loss from discontinued operations (net of income tax) (1,086,036) (286,388) (1,372,257) (867,254) - -------------------------------------------------------------------------------------------------------------------------- Loss and comprehensive loss for the period (2,300,221) (608,856) (9,012,763) (1,284,787) Retained earnings (deficit), beginning of period (7,985,831) 374,401 (1,273,289) 1,050,332 - -------------------------------------------------------------------------------------------------------------------------- Deficit, end of period (10,286,052) (234,455) (10,286,052) (234,455) - -------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per share (note 4): Basic and diluted from continuing operations (0.14) (0.11) (0.90) (0.15) Basic and diluted from discontinued operations (0.13) (0.10) (0.16) (0.30) Net loss per share (0.27) (0.21) (1.06) (0.45) ==========================================================================================================================
The accompanying notes are an integral part of these statements 2 CHELL GROUP CORPORATION (formerly known as Networks North Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MAY 31, 2001 AND MAY 31, 2000 (Expressed in Canadian dollars - unaudited)
============================================================================================================= May 31, 2000 May 31, 2001 (restated - Note 14) $ $ - ------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net loss and comprehensive loss for the period (9,012,763) (1,284,787) Adjustments to reconcile net income to net cash used in operating activities: Compensation costs related to the change in the conversion rate of preferred shares -- 337,779 Depreciation and amortization 2,142,417 1,636,312 Accretion of interest on non-interest bearing promissory notes 137,617 129,807 Write-off of leasehold improvements 355,560 -- Services rendered for shares 659,359 -- Warrants issued 174,084 -- Write-off of prepaids arising from Chell asset purchase 367,235 -- Write-off assets arising from discontinued operations 636,268 -- Changes in assets and liabilities: Decrease (increase) in short-term investments 250,209 (9,718) Decrease (increase) in accounts receivable, trade 604,723 (1,488,312) Decrease (increase) in income taxes receivable (11,957) 167,957 Decrease (increase) in inventory 53,898 (130,043) Increase in prepaid expenses (72,998) (38,588) Increase in other accounts receivable (5,323) -- Decrease in other assets 72,627 -- Decrease in assets from discontinued operations 131,514 183,903 Increase in accounts payable and accrued liabilities 634,123 540,021 - ------------------------------------------------------------------------------------------------------------- Cash (used in) provided by operating activities (2,883,407) 44,331 - ------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of property and equipment (1,279,651) (1,081,664) Increase in deposit on purchase (1,689,710) -- Increase in notes receivable (301,100) -- - ------------------------------------------------------------------------------------------------------------- Cash used in investing activities (3,270,461) (1,081,664) - ------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Increase in notes and loans payable 5,011,537 -- Repayment of notes and loans payable (23,071) (23,453) Proceeds from exercise of options -- 156,236 - ------------------------------------------------------------------------------------------------------------- Cash provided by (used in) financing activities 4,988,466 132,783 - ------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents during the period (1,165,402) (904,550) Cash and cash equivalents, beginning of period 1,355,613 2,018,122 - ------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period 190,211 1,113,572 ============================================================================================================= - ------------------------------------------------------------------------------------------------------------- Income Taxes Paid 98,491 2,500 Interest Paid 92,793 91,076
Non cash items arose from the purchase of Chell.com assets during the 2001 First Three Fiscal Quarters. They are $1,936,272 of property & equipment, $107,589 of goodwill, $45,044 of prepaids, $1,404 in other accounts receivable and in addition shares were issued (Note 5). Other assets of $217,362 arose from the issue of warrants, shares were issued for consulting fees and salaries in the amount of $668,388 and shares were issued for a debt payment on the GalaVu purchase in the amount of $115,165. The accompanying notes are an integral part of these statements 3 CHELL GROUP CORPORATION (formerly known as Networks North Inc.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED MAY 31, 2001 AND MAY 31, 2000 (UNAUDITED) Note 1. Basis of Presentation The accompanying financial statements for the interim periods are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in the Annual Report on Form 10-K of Networks North Inc. (the "Company") (Commission No.:0-18066), filed with the Securities and Exchange Commission on December 14, 2000. The results of operations for the nine months ended May 31, 2001 are not necessarily indicative of the results for the full fiscal year ending August 31, 2001. Note 2. General The financial statements of the Company for the three and nine months ended May 31, 2001 (the "2001 Third Fiscal Quarter" and "2001 First Three Fiscal Quarters"), include the operations of the Company's wholly-owned subsidiaries Chell Merchant Capital Group Inc. ("CMCG"), Chell.com (USA) Inc., NTN Interactive Network Inc. ("NTNIN"), 3484751 Canada Inc., GalaVu Entertainment Network Inc. ("GalaVu") and NTNIN's