<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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACTS OF 1934
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: (732) 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 number of shares of Registrant's Common Stock outstanding on November 1,
1999 was 1,162,467.
Documents Incorporated by Reference: None.
<PAGE>
PART I. Financial Information
---------------------
Item 1. Financial Statements (Unaudited)
--------------------------------
Condensed Consolidated Balance Sheets - September 30, 1999 and December 31, 1998
Condensed Consolidated Statements of Operations - Three and Nine months ended
September 30, 1999 and 1998.
Condensed Consolidated Statements of Stockholders' Deficiency - Period December
31, 1998 to September 30, 1999.
Condensed Consolidated Statements of Cash Flows - Nine months ended September
30, 1999 and 1998.
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
-----------------------------------------------------------------------
Item 3. Qualitative and Quantitative Disclosures about Market Risk.
-----------------------------------------------------------
Item 5. Change-of-Control Policies.
---------------------------
Item 6. Subsequent Events - MagnaVision announces proposed sale of Private
Cable Assets.
-----------------------------------------------------------------------
Item 7. Exhibits and Reports.
---------------------
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
1. Summary of Significant Accounting Policies:
- -----------------------------------------------
The accompanying condensed consolidated financial statements include the
accounts of Magnavision Corporation ("the Parent") and its 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 condensed
consolidated financial statements for the quarters ending September 30, 1999 and
September 30, 1998 are unaudited and should be read in conjunction with the
Company's consolidated annual financial statements and notes thereto for the
year ending December 31, 1998.
2. Long-Term Debt:
- -------------------
In September 1997, the Company and Access Capital, Inc. agreed to a $1,250,000
three-year revolving line of credit to be used to expand the Company's private
cable business. Interest was payable currently under the line of credit at prime
rate plus five and one-half percent (the contract rate) and all outstanding
amounts were payable in September 2000. The line was secured with the lender by
a pledge of private cable contracts and all other Company assets. In addition
the lender received 138,536 warrants at an exercise price of $2.00 per share to
purchase approximately 4% of the Company's stock on a fully diluted basis. The
warrants contain a put and 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 of a significant
asset of the Company or change of control. 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. The agreement with Access Capital,
Inc. has been repaid with the proceeds of the BSB Bank & Trust Company agreement
(see below). The Company incurred a penalty in connection with the termination
together with the write-off of the unamortized deferred financing costs have
been classified as an extraordinary item in the accompanying 1998 condensed,
consolidated statements of operations. The warrant and their related terms
remain outstanding.
On July 3, 1998, the Company and BSB Bank & Trust Company entered into an
agreement to refinance the Company's existing credit line and to supply working
capital. Magnavision borrowed the sum of $2.5 million, which bears interest at a
fixed rate of 10% per annum and has a 5-year term. During the 9 months ended
September 30, 1999, the Company made monthly installments of interest, plus 6
consecutive monthly payments of $24,000 of principal, payable in arrears, made
in accordance with the agreed upon schedule which started October 1998 and one
principal payment of $400,000 due June 15, 1999.
<PAGE>
The Company requested that $200,000 of the amount due June 15, 1999 be deferred
until August 1, 1999, at which time the payment was made. For the next 12
months, monthly installments of interest plus 9 consecutive monthly payments of
$30,000 of principal, payable in arrears, will be made in accordance with the
agreed upon schedule and one principal payment of $400,000 is due on June 15,
2000.
The loan was utilized to refinance existing debt and the remaining approximately
$1.9 million was used to finance the completion of outstanding contracts for
private cable television service at various locations and to complete the
Fordham University Internet distribution system currently under contract. BSB
Bank & Trust Company also granted the Company a $500,000 line of credit, to be
used for future installations of private cable systems and general corporate
purposes. As of September 30, 1999, the Company has borrowed $250,000 under the
BSB's Line of Credit for working capital needs. This line of credit is at an
interest rate of prime plus 1.5% payable monthly and will mature in June 2000.
In connection with the 1998 above transactions, BSB Bank & Trust Company
received 146,176 warrants to purchase approximately 4% of Magnavision's issued
and outstanding capital stock on a fully diluted basis at an exercise price of
$2.00 per share.
