<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ --------------
Commission File No. 33-9030
MAGNAVISION CORPORATION
-------------------------------------------------------
(exact name of registrant as specified in its charter)
DELAWARE 22-2741313
- ---------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation Identification No.)
1725 ROUTE 35, WALL, NEW JERSEY 07719
-------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (908) 449-1200
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: NONE
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 [ ] No [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant is not available due to the unavailability of price quotations for
the Registrant's securities.
The number of shares of Registrant's Common Stock outstanding on July 24, 1996
was 22,943,097.
Documents Incorporated by Reference: None.
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - June 30, 1996 and June 30, 1995
Consolidated Statement of Income for the first quarters ended
June 30, 1996 and June 30, 1995 and these months then ended.
Consolidated Statements of Stockholders' (Deficiency) Equity
For the Period December 31, 1995 to June 30, 1996.
Consolidated Statements of Cash Flows for the first quarters
ended June 30, 1996 and June 30, 1995 and the three months
then ended.
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.
PART II. Other Information
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
--------------------------
Assets 1996 1995
(unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash equivalents $ 51,126 235,327
Trade accounts and other receivables 108,771 108,156
Prepaid expenses 5,366 12,628
Shareholder loans receivable, net 43,809 43,861
----------- -----------
Total current assets 209,072 399,972
----------- -----------
Property and equipment:
Property and equipment at cost 892,429 766,779
Less: accumulated depreciation (404,388) (333,870)
----------- -----------
Property and equipment, net 488,041 432,909
----------- -----------
Other Assets:
Prepaid lease expense 811,136 864,621
Deferred financing costs, net of accumulated amortization 328,647 363,849
Deposits 4,420 4,420
----------- -----------
Total assets 1,841,316 2,065,771
=========== ===========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued expenses 320,768 338,614
Due to shareholders 139,889 144,889
Deferred revenues 141,404 102,244
Current portion of obligations under capital leases 4,558 23,411
Current portion of long-term debt 3,364 3,911
Income taxes payable 914 891
----------- -----------
Total Current Liabilities 610,897 613,960
Long-term liabilities:
Accounts payable and accrued expenses 8,000 14,000
Security deposits payable 127,264 58,821
Long-term debt 11,867 14,243
Notes payable - senior debt 3,140,245 2,637,219
----------- -----------
Total long-term liabilities 3,287,376 2,724,283
----------- -----------
Commitments and contingencies
Shareholders's equity (deficit):
Common stock, $0.004 par value - 750,000,000 shares authorized, issued
and outstanding 22,943,097 on June 30, 1996 & 27,369,451
issued December 31, 1995 91,773 109,478
Additional paid-in capital 3,296,276 3,988,571
Accumulated deficit (5,445,006) (4,610,521)
----------- -----------
(2,056,957) (512,472)
Less 4,626,354 shares of common stock in treasury -- (760,000)
Total shareholders' equity (deficit) (2,056,957) (1,272,472)
----------- -----------
Total liabilities and shareholders' equity (deficit) 1,841,316 2,065,771
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross Revenues $ 473,639 298,493 210,769 125,285
Cost of sales 153,959 139,896 69,584 67,023
------------ ------------ ------------ ------------
Gross profit 319,680 158,597 141,185 58,262
------------ ------------ ------------ ------------
Operating expenses
Officers salaries 247,201 122,822 138,814 65,093
Other salaries 43,587 23,238 10,576 11,703
Depreciation and amortization 107,309 68,202 53,664 34,192
General and administrative 600,923 173,082 364,129 82,756
------------ ------------ ------------ ------------
Total operating expenses 999,020 387,344 567,183 193,744
------------ ------------ ------------ ------------
Operating loss (679,340) (228,747) (425,998) (135,482)
Other Income (Expense)
Interest Expense (172,957) (12,101) (86,952) (4,775)
Dividend and Interest Income 18,523 3,333 6,523 1,221
Loss Before Provision For Income Taxes (833,774) (237,515) (506,427) (139,036)
Provision For Income Taxes 711 1,452 -- --
------------ ------------ ------------ ------------
Net Loss $ (834,485) (238,967) (506,427) (139,036)
