<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, 1997
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 [X] No [ ]
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 May 8, 1997 was
23,051,501.
Documents Incorporated by Reference: None.
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - March 31, 1997 and December 31,
1996
Consolidated Statement of Income for the first quarters ended
March 31, 1997 and March 31, 1996 and three months then ended.
Consolidated Statements of Stockholders' (Deficiency) Equity
For The Period December 31, 1996 to March 31, 1997.
Consolidated Statements of Cash Flows for the first quarters
ended March 31, 1997 and March 31, 1996 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>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
MAGNAVISION CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31 December 31
ASSETS 1997 1996
(UNAUDITED)
--------- ---------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $82,578 $164,296
Trade accounts and other receivables 179,835 156,252
Prepaid expenses 8,059 8,059
Shareholder loans receivable 44,782 44,161
--------- ---------
Total Current Assets 315,254 372,768
--------- ---------
PROPERTY AND EQUIPMENT
Property and equipment at cost 1,319,125 1,269,887
Less: Accumulated depreciation (546,351) (501,178)
--------- ---------
Net property and equipment 772,774 768,709
--------- ---------
OTHER ASSETS
Prepaid lease expense 730,910 757,652
Deferred financing cost, net of accumulated amortization 275,844 293,445
Deposits 4,420 4,420
--------- ---------
TOTAL ASSETS $2,099,202 $2,196,994
--------- ---------
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 412,036 284,094
Due to Shareholders 131,889 139,889
Deferred Revenues 190,771 175,348
Current Portion of long-term Debt 3,686 3,686
Income Taxes Payable 741 741
Notes Payable - Senior Debt 4,072,073 4,062,932
--------- ---------
Total Current Liabilities 4,811,196 4,666,690
LONG-TERM LIABILITIES
Accounts Payable and Accrued Expenses - - 2,000
Security Deposits Payable 128,675 126,386
long-term Debt 9,621 10,563
--------- ---------
Total Long - Term Liabilities 138,296 138,949
--------- ---------
Commitments and contingencies
SHAREHOLDERS' (DEFICIENCY) EQUITY
Common Stock, $0.04 par value - 750,000,000 shares authorized; issued and
outstanding, 23,051,501 shares
in March 31,1997 and 2 3,044,441 shares in December 31,1996 92,206 92,178
Additional paid-in Capital 3,321,886 3,321,207
Accumulated Deficit (6,264,382) (6,022,030)
--------- ---------
TOTAL SHAREHOLDERS' (DEFICIENCY) EQUITY (2,850,290) (2,608,645)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY $2,099,202 $2,196,994
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MAGNAVISION CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ending March 31
----------------------------
1997 1996
---- ----
REVENUES
<S> <C> <C>
Gross revenues $406,658 $262,870
Cost of sales 129,118 84,374
-------- --------
Gross profit 277,540 178,496
OPERATING EXPENSES
Salaries 157,172 141,398
Depreciation and amortization expense 62,774 53,644
General and administrative expenses 181,328 236,794
-------- --------
Total operating expenses 401,274 431,836
OPERATING LOSS (123,734) (253,340)
OTHER INCOME (expense)
Interest expense (122,343) (86,006)
Interest income 7,614 12,001
-------- --------
Total other income (expense) (114,729) (74,005)
Loss before provision for income tax (238,463) (327,345)
Provision for income taxes 3,889 714
-------- --------
Net loss ($242,352) ($328,059)
-------- --------
Earns per share ($0.01) ($0.01)
-------- --------
Weighted average number of shares outstanding 23,047,736 22,782,657
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ending March 31
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996
--------- ---------
Net Loss ($242,352) ($328,059)
<S> <C> <C>
Depreciation and Amortization 62,774 53,644
Amortization of channel lease prepayments 26,742 26,743
Changes in Assets and Liabilities:
(Increase) Decrease in Trade Accounts and
Other Receivables (23,583) 58,060
Decrease in prepaid expenses -- 7,110
Increase in Accounts Payable and
Accrued Expenses 125,942 65,553
Increase in Security Deposits Payable 2,289 --
Increase in Income Taxes Payable -- (87)
Increase in Deferred Revenues 15,423 11,598
Net cash used in operating activities (32,765) (105,438)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in loan to shareholders (621) (100)
Purchase of property and equip (49,238) (33,847)
--------- ---------
Net cash used in investing activities (49,859) (33,947)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from Notes Payable - Senior Debt 9,141 --
