-----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, L7iGcIk5BRa1X0lAwwgLfZJg3EiDLnFxfgxg9VieinvjB28hfie7sW0aKd28J5S2 TMnDyPCKYKPGK3Xd7MlKyQ== 0001005477-97-001859.txt : 19970716 0001005477-97-001859.hdr.sgml : 19970716 ACCESSION NUMBER: 0001005477-97-001859 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970715 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: 97640719 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: May 31, 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 15, 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 MAY 31, 1997 Item Item 1. Financial Statements: Consolidated Balance Sheets - May 31, 1997 and August 31, 1996 Consolidated Statements of Income - For the Nine Months Ended May 31, 1997 and May 31, 1996 Consolidated Statements of Income - For the Three Months Ended May 31, 1997 and May 31, 1996 Consolidated Statements of Cash Flows - For the Nine Months Ended May 31, 1997 and May 31, 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 MAY 31, 1997 AND AUGUST 31, 1996 (Expressed in Canadian dollars - unaudited) ================================================================================ May 31, 1997 August 31, 1996 $ $ - -------------------------------------------------------------------------------- ASSETS Current Cash and cash equivalents 2,655,839 1,777,889 Short-term temporary investments 2,046,936 3,577,151 Accounts receivable, trade - net of allowance for doubtful accounts of $46,500; August - $39,000 1,520,945 563,601 Note receivable -- 350,000 Inventory 552,554 631,171 Prepaid expenses 511,268 162,003 - -------------------------------------------------------------------------------- Total current assets 7,287,542 7,061,815 - -------------------------------------------------------------------------------- Note receivable 160,000 -- Property and equipment, net 4,088,298 2,447,937 Video master library 257,633 -- Distribution rights 1,180,000 -- Goodwill and other intangibles 1,209,445 373,341 - -------------------------------------------------------------------------------- 6,895,376 2,821,278 - -------------------------------------------------------------------------------- 14,182,918 9,883,093 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable - trade 1,735,976 715,651 Income taxes payable 170,971 260,008 Current portion of long-term debt 592,816 -- - -------------------------------------------------------------------------------- Total current liabilities 2,499,763 975,659 - -------------------------------------------------------------------------------- Debenture 642,899 -- Loans payable 1,057,010 -- Notes payable 1,376,371 -- - -------------------------------------------------------------------------------- 3,076,280 -- Less: current portion 592,816 -- - -------------------------------------------------------------------------------- 2,483,464 -- - -------------------------------------------------------------------------------- Deferred income taxes payable 68,404 30,000 - -------------------------------------------------------------------------------- Minority interest (130,851) -- - -------------------------------------------------------------------------------- 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 1,179,081 794,377 - -------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 9,262,138 8,877,434 - -------------------------------------------------------------------------------- 14,182,918 9,883,093 ================================================================================ NTN CANADA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE NINE MONTHS ENDED MAY 31, 1997 AND MAY 31, 1996 (Expressed in Canadian dollars - unaudited) ================================================================================ May 31, 1997 May 31, 1996 $ $ - -------------------------------------------------------------------------------- Total revenue 7,589,014 4,732,916 Cost of sales 2,343,003 1,638,426 - -------------------------------------------------------------------------------- 5,246,011 3,094,490 General and administrative expenses 3,961,509 2,011,046 - -------------------------------------------------------------------------------- Income before interest, income taxes, depreciation and amortization and minority interest 1,284,502 1,083,444 Interest 84,460 7,741 Depreciation and amortization 583,312 269,670 - -------------------------------------------------------------------------------- Income before income taxes and minority interest 616,730 806,033 Provision for income taxes 274,450 295,100 - -------------------------------------------------------------------------------- Income before minority interest 342,280 510,933 Minority interest 42,424 -- - -------------------------------------------------------------------------------- Net income 384,704 510,933 Retained earnings, beginning of period 794,377 253,318 - -------------------------------------------------------------------------------- Retained earnings, end of period 1,179,081 764,251 ================================================================================ Earnings per share: Primary 0.14 0.21 Fully diluted 0.14 0.21 Weighted average number of shares, primary 2,691,232 2,387,696 Weighted average number of shares, fully diluted 2,698,021 2,387,696 ================================================================================ NTN CANADA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED MAY 31, 1997 AND MAY 31, 1996 (Expressed in Canadian dollars - unaudited) ================================================================================ May 31, 1997 May 31, 1996 $ $ - -------------------------------------------------------------------------------- Total revenues 2,610,201 1,647,442 Cost of sales 870,560 639,747 - -------------------------------------------------------------------------------- 1,739,641 1,007,695 General and administrative expenses 1,431,679 693,720 - -------------------------------------------------------------------------------- Income before interest, income taxes, depreciation and amortization and minority interest 307,962 313,975 Interest 24,424 1,328 Depreciation and amortization 220,906 97,106 - -------------------------------------------------------------------------------- Income before income taxes and minority interest 62,632 215,541 Provision for income taxes 17,542 95,100 - -------------------------------------------------------------------------------- Income before minority interest 45,090 120,441 Minority interest 14,649 -- - -------------------------------------------------------------------------------- Net income 59,739 120,441 Retained earnings, beginning of period 1,119,342 643,810 - -------------------------------------------------------------------------------- Retained earnings, end of period 1,179,081 764,251 ================================================================================ Earnings per share 0.02 0.05 ================================================================================ NTN CANADA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MAY 31, 1997 AND MAY 31, 1996 (Expressed in Canadian dollars - unaudited) ================================================================================ May 31, 1997 May 31, 1996 $ $ - -------------------------------------------------------------------------------- OPERATING ACTIVITIES Net Income for the nine months 384,704 510,933 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 583,312 239,821 Minority interest (42,424) -- Changes in assets and liabilities Increase in accounts receivable (311,991) (114,993) Decrease (increase) in inventory 393,134 (254,566) Decrease (increase) in prepaid expenses (104,981) 7,195 Increase in accounts payable and accrued liabilities 65,116 92,570 Increase (decrease) in income taxes payable (63,761) 78,328 - -------------------------------------------------------------------------------- Cash provided by operating activities 903,109 559,288 - -------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from issuing common shares -- 125,548 Bank loan (360,000) -- Mortgage payable -- (244,223) Notes and loans payable (27,160) -- Debenture (9,508) -- - -------------------------------------------------------------------------------- Cash used in financing activities (396,668) (118,675) - -------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchases of property and equipment (617,524) (608,878) Acquisition of Magic Lantern (541,182) -- - -------------------------------------------------------------------------------- Cash used in investing activities (1,158,706) (608,878) - -------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (652,265) (168,265) Cash and cash equivalents, beginning of period 5,355,040 5,149,521 - -------------------------------------------------------------------------------- Cash and cash equivalents, end of period 4,702,775 4,981,256 ================================================================================ Cash and cash equivalents are represented by Cash 2,655,839 459,727 Short-term temporary investments 2,046,936 4,521,529 - -------------------------------------------------------------------------------- 4,702,775 4,981,256 ================================================================================ NTN CANADA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIOD ENDED MAY 31, 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 nine months ended May 31, 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 nine months ended May 31, 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 nine months ended May 31, 1997 (the"1997 First Three Fiscal Quarters") reflect the operating results of the Magic Lantern Group, while the Company's results of operations for the nine months