-----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, LaTlDczHzm9KMZrlLwPlnsn3+UVQ9AOKWushXu0PdDFlC81vYPU/38Vd32Xt2S2D ymZjFp2IsD5DSIjKCNho4w== 0001005477-97-001061.txt : 19970415 0001005477-97-001061.hdr.sgml : 19970415 ACCESSION NUMBER: 0001005477-97-001061 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970414 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NTN CANADA INC 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: 1934 Act SEC FILE NUMBER: 000-18066 FILM NUMBER: 97580148 BUSINESS ADDRESS: STREET 1: 14 METEOR DR STREET 2: BLDG 18 CITY: ETOBOCOKE ONTARIO STATE: A6 ZIP: L4W 5A1 BUSINESS PHONE: 4166756666 MAIL ADDRESS: STREET 1: 14 METEOR DR CITY: ETOBICOKE ONTARIO STATE: A6 10-Q 1 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: February 28, 1997 Commission file number: 0-18066 NTN CANADA, INC. (Exact name of registrant as specified in its charter) New York 11-2805051 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14 Meteor Drive Etobicoke, 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 April 10, 1997: 2,441,617 shares of common stock, par value $.0467 per share. PART I - FINANCIAL INFORMATION NTN CANADA, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL INFORMATION PERIOD ENDED FEBRUARY 28, 1997 Item Item 1. Financial Statements: Consolidated Balance Sheets - February 28, 1997 and August 31, 1996 Consolidated Statement of Income - For the Six Months Ended February 28, 1997 and February 29, 1996 Consolidated Statements of Income - For the Three Months Ended February 28, 1997 and February 29, 1996 Consolidated Statements of Cash Flows - For the Six Months Ended February 28, 1997 and February 29, 1996 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations NTN CANADA, INC. CONSOLIDATED BALANCE SHEETS FEBRUARY 28, 1997 AND AUGUST 31, 1996 (Expressed in Canadian Dollars - Unaudited)
February 28, 1997 August 31, 1996 $ $ ----------------- ---------------- ASSETS Current Cash and cash equivalents 680,002 1,777,889 Short-term temporary investments 3,615,703 3,577,151 Accounts receivable, trade - net of allowance for doubtful accounts of $46,500; August - $39,000 1,780,907 563,601 Note receivable -- 350,000 Inventory 681,158 631,171 Prepaid expenses 513,667 162,003 ----------- ----------- Total current assets 7,271,437 7,061,815 ----------- ----------- Note receivable 160,000 -- Property and equipment, net 4,085,842 2,447,937 Video Master Library 262,000 -- Distribution Rights 1,200,000 -- Goodwill and other intangibles 1,224,499 373,341 ----------- ----------- 6,932,341 2,821,278 ----------- ----------- 14,203,778 9,883,093 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Bank loan 150,000 -- Accounts payable - trade 1,646,281 715,651 Income taxes payable 146,182 260,008 Current portion of long-term debt 592,816 -- ----------- ----------- Total current liabilities 2,535,279 975,659 ----------- ----------- Debenture 647,907 -- Loans payable 1,069,010 -- Notes payable 1,389,797 -- ----------- ----------- 3,106,714 0 Less current portion 592,816 -- ----------- ----------- 2,513,898 0 ----------- ----------- Deferred income taxes payable 68,404 30,000 ----------- ----------- Minority interest (116,202) -- ----------- ----------- Shareholders' equity Common Stock - 2,441,617 issued 150,187 150,187 Preferred Stock - 950,000 issued 11,523 11,523 Capital in excess of par value 7,921,347 7,921,347 Retained earnings 1,119,342 794,377 ----------- ----------- Total shareholders' equity 9,202,399 8,877,434 ----------- ----------- 14,203,778 9,883,093 =========== ===========
NTN CANADA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 (Expressed in Canadian Dollars - Unaudited)
February 28, 1997 February 29, 1996 $ $ ----------------- ----------------- Total Revenues 4,978,813 3,085,474 Cost of sales 1,683,911 1,127,600 --------- --------- 3,294,902 1,957,874 General and administrative expenses 2,740,804 1,367,382 --------- --------- Income before provision for income taxes and minority interest 554,098 590,492 Provision for income taxes 256,908 200,000 --------- --------- Income before minority interest 297,190 390,492 Minority interest 27,775 - --------- --------- Net income 324,965 390,492 Retained earnings, beginning of period 794,377 253,318 --------- --------- Retained earnings, end of period 1,119,342 643,810 ========= ========= Earnings per share, primary $0.12 $0.16 ========= ========= Earnings per share, fully diluted $0.12 $0.16 ========= ========= Weighted average number of shares, primary 2,704,765 2,369,810 Weighted average number of shares, fully diluted 2,710,060 2,369,810