wholly-owned subsidiaries Magic Lantern Communications Ltd. ("Magic") and Interlynx Multimedia Inc. ("Interlynx"). The financial statements of the Company for the three and nine months ended May 31, 2000 (the "2000 Third Fiscal Quarter" and "2000 First Three Fiscal Quarters"), include the operations of the Company's wholly-owned subsidiaries NTNIN, 3484751 Canada Inc., GalaVu and NTNIN's wholly-owned subsidiaries Magic and Interlynx. Magic conducts its operations directly and through its wholly owned subsidiaries, 745695 Ontario Ltd. ("Custom Video"), B.C. Learning Connection Inc. ("BCLC"), and 1113659 Ontario Ltd. ("Viewer Services") and its 75% ownership of the outstanding shares of Sonoptic Technologies Inc. ("Sonoptic"). Effective September 1, 2000 the operations of BCLC and Custom Video were merged with Magic and the BCLC and Custom Video corporations were wound up. Also, effective September 1, 2000 Magic's wholly owned subsidiary TutorBuddy Inc. commenced operations. Prior period's figures have been reclassified to be consistent with any reclassifications in the current period. 4 Note 3. Business Segment Data for the three and nine months ended May 31, 2001 and May 31, 2000
================================================================================================== For Three Months Ended For Nine Months Ended May 31, 2001 May 31, 2000 May 31, 2001 May 31, 2000 $ $ $ $ - -------------------------------------------------------------------------------------------------- External revenue Entertainment 3,496,975 3,477,758 10,392,084 10,540,017 Education 1,295,908 1,127,772 3,667,758 3,792,345 ASP Services -- -- -- -- Corporate 94 5,312 16,582 10,561 - -------------------------------------------------------------------------------------------------- 4,792,977 4,610,842 14,076,424 14,342,923 - -------------------------------------------------------------------------------------------------- Inter-segment revenue Entertainment -- 14,211 -- 42,686 Education 48,261 388,643 147,002 388,643 Corporate -- 31,969 -- 96,269 - -------------------------------------------------------------------------------------------------- 48,261 434,823 147,002 527,598 - -------------------------------------------------------------------------------------------------- Operating profit (loss) Entertainment 113,124 27,604 (110,013) 332,229 Education (228,629) 42,739 (620,530) (118,768) ASP Services (662,054) -- (5,490,359) -- Corporate (422,143) (512,563) (1,369,615) (530,677) - -------------------------------------------------------------------------------------------------- (1,199,702) (442,220) (7,590,517) (317,216) - -------------------------------------------------------------------------------------------------- Net income (loss) Entertainment 113,124 140,604 (110,013) 222,229 Education (243,112) 49,491 (670,519) (109,085) ASP Services (662,054) -- (5,490,359) -- Corporate (422,143) (512,563) (1,369,615) (530,677) Discontinued operations (1,086,036) (286,388) (1,372,257) (867,254) - -------------------------------------------------------------------------------------------------- (2,300,221) (608,856) (9,012,763) (1,284,787) - -------------------------------------------------------------------------------------------------- ================================================================================================== As at May 31, 2001 May 31, 2000 $ $ - -------------------------------------------------------------------------------------------------- Total assets Entertainment 9,791,918 12,753,181 Education 3,228,830 3,934,847 ASP Services 2,033,921 -- Corporate 2,879,803 1,078,042 Discontinued operations 104,754 313,324 - -------------------------------------------------------------------------------------------------- 18,039,226 18,079,394 - --------------------------------------------------------------------------------------------------
5 Note 4. Earnings per share Earnings per share were calculated in accordance with Statement of Financial Accounting Standards No. 128. The following table sets forth the computation of basic and diluted earnings per share for the three months and nine months ended May 31, 2001 and May 31, 2000:
==================================================================================================================== For Three Months Ended For Nine Months Ended May 31, 2001 May 31, 2000 May 31, 2001 May 31, 2000 $ $ $ $ - -------------------------------------------------------------------------------------------------------------------- Numerator: Net loss (numerator for basic and diluted loss per share) from continuing operations (1,214,185) (322,468) (7,640,506) (417,533) Net loss (numerator for basic and diluted loss per share) from discontinued operations (1,086,036) (286,388) (1,372,257) (867,254) - -------------------------------------------------------------------------------------------------------------------- Net loss (numerator for basic and diluted loss per share) (2,300,221) (608,856) (9,012,763) (1,284,787) ==================================================================================================================== Denominator for basic and diluted loss per share -adjusted weighted average number of shares and assumed conversions 8,490,576 2,860,464 8,490,576 2,860,464 ==================================================================================================================== Basic and diluted loss per share from continuing operations $(0.14) $(0.11) $(0.90) $(0.15) Basic and diluted loss per share from discontinued operations $(0.13) $(0.10) $(0.16) $(0.30) - -------------------------------------------------------------------------------------------------------------------- Net loss per share $(0.27) $(0.21) $(1.06) $(0.45) ====================================================================================================================
