UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For The Fiscal Year Ended December 31, 2002 Or [ ] TRANSITION REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ______________
Commission File Number: 0-50090
MAGIC COMMUNICATIONS, INC.
(Name of Small Business Issuer in its Charter)
Delaware 13-3926203
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
5 West Main Street
Elmsford, New York 10523
(Address of Principal Executive Offices) (Zip Code)
914-345-0800
(Issuer's telephone number (including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
----------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. [ X ] Yes [] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ] Disclosure contained herein.
State Registrant's revenues for its most recent fiscal year. $73,617 as of
December 31, 2002.
The number of shares outstanding of each of the Registrant's classes of common
stock, as of June 19, 2003 is 2,500,000 shares, all of one class, $.0001 par
value per share. Of this number, 2,254,900 shares were held by non-affiliates of
the Registrant.
The Company's common stock has not traded on the OTCBB or elsewhere and
accordingly, there is no aggregate "market value" to be indicated for such
shares. The "value" of the 2,254,900 shares held by non-affiliates, based upon
the book value as of December 31, 2002 is -0-.
*Affiliates for the purpose of this item refers to the Registrant's officers and
directors and/or any persons or firms (excluding those brokerage firms and/or
clearing houses and/or depository companies holding Registrant's securities as
record holders only for their respective clienteles' beneficial interest) owing
5% or more of the Registrant's common stock, both of record and beneficially.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes__________No_________ NOT APPLICABLE
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are herewith incorporated by reference: NONE
Transitional Small Business Disclosure Format
[ ] Yes [ ] No
TABLE OF CONTENTS
PART I.
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II.
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
PART III.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
And Related Stockholder Matters
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits, List and Reports on Form 8-K
Item 14. Controls and Procedures
Item 15. Principal Accountant Fees and Services
Signatures
CERTIFICATION
2
PART I
Item 1. Description of Business
The Company was originally formed as a New York corporation on January 16, 1997
(and reincorporated as a Delaware corporation in November 2002) for the purpose
of offering Internet kiosks where the public could access the Internet for a
fee. The internet Kiosks business proposals remain in their embryonic and
developmental stages, have not been activated and the Company has no current
plans to further pursue such activities. Since June 1997 the Company has engaged
in the business of contracting with various locations such as malls, gas
stations, stores and office buildings to install pay phones that are an
alternative to those provided by the primary local service provider (Verizon).
The Company places its phones by offering larger payments to the store owner or
property owner than Verizon pays to retail location operators. The Company
realizes net revenues through the difference between what is in the coin box
when it is emptied and what it must pay to the property owner, Verizon and long
distance and local service providers as well as payments from others for toll
free calls. The Company's net revenues are principally comprised of: (i) the
difference between what the Company charges for local calls ($.25 in New York
and $.35 in New Jersey and Pennsylvania for a three minute call) and the $.042
that the Company pays to Verizon for each three (3) minute call; (ii) the
difference between the fixed rate per call that the Company pays to Qwest for
each long distance call and the rates which the Company charges for long
distance calls (as established by the Company); (iii)a commission of 50% paid by
Qwest (long distance carrier) on operator assisted services, such as collect,
reverse charges or credit card long distance calls made on the Company's phones;
and (iv) a payment of $.249 on each toll-free (800) call from Company phones by
major long distance carriers, such as: AT&T, MCI, Qwest, Sprint, etc., through a
contract with a call aggregator, Private Payphone Owners' Network ("PPON") which
computes all toll free calls made from Company phones and pays the Company
directly. The Company's expenses include the marketing expense to place
telephones, the cost of the phones and phone maintenance. The Company does not
have a written agreement with Verizon, but has a written agreement with Qwest as
well as the aggregator (PPON). Copies of such written Agreements are annexed
hereto as Exhibits 99.01 and 99.02.
As of September 30, 2002, the Company had approximately 150 pay phones placed in
locations in New York , New Jersey and Pennsylvania. These phones are marketed
through the Company's own employees, principally the Company's President,
through word-of-mouth. The Company hopes to raise funds through a private equity
offering to be able to increase its marketing effort so that it will have a
sufficient number of phones in operation to be able to earn a profit. No
assurance is given that the Company can accomplish this objective. The Company
filed a Registration Statement on Form 10-SB because Management believes that as
a reporting Company with the potential of trading on the NASD Electronic
Bulletin Board ("OTCBB") the Company will be better able to attract investment
capital. No assurance is given that investment capital can be raised.