NTN CANADA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 (Expressed in Canadian Dollars - Unaudited)
February 28, 1997 February 29, 1996 $ $ ----------------- ----------------- Total Revenues 2,756,289 1,723,403 Cost of sales 939,746 600,629 ----------- ----------- 1,816,543 1,122,774 General and administrative expenses 1,548,041 759,573 ----------- ----------- Income before provision for income taxes and minority interest 268,502 363,201 Provision for income taxes 112,643 164,500 ----------- ----------- Income before minority interest 155,859 198,701 Minority interest 17,788 -- ----------- ----------- Net Income 173,647 198,701 Retained earnings, beginning of period 945,695 445,109 ----------- ----------- Retained earnings, end of period 1,119,342 643,810 =========== =========== Earnings per share $0.06 $0.07 =========== ===========
NTN CANADA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIOD ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
February 28, 1997 February 29, 1996 $ $ ----------------- ----------------- OPERATING ACTIVITIES: Net income for the six months 324,965 390,492 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 362,406 174,535 Minority interest (27,775) -- CHANGES IN ASSETS AND LIABILITIES Increase in accounts receivable (571,953) (101,941) Decrease (increase) in inventory 264,530 (293,674) Decrease (increase) in prepaid expenses (107,380) 2,995 Increase (decrease) in accounts payable and accrued liabilities (24,579) (14,438) Increase (decrease) in income taxes payable (88,550) 80,473 ----------- ----------- Cash provided by operating activities 131,664 238,442 ----------- ----------- FINANCING ACTIVITIES: Bank Loan (210,000) -- Mortgage payable 0 (244,223) Notes and Loans Payable (1,734) -- Debenture (4,500) -- ----------- ----------- Cash used in financing activities (216,234) (244,223) ----------- ----------- INVESTING ACTIVITIES: Purchases of property and equipment (433,583) (429,523) Acquisition of Magic Lantern (541,182) -- ----------- ----------- Cash used for Investment Activities (974,765) (429,523) ----------- ----------- Net increase (decrease) in cash and cash equivalents (1,059,335) (435,304) Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period 5,355,040 5,149,521 ----------- ----------- 4,295,705 4,714,217 =========== =========== Cash and cash equivalents are represented by: Cash Short-term temporary investments 680,002 422,564 3,615,703 4,291,653 ----------- ----------- 4,295,705 4,714,217
NTN CANADA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIOD ENDED FEBRUARY 28, 1997 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 NTN Canada, Inc. (the "Company") (Commission No.:0-18066), filed with the Securities and Exchange Commission on December 14, 1996. The results of operations for the six months ended February 28, 1997 are not necessarily indicative of the results for the full fiscal year ending August 31, 1997. Note 2. General. The financial statements of the Company for the six months ended February 28, 1997, include the operations of the Company's wholly owned subsidiary, NTN Interactive Network Inc. ("NTNIN"). On October 2, 1996, NTNIN acquired, effective October 1, 1996, all of the outstanding stock of Magic Lantern Communications Ltd. ("Magic"), pursuant to which Magic became a wholly-owned subsidiary of NTNIN. Magic conducts its operations directly and through its wholly owned subsidiaries, 745695 Ontario Ltd. ("Custom Video") and B.C. Learning Connection ("BCLC"), and its 75% ownership of the outstanding shares of Sonoptic Technologies Inc. ("Sonoptic"). On October 10, 1996, Magic acquired 50% of the outstanding shares of 1113659 Ontario Ltd. ("Viewer Services"), a joint venture operated with International Tele-Film