10-Q 1 b311347_10q.txt QUARTERLY REPORT 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, 2001 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.) 141 South Ave., Office #4, Fanwood, NJ 07023 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (908) 490-9910 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 1, 2001 was $569,090. The number of shares of Registrant's Common Stock outstanding on March 31, 2001 was 1,185,792. Documents Incorporated by Reference: None. PART I. Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - March 31, 2001 and December 31, 2000 Condensed Consolidated Statements of Operations - Three months ended March 31, 2001 and March 31, 2000 Condensed Consolidated Statements of Shareholders' Deficiency - Period December 31, 2000 to March 31, 2001 Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2001 and March 31, 2000 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 ITEM 1. FINANCIAL INFORMATION MAGNAVISION CORPORATION & SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to unaudited condensed consolidated financial statements. F-2 MAGNAVISION CORPORATION & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See accompanying notes to unaudited condensed consolidated financial statements. F-3 MAGNAVISION CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY For the period December 31, 2000 to March 31, 2001 (UNAUDITED)

See accompanying notes to unaudited condensed consolidated financial statements. F-4 MAGNAVISION CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes to unaudited condensed consolidated financial statements. F-5 NOTES TO MARCH 31, 2001 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 ended March 31, 2001 and March 31, 2000 are unaudited and should be read in conjunction with the Company's consolidated annual financial statements and notes thereto for the year ended December 31, 2000. 2. Announcement of Agreement to Merge On September 12, 2000, MagnaVision Corporation. and Blue Acquisition Corp., a wholly owned subsidiary of IPWireless, Inc. based in San Bruno, CA, signed a definitive agreement for Blue Acquisition Corp. to merge with and into MagnaVision Corporation. All outstanding common and preferred stock of MagnaVision shall be exchanged in the transaction for cash and/or securities as described below. This agreement has been approved by the majority stockholders of MagnaVision and by the Board of Directors of MagnaVision, Blue Acquisition Corp. and IPWireless. The agreement is contingent upon MagnaVision meeting certain conditions at closing, some of which are not within the control of the Company. The Company is attempting to satisfy these conditions. According to the agreement, each share of MagnaVision Class A and Class B Preferred Stock outstanding at the time of closing will receive $1.00 plus any accumulated dividends then due. Each share of MagnaVision Common Stock outstanding will receive approximately $5.78 per share. Stockholders who hold less than 1% of the fully diluted shares of MagnaVision common stock (36,507 or fewer shares) will receive their consideration entirely in cash. Common stockholders holding more than 1% of the fully diluted shares will receive approximately 80% of their consideration in cash and 20% of their consideration in the form of notes. Warrant and option holders will receive approximately $5.78 less an amount equal to the cost of exercising the warrant or option. Warrant and option holders who hold in excess of 1% of the Company's fully diluted common stock will receive approximately 20% of the share consideration in the form of notes and the remainder in cash. In addition, the agreement has provisions for holders of MagnaVision Common Stock, warrants and options to receive additional consideration based upon the Company achieving certain objectives. The merger agreement expires on September 12, 2001. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company had no revenues for the three months ended March 31, 2001 since its private cable operations and related revenue stream 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. These assets were sold as of February 29, 2000. First Quarter 2001 Compared to First Quarter 2000 For the first quarter 2001, gross profits decreased $306,775 from the first quarter of 2000. The decrease in gross profit was the result of reflecting two months of operations in the year 2000 and no operations in 2001 due to the sale of Private Cable assets in 2000, which was effective as of February 29, 2000. Total operating expenses decreased $206,077 in the first quarter of 2001 when compared to the first quarter of 2000. Salaries accounted for $86,367 of the decrease representing the staff reduction in 2001. Depreciation was $94,602 less than the first quarter of 2000 because of the Private Cable sale in the first quarter of 2000. General and administrative expenses decreased $25,108 in the first quarter of 2001 when compared to the first quarter of 2000 with decreases in most items somewhat offset by an increase in D& O insurance in 2001. For the first quarter 2001, other income decreased $5,022,051 over the first quarter of 2000. The gain on the sale of the Private Cable assets accounted for $5,103,486 of the decrease. Interest expense decreased $50,441 in the first quarter of 2001 as compared to the first quarter of 2000 due to no outstanding loan balances in the first