Note 5. Purchase of assets and shares from Chel.com Ltd. and Cameron Chell On September 19, 2000, pursuant to an Agreement of Purchase and Sale dated as of August 4, 2000, the Company and its subsidiary Chell Merchant Capital Group acquired, certain shares and assets from Cameron Chell and Chell.com Ltd. ("Chell.com"), a Company owned 100% by Cameron Chell. Pursuant to the Agreement, the Company acquired: (a) 480,000 common shares of cDemo Inc. (23%); (b) 875,000 common shares of Engyro, Inc. (34%); and (c) 60,000 common shares of Chell.com USA (100%). In addition, Chell Merchant Capital Group acquired 962,500 common shares of eSupplies (Alberta) Ltd. (27%) as well as certain assets from Chell.com. This acquisition was not reflected in the financial statements for the year ended August 31, 2000 since shareholder approval to ratify the above purchase transaction was not voted on and approved until September 8, 2000. In consideration for this acquisition, the Company issued 4,974,904 shares of its common stock and Chell Merchant Capital Group issued 1,928,267 special convertible shares, inclusive of 1,476,398 shares issued in exchange for the shares of eSupplies (Alberta) Ltd., to Cameron Chell, Chell.com and others. The shares of the Company that were issued in exchange for the shares of eSupplies (Alberta) Inc. were placed in escrow and the investment in this company was not to be recorded until such time as certain contingent conditions were met. Each share issued by Chell Merchant Capital Group is convertible into 6 one share of common stock of the Company. Pursuant to a Voting and Exchange Trust Agreement entered into with a trustee, whereby voting privileges have been granted, such shares issued by Chell Merchant Capital Group can be voted by the trustee immediately. The amount of shares issued was determined based upon an appraisal valuation of the investments and assets acquired which aggregated US $28,652,086. The shares of the Company that were originally issued in exchange for the shares of cMeRun Corp. were placed in escrow and the investment in this company was not recorded. The conditions of the escrow were not met for cMeRun Corp. and subsequently these shares were cancelled. The shares of Chell Merchant Capital Group that were originally issued in exchange for the shares of eSupplies were placed in escrow and the investment in this company was not recorded. The conditions of the escrow were not met for eSupplies and subsequently these shares were cancelled. As a result of the above, Cameron Chell and Chell.com now own approximately 65% of the Company's outstanding common stock, that is the Company has in effect been acquired in a reverse acquisition. This acquisition of the Company by Cameron Chell and Chell.com and the acquisition by the Company of the equity interests, as described in the first paragraph, are reflected at historical cost in the Company's separate financial statements. The Company will reflect the minority equity investments using the equity method of accounting. Note 6. Purchase of Richard Wolff Enterprises, Inc. assets Pursuant to an asset purchase agreement dated September 1, 2000, Magic acquired the assets and business operations of Richard Wolff Enterprises, Inc. ("RWE"), a company based in Illinois, for a purchase price of $289,590 calculated on a discounted basis. As a result, Magic has expanded its library of educational titles and now has access to the international distribution infrastructure formerly held by RWE. The acquisition was accounted for using the purchase method of accounting and accordingly, the purchase price has been allocated to property and equipment. The purchase price was satisfied by $154,825 in cash and the issuance of four promissory notes with maturity values aggregating $147,350. These promissory notes mature over a period of two years. The fair values of these promissory notes approximate their carrying value. The asset purchase agreement also contains a purchase price adjustment clause whereby the price may be adjusted upwards to a maximum of an additional US$100,000 if certain revenue levels are achieved. Specifically, if gross revenues for the acquired business exceed US$500,000 for the 12 month period ending August 31, 2001, Magic will pay to RWE US$50,000, and if gross revenues exceed US$600,000 for the second 12 month period ending August 31, 2002, Magic will pay to RWE an additional US$50,000. 7 The operating results related to the acquisition are included in the Company's consolidated statements of operations and retained earnings from the date of acquisition. Pro-forma information has not been provided for the prior year because it is not material. Note 7. Deposit on purchase of Applicationstation.com, Inc. shares On November 22, 2000, the Company entered into an agreement with Chell.com Ltd. to participate in the purchase of a 51% interest in the shares of ApplicationStation.com, Inc. The Company has provided a deposit of $1,689,710 to Chell.com Ltd. for its 25% share of the 51% interest in the shares of ApplicationStation.com, Inc. The Company's investment will be reflected using the equity method of accounting. Note 8. Note payable On January 15, 2001, the Company received US$1,500,000 in return for a promissory note. The note bears interest at 2% per month and the principal and accrued interest is due and payable on July 15th, 2001. Note 9. Convertible debenture - related party transaction On October 3, 2000, the Company closed the sale of a US$3,000,000 Convertible 10% Debenture to the VC Advantage Limited