============ ============ ============ ============
Net Loss Per Common Share (.04) (.01) (.02) (.01)
Weighted Average Number
of Shares Outstanding 22,862,877 27,078,471 22,943,097 27,203,456
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Magnavision Corporation and Subsidiaries
Consolidated Statements of Stockholders' (Deficiency) Equity
For the Period December 31, 1995 to June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Common Additional Total Total
Stock Stock Paid in Accumulated Treasury Shareholders'
Shares Amount Capital Deficit Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 27,369,451 109,478 3,988,571 (4,610,521) (760,000) (1,272,472)
Net loss for the three months
ended March 31, 1996 - - - (328,059) - (328,059)
Issued Common Stock
Jan. 1, 1996 to Mar. 31, 1995 200,000 800.00 49,200.00 50,000.00
----------- ------ --------- ----------- ---------- ----------
Balances, Mar. 31, 1995 27,569,451 110,278 4,037,771 (4,938,580) (760,000) (1,550,531)
Net loss for three months
ended June 30, 1996 - - - (506,427) - (506,426)
Retired 4,626,354 of
treasury stock 4,626,354 (18,505) (741,495) - 760,000 -
----------- ------ --------- ----------- ---------- ----------
Balances, June 30, 1995 22,943,097 91,773 3,296,276 (5,445,006) 0 (2,056,957)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
-------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss $(834,485) (238,967)
Depreciation & amortization 107,309 68,202
Amortization of Channel lease prepayment 53,485 --
Changes in assets and liabilities
(Increase) decrease in trade accounts and
other receivables (615) 7,831
(Increase) decrease in prepaid expenses 7,262 (6,570)
Increase in deposits -- 1,000
Increase in accounts payable and accrued expenses 25,354 (171,606)
Increase in security deposits payable 68,443 51,034
Increase in income taxes payable 23 50
Increase in deferred revenues 39,160 (59,223)
(Increase) decrease in deferred charges -- 3,754
--------- ---------
Net cash used in operating activities (534,064) (344,495)
--------- ---------
Cash flows from investing activities
Decrease (increase) in loans to shareholders 52 (3,301)
Purchases of property and equipment (127,239) (58,642)
--------- ---------
Net cash used in investing activities (127,187) (61,943)
Cash flows from financing activities
Net proceeds (payments) of long-term debt 500,103 (1,564)
Payments of obligations under capital leases (18,853) (15,153)
(Decrease) increase in amounts due to shareholder (5,000) (12,000)
Proceeds from issuance of common stock 800 269,159
--------- ---------
Net cash provided by financing activities 477,050 240,442
--------- ---------
Net (decrease) increase in cash and cash equivalents (184,201) (165,996)
========= =========
Cash and cash equivalents beginning of period 235,327 243,031
Cash and cash equivalents - end of period 51,126 77,035
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Note to Consolidated Financials
1. Summary of Significant Accounting Policies:
The accompanying Consolidated Financial Statements include the accounts of
Magnavision Corporation ("the Parent") and it's wholly owned subsidiaries,
(collectively the "Company"), the most significant of which are Magnavision
Corporation (New Jersey), Magnavision Private Cable, Inc. and Magnavision
Wireless Cable, Inc.. In the opinion of management, all adjustments necessary
for a fair presentation of financial statements have been included. Such
adjustments consisted only of normal reoccurring items. The consolidated
financial statements for the quarters ending June 30, 1996 and June 30, 1995 are
unaudited and should be read in conjunction with the consolidated annual
financial statements and notes thereto for the year ending December 31, 1995.
2. Amended Senior Debt
The Company amended its $5 million lending agreement with it's lenders on June
3, 1996. As of December 31, 1995, the Company had not met several covenants
under the agreement and at the end of the first quarter of 1996 the Company had
not made the first quarter interest payment in the amount of $82,710 as required
under the agreement. As part of the amendment, the defaults were either waived
or cured. The Company is to receive up to $1.2 million of the remaining
available amount under the existing lending facility without regard to the
present value of projected cash flow of new contracts, with the remaining
balance of the $5 million to be advanced based on the present value of projected
cash flow from the contracts for new outlets with institutions.
