<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 aggregate market value of
the voting stock held by nonaffiliates of the registrant on May 10, 2000 was
$780,050.19.
The number of shares of Registrant's Common Stock outstanding on May 10, 2000
was 1,180,208.
Documents Incorporated by Reference: None.
<PAGE>
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 2000 and December 31, 1999
Condensed Consolidated Statements of Operations - Three months ended March 31,
2000 and March 31, 1999.
Condensed Consolidated Statements of Shareholders' Deficiency - Period December
31, 1999 to March 31, 2000.
Condensed Consolidated Statements of Cash Flows - Three months ended March 31,
2000 and March 31, 1999.
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None
PART II. Other Information
<PAGE>
ITEM 1. FINANCIAL INFORMATION
MAGNAVISION CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
ASSETS 2000 1999
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 2,621,382 230,017
Trade accounts and other receivables 88,798 382,045
Notes receivable from customer 441,271 441,271
Shareholder loans receivable 20,000 20,000
Escrow account 222,418 --
Prepaid expenses and other current assets 33,428 33,428
-----------------------------
Total Current Assets 3,427,297 1,106,761
PROPERTY AND EQUIPMENT
Property and equipment, at cost 199,671 3,175,990
Less: accumulated depreciation (119,232) (1,657,176)
Net property and equipment 80,439 1,518,814
OTHER ASSETS
Prepaid lease expense 410,006 436,748
Deposits 1,990 1,990
-----------------------------
TOTAL ASSETS 3,919,732 3,064,313
=============================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable 46,915 97,127
Accrued expenses 43,585 165,385
Accrued expenses for Private Cable sale 1,029,000 --
Deferred revenues 69,560 369,765
Current portion of long-term debt -- 1,794,000
Line of credit -- 250,000
Term loans due to shareholders -- 105,468
----------------------------
Total Current Liabilities 1,189,060 2,781,745
Security deposits payable 14,914 176,692
Commitments and contingencies
Series A Preferred Stock, $1 par value, 9,850,000 shares authorized;
issued and outstanding, 3,643,392 shares at March 31, 2000
5,000,000 shares at December 31,1999, net of unamortized discount and
excluding accumulated dividend 3,430,018 4,683,642
Series A Preferred Stock accumulated dividend 843,115 1,057,778
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, 1,168,931 shares
at March 31,2000 and December 31, 1999 93,513 93,513
Additional paid-in capital 3,911,617 3,911,617
Accumulated deficit (5,694,394) (9,772,563)
-----------------------------
Total Shareholders' Deficiency (1,557,375) (5,635,544)
-----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY 3,919,732 3,064,313
=============================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-2
<PAGE>
MAGNAVISION CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31
2000 1999
<S> <C> <C>
REVENUES
Gross revenues 597,165 875,955
Cost of sales 236,390 285,718
GROSS PROFIT 360,775 590,237
OPERATING EXPENSES
Salaries 146,367 193,873
Depreciation 94,807 132,026
General and administrative expenses 192,928 185,522
-------------------------------
TOTAL OPERATING EXPENSES 434,102 511,421
-------------------------------
OPERATING (LOSS) INCOME (73,327) 78,816
-------------------------------
OTHER INCOME (EXPENSE)
Gain on the sale of the Private Cable assets, net of related expenses 5,103,486 --
Interest expense (50,441) (60,957)
Interest income 5,000 4,000
-------------------------------
Total other income (expense) 5,058,045 (56,957)
INCOME BEFORE PROVISION FOR INCOME TAXES 4,984,718 21,859
PROVISION FOR INCOME TAXES 703,864 4,969
NET INCOME 4,280,854 16,890
-------------------------------
Preferred shareholders dividend requirement 100,000 100,000
Accretion of preferred stock 102,685 23,149
-------------------------------
Net income (loss) to common shareholders 4,078,169 (106,259)
-------------------------------
Net income (loss) per common share basic: $ 3.49 ($ 0.09)
Net income (loss) per common share diluted: $ 1.49 (0.09)
Weighted average common shares used to compute net income (loss) per share:
Basic 1,168,931 1,154,390
Diluted 2,739,514 1,154,390
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-3
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
For the period December 31, 1999 to March 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Series B Additional Total