Partnership ("VCALP"). As at May 31, 2001, US$1,700,000 has been advanced. This unsecured convertible debenture is due three years from issue. The Convertible Debenture bears interest at 10% per annum, payable upon conversion, redemption or maturity. The unpaid principal of the debenture bears interest from the date that it is actually advanced until paid. Interest is payable in cash or stock at the Company's option. The Convertible Debenture is convertible into common stock of the Company, at US$3.00 per share, in amounts specified by the VCALP. The maximum number of common shares VCALP will receive is one million. On the close date, the Company also issued 50,000 warrants to purchase 50,000 common shares at US$3.00 per share to VCALP. The warrants have a term of four years. On November 30, 2000 the convertible debenture was assigned by VCALP to CALP II Limited Partnership. Note 10. Contingent Liabilities On June 18, 1992, Interactive Network Inc., a third party, instituted proceedings against NTN Communications Inc., one of the Company's major suppliers, NTN Interactive Network Inc. and the Company in the Federal Court of Canada and in the California Supreme Court claiming patent infringement. It is the opinion of the Company's management that this patent infringement claim will be successfully defended. Canada Customs and Revenue Agency is currently in discussions with the Company regarding a potential liability with respect to withholding tax on certain amounts paid to NTN Communications, Inc. No assessment has been made to date by Canada Customs and Revenue Agency. However, Management believes that it has valid defenses with respect to these matters and, accordingly, no amount has been recorded in these consolidated financial statements. The withholding tax assessment could be between $0 and $460,000. In the event 8 that such matters are settled in favour of Canada Customs and Revenue Agency, the amounts could be material and would be recorded in the period in which they become determinable. NTN Communications Inc. would be responsible for paying such taxes. Note 11. Changes in share capital During the nine months ended May 31, 2001, the following transactions resulted in the issuance of 6,103,098 common shares of the Company and Chell Merchant Capital Group Inc. The acquisition of certain assets of Chell.com and Cameron Chell was satisfied by the issuance of 5,426,772 common shares of the Company. In addition 145,000 shares were issued as payment for consulting fees rendered, 131,974 shares issued in lieu of salary and 36,602 shares for the settlement of debt. In addition, the preferred shares were converted for 300,000 commons shares. Also during the nine months ended May 31, 2001, options totaling 62,750 were exercised resulting in the issuance of additional 62,750 common shares of the Company. Effective February 28, 2001, common shares authorized to be issued was increased to 50,000,000. Note 12. Recent pronouncements In March 2000, the Financial Accounting Standards Board (FASB) issued Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions involving Stock Compensation, an Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB No. 25 for certain issues, including the definition of an employee, the treatment of the acceleration of stock options and the accounting treatment for options assumed in business combinations. FIN 44 became effective on July 1, 2000, but is applicable for certain transactions dating back to December 1998. The adoption of FIN 44 did not have a material impact on the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." (SAB No. 101). SAB No. 101 expresses the views of the SEC staff in applying generally accepted accounting principles to certain revenue recognition issues. The adoption of the provisions of SAB No. 101 in the first quarter of fiscal 2001 did not have a material impact on the Company's financial position or its results of operations. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."(SFAS No. 133). SFAS No. 133, as amended by SFAS No. 138, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 requires the recognition of all derivatives as either assets or liabilities in the statement of financial position and the measurement of those instruments at fair value. The Company adopted this standard in the first quarter of fiscal year 2001 pursuant to SFAS No. 137 (issued in June 1999), which delays the adoption of SFAS No. 133 until that time. The adoption of SFAS No. 133 did not have a material impact on the Company's financial position or its results of operations. 9 Note 13. Discontinued Operations/Subsequent Events In May 2001, the Company entered into a plan regarding the sale of Interlynx. On June 30th 2001, subsequent to the balance sheet date, the Company signed an agreement to sell Interlynx, a wholly-owned subsidiary of its a wholly-owned subsidiary NTNIN for $50,000. The sale will be completed effective July 31st 2001. The Company's financial statements have been restated to reflect Interlynx as a discontinued operation for all periods presented. Note 14. Restatement of financial statements On April 4th, 2000, the ratio at which preferred shares could be converted to common shares was changed from 4.67 to 3. The resulting change from 192,857 to 300,000 common shares upon conversion resulted in a one-time compensation charge of $337,779. As a result, all prior year and period statements have been restated in order to reflect this change. 10 Item 2. 