ended May 31, 1996 (the "1996 First Three Fiscal Quarters") do not reflect the operating results of the Magic Lantern Group. Note 3. Business Segment Data for the nine months ended May 31, 1997 and May 31, 1996 Interactive TV Educational Video Entertainment Distribution Total ------------- ------------ ----- 1997 Total Revenues 5,431,303 2,157,711 7,589,014 Operating Income (Loss) 633,181 (16,451) 616,730 Net Earnings (Loss) 358,731 25,973 384,704 Total Assets 11,261,695 2,921,223 14,182,918 Current Liabilities 1,103,295 1,396,468 2,499,763 Total Liabilities 2,070,795 2,980,836 5,051,631 1996 Total Revenues 4,732,916 -- 4,732,916 Operating Income (Loss) 806,033 -- 806,033 Net Earnings (Loss) 510,933 -- 510,933 Total Assets 8,915,826 -- 8,915,826 Current Liabilities 732,934 -- 732,934 Total Liabilities 742,934 -- 742,934 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 May 31, 1997 and May 31, 1996 were Cdn$1.3809 and Cdn$1.3616 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 fulfilment services of educational video titles, (iv) Magic's 75% owned subsidiary Sonoptic, which is involved in the conversion of analog video to digital video formats, and (v) Magic's 50% owned subsidiary Viewer Services, which is involved in the inbound telemarketing and fulfilment services for television broadcasters and others. The 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 Third Fiscal Quarter reflect the operating results of the Magic Lantern Group, while the Company's results of operations for the 1996 Third Fiscal Quarter do not reflect the operating results of the Magic Lantern Group. Highlights of the Three Months Ended May 31, 1997 During the 1997 Third Fiscal Quarter, an agreement was entered with the Canadian Olympic Association whereby NTNIN is the official interactive trivia provider for the Association. In addition, a programming license with Earth Day Canada was signed for the Network and ECO Trivia was launched with IDC Canada as the sponsor. The Company's Corporate Products group provided interactive programs during the quarter for the Canadian Tire Tour across Canada, the Air Canada Challenge for the fifth year and TD Asset Management for the fourth year. The Home Market group beta-tested an interactive hockey game on TSN's Web Site, TSN.CA, and introduced five Canadian content games on AOL Canada. In addition, two games were successfully completed for Videoway's two-way interactive television network. Results of Operations for the Three Months Ended May 31, 1997 The Company's total revenues for the 1997 Third Fiscal Quarter were Cdn$2,610,201 (US$1,890,217), compared to Cdn$1,647,442 (US$1,209,931) for the 1996 Third Fiscal Quarter, an increase of Cdn$962,759 or 58.4%. Total revenues, excluding those of the Magic Lantern Group, for the 1997 Third Fiscal Quarter were Cdn$1,745,434 (US$1,263,983), compared to Cdn$1,647,442 (US$1,209,931) for the 1996 Third Fiscal Quarter, an increase of Cdn$97,992 or 5.9%. 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 30 Network locations from a year earlier, and increased revenues from internet program content services. These increases were offset, to some extent, by reductions in interest income, advertising sponsorship and event programming revenues. Total cost of sales for the 1997 Third Fiscal Quarter was Cdn$870,560 (US$630,429), compared to Cdn$639,747 (US$469,849) for the 1996 Third Fiscal Quarter, an increase of Cdn$230,813 or 36.1%. Total cost of sales, excluding costs incurred by the Magic Lantern Group for the 1997 Third Fiscal Quarter, was Cdn$637,000 (US$461,293), compared to Cdn$639,747 (US$469,849) for the 1996 Third Fiscal Quarter, a slight decrease of Cdn$2,747 or 0.4%. As a percentage of the Company's total revenues, excluding revenues derived by the Magic Lantern Group, such costs of sales decreased to 36.5% for the 1997 Third Fiscal Quarter from 38.8% for the 1996 Third Fiscal Quarter. Total general and administrative expenses for the 1997 Third Fiscal Quarter were Cdn$1,431,679 (US$1,036,772), compared to Cdn$693,720 (US$509,489) for the 1996 Third Fiscal Quarter, an increase of Cdn$737,959 or 106.4%. Total general and administrative expenses, excluding those incurred by the Magic Lantern Group for the 1997 Third Fiscal Quarter, were Cdn$917,199 (US$664,204), compared to Cdn$693,720 (US$509,489) for the 1996 Third Fiscal Quarter, an increase of Cdn$223,479 or 32.2%. This increase is primarily the result of increased salaries, professional fees and advertising and promotion expenses. As a percentage of the Company's total revenues, excluding revenues derived by the Magic Lantern Group, such expenses increased to 52.5% for the 1997 Third Fiscal Quarter from 42.1% for the 1996 Third Fiscal Quarter. Interest expenses for the 1997 Third Fiscal Quarter were Cdn$24,424 (US$17,687), compared to Cdn$1,328 (US$975) for the 1996 Third