3. NON-QUALIFIED STOCK OPTION PLAN:
- ------------------------------------
During the first quarter of 1999 Magnavision adopted a non-qualified stock
option plan (the "Plan"). Under the Plan, options to purchase an aggregate of
not more than 349,986 shares of common stock may be granted from time to time to
key employees, including officers, advisors, and independent consultants or to
any other persons. Under the Exchange Agreement (a copy which was filed with the
company's 10K for the year ending December 31, 1997) and when the Plan was
complete, options were also to be granted to employees under the Plan. Also
under a letter agreement, the President and C.E.O. was to receive 150,000
options at an exercise price of $1.00. As of January 19, 1999, the compensation
committee awarded or caused to be issued 223,974 options including: 150,000
options to Robert Hoffman, 43,974 options issued pursuant to the Company's
obligation under the Exchange Agreement at an exercise price of $2.00 per share
and awarded 30,000 options to various employees at an exercise price of $2.00
per option.
The Company accounts for stock options issued to employees under A.P.B. No. 25
"Accounting for Stock Issued to Employee," as permitted by FAS No. 123 under
which no compensation cost has been recognized for the options granted as they
were issued above market value.
4. PREFERRED STOCK DIVIDENDS:
- ------------------------------
On September 30, 1999, the Company was in arrears on dividends to its preferred
stockholders. The Company must pay dividends of $957,778 in arrears to preferred
stockholders before paying any dividends to common stockholders. Also, the
dividends in arrears are due upon mandatory redemption of the preferred stock
due December 31, 2002, or earlier upon certain events.
<PAGE>
5. EQUITY TRANSACTION
- ----------------------
During the third quarter of 1999, an option holder exercised options to purchase
8,077 shares of common stock at $2.00 per share.
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 senior living centers
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,
1999, the Company has long-term agreements with 41 facilities under which it is
currently providing service to students and patients through outlets in rooms
and common areas at such institutional facilities. 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 and west to Wisconsin.
The Company also has an Agreement with Fordham University pursuant to which the
Company agreed to service approximately 3,000 students with a data delivery
system using the existing cable television distribution system located at
certain facilities.
Many colleges and senior living centers 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.
Nine Months Ending September 30, 1999 Compared to Nine Months Ending
September 30, 1998
- --------------------------------------------------------------------
For the nine months ending September 30, 1999 gross profit decreased $51,797
over the nine months ending September 30, 1998. The decrease in gross profit in
1998 was a result of non-reoccurring revenues from the sale of installed
equipment at various sites during 1998, which was not included in the revenue of
1999.
Total operating expenses increased $95,108 in the nine months ending September
30, 1999 when compared to the nine months ending September 30, 1998.
Depreciation represented $111,610 of the increase and relates to the purchase of
additional equipment.
<PAGE>
Salaries increased $159,722, primarily due to the addition of the president's
salary in 1999 and the payment of bonuses to certain employees. General and
administrative expenses decreased by $176,224, due mostly to reduced consulting
fees in 1999.
Interest expense increased $54,718 in the first nine months ending September 30,
1999 when compared to the nine months ending September 30, 1998. This increase
is due to the increase of long-term debt relating to BSB Bank & Trust Company's
loan.
The extraordinary item in 1998 was the write-off of deferred financing cost and
prepayment penalty after the pay-off of the Access Capital line-of-credit after
the Company obtained the new term loan.
Third Quarter 1999 Compared to Third Quarter 1998
- -------------------------------------------------
For the third quarter 1999, gross profit decreased $404,820 over the third
quarter of 1998. The decrease was a result of non-reoccurring revenue from the
sale of installed equipment at various sites during September 1998, which was
not included in the revenue of 1999.
Total operating expenses increased $1,099 in the third quarter of 1999 when
compared to the third quarter 1998. Salaries increased $20,791 due to annual
increases to various employees; and general and administrative expenses were
$21,351 less than 1998 due to the reduced professional fees in 1999.