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. General Chell Group Corporation is engaged in the business of defining, building and re-engineering businesses, interactive entertainment services and electronic/online products and services using new economy technologies to maximize market value. The Company's main business strategy is to operate or invest in companies that represent the latest in technological innovations. In that regard, the Company has two main categories of companies: operating subsidiaries and investment companies. The Company applies its expertise, industry contacts, and market foresight to these companies in order to create shareholder value. The core businesses of the Company are the merchant capital services provided through Chell Merchant Capital Group Inc. (referred to as the "Merchant Capital Group") and the interactive entertainment services provided by NTN IN. In addition, GalaVu is a technology based entertainment provider of interactive in-room entertainment systems to hotels across Canada; the Magic Lantern Group is involved in the marketing and distribution of educational video and media resources and the conversion of analog video to digital video formats; and Interlynx designs and develops web-based training software. Interlynx was sold subsequent to May 31, 2001, the balance sheet date. Results of Operations for the Three Months ended May 31, 2001 The Company's total revenues for the 2001 Third Fiscal Quarter were $4,792,977, compared to $4,610,842 for the 2000 Third Fiscal Quarter, an increase of $182,135 or 4.0%. Revenues from network services for the 2001 Third Fiscal Quarter were $1,565,610, compared to $1,561,663 for the 2000 Third Fiscal Quarter, an increase of $3,947 or 0.3%. These revenues are relatively constant between years due to the number of Hospitality sites remaining at approximately the same level between the 2001 and 2000 Third Fiscal Quarters. Revenues from Pay-tv for the 2001 Third Fiscal Quarter were $1,750,918 compared to $1,613,800 for the 2000 Third Fiscal Quarter, an increase of $137,118 or 8.5%. This increase can be attributed to more popular movies available in the 2001 Third Fiscal Quarter than in the 2000 Third Fiscal Quarter. Revenues from event programming for the 2001 Third Fiscal Quarter were $139,012, compared to $212,917 for the 2000 Third Fiscal Quarter, a decrease of $73,905 or 34.7%. The decrease was due to a decreased number of corporate events hosted in the 2001 Third Fiscal Quarter when compared to the number of events hosted in 2000 Third Fiscal Quarter. 11 Revenues from ad sponsorship were $60,578 for the 2001 Third Fiscal Quarter, compared to $94,691 for the 2000 Third Fiscal Quarter, a decrease of 34,113 or 36.0%. The decrease was the result of a decrease in the number and size of corporate sponsors over the level experienced in the previous period. Revenues from video and software sales for the 2001 Third Fiscal Quarter were $1,137,261, compared to $973,052 for the 2000 Third Fiscal Quarter, an increase of $164,209 or 16.9%. The increase is primarily the result of an increase in foreign sales ($229,429), which is offset by the decrease in analog video sales, as the demand for digital video has not increased at the same corresponding levels. Revenues from digital encoding were $139,598 for the 2001 Third Fiscal Quarter, compared to $154,719 for the 2000 Third Fiscal Quarter, a decrease of $15,121 or 9.8%. The decrease can be attributed a decreased level of sales compared to the 2000 Third Fiscal Quarter. Total cost of sales for the 2001 Third Fiscal Quarter were $1,721,779 compared to $1,845,999 for the 2000 Third Fiscal Quarter, a decrease of $124,220 or 6.7%. The decrease is the result of decreased costs associated with a change in the focus of event programming, the decreased sales in ad sponsorship and the decrease in video and software sales. As a percentage of revenues, cost of sales decreased in the 2001 Third Fiscal Quarter to 35.9% from 40.0% in the 2000 Third Fiscal Quarter. Total selling, general and administrative expenses for the 2001 Third Fiscal Quarter were $3,421,623, compared to $2,584,925 for the 2000 Third Fiscal Quarter, an increase of $836,698 or 32.4%. The increase was caused mainly by the addition of the ASP Services segment, which accounted for an increase of $779,861. The Company has also experienced increased investor and public relation costs ($320,822) as a result of the addition of the ASP Services segment. In the 2000 Third Fiscal Quarter, there was a one-time $337,779 compensation charge resulting from a change in the conversion rate on the preferred shares. Total selling, general and administrative expenses for the 2001 Third Fiscal Quarter for the ASP Services segment comprised the following major items; professional fees of $526,065 salaries of $126,955, and communication costs of $50,038. As a percentage of the Company's total revenues, selling, general and administration expenses increased to 71.4% for the 2001 Third Fiscal Quarter from 56.1% for the 2000 Third Fiscal Quarter. During the 2001 Second Fiscal Quarter, Chell Merchant Capital Group Inc. decreased its staffing levels in the ASP Services segment. The costs of restructuring this company are of a one time nature and will not be incurred beyond the 2001 Third Fiscal Quarter. Interest and bank charges for the 2001 Third Fiscal Quarter were $284,115, compared to $56,974 for the 2000 Third Fiscal Quarter, an increase of $227,141 or 398.7%. This increase results from an increase in debt related to the purchase of the RWE assets (Note 6), the note payable (Note 8) and the sale of the convertible debenture (Note 9). As a percentage 12 of the Company's total revenues, interest and bank charges increased to 5.9% for the 2001 Third Fiscal Quarter from 1.2% for the 2000 Third Fiscal Quarter. There was no provision for income taxes recorded in the 2001 Third Fiscal Quarter compared with a recovery of