<PAGE>
FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended: May 31, 1996
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 the period covered by this report: 1,412,225
shares of common stock, par value $.07 per share, and 950,000 shares of
preferred stock, $.01 par value per share.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Index to Financial Statements
Consolidated Balance Sheets as at May 31, 1996 and August 31, 1995.
Consolidated Statement of Operations and Retained Earnings (Deficit) for the
nine month periods ended May 31, 1996 and May 31, 1995.
Consolidated Statement of Operations and Retained Earnings for the three month
periods ended May 31, 1996 and May 31, 1995.
Consolidated Statement of Cash Flows for the nine month periods ended May 31,
1996 and May 31, 1995.
The financial information for the nine month periods ended May 31, 1996 and May
31, 1995 and the three month periods ended May 31, 1996 and May 31, 1995 is
unaudited, but in the opinion of management contains all adjustments (consisting
of normal recurring accruals) necessary to present fairly the financial
information shown therein.
Reference is made to the Company's Form 10-K Annual Report for the fiscal year
ended August 31, 1995 for additional Notes to Financial Statements.
- 2 -
<PAGE>
NTN CANADA, INC.
CONSOLIDATED BALANCE SHEETS AT
MAY 31, 1996 AND AUGUST 31, 1995
<TABLE>
<CAPTION>
May 31, 1996 August 31, 1995
------------ ---------------
<S> <C> <C>
ASSETS
CURRENT
Cash $459,727 $ 277,840
Short-Term temporary investments 4,521,529 4,871,681
Accounts Receivable, Trade - net of allowance for doubtful
accounts of $42,271; August - $47,834 473,258 362,586
Accounts Receivable - Other 106,152 101,831
Inventory Held for Sale or Rent 809,822 555,256
Prepaid Expenses 143,076 150,271
----------- -----------
Total current assets 6,513,564 6,319,465
----------- -----------
Property & Equipment, Net 2,019,203 1,620,995
License, Net 240,675 250,051
Goodwill, Net 142,384 162,159
----------- ---------
2,402,626 2,033,205
---------- ----------
TOTAL ASSETS $8,915,826 $8,352,670
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Mortgage Payable - 244,223
Accounts Payable - trade 421,199 228,722
Accrued Liabilities 135,693 235,600
Income Taxes Payable 176,042 97,714
Total current liabilities 732,934 806,259
------- -------
Deferred Income Taxes Payable 10,000 10,000
---------- ----------
TOTAL LIABILITIES $ 742,934 $816,259
---------- ---------
SHAREHOLDERS' EQUITY
SHARE CAPITAL
Common Stock - 1,412,225 Issued; August - 1,370,763
Issued 129,535 125,573
Preferred Stock - 950,000 Issued 11,523 11,523
Capital In Excess of Par Value 7,267,583 7,145,997
Retained Earnings 764,251 253,318
TOTAL SHAREHOLDERS' EQUITY 8,172,892 7,536,411
TOTAL LIABILITIES AND SHAREHOLDER EQUITY $8,915,826 $8,352,670
========== ==========
</TABLE>
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<PAGE>
NTN CANADA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND
RETAINED EARNINGS (DEFICIT)
FOR THE NINE MONTHS ENDED MAY 31, 1996 AND MAY 31, 1995
(Expressed in Canadian Dollars - Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------
May 31, 1996 May 31, 1995
------------ ------------
<S> <C> <C>
Revenues $4,732,916 $3,324,044
Cost of Sales 1,841,773 1,438,229
--------- ----------
2,891,143 1,885,815
General and Administrative Expenses 2,164,551 1,570,782
--------- ----------
Income Before Income Taxes and
Unrealized Foreign Exchange Gain 726,592 315,033
Unrealized Foreign Exchange Gain 79,441 61,433
Income Before Income Taxes 806,033 376,466
Provision for Income Taxes 295,100 101,000
------------- -------------
Net Income 510,933 275,466
Retained Earnings (Deficit), Beginning of Period 253,318 (104,217)
------------- --------------
Retained Earnings, End of Period $ 764,251 $ 171,249
============= =============
Earnings per Share $0.32 $0.24
===== =====
</TABLE>