Interest expense increased $6,336 in the third quarter of 1999 when compared to
the third quarter of 1998. The increase is due to the increase in long-term debt
relating to the BSB Bank & Trust Company's loan.
The extraordinary item in 1998 was the write-off of deferred financing cost and
prepayment penalty after the pay-off of the Access Capital line-of-credit after
the Company obtained the new term loan.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the nine months ending September 30, 1999 total cash decreased by $64,660.
The net cash provided by operating activities was $332,598 and is primarily due
to the repayment of the note receivable from a customer.
Cash used in investing activities for the nine months ended September 30,1999
was $120,353 and was related to the purchases of cable equipment to increase the
outlet count.
Cash flow used in financing activities was $276,905 for the nine-month period
ending September 30, 1999 which represented $250,000 of proceeds received from
BSB Bank & Trust Company under the Line of Credit offset by payments of $548,357
made under long-term debt agreements.
<PAGE>
For the nine months ending September 30, 1998, total cash increased by $17,864.
The cash used by operating activities was $907,955 mainly due to an increase in
trade accounts and other receivables related to the data system being built at
Fordham University and other cable television builds and the notes from Fordham
University for the purchase of equipment.
Cash used in investing activities was $1,118,928 and was used to purchase cable
television and equipment to increase the outlet count and data system equipment
for Fordham.
Cash flows from financing activities was $2,044,747 and primarily represents
proceeds from the term loan less the pay off of the Access Capital line of
credit.
The Company's capital commitments at September 30, 1999 include capital
to/construct Facilities at the Department of Education of the Archdiocese of New
York (the "Archdiocese") and capital to place a private cable system on line at
an institution the Company has contracts with. The Company has not commenced
operation of a wireless system, and will require substantial funding to do so.
The Company intends to borrow the funds under its line of credit to complete the
projects it has contracted.
Since inception of its cable service in 1992, the Company has experienced
operating losses and negative cash flows. In addition, at September 30, 1999,
the Company had a shareholder deficit and working capital deficiency.
The Company is exploring various strategic alternatives relating to its Channel
Lease Agreement with the Archdiocese and its Private Cable Operations including
potential strategic alliances, joint ventures or a sale or other disposition of
the Company's rights under such agreement and/or the Private Cable Operations.
See Item 6, Magnavision announces proposed sale of private cable assets. Also,
management believes that with 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 successfully accomplish any
strategic alternative related to the Channel Lease Agreement, the Private Cable
Operations or to expand the private cable operations to produce positive cash
flows, on a timely basis or at all.
YEAR 2000
- ---------
The Year 2000 issue concerns the potential inability of information systems and
technology based operating systems to properly recognize and process
date-sensitive information beyond December 31, 1999. Systems that do not
properly recognize such information could generate erroneous data or fail.
<PAGE>
The Company has begun to implement steps in an attempt to ensure its Year 2000
readiness. The Company created awareness of the Year 2000 problem by developing
an overall strategy. The Company then assessed the Year 2000 impact on the
Company, identifying core business areas, processes and systems, ("systems"),
identifying the systems that are not Year 2000 compliant. This also includes
developing contingency plans for all critical systems. The final step involves
converting or replacing platforms, applications, databases, utilities, and
contingency plans as necessary.
Based on the review to date, the Company estimates the cost to resolve the Year
2000 issue are minimal. In the event that the renovation, validation or
implementation phases require expenditures not currently foreseen or
anticipated, the costs to resolve the Year 2000 issues will increase.
The Company is developing contingency plans for its worst case scenarios as part
of the validation phase. At this time, the Company believes that the most
critical systems are its signal delivery and reception systems. The Company
believes that the potential failure of these critical systems related to Year
2000 issues is unknown. The Company also believes that a failure of its
important, but less critical, environmental controls system, sales and marketing
support system and internal information system, is remote.
In the event that undetected Year 2000 issues arise, the plans will be used to
attempt to reduce the potential system problems. Our internal financial and
sales and support system contingency plan includes making back-up copies of the
data and systems. With respect to the third-party signal delivery system, the
company uses more than two vendors and believes it will be able to offer limited
programs in the event of a failure of one vendor system. Also, the Company will
continue to contact the vendors in order to obtain certification of the Year
2000 readiness.