income taxes of $113,000 for the 2000 Third Fiscal Quarter. As the tax provision is based upon the individual companies' taxable income, no provision was incurred, as the companies are not in a taxable position. Loss from discontinued operations for the 2001 Third Fiscal Quarter was $1,086,036, compared to $286,388 for the 2000 Third Fiscal Quarter, an increase of $799,648 or 279.2%. During the 2001 Third Fiscal Quarter, prepaids of $41,512, software costs of $162,500 and goodwill of $636,268 were written off in anticipation of the sale of Interlynx. The items are of a one time nature and will not be incurred beyond the 2001 Third Fiscal Quarter. The minority interest share in profit for the 2001 Third Fiscal Quarter was $14,483. This is compared to the minority interest share in losses for the 2000 Third Fiscal Quarter of $6,752, an overall change of $21,235. This change results from profitable operations in Sonoptic Technologies Inc., in which there is a 25% minority interest. As a result of all of the above, the net loss for the 2001 Third Fiscal Quarter was $2,300,221, compared to net loss of $608,856 for the 2000 Third Fiscal Quarter, a increase of $1,691,365. The 2001 Third Fiscal Quarter loss resulted primarily from the addition of Chell Merchant Capital Group Inc. and Chell.com (USA) Inc. to the Company and their activities including the provision of services to developing ASP companies in which the Company has invested, as well as the loss incurred from discontinuing the operations of Interlynx. Results of Operations for the Nine Months ended May 31, 2001 The Company's total revenues for the 2001 First Three Fiscal Quarters were $14,076,424, compared to $14,342,923 for the 2000 First Three Fiscal Quarters, a decrease of $266,499 or 1.9%. Revenues from network services for the 2001 First Three Fiscal Quarters were $4,915,072, compared to $4,884,821 for the 2000 First Three Fiscal Quarters, an increase of $30,251 or 0.6%. These revenues are relatively constant between the years due to the number of Hospitality sites remaining at approximately the same level between the 2001 and 2000 First Three Fiscal Quarters. Revenues from Pay-tv for the 2001 First Three Fiscal Quarters were $5,047,393 compared to $4,859,700 for the 2000 First Three Fiscal Quarters, an increase of $187,693 or 3.9%. This increase can be attributed to more popular movies available in 2001 versus 2000. Revenues from event programming for the 2001 First Three Fiscal Quarters were $336,711 compared to $422,068 for the 2000 First Three Fiscal Quarters, a decrease of $85,357 or 20.2%. The decrease was due to a decreased number of corporate events hosted in the 2001 First Three Fiscal Quarters when compared to the number of events hosted in 2000 First Three 13 Fiscal Quarters. Revenues from ad sponsorship were $132,869 for the 2001 First Three Fiscal Quarters, compared to $383,989 for the 2000 First Three Fiscal Quarters, a decrease of $251,120 or 65.4%. The decrease was the result of a decrease in the number and size of corporate sponsors over the level experienced in the previous period. Revenues from video and software sales for the 2001 First Three Fiscal Quarters were $2,967,029 compared to $3,394,517 for the 2000 First Three Fiscal Quarters, a decrease of $427,488 or 12.6%. In the First Three Fiscal Quarters of 2000, a one time large sale of $294,600 was recorded that resulted in abnormally high revenue when compared to 2001's First Three Fiscal Quarters. Revenues from digital encoding were $677,350 for the 2001 First Three Fiscal Quarters, compared to $397,828 for the 2000 First Three Fiscal Quarters, an increase of $279,522 or 70.3%. The increase can be attributed to increased demand for digital services and the greater sales effort in this area. Total cost of sales for the 2001 First Three Fiscal Quarters were $4,885,150, compared to $5,236,701 for the 2000 First Three Fiscal Quarters, a decrease of $351,551. The decrease is commensurate with the decreased sales levels experienced, offset by increased cable costs in the Pay-tv segment. As a percentage of revenues, cost of sales decreased in the 2001 First Three Fiscal Quarters to 34.7% from 36.5% in the 2000 First Three Fiscal Quarters. Total selling, general and administrative expenses for the 2001 First Three Fiscal Quarters were $13,625,449, compared to $7,472,134 for the 2000 First Three Fiscal Quarters, an increase of $6,153,315 or 82.4%. The increase was caused mainly by the addition of the ASP Services segment, which accounted for an increase of $5,377,070. Total selling, general and administrative expenses for the 2001 First Three Fiscal Quarters for the ASP Services segment comprised the following major items; salaries $1,772,780, professional fees of $1,547,487, communication costs of $157,351, travel of $791,574, advertising and promotion of $407,559, and investor and public relation costs of $487,196. As a percentage of the Company's total revenues, selling, general and administrative expenses increased to 96.8% for the 2001 First Three Fiscal Quarters from 52.1% for the 2000 First Three Fiscal Quarters. During the 2001 First Three Fiscal Quarters, Chell Merchant Capital Group Inc. vacated certain leased space and as a result the Company wrote off the net book value of the related leasehold improvements in the amount of $355,560. There were no similar transactions in the 2000 First Three Fiscal Quarters. Interest and bank charges for the 2001 First Three Fiscal Quarters were $570,060, compared to $196,286 for the 2000 First Three Fiscal Quarters, an increase of $373,774 or 190.4%. This increase results from an increase in debt related to the purchase of the RWE 14 assets (Note 6), the note payable (Note 