Preferred Stock Common Stock Paid in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficiency
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,1999 131,889 131,889 1,168,931 93,513 3,911,617 (9,772,563) (5,635,544)
Accretion of preferred stock (102,685) (102,685)
Net income 4,280,854 4,280,854
Series A Preferred Stock accumulated dividend (100,000) (100,000)
----------------------------------------------------------------------------------
Balance, March 31, 2000 131,889 131,889 1,168,931 93,513 3,911,617 (5,694,394) (1,557,375)
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-4
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 4,280,854 16,890
Adjustments to reconcile net income to net cash provided by operating activities
Gain on sale of private cable assets (5,103,456) --
Depreciation 94,807 132,026
Amortization of channel lease prepayments 26,742 26,742
Changes in Assets and Liabilities:
Decrease (Increase) in trade accounts and
other receivables 293,247 (37,198)
Increase in prepaid expenses and other current assets -- (30,979)
Decrease in accounts payable (50,212) (39,725)
Decrease in accrued expenses (121,800) (38,530)
Increase in accrued expenses for Private Cable sale 1,029,000
Decrease in security deposits payable (161,778) --
(Decrease) increase in deferred revenues (300,205) 15,095
------------------------------
Net cash provided by operating activities (12,831) 44,321
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of Private Cable assets, net of costs 6,447,053 --
Property and equipment net of purchases -- (34,775)
------------------------------
Net cash provided by (used in) investing activities 6,447,053 (34,775)
CASH FLOWS FROM FINANCING ACTIVITIES
Estabisment of an escrow account (222,418) --
Repayments of line of credit (250,000) --
Repayments of long term debt (1,794,000) (73,743)
Repayment of loans due to shareholders (105,468) --
Redemption of Series A Preferred Stock (1,356,308) --
Payment of accumulated dividends (314,663) --
------------------------------
Net cash used in financing activities (4,042,857) (73,743)
Net increase in cash 2,391,365 (64,197)
Cash and cash equivalents beginning of period 230,017 227,091
Cash and cash equivalents end of period 2,621,382 162,894
-------------------------------
Non cash items:
Series A Preferred Stock Accumulated dividend $100,000 $100,000
Accretion of preferred stock $102,685 $23,149
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-5
<PAGE>
NOTES TO MARCH 31, 2000 UNAUDITED 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 recurring items. The condensed
consolidated financial statements for the quarters ending March 31, 2000 and
March 31, 1999 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, 1999.
2. Sale of the Private Cable Assets
The sale of the Private Cable assets was completed on March 30, 2000 and was
based on the Asset Purchase Agreement between Lamont Television System Inc. and
the Company dated as of February 29, 2000 to purchase the service contracts and
related fixed assets of the Company. The purchase price was $7.5 million and was
adjusted for documentation and system corrections and other closing adjustments
totaling $420,415. The Company also paid the investment banker fee of $300,000,
and established accruals for severance and retention of $255,000, legal and
other fees of $75,000, and Federal and State taxes of $700,000. The Private
Cable Assets sold had a book value, net of depreciation, of $1,347,099. As part
of the sale the Company established an escrow account for $222,418 to cover
certain contingencies pursuant to the agreement for a period of nine months. The
gain on the sale to the Company before taxes and any effect of the escrow
account was $5,103,486.
Also the May 8, 1997 Exchange Agreement and the Company's Certificate of
Incorporation, as amended, required the payment of 25% of the net proceeds of
the Private Cable sale be used to retire a portion of the Company's Series A
Preferred Stock and related accumulated preferred stock dividend. The Company
redeemed $1,356,608 shares of Series A Preferred Stock for $1,356,608 and also
paid $314,663 of accumulated dividends. The Company also accelerated the
accretion of $79,536 related to the redeemed Series A Preferred Stock.
As part of the Private Cable sale the Company vested 5,000 unvested options
relating to the retention of an officer who was terminated as a result of the
sale.
