<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 September 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 October 22,
1996 was 23,044,441.
Documents Incorporated by Reference: None.
<PAGE>
PART I. Financial Information
Item 1. Financial Statements Consolidated Balance Sheet -
September 30, 1996 and September 30, 1995
Consolidated Statement of Operations for the nine months ended
September 30, 1996 and September 30, 1995 and for the three
months then ended.
Consolidated Statements of Stockholders' Equity (Deficit) For
the Period December 31, 1995 to September 30, 1996.
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and September 30, 1995.
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>
September 30 December 31
Assets 1996 1995
- ------ ----------- -----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash equivalents $ 37,547 235,327
Trade accounts and other receivables 357,098 108,156
Prepaid expenses 22,737 12,628
Shareholder loans receivable, net 44,028 43,861
----------- -----------
Total current assets 461,410 399,972
----------- -----------
Property and equipment:
Property and equipment at cost 1,212,570 766,779
Less: accumulated depreciation (445,645) (333,870)
----------- -----------
Property and equipment, net 766,925 432,909
----------- -----------
Other Assets:
Prepaid lease expense 784,394 864,621
Deferred financing costs, net of accumulated amortization 311,046 363,849
Deposits 11,354 4,420
----------- -----------
Total Other Assets 1,106,794 1,232,890
Total assets 2,335,129 2,065,771
=========== ===========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued expenses 489,134 338,614
Due to shareholders 139,889 144,889
Deferred revenues 181,956 102,244
Current portion of obligations under capital leases -- 23,411
Current portion of long-term debt 3,575 3,911
Income taxes payable 741 891
----------- -----------
Total Current Liabilities 815,295 613,960
Long-term liabilities:
Accounts payable and accrued expenses 2,000 14,000
Security deposits payable 144,453 58,821
Long-term debt 11,526 14,243
Notes payable - senior debt 3,746,726 2,637,219
----------- -----------
Total long-term liabilities 3,904,705 2,724,283
----------- -----------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $0.004 par value - 750,000,000 shares authorized,
issued and outstanding 23,044,441 on September 30, 1996 & 27,369,451
issued on December 31, 1995 92,177 109,478
Additional paid-in capital 3,321,208 3,988,571
Accumulated deficit (5,798,256) (4,610,521)
----------- -----------
(2,384,871) (512,472)
Less 4,626,354 shares of common stock in treasury -- (760,000)
----------- -----------
Total shareholders' equity (deficit) (2,384,871) (1,272,472)
----------- -----------
Total liabilities and shareholders' equity (deficit) 2,335,129 2,065,771
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross Revenues $ 840,478 415,399 366,839 116,906
Cost of sales 364,037 219,825 210,078 79,929
------------ ------------ ------------ ------------
Gross profit 476,441 195,574 156,761 36,977
------------ ------------ ------------ ------------
Operating expenses
Officers salaries 371,168 185,142 123,967 62,320
Other salaries 67,887 46,043 24,300 22,805
Depreciation and amortization 166,167 87,607 58,858 38,117
General and administrative 803,883 276,613 202,960 103,531
------------ ------------ ------------ ------------
Total operating expenses 1,409,105 595,405 410,085 226,773
------------ ------------ ------------ ------------
Operating loss (932,664) (399,831) (253,324) (189,796)
Other Income (Expense)
Interest Expense (282,288) (42,776) (109,331) (30,675)
Dividend and Interest Income 27,925 6,844 9,402 3,511
Loss Before Provision For Income Taxes (1,187,027) (435,763) (353,253) (216,960)
Provision For Income Taxes 708 1,452 -- --
------------ ------------ ------------ ------------
Net Loss $ (1,187,735) (437,215) (353,253) (216,960)
============ ============ ============ ============
Net Loss Per Common Share (.05) (.02) (.02) (.01)
Weighted Average Number
of Shares Outstanding 22,943,126 26,575,601 22,991,682 25,586,262
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Magnavision Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
For the Period December 31, 1995 to September 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)
Issuances of Common Stock 301,344 1,205 74,131 -- -- 75,336
Retired 4,626,354 of
treasury stock 4,626,354 (18,506) (741,494) -- 760,000 --
Net loss for nine months
ending September 30, 1996 -- -- -- (1,187,735) -- (1,187,735)
---------- ---------- ---------- ---------- ---------- ----------
Balances, September 30, 1996 23,044,441 92,177 3,321,208 (5,798,256) -- (2,384,871)
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,187,735) (437,215)
Depreciation & amortization 166,167 87,607
Amortization of Channel lease prepayment 80,227 --
Forgiveness of Debt -- (77,053)
Changes in assets and liabilities
Increase in trade accounts and
other receivables (248,942) (51,162)
(Increase) decrease in prepaid expenses (10,109) 11,076
(Increase) decrease in deposits (6,934) 275
Increase (decrease)in accounts payable
and accrued expenses 187,720 (71,954)
Increase in security deposits payable 85,632 36,229
Increase (decrease) in income taxes payable (150) 50
Increase in deferred revenues 79,712 51,186
----------- -----------
Net cash used in operating activities (854,412) (450,961)
----------- -----------
Cash flows from investing activities
Increase in loans to shareholders (167) (3,301)
Purchases of property and equipment (445,791) (208,704)
Investment in Channel Lease -- (902,569)
----------- -----------
Net cash used in investing activities (445,958) (1,114,574)
Cash flows from financing activities
Net proceeds (payments) of long-term debt 1,104,865 2,634,304
Payments of obligations under capital leases (23,411) (26,451)
(Decrease) increase in amounts due to shareholder (5,000) (12,000)
Proceeds from issuance of common stock 26,136 269,159
Decrease in deferred charges -- 15,019
Expenditures for debt acquisition costs -- (387,323)
Redemption of Common Stock -- (760,000)
----------- -----------
Net cash provided by financing activities 1,102,590 1,732,708
----------- -----------
Net (decrease) increase in cash and cash equivalents (197,780) 167,173
=========== ===========
Cash and cash equivalents beginning of period 235,327 243,031
Cash and cash equivalents - end of period 37,547 410,204
</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 September 30, 1996 and September
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. Results of operations for the interim periods are not necessarily
indicative of the results which may be realized for the full year.