However, if such a failure were to occur in the case of the signal delivery and
reception system; the Company does not anticipate that it will be able to
provide timely alternative or replacement systems for these critical systems.
This is primarily due to the reliance by the Company on third party vendors for
providing key components of such systems. The Company has sought assurances from
its vendors that their products and services will be Year 2000 compliant, and
has not received such assurances from all of its vendors.
However, if such vendors of the signal delivery system are not Year 2000
compliant and their systems fail, the Company's business, financial condition
and results of operations may be adversely impacted.
<PAGE>
INFLATION
- ---------
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 unaudited condensed
consolidated 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.
Item 3. Qualitative and Quantitative Disclosures about Market Risk.
-----------------------------------------------------------
The Company has none.
PART II OTHER INFORMATION
-----------------
Item 1. Litigation
CACOMM, INC vs. MAGNAVISION CORPORATION ETAL.
- ---------------------------------------------
Reference was made in the Company's 10-Q for March 31, 1999. On or about June 1,
1999, the Company was informed that the complaint filed in the court of Chancery
of the State of Delaware entitled Cacomm, Inc. vs. Magnavision Corporation et.al
filed on May 13, 1999, was dismissed by Cacomm, Inc.
<PAGE>
PATRICK MASTRORILLI vs. MAGNAVISION CORPORATION
- -----------------------------------------------
On June 21, 1999, the Company received a complaint filed in the Superior Court
of New Jersey Legal Division in an action entitled Patrick Mastrorilli vs.
Magnavision Corporation. This litigation relates to a former director and
officer's claim for alleged future commissions due him on contracts and current
renewals placed by him. The company is reviewing this action.
Item 2. Election of a Director
On June 3, 1999, the Board of Directors approved the election of Cacomm Inc.'s
appointee, Brian Mastrorilli, to the Board. Mr. Mastrorilli has been Vice
President of Technical Operations at Magnavision since April 1991. He was also a
Director of Cacomm Inc. until May 1999, when he resigned to become a Director of
Magnavision.
Item 5. Change-of-Control Policies
During the third quarter, the Company adopted policies for the purpose of
retaining the services of its employees during a change-of-control of the
Company and paying severance to employees who are terminated as a result of a
change-of-control. The policies are limited in scope and duration, and are
effective only if there is a change-of-control prior to January 1, 2000. A
change-of-control is defined in the policies as any event that would be
reportable in Item 1(a) of SEC Form 8-K, including, without limitation, any
event that causes any person, directly or indirectly, to become the beneficial
owner of 50% or more of the securities ordinarily having the right to vote at
the election of directors of the company or the sale of all or substantially all
of the company's assets or the assets of a wholly owned subsidiary.
The change-of-control policy for non-officer employees calls for both retention
pay and severance pay. The amount of retention incentive pay is up to three
months' base pay for each eligible employee. The amount of severance pay is up
to nine months' base pay for each eligible employee with three or more years of
service and up to six months' base pay each eligible employee with more than one
year of service.
The change-of control policy for employees who are corporate officers, with the
exception of the President and C.E.O. who has a separate plan, provides for
severance pay in an amount up to 12 months base pay for each eligible employee
and immediate vesting of all issued and outstanding stock options, subject to
certain limitations.
The change-of-control agreement for the President and C.E.O. provides for
severance pay in an amount equal to 12 months base pay upon a change-of-control
prior to June 1, 2000.
<PAGE>
Item 6. Subsequent Events - MagnaVision announces proposed sale of Private
Cable Assets
On November 3, 1999 - MagnaVision Corporation (OTC Bulletin Board: MAGV) and
Lamont Television Systems, Inc. (dba Campus TeleVideo) announced that they have
entered into a non-binding Letter of Intent under which Campus TeleVideo
proposes to purchase the service contracts and related fixed assets of
MagnaVision's private cable operations for a price of $7.5 million in cash. The
transaction is subject to the completion of due diligence, necessary approvals
and consents, and the preparation and execution of a definitive agreement within
a 60 day exclusivity period, and other conditions. Daniels & Associates is
assisting MagnaVision in the transaction.