3. Pay off of Debt
The Company repaid off both its term loan and outstanding line of credit with
BSB Bank and Trust Co. totaling $2,044,000 principal plus interest then due from
the proceeds of the Private Cable sale. The 146,176 warrants issued to BSB Bank
& Trust Co. as part of the original loan transaction remain outstanding to
purchase the Company's issued and outstanding capital stock at an exercise
price of $2.00 per option. The Company also repaid the outstanding notes
totaling $105,468 plus accrued interest from the proceeds of the sale.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
All of the Company's current revenues were derived from its private cable
operations that were sold as of February 29, 2000. 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 center
facilities in the New York/New Jersey area utilizing direct satellite
technology. This involved the use of antennas, which were installed at the
facility and then separately wired on a room-by-room basis. The majority of the
facilities using the Company's private cable service were in New Jersey and New
York, but the Company's market area currently reaches from North Carolina to
Massachusetts and west to Wisconsin.
Each installation was comprised of a number of billing outlets. A billing outlet
represented a hookup for a television. The Company collected revenue from each
television online. For the most part, the colleges were on a nine-month billing
cycle starting in September and ending in June of the subsequent year. The
nursing homes and hospitals were on a 12-month billing cycle.
First Quarter 2000 Compared to First Quarter 1999
During the first quarter of 2000, the Company sold its Private Cable assets to
Lamont Television Systems Inc. The transaction was effective as of February 29,
2000.
For the first quarter 2000, gross profits decreased $229,462 from the first
quarter of 1999. The decrease in gross profit was primarily the result of
reflecting two months of operation in the year 2000 virus three months of
operations in 1999 due to the sale of the Private Cable assets in 2000, which
was effective as of February 29, 2000.
The total operating expenses decreased $77,319 in the first quarter of 2000 when
compared to the first quarter of 1999. Salaries accounted for $47,506 of the
decrease representing a savings for staff expenses reimbursed by Lamont
Television Systems Inc. relating to staff expenses for the month of March 2000.
Depreciation was $37,219 less than the first quarter of 1999 because only two
months of deprecation was expensed in the first quarter of 2000 as compared to a
full quarter of deprecation in 1999 due to the effective date of the sale of
February 29, 2000 General and administrative expenses increased $7,406 when
compared to the first quarter of 1999 due to increased professional fees in the
first quarter of 2000.
<PAGE>
For the first quarter 2000 other income increased $5,115,002 over first quarter
of 1999. The gain on the sale of the Private Cable assets represented $5,103,486
of the increase and was based on the Asset Purchase Agreement between Lamont
Television System Inc. and the Company dated as of February 29, 2000 to purchase
the service contracts and related fixed assets of the Company. The purchase
price of $7.5 million was adjusted for documentation and system corrections and
other closing adjustments totaling $420,415. The Company also paid an investment
banker fee of $300,000, and established accruals for severance and retention of
$255,000, and legal and other fees of $75,000. The Private Cable Assets sold had
a book value, net of depreciation, of $1,347,099.
Interest expense decreased $10,516 in the first quarter of 2000 when compared to
the first quarter of 1999 due to lower loan balances in the first quarter of
2000.The Company accrued Federal and State taxes of $700,000 related to the
Private Cable sale.
LIQUIDITY AND CAPITAL RESOURCES
For the first quarter ending March 31, 2000, the total cash and cash equivalents
increased $2,391,365. At March 31, 2000 the Company had invested in Repurchase
Agreements due April 1, 2000. The increase in cash is substantially due to the
result of the sale of the private cable system.
The cash used in operating activities was $12,831 and was a result of the gain
from the sale of the private cable assets, off set by accruals for the Private
Cable sale of $1,029,000 for State and Federal taxes of $700,000, severance and
retention payments of $255,000 and legal and other fees accruals of $75,000.
There were also decreases that were related to the sale in deferred revenues of
$300,205, trade accounts and other receivables of $293,247, and security deposit
payable of $161,778.
The cash provided by investing activities of $6,447,053 was due to the gain on
the sale of the Private cable assets, net of cost, in the first quarter of 2000.