8) and the sale of the convertible debenture (Note 9). As a percentage of the Company's total revenues, interest and bank charges increased to 4.0% for the 2001 First Three Fiscal Quarters from 1.4% for the 2000 First Three Fiscal Quarters. Total depreciation and amortization expense for the 2001 First Three Fiscal Quarters was $2,142,417, compared to $1,636,312 for the 2000 First Three Fiscal Quarters, an increase of $506,105 or 30.9%. This increase is primarily the result of depreciation on the fixed assets acquired from RWE and Chell.com Ltd. There was no provision of income taxes recorded in the 2001 First Three Fiscal Quarters compared with a provision for income taxes of $110,000 for the 2000 First Three Fiscal Quarters. As the tax provision is based upon the individual companies' taxable income, no provision was incurred, as the companies are not in a taxable position. Loss from discontinued operations for the 2001 First Three Fiscal Quarters was $1,372,257, compared to $867,254 for the 2000 Third Fiscal Quarter, an increase of $505,003 or 58.2%. During the 2001 Third Fiscal Quarter, prepaids of $41,512, software costs of $162,500 and goodwill of $636,268 were written off coinciding with the Sale of Interlynx. The items are of a one time nature and will not be incurred beyond the 2001 Third Fiscal Quarter. The minority interest share in profit for the 2001 First Three Fiscal Quarters was $49,989. This is compared to the minority interest share in losses for the 2000 First Three Fiscal Quarters of $9,683, an overall change of $59,672. This change results from profitable operations in Sonoptic Technologies Inc., in which there is a 25% minority interest. As a result of all of the above, the net loss for the 2001 First Three Fiscal Quarters was $9,012,763, compared to net loss of $1,284,787 for the 2000 First Three Fiscal Quarters, an increase of $7,727,976. The 2001 First Three Fiscal Quarters loss resulted primarily from the addition of Chell Merchant Capital Group Inc. and Chell.com (USA) Inc. to the Company and their activities including the provision of services to developing ASP companies in which the Company has invested. Liquidity and Capital Resources At May 31st, 2001, the Company had a working capital deficit of $2,921,028, a decrease of $5,338,579 from working capital of $2,417,551 at August 31, 2000. For the 2001 First Three Fiscal Quarters, the Company had a net decrease of cash of $1,165,402 compared to a net decrease of $904,550 in the 2000 First Three Fiscal Quarters. Cash used in operating activities for the 2001 First Three Fiscal Quarters was $2,883,407, compared to $44,331 provided by operating activities in the 2000 First Three Fiscal Quarters. In 2001, the major items that contributed to cash being used in operating activities were as follows: the net loss with non-cash expenses added back of $4,540,223, the increase in income taxes receivable of $11,957 and the increase in prepaid expenses of $72,998. The major items that contributed to cash being provided by operating activities 15 were as follows: the decrease in accounts receivable of $604,723 a decrease in short-term investments of $250,209, an increase in accounts payable and accrued liabilities of $634,123 and a decrease in net assets from discontinued operations of of $131,514. In 2000, the major items that contributed to cash being provided by operating activities were as follows: net income with non-cash expenses added back of $819,111, decreases in income taxes receivable $167,957, and an increase in accounts payable and accrued liabilities and a decrease in net assets from discontinued operations of $540,021 and $183,903 respectively. The major uses of operating funds included increases in accounts receivable and prepaid expenses of $1,488,312 and $130,043 respectively. Cash used in investing activities in the 2001 First Three Fiscal Quarters was $3,270,461 compared to the $1,081,664 used in investing activities in the 2000 First Three Fiscal Quarters, an increase of $2,188,797. This increase was primarily the result of an increase in the note receivable from Engyro and the deposit of $1,689,710 on the purchase of shares in ApplicationStation.com, Inc. Cash provided by financing activities in the 2001 First Three Fiscal Quarters was $4,988,466, compared to the $132,783 providedin the 2000 First Three Fiscal Quarters. The increase is primarily due to the sale of the convertible debenture and the bridge financing. The Company is in the process of attempting to raise additional capital in order to realize its ASP strategy and to repay its loan obligations that are currently being negotiated. The Company's subsidiaries operating in the entertainment, education and E-commerce segments create liquidity sufficient to fund their operations. Management believes that the current negotiations for terms and financing will be successful and that combined with the reorganizing of the ASP segment in the First Fiscal 2001 Half, the Company will have the required liquidity for its planned operating activities in the current year. Inflation The rate of inflation has had little impact on the Company's operations or financial position during the nine months ended May 31, 2001 and May 31, 2000 and inflation is not expected to have a significant impact on the Company's operations or financial position during the 2001 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 its gross profit as well as its net income. If the value of the Canadian dollar falls against the US dollar, the cost of sales of the Company will increase thereby reducing its gross profit and net income. Conversely, if the value of the Canadian dollar rises against the US dollar, its gross profit and net income will increase. 