Fiscal Quarter, an increase of Cdn$23,096. This is the result of the increased debt load acquired upon the Magic Lantern Group acquisition. Interest expenses, excluding those incurred by the Magic Lantern Group for the 1997 Third Fiscal Quarter, were Cdn$4,246 (US$3,075), compared to Cdn$1,328 (US$975) for the 1996 Third Fiscal Quarter, an increase of Cdn$2,918 or 219.7%. As a percentage of the Company's total revenues, excluding revenues derived by the Magic Lantern Group, such expenses increased to 0.2% for the 1997 Third Fiscal Quarter from 0.1% for the 1996 Third Fiscal Quarter. Depreciation and amortization expenses for the 1997 Third Fiscal Quarter were Cdn$220,906 (US$159,972), compared to Cdn$97,106 (US$71,318) for the 1996 Third Fiscal Quarter, an increase of Cdn$123,800 or 127.5%. Depreciation and amortization expenses, excluding those incurred by the Magic Lantern Group for the 1997 Third Fiscal Quarter, were Cdn$168,246 (US$121,838), compared to Cdn$97,106 (US$71,318) for the 1996 Third Fiscal Quarter, an increase of Cdn$71,140 or 73.3%. This increase is the result of both depreciation on the increased amount of rental equipment, attributable to an increased number of Network locations from the number of locations during the comparable prior period, and amortization of goodwill associated with the purchase of the Magic Lantern Group. As a percentage of the Company's total revenues, excluding revenues derived by the Magic Lantern Group, such expenses increased to 9.6% for the 1997 Third Fiscal Quarter from 5.9% for the 1996 First Third Fiscal Quarter. As a result of all of the above, net income for the 1997 Third Fiscal Quarter was Cdn$59,739 (US$43,261), compared to Cdn$120,441 (US$88,455) for the 1996 Third Fiscal Quarter, a decrease of Cdn$60,702 or 50.4%. Net income, excluding the results of the Magic Lantern Group, for the 1997 Third Fiscal Quarter was Cdn$16,185 (US$11,721), compared to Cdn$120,441 (US$88,455) for the 1996 Third Fiscal Quarter, a decrease of Cdn$104,256 or 86.6%. 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 0.9% for the 1997 Third Fiscal Quarter from 7.3% for the 1996 Third Fiscal Quarter. Results of Operations for the Nine Months Ended May 31, 1997 The Company's total revenues for the nine months ended May 31, 1997 (the "1997 First Three Fiscal Quarters") were Cdn$7,589,014 (US$5,495,701), compared to Cdn$4,732,916 (US$3,475,996) for the nine months ended May 31, 1996 (the "1996 First Three Fiscal Quarters"), an increase of Cdn$2,856,098 or 60.3%. Total revenues, excluding those of the Magic Lantern Group, for the 1997 First Three Fiscal Quarters were Cdn$5,431,303 (US$3,933,162), compared to Cdn$4,732,916 (US$3,475,996) for the 1996 First Three Fiscal Quarters, an increase of Cdn$698,387 or 14.8%. 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 30 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 Three Fiscal Quarters was Cdn$2,343,003 (US$1,696,722), compared to Cdn$1,638,426 (US$1,203,309) for the 1996 First Three Fiscal Quarters, an increase of Cdn$704,577 or 43.0%. Total cost of sales, excluding costs incurred by the Magic Lantern Group for the 1997 First Three Fiscal Quarters, was Cdn$1,757,527 (US$1,272,740), compared to Cdn$1,638,426 (US$1,203,309) for the 1996 First Three Fiscal Quarters, an increase of Cdn$119,101 or 7.3%. 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 32.4% for the 1997 First Three Fiscal Quarters from 34.6% for the 1996 First Three Fiscal Quarters. Total general and administrative expenses for the 1997 First Three Fiscal Quarters were Cdn$3,961,509 (US$2,868,788), compared to Cdn$2,011,046 (US$1,476,973) for the 1996 First Three Fiscal Quarters, an increase of Cdn$1,950,463 or 97.0%. Total general and administrative expenses, excluding those expenses incurred by the Magic Lantern Group for the 1997 First Three Fiscal Quarters, were Cdn$2,588,550 (US$1,874,538), compared to Cdn$2,011,046 (US$1,476,973) for the 1996 First Three Fiscal Quarters, an increase of Cdn$577,505 or 28.7%. 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 47.7% for the 1997 First Three Fiscal Quarters from 42.5% for the 1996 First Three Fiscal Quarters. Interest expenses for the 1997 First Three Fiscal Quarters were Cdn$84,460 (US$61,163), compared to Cdn$7,741 (US$5,685) for the 1996 First Three Fiscal Quarters, an increase of Cdn$76,719. This increase is the result of the increased debt load upon the acquisition of the Magic Lantern Group. Interest expenses, excluding those incurred by the Magic Lantern Group for the 1997 First Three Fiscal Quarters, were Cdn$8,889 (US$6,437), compared to Cdn$7,741 (US$5,685) for the 1996 First Three Fiscal Quarters, an increase of Cdn$1,148 or 14.8%. As a percentage of the Company's total revenues, excluding revenues derived by the Magic Lantern Group, such expenses remained at 0.2% for the 1997 First Three