Enterprises Ltd. (Magic, Custom Video, BCLC, Sonoptic and Viewer Services are referred to as the "Magic Lantern Group"). Reference is hereby made to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission (the "Commission") on October 17, 1996, as amended by Form 8-K/A No.1, filed with the Commission on December 16, 1996, for further information with respect to the Company's acquisition of Magic. The acquisitions of Magic and Viewer Services were made effective October 1, 1996 and October 10, 1996, respectively. Both acquisitions were accounted for as purchases. Accordingly, the Company's results of operations for the six months ended February 28, 1997 (the "1997 First Fiscal Half") reflect the operating results of the Magic Lantern Group, while the Company's results of operations for the six months ended February 29, 1996 (the "1996 First Fiscal Half") do not reflect the operating results of the Magic Lantern Group. Note 3. Business Segment Data for the six months ended February 28, 1997 and February 29, 1996
Interactive TV Educational Video Entertainment Distribution Total ------------- ------------ ----- 1997 - ---- Total Revenues 3,685,869 1,292,944 4,978,813 Operating Income (Loss) 614,438 (60,340) 554,098 Net Earnings (Loss) 357,920 (32,955) 324,965 Total Assets 10,557,152 3,646,626 14,203,778 Current Liabilities 1,057,524 1,477,755 2,535,279 Total Liabilities 1,087,524 4,030,057 5,117,581 1996 - ---- Total Revenues 3,085,474 -- 3,085,474 Operating Income (Loss) 590,492 -- 590,492 Net Earnings (Loss) 390,492 -- 390,492 Total Assets 8,564,974 -- 8,564,974 Current Liabilities 628,071 -- 628,071 Total Liabilities 638,071 -- 638,071
Note 4. Net income per Common Share. Primary and fully diluted net income per common share is computed using the weighted average number of common shares outstanding. 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 ("Cdn$"). For the convenience of the reader, in this Management's Discussion and Analysis, certain financial amounts are also given in U.S. dollars ("US$"), converted at the Noon Buying Rate in effect at the end of the period to which the amount relates, or the exchange rate on the date specified herein. The Noon Buying Rates for February 28, 1997 and February 29, 1996 were Cdn$1.3665 and Cdn$1.3601 per US$1.00, respectively. As the Noon Buying Rate fluctuates daily, financial comparisons between periods expressed in U.S. dollars do not accurately reflect the true difference in the Company's financial position or results of operations between periods. Accordingly, the comparisons between periods presented below, both in dollar amounts and as percentages from prior periods, are expressed in Canadian dollars only. General The Company, through its wholly owned subsidiary, NTNIN, currently provides its products and services through seven business units or subsidiaries. Of these seven, two are considered to be the traditional core of the Company's business, that is, directly related to multi-player interactive entertainment programs. The two traditional core business units are the Hospitality Group and the Corporate Events/Home Market Group. The other five units, collectively referred to as the "Magic Lantern Group," are (i) NTNIN's wholly-owned subsidiary Magic, which is involved in the marketing and distribution of educational video and media resources, (ii) Magic's wholly-owned subsidiary Custom Video, which is involved in the manufacturing of videotape copies, (iii) Custom Video's wholly-owned subsidiary BCLC, which is involved in the marketing and fulfillment services of educational video titles, (iv) Magic's 75%-owned subsidiary Sonoptic, which is involved in the conversion of analog video to digital video formats, and (v) Magic's 50%-owned subsidiary Viewer Services, which is involved in the inbound telemarketing and fulfillment services for television broadcasters and others. The Company's acquisitions of Magic and Viewer Services were made effective October 1, 1996 and October 10, 1996, respectively. Both acquisitions were accounted for as purchases. Accordingly, the Company's results of operations for the 1997 Second Fiscal Quarter reflect the operating results of