Cash used in the financing activities was $4,042,857. The Company repaid its
term loan of $1,794,000 and line of credit of $250,000 to BSB Bank & Trust Co.
The Company also repaid the outstanding notes totaling $105,468 plus accrued
interest from the proceeds of the sale. The Company was required to establish an
escrow account for unforeseen contingences of $222,418 as part of the Private
Cable sale. In addition the May 8, 1997 Exchange Agreement and the Company's
Certificate of Incorporation, as amended, required the payment of 25% of the net
proceeds of the Private Cable sale be used to retire a portion of the Company's
Series A Preferred Stock and related accumulated preferred stock dividend. The
Company redeemed $1,356,608 shares of Series A Preferred Stock for $1,356,608
and also paid $314,663 of accumulated dividends.
As a result of the Private Cable asset sale the Company has reduced its staff
from 11 employees at December 31, 1999 to two full time employees and expects to
<PAGE>
use part-time clerical help as needed. The Company has also allowed its lease to
expire and has located less expensive space that it will move into effective
June 1, 2000.
For the quarter ending March 31, 1999, total cash decreased by $64,197. The cash
provided by operating activities was $44,321 due to operating income offset by
increased trade accounts, other receivables, and other assets, and decrease in a
accounts payable and accrued expenses.
Cash used in investing activities was $34,775 and was used to purchase cable
television equipment and other equipment.
Cash flows used in financing activities were $73,743 representing the payments
on the Company's long-term debt.
Since the inception of its cable service in 1992, the Company has experienced
operating losses and negative cash flows. In addition, at March 31, 2000, the
Company had a shareholder deficit.
The Company's capital commitments at March 31, 2000 include capital to construct
Facilities at the Department of Education of the Archdiocese of New York (the
"Archdiocese"). The Company has not commenced operation of a wireless system,
and will require substantial additional funding to do so.
The Company will use its cash and notes receivable from its customer for its
short-term capital requirements.
The Company is exploring various strategic alternatives relating to its Channel
Lease Agreement with the Archdiocese including potential strategic alliances,
joint ventures or a sale or other disposition of the Company's rights under such
agreement. However, no assurances can be given that the Company will
successfully accomplish any strategic alternative related to the Channel Lease
Agreement.
INFLATION
Management believes that inflation and changing prices will have a minimal
effect on operations.
<PAGE>
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; 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; changes in business strategy or
development plans; quality of management; availability of qualified personnel;
changes in, or the failure to comply with, government regulations; and other
factors.
PART II OTHER INFORMATION
Item 1. Litigation
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. Discovery is pending in this matter and the Company can
make no predictions as to its final outcome at this time.
Item 2. Properties
The Registrant's principal offices are located at 1725 Highway 35, The Wedgewood
Building, Wall, New Jersey, where it occupies approximately 1200 square feet
under a lease agreement that expires in May 2000.
Effective June 1, 2000, the Company has signed a six month lease for
approximately 500 square feet and will move its office to 141 South Ave.,
Fanwood, New Jersey, 07076.
Item 6. Exhibits and Reports on Form 8K
a) Exhibits
None
b) Reports on Form 8K
The Company filed no Reports on Form 8K during the Quarter ending
March 31, 2000
<PAGE>
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 15, 2000 /S/ Robert Hoffman
---------------------
President and C.E.O.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000802781
<NAME> MAGNAVISION CORP.
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 2,621,382
<SECURITIES> 0
<RECEIVABLES> 550,069
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,427,297
<PP&E> 199,671
<DEPRECIATION> (119,232)
<TOTAL-ASSETS> 3,912,732
<CURRENT-LIABILITIES> 1,189,060
<BONDS> 0
3,430,018
131,889
<COMMON> (1,557,375)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,912,732
<SALES> 597,165
<TOTAL-REVENUES> 597,165
<CGS> 236,390
<TOTAL-COSTS> 236,390
<OTHER-EXPENSES> 434,102
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,441
<INCOME-PRETAX> 4,984,718
<INCOME-TAX> 703,864
<INCOME-CONTINUING> 4,280,854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,280,854
<EPS-BASIC> 3.49
<EPS-DILUTED> 1.49
</TABLE>