The original agreement required the Company to issue warrants to the lenders to
purchase 9,677,486 shares of Common Stock. The exercise price was $.27 for
warrants to purchase 2, 438,177 shares and $.38 for warrants to purchase
7,239,309 shares. The warrants expire on August 27, 2003. The Company issued
additional warrants, that were granted in 1995, to purchase 360,000 shares of
its Common Stock at an exercise price of $.38 in satisfaction of certain
investment banker and finder fees previously agreed to. Under the amended
agreement the Company issued warrants to purchase an additional 7,410,930 shares
to the lenders. The exercise price of the new warrants is $.27 and they expire
on June 4, 2004. The amendment requires the lenders to surrender to the Company
warrants for the purchase of up to 6,884,890 shares if, as and when the Company
complies with certain conditions outlined in the agreement. The amendment has a
put/call option in the event that the Company sells a significant asset. The put
option requires the Company to purchase a percentage of the lenders' warrants as
required by a formula outlined in the amended agreement. This option can only be
exercised upon the sale or change of control of a significant asset of the
Company. Conversely the call option allows the Company to purchase all the
outstanding warrants at a price set by the formula stated above. The cost of
either the put or call option can not be determined at this time since it is
based upon the value of a sale of a significant asset which cannot be assured.
3. Equity Transaction
During the first quarter of 1996 the Company issued 200,000 shares at $ .25.
These shares were issued to non-management shareholders who assisted in
facilitating the redemption of the 4,626,354 shares of common stock held in
treasury.
During the second quarter of 1996 the Company retired the 4,626,354 shares of
common stock held as treasury stock as was required by it's lenders.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
All of the Company's current revenues are derived from its private
cable operations. The wireless channel capacity operations have not commenced;
therefore, no revenue has been derived from the wireless operation.
The Registrant and its wholly owned subsidiary began service in
February 1992 to various colleges and nursing home facilities in the New
York/New Jersey area utilizing direct satellite technology. This involves the
use of antennas which are installed at the facility and then separately wired on
a room-by-room basis. As of July 31, 1996, the Company has long-term agreements
with 16 facilities under which it is currently providing service to students and
patients through approximately 5,050 outlets in rooms and common areas at such
institutional facilities. The Company recently entered into contracts with an
additional five institutions representing approximately 3,300 outlets and
expects additional contracts to be signed in the near future. The Company
intends to complete installation at the five new institutions so as to go on
line in September of 1996. The majority of the facilities using the Company's
private cable service are in New Jersey and New York, but the market area
currently reaches from North Carolina to Massachusetts.
Many colleges and nursing homes in the United States do not have cable
television, but the current trend is for these institutions to install cable
television. Management feels that this trend, coupled with the fact that the
Company can offer cable services normally not provided by the traditional wired
cable companies, should permit significant subscriber expansion in the future.
Each installation is comprised of a number of billing outlets. A billing outlet
represents a hookup for a television. The Company collects revenue from each
television on-line. For the most part, the colleges are on a nine month billing
cycle starting in September and ending in June of the subsequent year. The
nursing homes and hospital are on a 12 month billing cycle.
Quarter Ending June 30, 1996 Compared to Quarter Ending June 30, 1995
Gross profit for the second quarter of 1996 increased $82,923 compared to second
quarter 1995. This was a result of increased outlets of 1,361 for 1996.
Operating expenses increased $373,439 for the second quarter of 1996 compared to
the comparable period of 1995. The increase for the quarter was attributable to,
among other things; higher salaries due to increased staffing and increases in
wages to bring the staff up to market rate, depreciation and amortization
increased due to the write off of the senior debt expense and the increased
depreciation due to increased outlets and General and Administrative expense.
General and Administrative expenses increased $281,373 for the quarter due to
increased professional fees to retain Allen & Company, legal and accounting fees
related to the amended lending facility and increased channel lease costs.