Payments of long-term Debt (942) (779)
Payments of Obligations Under Capital Leases -- (16,057)
Decrease in Due to Shareholders (8,000) (5,000)
Proceeds from Issuance of Common Stock 707 800
--------- ---------
Net cash (used in) provided by financing activities 906 (21,036)
Net decrease in cash and cash equivalents (81,718) (160,421)
========= =========
Cash and cash equivalents begging of period 164,296 235,327
Cash and cash equivalents end of period 82,578 74,906
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
MAGNAVISION CORPORATION AND
SUBSIDIARIES CONSOLIDATED
STATEMENTS OF STOCKHOLDERS,
DEFICIENCY For the period December
31, 1996 to March 31,1997
(Unaudited)
Common Common Additional
Stock Stock Paid in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31,1996 23,044,441 $92,178 $3,321,207 ($6,022,030) ($2,608,645)
Net loss for the three months
ended March 31,1997 -- -- -- (242,352) (242,352)
Issued Common Stock
Jan 1,1997 to March 31,1997 7,075 28 679 707
---------- ------- ---------- ----------- -----------
Balance, March 31,1997 23,051,516 $92,206 $3,321,886 ($6,264,382) ($2,850,290)
</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, 1997 and March 31, 1996 are
unaudited and should be read in conjunction with the consolidated annual
financial statements and notes thereto for the year ending December 31, 1996.
2. Conversion of Debt to Redeemable Preferred Stock
At December 31, 1996, the Company was in default of certain provisions of
certain covenants of its senior debt agreement, and at the end of the first
quarter of 1997, had not made its required interest payment on such debt.
On May 12, 1997, the Company agreed with its lenders to convert its senior
subordinated notes into redeemable preferred stock. Under terms thereof, the
Company's outstanding subordinated notes, aggregating approximately $4.1
million, together with accrued interest and detachable warrants, were exchanged
for $5 million of 8% redeemable preferred stock due December 31, 2002. In
connection with the exchange, the lenders also funded the Company the remaining
balance on the existing line. In addition, the note holders received warrants to
purchase up to 58% of the common stock on a fully diluted basis at an exercise
price of $2.00 per share after the Company effectuates a 20-for-1 reverse stock
split, and have the right to elect the majority of the Board of Directors. This
resulted in a change in control. The agreement also requires the warrant holders
to surrender up to 10% of their stock on a fully diluted basis if, as and when
certain liquidity events occur. In addition, the warrant holders have the right
to require the Company to repurchase the warrants under certain conditions.
Also, one of the warrant holders has entered into a management service agreement
with the Company. Employment contracts were given to members of the existing
Board of Directors who are also members of the Company's management team and
will remain on the Board of Directors. Effective May 12, 1997 the Company
effectuated a 20 for 1 reverse stock split. The outstanding stock after the
split was 1,152,575 shares.
3. Equity Transaction
During the first quarter of 1997 a management warrant holder exercised warrants
for 7,075 shares of common stock.
<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, Magnavision Private
Cable, Inc., 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 May 12, 1997,
the Company has long-term agreements with 25 facilities under which it is
currently providing service to students and patients through approximately 8,800
outlets in rooms and common areas at such institutional facilities. The Company
recently entered into contracts with an additional two institutions representing
approximately 400 outlets and expects additional contracts to be signed in the
near future. The Company intends to complete installation at the new
institutions so as to go on line before September of 1997. The majority of the
facilities using the Company's private cable service are in New Jersey and New
York, but the Company's 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 believes that this trend, coupled with the fact that the
Company can offer cable services normally not provided by the traditional wired
cable companies, should result in 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.
FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
For the first quarter of 1997, gross profit increased $99,013 or 55% over the
first quarter of 1996. The increase was primarily a result of an inclusion of
3,300 outlets that went on line in September of 1996.
