<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 March 31, 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 - March 31, 1996 and March 31, 1995
Consolidated Statement of Income for the first quarters ended
March 31, 1996 and March 31, 1995 and these months then ended.
Consolidated Statements of Stockholders' (Deficiency) Equity
For The Period December 31, 1995 to March 31, 1996.
Consolidated Statements of Cash Flows for the first quarters
ended March 31, 1996 and March 31, 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>
March 31 December 31
----------- -----------
Assets 1996 1995
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash equivalents $ 74,906 235,327
Trade accounts and other receivables 50,096 108,156
Prepaid expenses 5,518 12,628
Shareholder loans receivable 43,961 43,861
----------- -----------
Total current assets 174,481 399,972
----------- -----------
Property and equipment:
Property and equipment at cost 802,045 766,779
Less: accumulated depreciation (371,325 (333,870)
----------- -----------
Property and equipment, net 430,720 432,909
----------- -----------
Other Assets:
Prepaid lease expense 837,878 864,621
Deferred financing costs, net of accumulated amortization 346,248 363,849
Deposits 4,420 4,420
----------- -----------
Total assets 1,793,747 2,065,771
=========== ===========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued expenses 357,967 338,614
Due to shareholders 139,889 144,889
Deferred revenues 113,842 102,244
Current portion of obligations under capital leases 7,356 23,411
Current portion of long-term debt 3,364 3,911
Income taxes payable 804 891
----------- -----------
Total Current Liabilities 623,222 613,960
Long-term liabilities:
Accounts payable and accrued expenses 11,000 14,000
Security deposits payable 58,821 58,821
Long-term debt 14,011 14,243
Notes payable - senior debt 2,637,219 2,637,219
----------- -----------
Total long-term liabilities 2,721,051 2,724,283
----------- -----------
Commitments and contingencies Shareholders' equity (deficit):
Common stock, $0.004 par value - 750,000,000 shares authorized,
27,569,451 issued and outstanding on March 31, 1996 & 27,369,451
issued in 1995, respectively 110,278 109,478
Additional paid-in capital 4,037,771 3,988,571
Accumulated deficit (4,938,580) (4,610,521)
----------- -----------
(790,526) (512,472)
Less 4,626,354 shares of common stock in treasury (760,000) (760,000)
----------- -----------
Total shareholders' deficit (1,550,531) (1,272,472)
----------- -----------
Total liabilities and shareholders' equity (deficit) 1,793,747 2,065,771
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1996 1995
-------- --------
<S> <C> <C>
Gross revenues $ 262,870 173,208
Cost of sales 84,374 67,906
-------- --------
Gross profit 178,496 105,302
Operating expenses
Officers salaries 108,387 57,729
Other salaries 33,011 11,535
Depreciation and amortization 53,644 34,010
General and administrative 236,794 95,293
-------- --------
Total operating expenses 431,836 198,567
-------- --------
Operating loss (253,340) (93,265)
Other income (expense)
Interest expense (86,006) (7,326)
Interest income 12,001 2,112
-------- --------
Total other income (expense) (74,005) (5,214)
-------- --------
Loss before provision for income taxes (327,345) (98,479)
Provision for income taxes 714 1,452
-------- --------
Net loss (328,059) (99,931)
========= ========
Net loss per common share (.01) .--
Weighted average number of shares outstanding 22,782,657 26,952,096
</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 March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Common Additional 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 49,200 - - 50,000
------- ------ --------- ----------- ---------- ----------
Balances, Mar. 31, 1995 27,569,451 110,278 4,037,771 (4,938,580) (760,000) (1,550,531)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss $(328,059) (99,931)
Depreciation & amortization 53,644 34,010
Amortization of Channel lease prepayment 26,743 --
Changes in assets and liabilities
(Increase) decrease in trade accounts and
other receivables 58,060 46,406
(Increase) decrease in prepaid expenses 7,110 865
Increase in deposits -- 1,000
Increase in accounts payable and accrued expenses 65,553 (122,336)
Increase in security deposits payable -- 14,030
Increase in income taxes payable (87) 50
Increase in deferred revenues 11,598 (5,237)
(Increase) decrease in deferred charges -- --
--------- ---------
Net cash used in operating activities (105,438) (131,143)
--------- ---------
Cash flows from investing activities
Decrease (increase) in loans to shareholders (100) (1,500)
Purchases of property and equipment (33,847) (55,002)
--------- ---------
Net cash used in investing activities (33,947) (56,502)
--------- ---------
Cash flows from financing activities
Net proceeds (payments) of long-term debt (779) 1,877
Payments of obligations under capital leases (16,057) (583)
(Decrease) increase in due to shareholder (5,000) (12,000)
Proceeds from issuance of common stock 800 86,659
Payment of financing fees -- (9,874)
Redemption of common stock -- --
--------- ---------
Net cash provided by (used in) financing activities (21,036) 66,079
--------- ---------
Net (decrease) increase in cash and cash equivalents (160,421) (121,566)
========= =========
Cash and cash equivalents beginning of period 235,327 243,031
Cash and cash equivalents - end of period 74,906 121,465
</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 March 31, 1996 and March 31, 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
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 did not make
the first quarter interest payment in the amount of $82,710 as required under
the agreement. The Company amended the $5 million lending agreement with it's
lenders on June 3, 1996. 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 is also
required to issue additional warrants 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.