Interest expense increased $82,177 for the second quarter 1996 when compared to
the second quarter 1995. This increase for the quarter is attributable to the
senior debt.
<PAGE>
First six months 1996 compared to first six months 1995.
Gross profit for the first six months of 1996 gross profits increased $161,083.
This was a result of increased outlets of 1,361 for 1996.
Operating expenses increased $373,439 for the second quarter of 1996 compared to
the comparable period of 1995. For the first six months of 1996, operating
expenses increased $611,676 over the comparable period ending 1995. The increase
for the quarter and six months was attributable to, among other things; higher
salaries due to increased staffing and increases in wages to bring the staff up
to market rate, depreciation and amortization increased due to the write off of
the senior debt expense and the increased depreciation due to increased outlets
and General and Administrative expense. General and Administrative expenses
increased $427,841 for the six months due to, among other things, increased
professional fees to retain Allen & Company, KPMG's consulting work concerning a
strategic analysis of the Company's businesses, legal and accounting fees
related to the amended lending facility and increased channel lease costs.
Interest expense increased $82,177 for the second quarter 1996 when compared to
the second quarter 1995. For the first six months of 1996 interest expenses
increased $160,856. This increase in both the quarter and year are attributable
to the senior debt.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the six months ending June 30, 1996 the total cash decreased by $184,201.
The net cash used in the operating activities increased by $189,569 primarily
due to increased losses in operations.
The cash used in investing activities increased $65,244 for the first six months
due to increased purchases of property and equipment to add new outlets.
Cash flow provided by financing activities increased $236,608 for the period
ending June 1996. On June 3, 1996 the Company amended the $5 million facility
(see note 2) with it's lenders to increase the amount of working capital. The
Company received a total of $500,103 in working capital and a loan based on the
projected cash flow from a contract for new outlets.
Since the inception of service in 1992, the Company has experienced operating
losses and negative cash flow. In addition, at March 31, 1996 the Company had a
working capital deficiency and shareholder deficit.
The Company's business is not as capital intensive as traditional cable
companies, which should provide it with a competitive advantage. The Company's
capital commitments at June 30, 1996 include additional capital to construct
facilities at the Department of Education of the Archdiocese of New York,
currently held in escrow, and capital to expand the number of institutions the
Company is currently servicing in its private cable business.
The Company plans to meet short term liquidity requirements with the funds
available under the amended lending facility (see note 2). On a long term basis
the Company intends to create liquidity and to take advantage of the current
marketplace interest in wireless spectrum that it controls by exploring various
strategic alternatives relating to the Channel Lease Agreement, including
potential strategic alliances, joint ventures or a sale or other disposition of
the Company's rights under such agreement. As of June 1996 Allen & Company
Incorporated was retained to assist the Company in these endeavors. Also,
management believes that the continued expansion of the Company's private cable
operations should produce positive cash flows in the future.
However, no assurances can be given that the Company will be able to
successfully accomplish the strategic alternatives relating to the Channel Lease
Agreement or expand the private cable operations to produce positive cash flows.
Management feels that inflation and changing prices will have a minimal effect
on operations. The above should be read in conjunction with the Company's
financial statements included elsewhere herein.
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Company
during the Quarter ending June 30, 1996
Pursuant to the Requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date August 14, 1996 -------------------------------
- -------------------- Nicholas Mastrorilli, Sr.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 51,126
<SECURITIES> 0
<RECEIVABLES> 108,771
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 209,072
<PP&E> 892,429
<DEPRECIATION> 404,388
<TOTAL-ASSETS> 1,841,316
<CURRENT-LIABILITIES> 610,897
<BONDS> 3,140,245
0
0
<COMMON> (2,056,957)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,841,316
<SALES> 0
<TOTAL-REVENUES> 473,639
<CGS> 0
<TOTAL-COSTS> 153,959
<OTHER-EXPENSES> 999,029
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172,957
<INCOME-PRETAX> (833,774)
<INCOME-TAX> 711
<INCOME-CONTINUING> (834,485)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (834,485)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