the Magic Lantern Group, while the Company's results of operations for the 1996 Second Fiscal Quarter do not reflect the operating results of the Magic Lantern Group. Highlights of the Three Months Ended February 28, 1997 During the 1997 Second Fiscal Quarter, programming licenses for Toronto Bluejays Trivia and Hockey Hall of Fame Trivia were renewed for the Network and expanded to include delivery of these branded programs to America OnLine Canada. The programming license for Players Raceworld Trivia was also renewed during the 1997 Second Fiscal Quarter. Results of Operations The Company's total revenues for the 1997 Second Fiscal Quarter were Cdn$2,756,289 (US$2,017,043), compared to Cdn$1,723,403 (US$1,267,115) for the 1996 Second Fiscal Quarter, an increase of Cdn$1,032,886 or 59.9%. Total revenues, excluding Magic, for the 1997 Second Fiscal Quarter were Cdn$1,876,167 (US$1,372,973), compared to Cdn$1,723,403 (US$1,267,115) for the 1996 Second Fiscal Quarter, an increase of Cdn$152,764 or 8.90%. This increase is primarily the result of increased revenues from program content services and equipment rentals, both of which are attributable to a net increase of 69 Network locations from a year earlier; increased revenues from advertising and sponsorship; and increased revenues from internet program content services. These increases were offset, to some extent, by reductions in interest income and event programming revenues. Total cost of sales for the 1997 Second Fiscal Quarter was Cdn$939,746 (US$ 687,703), compared to Cdn$600,629 (US$ 441,606) for the 1996 Second Fiscal Quarter, an increase of Cdn$339,117 or 56.5%. Total cost of sales excluding costs incurred by the Magic Lantern Group for the 1997 Second Fiscal Quarter were Cdn$688,646 (US$ 503,949), compared to Cdn$600,629 (US$441,606) for the 1996 Second Fiscal Quarter, an increase of Cdn$88,017 or 14.7%. This increase is primarily the result of increased equipment costs and commissions, both of which are attributable to an increase in Network locations from the number of locations during the comparable prior period. As a percentage of the Company's total revenues, excluding revenues derived by the Magic Lantern Group, such costs of sales increased to 36.7% for the 1997 Second Fiscal Quarter from 34.9% for the 1996 Second Fiscal Quarter. Total expenses for the 1997 Second Fiscal Quarter were Cdn$1,548,041 (US$1,132,851), compared to Cdn$759,573 (US$558,468) for the 1996 Second Fiscal Quarter, an increase of Cdn$788,468 or 103.8%. Total expenses excluding expenses incurred by the Magic Lantern Group for the 1997 Second Fiscal Quarter were Cdn$900,570 (US$659,034), compared to Cdn$759,573 (US$558,468) for the 1996 Second Fiscal Quarter, an increase of Cdn$140,997 or 18.6%. This increase is primarily the result of increased salaries, repairs and maintenance costs, depreciation, professional expenses, and bad debts; and an increase in foreign exchange gain. As a percentage of the Company's total revenues, excluding revenues derived by the Magic Lantern Group, such expenses increased to 48.0% for the 1997 Second Fiscal Quarter from 44.1% for the 1996 Second Fiscal Quarter. As a result of all of the above, net income for the 1997 Second Fiscal Quarter was Cdn$173,647 (US$127,074), compared to Cdn$198,701 (US$146,093) for the 1996 Second Fiscal Quarter, a decrease of Cdn$25,054 or 12.6%. Net income, excluding the results of the Magic Lantern Group, for the 1997 Second Fiscal Quarter was Cdn$174,309 (US$127,559), compared to Cdn$198,701 (US$146,093) for the 1996 Second Fiscal Quarter, a decrease of Cdn$24,392 or 12.3%. This decrease is primarily the result of costs associated with the addition of staff, and slower than expected growth in revenues from program content services during the quarter. As a percentage of the Company's total revenues, excluding the results of the Magic Lantern Group, net income decreased to 9.3% for the 1997 Second Quarter from 11.5% for the 1996 Second Fiscal Quarter. Results of Operations for the Six Months Ended February 28, 1997 The Company's total revenues for the six months ended February 28, 1997 (the "1997 First Fiscal Half") were