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<PAGE>
NTN CANADA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND
RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MAY 31, 1996 AND MAY 31, 1995
(Expressed in Canadian Dollars - Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------
May 31, 1996 May 31, 1995
------------ ------------
<S> <C> <C>
Revenues $1,647,442 $1,243,660
Cost of Sales 714,173 498,494
------------ ------------
933,269 745,166
General and Administrative Expenses 717,574 534,127
------------ ------------
Income Before Income Taxes
and Unrealized Foreign Exchange Gain 215,695 211,039
Unrealized Foreign Exchange Loss (154) (84,333)
Income Before Provision for Income Taxes 215,541 126,706
Provision for Income Taxes 95,100 59,000
------------ ------------
Net Income 120,441 67,706
Retained Earnings, Beginning of Period 643,810 103,543
------------ ------------
Retained Earnings, End of Period $ 764,251 $ 171,249
============ ============
Earnings per Share $0.07 $0.06
===== =====
</TABLE>
- 5 -
<PAGE>
NTN CANADA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE
NINE MONTHS ENDED MAY 31, 1996 AND MAY 31,
1995 (Expressed in Canadian Dollars - Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------
May 31, 1996 May 31, 1995
------------ ------------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income for the nine months $510,933 $275,466
Adjustments to Reconcile Net Income to Net Cash provided
by Operating Activities
Depreciation and Amortization 239,821 161,484
Changes in Assets and Liabilities
Increase in Accounts Receivable (114,993) (194,901)
Decrease (Increase) in Inventory Held
for Sale or Rent (254,566) 4,137
Decrease (increase) in Prepaid Expenses 7,195 (22,316)
Increase (decrease) in Accounts Payable
and Accrued Liabilities 92,570 (155,768)
Increase in Income Taxes Payable 78,328 88,860
---------- ----------
Cash Provided by Operating Activities 559,288 156,962
FINANCING ACTIVITIES
Proceeds from Issuing Common Shares
Mortgage Payable 125,548 4,331,694
Bank Loan (244,223) 245,788
Cash Provided by (used in) Financing Activities -- (350,000)
---------- ---------
(118,675) 4,227,482
INVESTING ACTIVITIES
Purchases of Property and Equipment
Cash Used in Investing Activities (608,878) (1,100,327)
(608,878) (1,100,327)
---------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Period (168,265) (3,284,117)
Cash and Cash Equivalents, End of Period 5,149,521 1,612,104
4,981,256 4,896,221
---------- ----------
Cash and Cash Equivalents are Represented by
Cash
Short-Term Temporary Investments 459,727 592,974
4,521,529 4,303,247
========== ==========
$4,981,256 $4,896,221
========== ==========
</TABLE>
- 6 -
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Conditions and Results of
Operations
- --------------------------------------------------------------------------------
The financial statements of the Company and the information in this analysis
include the operations of the Company's wholly owned subsidiary, NTN Interactive
Network Inc.
The financial statements of the Company are expressed in Canadian Dollars. The
information contained in this analysis is expressed in both Canadian and United
States Dollars, the conversion rate being Cdn $1.3616 per US$1.00 for fiscal
1996 and 1.3794 per US$1.00 for fiscal 1995.
Highlights of the Three Months ending May 31, 1996
- --------------------------------------------------------------------
During the quarter, the Company signed an agreement with TSN The Sports Network,
Canada's leading sports broadcaster, to bring live NTN interactive sports
programming and sports trivia games to TSN's World Wide Web site. In addition
the Company's Hospitality Network launched two new interactive programs -
including Blue Jays 20th Anniversary Trivia (sponsored by the Toronto Blue Jays
Baseball Club). At May 31, 1996, there were 473 installed sites, an increase of
20 sites over the previous quarter.