2. Notes Payable/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, these defaults were either waived
or cured. The Company was 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. As of September
30, 1996 the Company had $249,364 remaining from working capital and $847,798
under the present value of the projected cash flow.
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. Stockholders' Equity (Deficit)
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.
<PAGE>
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 its lenders.
During the third quarter of 1996 the Company issued shares to non-management and
management warrant holders who collectively exercised warrants for 101,344
shares of common stock at an exercise price of $.25 per share.
<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 September 30, 1996, the Company has long-term agreements with 21
facilities under which it is currently providing service to students and
patients through approximately 8,500 outlets.
Since June 1996, the Company has completed installation of its private cable
system at five new institutions with over 3,400 outlets. These facilities were
put on line September of 1996. The majority of the facilities using the
Company's private cable service are in New Jersey and New York, but current
installations reach areas 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 hospitals are on a 12 month billing cycle.
Three Months Ending September 30, 1996 Compared to Three Months Ending September
30, 1995
Gross revenue and gross profit for the third quarter of 1996 increased $249,933
and $119,784 respectively compared to third quarter 1995. This was a result of a
full three months' revenue related to the 1,361 increased outlets and the
revenue for first month of operations of the 3,400 new outlets added September
1996.
Operating expenses increased $183,312 for the third 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 capitalized debt acquisition costs and the
increased depreciation due to increased outlets. General and Administrative
expenses increased $99,429 for the quarter due to increased professional fees,
and increased channel lease costs.
Interest expense increased $78,656 for the third quarter 1996 when compared to
the third quarter 1995. This increase for the quarter is attributable to a full
quarter of senior debt and increased borrowings in 1996.
<PAGE>
First nine months 1996 compared to first nine months 1995.
Gross revenue and gross profit for the first nine months of 1996 increased
$425,079 and $280,867, respectively. This was a result of a full nine months'
revenue related to the 1,361 increased outlets for 1996 and the revenue for the
first month of operations of the 3,400 new outlets added in September 1996.
For the first nine months of 1996, operating expenses increased $ 813,700 over
the comparable period ending 1995. The increase 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 which was
increased due to the write off of the capitalized debt acquisition costs and the
increased depreciation due to increased outlets. Of such operating expenses,
General and Administrative expenses accounted for an increase of $527,270 due
to, among other things, increased professional fees to retain Allen & Company
and KPMG Peat Marwick for consulting fees concerning the performance of a
strategic analysis of the Company's businesses, legal and accounting fees
related to the amended lending facility, and increased channel lease costs.
For the first nine months of 1996 interest expense increased $ 239,512. This
increase is attributable to the senior debt.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ending September 30, 1996 the total cash decreased by
$197,780. The net cash used in the operating activities increased $403,451
primarily due to increased losses in operations.
The cash used in investing activities decreased $668,616 for the first nine
months due to the investment in the channel lease that occurred during 1995.
Cash flow provided by financing activities decreased $630,118 for the period
ending September 1996 due mainly to lower net borrowings. On June 3, 1996 the
Company amended the $5 million facility (see note 2) with its lenders to
increase the amount of working capital loans. The Company received a net total
of $ 1,104,865 for working capital loans and loans based on the projected cash
flow for the construction of new outlets.
Since the inception of the company's cable service in 1992, the Company has
experienced operating losses and negative cash flow. In addition, at September
30, 1996 the Company had a working capital deficiency and shareholder deficit
(See consolidated balance sheet).
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 September 30, 1996 include additional capital to
construct facilities at the Department of Education of the Archdiocese of New
York, currently held in escrow by the Archdiocese, and capital to expand the
number of institutions the Company is currently servicing in the private cable
business.
The Company plans to meet short term liquidity requirements through the end of
1996 with the remaining 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 it has entered into, 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. Management believes that the continued expansion
of the Company's private cable operations should produce positive cash flow in
the future.
There is no assurance that the Company will remain in compliance with the terms
and conditions of its credit facility. In the event that the credit facility is
not available or insufficient to fund the Company's business plan, the Company
will be required to raise additional capital. There is no assurance that the
Company's lenders will provide additional funds or that the Company will be
successful in raising capital from another source. In the event the credit
agreement is unavailable, insufficient or other sources of capital are not
available, the Company may have to curtail its business plan.
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 September 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 November 21, 1996
--------------------------- ---------------------------
Nicholas Mastrorilli, Sr.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 37,547
<SECURITIES> 0
<RECEIVABLES> 357,098
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 461,410
<PP&E> 1,212,570
<DEPRECIATION> 445,645
<TOTAL-ASSETS> 2,335
<CURRENT-LIABILITIES> 815,295
<BONDS> 0
0
0
<COMMON> (2,384,871)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,335,129
<SALES> 840,478
<TOTAL-REVENUES> 840,478
<CGS> 0
<TOTAL-COSTS> 364,037
<OTHER-EXPENSES> 1,409,105
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 283,288
<INCOME-PRETAX> (1,187,027)
<INCOME-TAX> 708
<INCOME-CONTINUING> (1,187,735)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,187,735)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> 0
</TABLE>