Cdn$4,978,813 (US$3,643,478), compared to Cdn$3,085,474 (US$2,268,564) for the six months ended February 29, 1996 (the "1996 First Fiscal Half"), an increase of Cdn$1,893,339 or 61.4%. Total revenues, excluding Magic, for the 1997 First Fiscal Half were Cdn$3,686,258 (US$2,697,591), compared to Cdn$3,085,474 (US$2,268,564) for the 1996 First Fiscal Half, an increase of Cdn$600,784 or 19.5%. This increase is primarily the result of increased revenues from program content services and equipment rentals, both of which are attributable to a net increase of 69 Network locations from a year earlier: and increased revenues from event programming and internet program content services. These increases were offset, to some extent, by reductions in interest income. Total cost of sales for the 1997 First Fiscal Half was Cdn$1,683,911 (US$ 1,232,280), compared to Cdn$1,127,600 (US$829,057) for the 1996 First Fiscal Half, an increase of Cdn$556,311 or 49.3%. Total cost of sales excluding costs incurred by the Magic Lantern Group for the 1997 First Fiscal Half were Cdn$1,331,995 (US$974,749), compared to Cdn$1,127,600 (US$829,057) for the 1996 First Fiscal Half, an increase of Cdn$204,395 or 18.1%. This increase is primarily the result of increased equipment costs and commissions, both of which are attributable to an increase in Network locations from the number of locations during the comparable prior period. As a percentage of the Company's total revenues, excluding revenues derived by the Magic Lantern Group, such costs of sales decreased to 36.1% for the 1997 First Fiscal Half from 36.5% for the 1996 First Fiscal Half. Total expenses for the 1997 First Fiscal Half were Cdn$2,740,804 (US$2,005,711), compared to Cdn$1,367,382 (US$1,005,354) for the 1996 First Fiscal Half, an increase of Cdn$1,373,422 or 100.4%. Total expenses excluding expenses incurred by the Magic Lantern Group for the 1997 First Fiscal Half were Cdn$1,739,436 (US$1,272,913), compared to Cdn$1,367,382 (US$1,005,354) for the 1996 First Fiscal Half, an increase of Cdn$372,054 or 27.2%. This increase is primarily the result of increased salaries and foreign exchange loss. As a percentage of the Company's total revenues, excluding revenues derived by the Magic Lantern Group, such expenses increased to 47.2% for the 1997 First Fiscal Half from 44.3% for the 1996 First Fiscal Half. Provision for income taxes for the 1997 First Fiscal Half were Cdn$256,908 (US$188,004), compared to Cdn$200,000 (US$147,048) for the 1996 First Fiscal Half, an increase of Cdn$56,908 (US$41,645) or 28.5%. Provision for income taxes, excluding provision for income taxes for Magic for the 1997 First Fiscal Half were Cdn$271,892 (US$198,970), compared to Cdn$200,000 (US$147,048) for the 1996 First Fiscal Half, an increase of Cdn$71,892 (US$52,610) or 35.9%. This increase is primarily the result of there being no further tax loss carry forward provision available for the Company as there had been for the 1996 First Fiscal Half. As a result of all of the above, net income for the 1997 First Fiscal Half was Cdn$324,965 (US$237,808), compared to Cdn$390,492 (US$287,105) for the 1996 First Fiscal Half, a decrease of Cdn$65,527 or 16.8%. Net income, excluding the results of the Magic Lantern Group, for the 1997 First Fiscal Half was Cdn$342,936 (US$250,959), compared to Cdn$390,492 (US$287,105) for the 1996 First Fiscal Half, a decrease of Cdn$47,556 or 12.2%. This decrease is primarily the result of costs associated with the addition of staff, and slower than expected growth in revenues from program content services during the quarter. As a percentage of the Company's total revenues, excluding the results of the Magic Lantern Group, net income decreased to 9.3% for the 1997 Second Quarter from 12.7% for the 1996 First Fiscal Half. Liquidity and Capital Resources At February 28, 1997, the Company had working capital of Cdn$4,736,158 (US$3,465,904), a decrease of Cdn$1,349,998 from working capital of Cdn$6,086,156 (US$4,447,319) at August 31, 1996. This decrease is primarily due to the acquisition of the Magic Lantern Communications Ltd. effective October 1, 1996. For the 1997 First Fiscal Half, the