The Company's Corporate Products group delivered interactive programmes during
the quarter for Coca Cola, to tie in with their Olympics involvement; for the
Invest in Kids Foundation at a black tie fundraising event for 500 of Toronto's
corporate elite; for General Motors Quebec, Trizec, and America OnLine Canada.
In a subsequent event, the Company's wholly-owned subsidiary NTN Interactive
Network Inc. entered into a Letter of Intent on June 3, 1996 to acquire 100% of
the shares of Magic Lantern Communications Ltd. for a total consideration of Cdn
$2,350,000 (US$1,725,911) made up of a combination of stock and cash. Magic
Lantern is Canada's leading distributor of educational video programming and is
currently collaborating with New Brunswick Telephone to develop Educational
Video-on-Demand in New Brunswick's pioneering interactive television initiative.
Magic Lantern has also established a state-of-the-art centre of encoding and
repurposing analog video content into digital MPEG format.
Results of Operations in the First Three Quarters
- ---------------------------------------------------------
During the nine months ended May 31, 1996, the Company's revenues totaled Cdn
$4,732,916 (US$3,475,996), an increase of Cdn $1,408,872 (US$1,034,718) or 42.4%
from the same period in 1995. The primary contributor to the increase in
revenues was the addition of 71 Hospital sites during the period. The
Hospitality Network numbered 473 live and installed sites at May 31, 1996,
<PAGE>
up from 376 a year earlier.
Cost of sales of Cdn $1,841,773 (US$1,352,653) in the first nine months
increased Cdn $403,544 (US$296,375) or 28.1% from Cdn $1,438,229 (US$1,042,648).
The major contributing factor to this increase was increased broadcast fees
which are directly related to the number of hospitality sites.
General and administrative expenses increased Cdn $593,769 (US$436,082) or 37.8%
over the same period last year. The major factors causing this increase included
a Cdn $387,704 (US$284,741) increase in salaries due to additions of personnel
to meet the demands of the Company's growth. Advertising and promotion
expenditures increased Cdn $102,664 (US$75,400) due primarily to the development
of a frequent player program. Other increases in general and administrative
expenses result from increased business volumes reflected in the Company's
increased revenues.
The unrealized foreign exchange gain for the first three quarters of fiscal 1996
was Cdn $18,008 (US$13,226) greater than the first three quarters of 1995. This
gain results primarily from fluctuations in the Canadian/U.S. dollar exchange
rate as it related to U.S. dollar temporary investments held by the Company.
Net income was Cdn $510,933 (US$375,245), an increase of Cdn $235,467 (or 85%)
from the first three quarters of fiscal 1995.
Results of Operations
The Third Quarter
- ---------------------------------------
During the three months ended May 31, 1996, the Company's revenues totaled Cdn
$1,647,442 (US$1,209,931), an increase of Cdn $403,782 (US$296,550) or 32% from
the same period in 1995. The primary reason for increased revenue was the
addition of 20 hospitality sites during the quarter as well as increased
sponsorship revenue.
Cost of sales of Cdn $714,173 (US$524,510) in the third quarter increased Cdn
$215,679 (US$158,401) or 43.3% from Cdn $498,494 (US$361,385). The major
contributing factors to the increase in cost of sales includes increased
broadcast fees which are directly related to the number of hospitality sites as
well as an increase in depreciation expense on an increased rental equipment
base.
General and administrative expenses of Cdn $717,574 (US$527,008) increased Cdn
$183,447 (US$134,729) or 34.3% from Cdn $534,127 (US$387,217). The major factors
causing this increase include a Cdn $108,193 (US$79,460) increase in salaries
due to the addition of personnel to meet the demands of the company's growth.
Advertising and promotion expense increased Cdn $22,695 (US$16,668) due to
increased expenditures on point of sales materials and the costs associated with
the frequent player program. Other increases in general and administrative
expenses result from the Company's increased business volumes.