The Company currently purchases its phones from North Atlantic Marketing and
during the nine (9) month period calendar year ended September 30, 2002 December
31, 2002 purchased 20 telephones without having purchased any additional
telephones through June 30, 2003. The price for phones in the twelve month
period ending December 31, 2002 averaged $ 1,200 for each individual telephone,
which comprises: (i) the purchase price from independent suppliers for all
hardware; and (ii) wall installation, but does not include wiring which is done
by Verizon. In addition, the Company arranges for the installation of the phones
at the customers' place of business and pays Verizon to connect the wires to the
phones. The Company's marketing is conducted primarily through the personal
effects of its President and through "word of mouth" in order to obtain customer
leads.
3
Competition
The Company expects to encounter substantial competition in its efforts to
locate pay telephones from both the local telephone company (Verizon) and from
other pay phone operators such as the Company. Many of these entities have
greater experience, resources and managerial capabilities than the Company. The
Company intends to compete primarily on the terms that it offers to location
owners. The Company's ability to place phones and the revenues derived from each
phone may be impaired by a general perception on the part of many consumers that
independent coin phone companies, such as the Company, charge higher rates to
consumers. The Company does not believe that this perception is accurate as to
the services that it provides.
Employees
The Company currently has 1 full time employee and 2 part time employees. Its
full time employee is engaged in sales and marketing and a service technician as
well as the Company's Secretary are employed part time. The Company's employees
do not have any collective bargaining agreement and management believes that the
Company's relations with its employees are satisfactory.
Recent Reorganization
During November, 2002, the Company effected a reincorporation merger to change
its state of incorporation from New York to Delaware. In connection with the
reincorporation, each outstanding share of the New York predecessor corporation
which was merged with and into the Company, was changed by operation of law and
as provided in Section 2.4.1 in the Agreement and Plan of Merger (the "Plan")
into 2,500,000 shares of the Company. The Plan is filed as Exhibit 3(d) to this
Registration Statement. The Company effected the reincorporation merger because
management believes that Delaware corporations are more attractive to potential
investors. Under New York law, officers, directors and the ten largest
shareholders of a corporation are personally liable for employee wages.
Item 2. Description of Property
The Company currently leases 350 square feet of office space pursuant to a month
to month lease from a related party at a nominal cost. The Company believes that
its offices are sufficient for its current and short term anticipated needs and
that similar space is available in the general vicinity of its offices for
similar prices should the need arise.
4
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
On November 24, 2002, stockholders approved and adopted the Company's 2002
Non-Statutory Stock Option Plan (the "Plan"). The Plan reserves for issuance up
to 1,500,000 shares of Company Common Stock. The Company thereafter, on January
23, 2003, filed a Registration Statement on Form S-8 (333-102688) so as to
register the above-referenced shares.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company became subject to '34 Exchange Act reporting requirements as of
January 13, 2003. To date there has been no established trading market for the
Company's common stock. No symbol has been assigned for its securities and its
securities have not been listed on any Exchange to date.
A. Holders
As of the close of business on June 19, 2003 there were 110 stockholders of
record of the Registrant's Common Stock and 2,500,000 shares were issued and
outstanding.
B. Dividends
The payment by the Registrant of dividends, if any, in the future rests within
the discretion of its Board of Directors and will depend, among other things,
upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Registrant has not paid or
declared any dividends upon its Common Stock since its inception and, by reason
of its present financial status and its contemplated financial requirements,
does not contemplate or anticipate paying any dividends upon its Common Stock in
the foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of Operation
Year ended December 31, 2002 vs. Year ended December 31, 2001
Sales decreased in volume with prices staying the same from $122,787 in the year
ended December 31, 2001 to $73,617 in the year ended December 31, 2002 due, in
the opinion of management to increased use of cellular phones as widely reported
in the media. Operating expenses decreased from $166,194 or 135% of sales to
$109,044 or 148% of sales. The decrease of operating expenses was due to the
following items: (i) a decrease in depreciation of $16,316 from $33,596 in 2001
to $17,280 in 2002; (ii) a decrease in salaries of $27,914 from $58,450 in 2001
to $30,536 in 2002, do to reduced staffing; (iii) a decrease in lease payments
for phone equipment (leases expired in March 2002) of $21,434 from 2001 to 2002;
(iv) a decrease in general and administrative expenses of $869; offset by from
(v) an increase in professional fees of $9,383 from $4,667 in the year ended
December 31, 2001 to $14,050 in the year ended December 31, 2002 associated with
additional registration costs. Since sales decreased and operating expenses
decreased, the Company's net loss decreased from ($43,407) in the year ended
December 31, 2001 to ($35,427) in the year ended December 31, 2002. The number
of pay telephones in service during the years ended December 31, 2001 and
December 31, 2002 were approximately 150 telephones throughout these periods.