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. 17 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following list sets forth the applicable exhibits (numbered in accordance with Item 601 of Regulation S-K) required to be filed with this Quarterly Report on Form 10-Q: Exhibit Number Title - ------- ----- 3.1 Certificate of Incorporation, as amended to date. 3.2 By-Laws, as amended to date. 10.1 License Agreement, dated March 23, 1990, between NTN Communications, Inc. and NTN Interactive Network Inc.+ 10.2 Stock Purchase Agreement, dated as of October 4, 1994, between NTN Canada Inc. and NetStar Enterprises Inc. (formerly, Labatt Communications Inc.). + Option, dated as of October 4, 1994, registered in the name of NetStar Enterprises Inc. (formerly, Labatt Communications Inc).+ 10.4 Designation Agreement dated as of October 4, 1994, among Networks North Inc. (formerly know as NTN Canada, Inc.), NTN Interactive Network Inc. and NetStar Enterprises Inc. (formerly Labatt Communications Inc.). + 10.15 Asset Purchase Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited, Networks North Inc. and Arthur Andersen Inc., to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. + 10.16 Promissory Note, dated September 10, 1999, by and between 1373224 Ontario Limited, as Debtor, and the Holder, as Creditor. + 10.17 General Security Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited, to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. + 10.18 Securities Pledge Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. + 10.23 Bill of Sale, dated September 13, 1999, by and between 1373224 Ontario Limited to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. + 10.24 Covenant of Networks North Inc., dated September 13, 1999, to allot and issue and pay to the Bank in writing 100,000 common shares of NETN. 11. Computation of Earnings Per Share (see note 4). 22 List of Subsidiaries 18 + Incorporated by reference. See Exhibit Index. (b) Reports on Form 8-K None. 19 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, thereunto duly authorized. CHELL GROUP CORPORATION Dated: July 13, 2001 By: /s/ Cameron Chell -------------------------------------- Cameron Chell, President and Chief Executive Officer (Duly Authorized Officer) Dated: July 13, 2001 By: /s/ Don Pagnutti -------------------------------------- Don Pagnutti, Principal Financial Officer 20 CHELL GROUP CORPORATION FORM 10-Q May 31, 2001 EXHIBIT INDEX Exhibit Number Description of Exhibit Location - ------- ---------------------- -------- 3.1 Certificate of Incorporation, as amended to date +1, Exh. 3.1 3.2 By-Laws, as amended to date +1, Exh. 3.2 10.1 License Agreement, dated March 23, 1990, between NTN Communications, Inc. and NTN Interactive Network Inc. +2, Exh. 10.9 10.2 Stock Purchase Agreement, dated October 1, 1996, among Connolly-Daw Holdings Inc., 1199846 Ontario Ltd., Douglas Connolly, Wendy Connolly and NTN Interactive Network Inc., minus Schedules thereto +3, Exh. 10.1 10.4 Designation Agreement dated as of October 4, 1994, among Networks North Inc. (formerly known as NTN Canada, Inc.), NTN Interactive Network Inc. and NetStar Enterprises Inc. (formerly Labatt Communications Inc.) +4, Exh. C 10.15 Asset Purchase Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited, Networks North Inc. and Arthur Andersen Inc., to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu. +5, Exh. 10.1 10.16 Promissory Note, dated September 10, 1999, by and between 1373224 Ontario Limited, as Debtor, and the Holder, as Creditor. +5, Exh. 10.2 10.17 General Security Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited, to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu.+5, Exh. 10.3 10.18 Securities Pledge Agreement, dated September 10, 1999, by and between 1373224 Ontario Limited to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu+5, Exh. 10.4 10.23 Bill of Sale, dated September 13, 1999, by and between 1373224 Ontario Limited to acquire the property and assets of GalaVu Entertainment Inc., from the person appointed by the court of competent jurisdiction as the receiver or receiver and manager of the property, assets and undertaking of GalaVu.+5, Exh. 10.9 21 10.24 Covenant of Networks North Inc. for valuable consideration to allot and issue and pay to the Bank in writing 100,000 common shares of NETN. +5, Exh. 10.10 11 Computation of earnings per share (see Note 4) 22 List of Subsidiaries +1, Exh. 22 +1 All exhibits so indicated are incorporated herein by reference to the exhibit number listed above in the Annual Report on Form 10-K of the Company, for its fiscal year ended August 31, 1996 (File No. 0-18066), filed on December 16, 1996. +2 All exhibits so indicated are incorporated herein by reference to the exhibit number listed above in the Annual Report on Form 10-K of NTN Communications, Inc., for its fiscal year ended December 31, 1990 (File No. 2-91761-C), filed on April 1, 1991. +3 All exhibits so indicated are incorporated herein by reference to the exhibit number listed above in the Current Report on Form 8-K of the Company (Date of Report: October 2, 1996) (File No. 0-18066), filed on October 17, 1996. +4 All exhibits so indicated are incorporated herein by reference to the exhibit number listed above in the Current Report on Form 8-K of the Company (Date of Report: October 4, 1994) (File No. 0-18066), filed on October 18, 1994. +5 All Exhibits so indicated are incorporated herein by reference to the exhibit listed above in the Company's 8-K (Date of Report: September 13, 1999) (File No. 0-18066), filed on September 29, 1999. ++ Filed electronically pursuant to Item 401 of Regulation S-T. 22 -----END PRIVACY-ENHANCED MESSAGE-----