Fiscal Quarters when compared to the 1996 First Three Fiscal Quarters. Depreciation and amortization expenses for the 1997 First Three Fiscal Quarters were Cdn$583,312 (US$422,414), compared to Cdn$269,670 (US$198,054) for the 1996 First Three Fiscal Quarters, an increase of Cdn$313,642 or 116.3%. Depreciation and amortization expenses, excluding those incurred by the Magic Lantern Group for the 1997 First Three Fiscal Quarters, were Cdn$443,155 (US$320,918), compared to Cdn$269,670 (US$198,054) for the 1996 First Three Fiscal Quarters, an increase of Cdn$173,485 or 64.3%. This increase is primarily the result of both amortization on the increased amount of rental equipment, attributable to an increased number of Network locations from the number of locations during the comparable prior period, and amortization of goodwill associated with the purchase of the Magic Lantern Group. As a percentage of the Company's total revenues, excluding revenues derived by the Magic Lantern Group, such expenses increased to 8.2% for the 1997 First Three Fiscal Quarters from 5.7% for the 1996 First Three Fiscal Quarters. Provision for income taxes for the 1997 First Three Fiscal Quarters was Cdn$274,450 (US$198,747), compared to Cdn$295,100 (US$216,730) for the 1996 First Three Fiscal Quarters, a decrease of Cdn$20,650 or 7.0%. Provision for income taxes, excluding the provision for income taxes for the Magic Lantern Group for the 1997 First Three Fiscal Quarters, was Cdn$274,450 (US$198,747), compared to Cdn$295,100 (US$216,730) for the 1996 First Three Fiscal Quarters, an decrease of Cdn$20,650 or 7.0%. The effective tax rate is greater in 1997 due to there being no further tax loss carry forward available as there had been in fiscal 1996. As a result of all of the above, net income for the 1997 First Three Fiscal Quarters was Cdn$384,704 (US$278,589), compared to Cdn$510,933 (US$375,244) for the 1996 First Three Fiscal Quarters, a decrease of Cdn$126,229 or 24.7%. Net income, excluding the results of the Magic Lantern Group, for the 1997 First Three Fiscal Quarters was Cdn$358,731 (US$259,781), compared to Cdn$510,933 (US$375,244) for the 1996 First Three Fiscal Quarters, a decrease of Cdn$152,202 or 29.8%. 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 period. As a percentage of the Company's total revenues, excluding the results of the Magic Lantern Group, net income decreased to 6.6% for the 1997 First Three Fiscal Quarters from 10.8% for the 1996 First Three Fiscal Quarters. Liquidity and Capital Resources At May 31, 1997, the Company had working capital of Cdn$4,787,779 (US$3,467,144), a decrease of Cdn$1,298,377, or 21.3%, 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 Magic Lantern Communications Ltd. effective October 1, 1996. For the 1997 First Three Fiscal Quarters , the Company had a net decrease in cash flow of Cdn$652,265, compared to a net decrease of Cdn$168,265 in the 1996 First Three Fiscal Quarters. Cash provided by operating activities for the 1997 First Three Fiscal Quarters was Cdn$903,109 (US$654,000) an increase of Cdn$343,821, or 61.5%, from cash provided by operating activities in the 1996 First Three Fiscal Quarters. The major factors contributing to this increase include an increase in net income before depreciation and amortization of Cdn$217,262, a decrease in inventory of Cdn$393,134 resulting from the use of existing inventory for new system installations and an increase in accounts receivable of Cdn$311,991 due to the payment practices of the educational market in which Magic Lantern operates. Cash used in investing activities in both the 1997 First Three Fiscal Quarters and 1996 First Three Fiscal Quarters was Cdn$1,158,706 (US$839,095) and Cdn$608,878 (US$447,178), respectively. Cash used in the 1997 First Three Fiscal Quarters was greater than in the comparable prior period primarily due to the purchase of the Magic Lantern Group. Cash used in financing for the 1997 First Three Fiscal Quarters was Cdn$396,668 (US$287,253). This cash was used to reduce Magic Lantern Group bank loans. Cash used in financing for the 1996 First Three Fiscal Quarters was Cdn$118,675 (US$87,158). 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 May 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. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. None. 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: July 11, 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 10Q and is qualified in its entirety by reference to such financial statements. Canadian dollars 9-MOS AUG-31-1997 SEP-01-1996 MAY-31-1997 1.3809 2,655,839 2,046,936 1,520,945 46,500 552,554 7,287,542 4,088,298 0 14,182,918 2,499,763 0 0 11,523 150,187 7,921,347 14,182,918 7,589,014 7,589,014 2,343,003 2,343,003 0 0 84,460 616,730 274,450 0 0 0 0 384,704 0.14 0.14
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