quarter of 2001. Interest income increased $30,994 due to higher investment balances in the first quarter of 2001 as compared to the first quarter of 2000. LIQUIDITY AND CAPITAL RESOURCES For the first quarter ended March 31, 2001, the total cash and cash equivalents were $1,976,807. At March 31, 2001, the Company had primarily invested in Repurchase Agreements due in April 2001. The cash used in operating activities was $285,715 and was a result of net operating losses and the payment of accrued state income tax related to the Private Cable sale. There was no cash used in or provided by investing or financing activities for the three months ened March 31,2001. Since the inception of service in 1992, the Company experienced operating losses. At March 31, 2001, the Company had a stockholders' deficit $2,542,129. The Company's capital commitments at March 31,2001 include additional capital to construct facilities at the Department of Education of the Archdiocese of New York ("Department"), capital to build the Monmouth and Ocean County ITFS channel sites and the payment of the Preferred Stockholders principal and accumulated dividend due December 31, 2002. As of the date hereof, the Company has not commenced operation of a wireless system and, if it is executed, will require substantial additional funding in order to do so. The Company plans to meet short-term liquidity requirements by using the cash received from the sale of the Private Cable system. The Company has entered into an agreement to merge with Blue Acquisition Corporation that will allow the Company to meet it long-term commitments. There is no assurance that the Company will be able to complete the terms of the merger as agreed, if at all, before the expiration date. If the merger is not effected, the Company plans to sell the ITFS spectrum rights or develop the ITFS spectrum with a strategic partner(s) willing to participate with the Company in the development of alternative uses of its ITFS spectrum. The Company's business plan depends on either a sale of the wireless cable asset or the Company securing a strategic partner(s) for the capital resources and the expertise required to run the Wireless business. There is no assurance that the Company will be able to secure a strategic relationships or a sale on terms or conditions satisfactory to the Company, or at all. Failure to develop the ITFS spectrum with a strategic partner(s) willing to participate with the Company in the development of alternative uses of its ITFS spectrum or to sell the ITFS spectrum lease will have a material adverse effect on the Company. Also, there can be no assurance that the Company will be able to launch its alternative use of ITFS spectrum in a commercially successful manner if a partner is found. The report of our independent auditors on our 2000 financial statements includes an explanatory paragraph, which states that our recurring losses from operations and limited liquid resources raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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. The statements contained in this report on Form 10-Q relating to MagnaVision's future operations may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Actual results of the Company may differ materially from those in the forward-looking statements and may be affected by a number of factors including the Company's ability to satisfy the various conditions contained in the Agreement and Plan of Merger dated September 12, 2000 (the Merger Agreement) among the Company, Blue Acquisition Corp. and IPWireless, the receipt of approvals necessary to deploy alternative uses of its ITFS spectrum, the assumptions, risks and uncertainties set forth in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere herein, as well as other factors contained herein and in the Company's other securities filings. There can be no assurance that the transactions contemplated by the Agreement and Plan of Merger will be consummated on a timely basis, if at all. Furthermore, there can be no assurance that the financing obtained by Company to date will enable it to meet its future cash needs. 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 to him on contracts and current renewals placed by him. On March 18, 2001, the Superior Court of New Jersey Legal Division ruled in favor of Mr. Mastrorilli and ordered the two parties to agree to final damages pursuant to the terms of the contracts and current renewals placed by Mr. Mastrorilli. The parties have not agreed on final damages, but the Company has accrued for an estimate of such damages. Item 2. Properties The Registrant's principal offices are located at 141 South Ave., Office # 4, Fanwood, NJ 07023, where it occupies approximately 500 square feet under a month-by-month lease agreement. As part of the Channel Lease Agreement with the Department, the Company acquired the right to use a portion of the Department's transmitting space at the Empire State Building, in Yonkers and in Staten Island, all in New York. The Company pays no additional consideration for this space beyond the fees due to the Department under the Channel Leasing Agreement. 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, 2001 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 8, 2001 /S/ Jeffrey Haertlein -------------------------- Chief Financial Officer

MAGNAVISION CORPORATION 10-Q