Company had a net decrease in cash flow of Cdn$1,059,335, compared to a net decrease of Cdn$435,304 in the 1996 First Fiscal Half. Cash provided by operating activities for the 1997 First Fiscal Half was Cdn$131,664 (US$96,351) a decrease of Cdn$106,778 from cash provided by operating activities in the 1996 First Fiscal Half. The major factors contributing to this decrease include an increase in accounts receivable of Cdn$571,953 due to the payment practices of the educational market in which Magic Lantern operates and a decrease in inventory of Cdn$264,530 resulting from the use of existing inventory for new system installations. Cash used in investing activities in both the 1997 First Fiscal Half and 1996 First Fiscal Half was Cdn$974,765 (US$ 713,330) and CDN$429,523 (US$315,803), respectively. Cash used in the 1997 First Fiscal Half was greater than in the comparable prior period primarily due to the purchase of the Magic Lantern Group. The purchase equation for the Magic Lantern Group has been refined as of February 28, 1997 to reflect the value of certain assets previously classified as intangible. Cash used in financing for the 1997 First Fiscal Half was Cdn$216,234 (US$158,239). This cash was used to reduce Magic Lantern Group bank loans. Cash used in financing for the 1996 First Fiscal Half was Cdn$244,223 (US$179,563). This cash was used to repay in full the outstanding mortgage on the Company's land and building. Management believes that the Company's working capital position provides the necessary liquidity, on both a short and long term basis, for the Company's planned activities and that the Company will not require additional external financing for its operating activities during the Company's year ending August 31, 1997 (the "1997 Fiscal Year"). However, any changes in such plans may require the Company to seek outside financing. No arrangements are presently in place for outside financing should the need arise. Inflation The rate of inflation has had little impact on the Company's operations or financial position during the three months ended February 28, 1997 and 1996 and inflation is not expected to have a significant impact on the Company's operations or financial position during the 1997 Fiscal Year. The Company pays a number of its suppliers, including its licensor and principal supplier, NTN Communications, Inc., in US dollars. Therefore, fluctuations in the value of the Canadian dollar against the US dollar will have an impact on gross profit as well as the net income of the Company. If the value of the Canadian dollar falls against the US dollar, the cost of sales of the Company will increase thereby reducing the Company's gross profit and net income. Conversely, if the value of the Canadian dollar rises against the US dollar, gross profit and net income will increase. PART II - OTHER INFORMATION Item 1. Legal Proceedings. Reference is hereby made to Item 3. Legal Proceedings, on pages 16 and 17 of the Annual Report on Form 10-K, for the fiscal year ended August 31, 1996 (Commission No.: 0-18066), filed with the Securities and Exchange Commission on December 14, 1996, for information with respect to material legal proceedings to which the Company or any of its subsidiaries are, and may in the future become, parties. To the knowledge of the Company, no other proceedings of a material nature have been commenced or are contemplated by governmental authorities or others. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. The Annual Meeting of Shareholders of the Company was held on Friday, February 28, 1997. At the meeting the existing Directors of the Company were re-elected by 1,629,943 votes cast in favor of all the nominees for Director, being in excess of a majority of the shares present in person or by proxy, and holders of shares of the Company possessing 1,477 votes withheld their votes from all the nominees for Director. The holders of shares of the Company possessing 1,630,578 votes, being in excess of a majority of the shares present in person or by proxy, voted in favor of ratifying Ernst & Young as independent auditors of the Company for the fiscal year ending August 31, 