Item 7. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K Date: 11/9/99
---------------
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 12, 1999. -----------/S/------------------
Jeffrey Haertlein
Principal Accounting Officer
<PAGE>
ITEM 1. FINANCIAL INFORMATION
MAGNAVISION CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
ASSETS 1999 1998
---- ----
(UNAUDITED)
CURRENT ASSETS
<S> <C> <C>
Cash 162,431 227,091
Trade Accounts and Other Receivable 379,125 276,203
Notes receivable from customer 441,271 467,000
Shareholder Loans Receivable 33,409 38,707
Prepaid Expenses 1,985 1,986
-------------------------
Total Current Assets 1,018,221 1,010,987
PROPERTY AND EQUIPMENT
Property and Equipment at Cost 3,197,538 3,077,185
Less: Accumulated Depreciation (1,523,332) (1,122,022)
-------------------------
Net Property and Equipment 1,674,206 1,955,163
OTHER ASSETS
Notes receivable from customer, net of current portion 441,271
Prepaid lease expense 463,490 543,716
Other assets 30,978 --
Deposits 2,339 2,339
-------------------------
TOTAL ASSETS 3,189,234 3,953,476
=========================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts Payable 104,922 212,390
Accrued Expenses 133,231 169,384
Deferred Revenues 394,740 354,596
Line of Credit 250,000 --
Current Portion of Long-Term Debt 777,753 640,642
-------------------------
Total Current Liabilities 1,660,646 1,377,012
Security Deposits 176,692 172,303
Long-Term Debt, net of current portion 1,214,000 1,899,468
Commitments and contingencies
Series A Preferred Stock, $1 par value, 9,850,000
shares authorized; issued and outstanding, 5,000,000
shares, net of unamortized discount 4,660,493 4,591,049
SHAREHOLDERS' DEFICIENCY
Series B Preferred Stock, $1 par value , 150,000 shares 131,889 131,889
authorized; issued and outstanding, 131,889 shares.
Common Stock, $0.08 par value - 10,000,000 shares
authorized; issued and outstanding, 1,162,467 shares
at September 30,1999 and 1,154,390 shares
at December 31, 1998, respectively 92,996 92,350
Additional Paid-In Capital 3,896,109 3,880,601
Accumulated Deficit (8,643,591) (8,191,196)
-------------------------
Total Shareholder's Deficiency (4,522,597) (4,086,356)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY 3,189,234 3,953,476
=========================
See accompanying notes to unaudited condensed consolidated financial statements. F-2
</TABLE>
<PAGE>
MAGNAVISION CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30 Three months ended September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Gross Revenues 2,083,214 2,871,617 537,951 1,911,062
Cost of Sales 693,223 1,533,423 201,272 1,169,563
--------------------------- ---------------------------
GROSS PROFIT 1,389,991 1,338,194 336,679 741,499
OPERATING EXPENSES
Salaries 635,815 476,093 197,943 177,152
Depreciation 401,310 289,700 106,359 104,700
General and Administrative Expenses 572,111 748,335 236,845 258,196
--------------------------- ---------------------------
TOTAL OPERATING EXPENSES 1,609,236 1,514,128 541,147 540,048
OPERATING LOSS (219,245) (175,934) (204,468) 201,451
OTHER INCOME (EXPENSE)
Interest expense (181,536) (126,818) (58,349) (52,013)
Interest Income 23,203 22,532 7,500 7,499
--------------------------- ---------------------------
Total other income (expense) (158,333) (104,286) (50,849) (44,514)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEM (377,578) (280,220) (255,317) 156,937
PROVISION FOR INCOME TAXES 5,371 4,181 402 --
--------------------------- ---------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (382,949) (284,401) (255,719) 156,937
EXTRAORDINARY ITEM-LOSS ON EXITNGUISHMENT OF DEBT -- 165,779 -- 165,779
--------------------------- ---------------------------
NET LOSS (382,949) (450,180) (255,719) (8,842)
--------------------------- ---------------------------
Preferred Stockholders Dividend Requirement 300,000 300,000 100,000 100,000