<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.
First quarter 1996 compared to first quarter 1995
For the first quarter of 1996, gross profits increased $73,194 or 70% over the
first quarter of 1995. The increase was a result of increased outlets of 1,361
which were put on line in September of 1995.
Total operating expenses increased $233,269 in the first quarter of
1996 when compared to first quarter 1995. The primary reasons for the increases
were salary increases of $72,134 due to increased staff and the raises in the
third quarter of 1995 to bring the staff salaries up to market rates. Also
General and Administrative expenses increased $141,501 in the first quarter 1996
when compared to first quarter 1995 due primarily to increased professional fees
and channel lease expenses and consulting fees.
Interest expense increased $78,680 for the first quarter 1996 when
compared to the first quarter 1995. This increase is attributable to the senior
debt.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ending March 31, 1996, the total cash decreased by $160,421. The
net cash used in the operating activities decreased by $25,705 primarily due to
increased net losses, offset by the add-back of amortization and depreciation
and an increase in accounts payable and accrued expenses.
The cash used in investing activities decreased $22,555 for the quarter
primarily due to decreased purchases of property and equipment.
Cash flow provided by financing activities decreased $87,115 for the quarter,
due to the issuance of common stock in the first quarter of 1995.
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 March 31, 1996 include additional capital to construct
facilities at the Department of Education of the Archdiocese of New York 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 described below. 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.
In August 1995, the Company entered into a $5 million lending facility with a
bank and two small business investment companies. The Company borrowed
$2,637,000 under the lending facility at closing. The funds were used to pay the
$900,277 escrow deposit (recorded as a prepaid lease payment) required to
maintain the wireless license of the Company under its agreement with the
Department and redeem 4,876,354 shares of Common Stock which were being sold by
a bank in partial settlement of a loan to a non-management shareholder which was
secured by the shares. (The Company issued 250,000 shares of Common Stock to the
non-management shareholder in consideration of his assistance in this
transaction and an additional 200,000 shares of Commons Stock to other
non-management shareholders who assisted in facilitating this transaction.) The
balance of the proceeds were used to pay closing costs related to the debt
agreement and to provide additional working capital. The remaining amounts
available under the lending facility are to be advanced based on the present
value of projected cash flow from contracts for new outlets, with the funds
advanced to be used for the equipment and construction costs of installation of
additional outlets and for working capital.
The debt agreement contains a prepayment penalty for two years and places limits
on stock sales, payment of dividends and management compensation. The agreement
also contains several covenants covering, among other items, financial reporting
and target performance levels the Company must meet.
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. The Company amended the agreement with the lenders on June 3,
1996. 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 formula.
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 is also
required to issue additional warrants 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.
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 March 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 74,906
<SECURITIES> 0
<RECEIVABLES> 50,096
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 174,481
<PP&E> 802,045
<DEPRECIATION> 371,325
<TOTAL-ASSETS> 1,793,747
<CURRENT-LIABILITIES> 623,222
<BONDS> 2,637,217
0
0
<COMMON> (790,526)
<OTHER-SE> (760,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,793,747
<SALES> 0
<TOTAL-REVENUES> 262,870
<CGS> 0
<TOTAL-COSTS> 84,374
<OTHER-EXPENSES> 431,836
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,006
<INCOME-PRETAX> (327,345)
<INCOME-TAX> 714
<INCOME-CONTINUING> (328,059)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (328,059)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