1997. Item 5. Other Information. Effective November 29, 1996, Richard Peddie resigned as a director of the Company in connection with his resignation as an officer of NetStar Enterprises Inc. ("NetStar"), (an assignee of Labatt Communications Inc. (LCI)). Pursuant to a Designation Agreement, dated as of October 4, 1994 (the "Designation Agreement"), among the Company, NTNIN and LCI, NetStar has the right to designate a specified number of directors of the Company, currently two directors. In connection with the resignation of Mr. Peddie, on November 29, 1996, NetStar designated James Thompson to fill the vacancy in the Board of Directors of the Company created by Mr. Peddie's resignation. The Board of Directors of the Company elected Mr. Thompson to the Board to fill such vacancy on January 13, 1997. James Thompson is the President (since January, 1997) of NetStar, President (since June 1994) of TSN The Sports Network ("TSN"), a cable network providing sports, news and entertainment programming throughout Canada and an affiliate of NetStar. Mr. Thompson also served as General Manager (July 1988 to January 1997), Vice-President (July 1988 to June 1994), Vice-President of Programming (January 1986 to July 1988) and Program Director (July 1985 to January 1986) of TSN. Prior to joining TSN, Mr. Thompson was employed for over twenty years by the Canadian Broadcasting Corporation, serving in positions of increasing responsibility up to the level of Executive Producer. 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 October 1, 1996, among Connolly-Daw Holdings Inc., 1199846 Ontario Ltd., Douglas Connolly, Wendy Connolly and NTN Interactive Network Inc., minus Schedules thereto.+ 10.3 Designation Agreement, dated as of October 4, 1994, among NTN Canada, Inc., NTN Interactive Network Inc. and NetStar Enterprises Inc. (formerly Labatt Communications Inc.).+ 22 List of Subsidiaries.+ 27 Financial Data Schedule. - ---------- + Incorporated by reference. See Exhibit Index. (b) Reports on Form 8-K. The Company filed a Current Report on Form 8-K (Date of Report: October 2, 1996) with the Commission on October 17, 1996, reporting the Company's acquisition of the Magic Lantern Group. The Form 8-K was thereafter amended, by the filing of Form 8-K/A No. 1, filed with the Commission on December 14, 1996, which provided the following financial statements and information: 1. Financial Statements of Magic Lantern Communications Ltd. Report of Independent Chartered Accountants Consolidated Balance Sheets - August 31, 1996 Consolidated Statement of Income - Eleven Months Ended August 31, 1996 Consolidated Statement of Deficit - Eleven Months Ended August 31, 1996 Consolidated Statement of Changes in Financial Position - Eleven Months Ended August 31, 1996 Notes to Consolidated Financial Statements 2. Pro Forma Condensed Consolidated Financial Statements Introductory Comment Pro Forma Condensed Consolidated Balance Sheets - August 31, 1996 Pro Forma Condensed Statement of Operations - Year Ended August 31, 1996 Notes to Pro Forma Condensed Financial Statements 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. NTN CANADA, INC. Dated: April 10, 1997 By: ----------------------------------------- Peter Rona, President and Principal Financial Officer (Duly Authorized Officer) NTN CANADA, INC. FORM 10-Q NOVEMBER 30, 1996 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 10.3 Designation Agreement, dated as of October 4, 1994, among NTN Canada, Inc., NTN Interactive Network Inc. and NetStar Enterprises Inc. (formerly Labatt Communications Inc.) +4, Exh. C 22 List of Subsidiaries +1, Exh. 22 27 Financial Data Schedule ++ - ---------- +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. ++ Filed electronically pursuant to Item 401 of Regulation S-T. EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED THEREIN. Canadian Dollars 6-MOS AUG-31-1997 SEP-01-1996 FEB-28-1997 1.3665 680,002 3,615,703 1,780,907 46,500 681,158 7,271,437 513,667 0 14,203,778 2,535,279 0 0 11,523 150,187 7,921,347 14,203,778 4,978,813 4,978,813 1,683,911 1,683,911 0 0 0 544,098 256,908 0 0 0 0 324,965 .12 .12
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