2
<PAGE>
Net income for the third quarter was Cdn $120,441 (US$88,456), an increase of
Cdn $52,735 (US$38,730) or 77.9% from the third quarter of fiscal 1995.
Management believes the general outlook for the rest of the fiscal year, will
continue to be favorable with on-going growth in its core businesses. In
addition, the company is pursuing other projects for the education market,
including, LearnStar, a system and curriculum software for distance learning and
in-class use.
Liquidity and Capital Resources
- -----------------------------------------------------
In the first three quarters of Fiscal 1996, the Company's net use of cash
amounted to (Cdn $168,265 US$123,579). During the same period in Fiscal 1995,
cash and cash equivalents increased Cdn $3,284,117 (US$2,380,830).
Cash was provided by operations during the first three quarters of Fiscal 1996
(Cdn $559,288; US$410,758), as well as during the first three quarters of Fiscal
1995 (Cdn $156,962; US$113,790). The major factor in the increase in cash
generated from operations was net income for the nine months of Cdn $510,933
(US$375,245) up from Cdn $275,466 (US$199,700) in Fiscal 1995.
Financing activities used Cdn $118,675 (US$87,158) in the first three quarters.
Cash was used to pay off the mortgage on the land and building owned by the
company. The Company issued common shares in the third quarter of 1996 with
proceeds of Cdn $125,548 (US$92,206). In the first three quarters of Fiscal 1995
financing activities provided Cdn $4,331,694 (US$3,140,274), representing the
proceeds from issuing common shares of Cdn $4,315,365 (US$3,131,160).
Investing activities used cash in both the first three quarters of 1996 (Cdn
$608,878; US$447,178) and 1995 (Cdn $1,100,327; US$797,685). Cash used in the
first three quarters of 1996 was less than in 1995 because the land and building
owned by the company was purchased in the first quarter of 1995. There have been
no similar transactions in fiscal 1996.
The Company believes that its working capital position provides the liquidity,
on both a long and short term basis, required for its growth strategy.
The Company is substantially dependent on the continued existence of NTN
Communications, Inc. Based on published reports on its first quarter ended March
31, 1996, the consolidated revenues for NTN Communications, Inc. increased 44%
to US$8,275,000 from US$5,738,000 for the same period last year. NTN
Communications, Inc. reported first quarter consolidated profit of US$273,000 as
compared to a loss of US$1,897,000 in the first quarter in 1995. NTN
Communications, Inc. had current assets of US$22,337,000 and shareholders'
equity of US$31,379,000 as at March 31, 1996.
3
<PAGE>
Inflation
- ----------------------------
The rate of inflation has had little impact on the Company's results of
operations and is not expected to have a significant impact on continuing
operations.
The Company pays a number of its suppliers 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 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 6. Exhibits and Reports on Form 8-K:
None.
4
<PAGE>
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 8, 1996 By: /s/ Peter Rona
---------------------------------------------
Peter Rona,
President and Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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 HEREIN.
</LEGEND>
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> MAY-31-1996
<EXCHANGE-RATE> 1.3616
<CASH> 459,727
<SECURITIES> 4,521,529
<RECEIVABLES> 515,529
<ALLOWANCES> 42,271
<INVENTORY> 809,822
<CURRENT-ASSETS> 6,513,564
<PP&E> 2,019,203
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,915,826
<CURRENT-LIABILITIES> 732,934
<BONDS> 0
0
11,523
<COMMON> 129,535
<OTHER-SE> 7,937,143
<TOTAL-LIABILITY-AND-EQUITY> 8,915,826
<SALES> 4,732,916
<TOTAL-REVENUES> 4,732,916
<CGS> 1,841,773
<TOTAL-COSTS> 1,841,773
<OTHER-EXPENSES> (79,441)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 806,033
<INCOME-TAX> 295,100
<INCOME-CONTINUING> 510,933
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 510,933
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
