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.
<PAGE>
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
<PAGE>
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
================================================================================
<PAGE>
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
================================================================================
<PAGE>
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
================================================================================
<PAGE>
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
================================================================================
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<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 11, 1997 By:
---------------------------------------------
Peter Rona,
President and Principal Financial Officer
(Duly Authorized Officer)
<PAGE>
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<CURRENCY> Canadian dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<EXCHANGE-RATE> 1.3809
<CASH> 2,655,839
<SECURITIES> 2,046,936
<RECEIVABLES> 1,520,945
<ALLOWANCES> 46,500
<INVENTORY> 552,554
<CURRENT-ASSETS> 7,287,542
<PP&E> 4,088,298
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,182,918
<CURRENT-LIABILITIES> 2,499,763
<BONDS> 0
0
11,523
<COMMON> 150,187
<OTHER-SE> 7,921,347
<TOTAL-LIABILITY-AND-EQUITY> 14,182,918
<SALES> 7,589,014
<TOTAL-REVENUES> 7,589,014
<CGS> 2,343,003
<TOTAL-COSTS> 2,343,003
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,460
<INCOME-PRETAX> 616,730
<INCOME-TAX> 274,450
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384,704
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