Accretion of preferred stock 69,447 69,447 23,149 23,149
--------------------------- ---------------------------
Net loss to Common Stockholders (752,396) (819,627) (378,868) (131,991)
--------------------------- ---------------------------
Net Loss per Common Share Basic:
Income (Loss) before extraordinary item (0.65) (0.57) (0.33) 0.03
Extraordinary item -- (0.14) -- (0.14)
Net Loss ($0.65) ($0.71) ($0.33) ($0.11)
Weighted Average Shares use to Compute net loss per share:
Basic 1,156,748 1,154,342 1,161,413 1,154,390
See accompanying notes to unaudited condensed consolidated financial statements. F-3
</TABLE>
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
For the period December 31, 1998 to September 30,1999
(UNAUDITED)
<TABLE>
<CAPTION>
Series B Common Additional Total
Preferred Stock Stock Paid in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficiency
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,1998 131,889 131,889 1,154,390 92,350 3,880,601 (8,191,196) (4,086,356)
Accretion of Preferred Stock (69,446) (69,446)
Common Stock Issued 8,077 646 15,508 16,154
Net loss (382,949) (382,949)
---------------------------------------------------------------------------------------------
Balance, September 30, 1999 131,889 131,889 1,162,467 92,996 3,896,109 (8,643,591) (4,522,597)
See accompanying notes to unaudited condensed consolidated financial statements. F-4
</TABLE>
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss (382,949) (450,180)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Extraordinary item 165,779
Depreciation 401,310 289,700
Amortization of deferred financing cost -- 31,121
Amortization of channel lease prepayments 80,226 80,226
Changes in Assets and Liabilities:
Increase in Trade Accounts and
Other Receivable (102,922) (450,112)
Decrease in prepaid expenses 1 3,350
Increase in Deposits -- (6,776)
Increase (Decrease) in Accounts Payable (107,470) 79,526
Increase (Decrease) in Accrued expenses (36,153) 82,959
Increase in other assets (30,978) --
Increases in Security Deposits Payable 4,389 18,248
Increase in Deferred Revenues 40,144 82,204
Increase (decrease) in notes receivable from customer 467,000 (834,000)
---------------------------
Net cash provided by (used in) operating activities 332,598 (907,956)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (120,353) (1,118,928)
---------------------------
Net cash used in investing activities (120,353) (1,118,928)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of Long term debt (548,357) (2,317)
Payment of Access Capital Line of Credit -- (456,696)
Proceeds from Issuance of Common Stock 16,154 3,760
Repayment of Shareholder Loans Receivable 5,298 --
Proceeds from Issuance BSB Term Loan -- 2,500,000
Proceeds from Issuance of BSB Credit Line 250,000 --
---------------------------
Net cash (used in) provided by financing activities (276,905) 2,044,747
Net increase (decrease) in cash (64,660) 17,863
---------------------------
Cash beginning of period 227,091 141,546
Cash end of period 162,431 159,409
See accompanying notes to unaudited condensed consolidated financial statements. F-5
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 162,431
<SECURITIES> 0
<RECEIVABLES> 379,125
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,018,221
<PP&E> 3,197,538
<DEPRECIATION> 1,523,332
<TOTAL-ASSETS> 3,189,234
<CURRENT-LIABILITIES> 1,660,646
<BONDS> 0
4,660,493
131,889
<COMMON> (4,522,597)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,189,234
<SALES> 2,083,214
<TOTAL-REVENUES> 2,083,214
<CGS> 693,223
<TOTAL-COSTS> 693,223
<OTHER-EXPENSES> 1,609,236
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181,536
<INCOME-PRETAX> (377,578)
<INCOME-TAX> 5,371
<INCOME-CONTINUING> (382,949)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (382,949)
<EPS-BASIC> (.65)
<EPS-DILUTED> (.65)
</TABLE>