Total operating expenses decreased $30,562 in the first quarter of 1997
when compared to first quarter 1996. The primary reason for the decrease was a
decrease in General and Administrative expenses of $55,466, offset somewhat by
increases in salaries and depreciation.
Interest expense increased $36,337 for the first quarter 1997 when
compared to the first quarter 1996. This increase is attributable to an increase
in the amount of senior debt over the three months ending March 31, 1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ending March 31, 1997, total cash decreased by $81,718. The net
cash used in operating activities decreased by $32,765 primarily due to
operating losses, and an increase in accounts payable and accrued expenses.
Cash used in investing activities in the quarter ended March 31, 1997 was
$49,859, and related to the purchase of cable equipment to increase the outlet
count.
Cash flow provided by financing activities increased $906 for the quarter.
Since the inception of its cable service in 1992, the Company has experienced
operating losses and negative cash flow. In addition, at March 31, 1997 the
Company had a working capital deficiency and shareholder deficit.
The Company's capital commitments at March 31, 1997 include 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. However, as of the date hereof, the Company has
not commenced operation of a wireless system, and will require substantial
additional funding in order to do so.
The Company plans to meet short term liquidity requirements with the
funds available under the agreement converting its senior debt to redeemable
preferred stock described below. The Company believes that, on a long term basis
liquidity will be acheived through, and based upon the conversion of debt to
redeemable preferred stock and the elimination of related interest payments, the
Company believes it will have the ability to create liquidity by borrowing,
using the private cable contracts as security therefore. In addition, the
Company is 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. Allen &
Company Incorporated has been 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 borrow any such funds,
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. On June 3, 1996, the
Company amended the agreement with its lenders and at December 31, 1996, the
Company, which had borrowed $4,062,932 under this agreement, had not met several
covenants under its senior debt agreement. As of March 31, 1997 the Company did
not make its quarterly interest payment of $122,095. On May 12, 1997 the Company
and its lenders agreed to convert the entire amount of the lending facility to
redeemable preferred stock. The current loan balance, along with the balance of
the line was converted to redeemable preferred stock. The Company has cash
available to it of approximately $800,000 after expenses. The Company issued
redeemable
<PAGE>
preferred stock in the amount of $5 million, with an 8% preferred dividend, and
issued additional warrants (New Warrants) to purchase additional shares of
common stock, representing approximately 20% of the common stock at $2.00 per
share after it effectuates a 20-for-1 reverse stock split. The exercise price of
the current warrants, $.27 and $.38 per share, was reduced to $.10 per share
prior to such reverse stock split. The preferred shareholders have warrants to
purchase 58% of the Company's common stock and have the right to elect the
majority of the Board of Directors.
Management believes 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.
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward- looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements of the Company, or industry results expressed or
implied by such forward-looking statements. Such factors include among others,
general economic and business conditions, which will, among other things, impact
demand for the Company's services; changes in public taste, trends and
demographic changes; competition from other SMATV and/or cable companies, which
may affect the Company's ability to generate revenues; political, social and
economic conditions and laws, rules and regulations, which may affect the
Company's results of operations; timely completion of construction projects for
new systems; changes in business strategy or development plans; the significant
indebtedness of the Company; quality of management; availability of qualified
personnel; changes in, or the failure to comply with, government regulations;
and other factors.
<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, 1997
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 May 27, 1997 ------------------------
------------ Nicholas Mastrorilli, Sr.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 82,578
<SECURITIES> 0
<RECEIVABLES> 179,835
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 315,254
<PP&E> 1,319,125
<DEPRECIATION> (546,351)
<TOTAL-ASSETS> 2,099,202
<CURRENT-LIABILITIES> 4,811,196
<BONDS> 0
0
0
<COMMON> (2,850,290)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,099,202
<SALES> 406,658
<TOTAL-REVENUES> 406,658
<CGS> 129,118
<TOTAL-COSTS> 277,540
<OTHER-EXPENSES> 401,274
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (114,729)
<INCOME-PRETAX> (238,463)
<INCOME-TAX> 3,889
<INCOME-CONTINUING> (242,352)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (242,352)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