5
Liquidity and Capital Resources
On December 31, 2002 the Company had no cash on hand. It was the opinion of
Management that the lack of funds would not enable the Company to affect this
registration under the Exchange Act and file periodic reports until such time as
it is able to generate revenues cash flow from its operations. Current funds
having been expended and with managements' assumption that the Company may not
generate sufficient revenues from operations, the Company will (a) be dependent
upon management to fund operations and/or (b) be dependent upon some form of
debt or equity financing, if available, and if available, under terms deemed
reasonable to management The management of the Company has orally committed to
fund the Company on an "as needed" basis for a period of one (1) year, with up
to $50,000 in order to fund operations for such 12 month period. Management has
also verbally committed to further fund up to an additional $50,000 if its'
original estimate for funds needed during such 12 month period proves to be
understated. The funding referred to is not subject to any limitations other
than the dollar amounts indicated.. Management has not, as yet, found it
necessary to disburse any additional funds to sustain operations, but will do
so, if, and when, deemed necessary and in the manner indicated in this
paragraph. The Company's auditors have included a "going concern" opinion in
their report on the Company's financial statements.
Need for Additional Financing
The Company believes that its existing capital will be insufficient to meet the
Company's cash needs, including the costs of compliance with the continuing
reporting requirements of the Securities Exchange Act of 1934, as amended, for
the current fiscal year which should not exceed $50,000. The Company may rely
upon issuance of its securities to pay for the services necessary to meet
reporting requirements. If and when the Company acquires additional intellectual
properties, its cash needs may increase significantly and such cash might not be
available to the Company. The Company can not predict the cash requirements
associated with as yet unidentified intellectual property acquisitions.
Forward-Looking Statements
When used in this form 10-KSB, or in any document incorporated by reference
herein, the words or phrases "will likely result", "are expected to," "will
continue," "is anticipated," "estimate," "project," or similar expressions are
intended to identify "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties including changes in economic conditions in the
Company's market area, changes in policies by regulatory agencies, fluctuations
in interest rates, demand for loans in the Company's market area and
competition, that could cause actual results to differ materially from
historical earnings, if any, and those presently anticipated or projected. The
Company wishes to caution readers not to place undue reliance on any such
Forward- looking statements, which speak only as to the date made. The Company
wishes to advise readers that the factors listed above, or in its 10-SB
Registration Statement Risk Factor Section, could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from any opinions or statements expressed with respect to
future periods in any current statements. The Company does not undertake, and
specifically disclaims any obligation, to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.
6
Item 7. Financial Statements
MAGIC COMMUNICATIONS GROUP, INC.
FINANCIAL STATEMENTS
INDEX
Page Number
--------------------
INDEPENDENT AUDITORS' REPORT F - 1
FINANCIAL STATEMENTS:
Balance Sheet F - 2
Statements of Operations F - 3
Statements of Stockholders' Equity (Deficit) F - 4
Statements of Cash Flows F - 5
Notes to Financial Statements F - 6 to F - 10
INDEPENDENT AUDITORS' REPORT
To the Stockholders'
Magic Communications Group, Inc.
We have audited the accompanying balance sheet of Magic Communications
Group, Inc. as of December 31, 2002 and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years ended December 31,
2002 and 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, the financial position of Magic Communications Group, Inc. as of
December 31, 2002 and the results of its operations and its cash flows for the
years ended December 31, 2002 and 2001 in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
incurred losses and has a working capital deficiency as more fully described in
Note 2. These issues raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/Sherb & Co., LLP
----------------------------
Certified Public Accountants
New York, New York
April 9, 2003
F - 1
MAGIC COMMUNICATIONS GROUP, INC.
BALANCE SHEET
DECEMBER 31, 2002
ASSETS
EQUIPMENT, net $ 56,426
SECURITY DEPOSITS 15,400
DUE FROM RELATED PARTY 3,000
------------------
$ 74,826
==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 39,526
Due to related parties 67,306
------------------
TOTAL CURRENT LIABILITIES 106,832
STOCKHOLDERS' DEFICIT:
Common stock, $.0001 par value;
authorized 50,000,000 shares;
issued and outstanding 2,500,000 shares 250
Preferred stock, $.0001 par value;
authorized 1,000,000 shares;
issued and outstanding -0- shares -
Additional paid-in capital 5,903
Accumulated deficit (38,159)
------------------
TOTAL STOCKHOLDERS' DEFICIT (32,006)
------------------
$ 74,826
==================
The accompanying notes are an integral part of the financial statements.
F-2
MAGIC COMMUNICATIONS GROUP, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
--------------------------------------
2002 2001
------------ ------------
REVENUES $ 73,617 $ 122,787
--------- ----------
OPERATING EXPENSES:
Depreciation 17,280 33,596
Salaries 30,536 58,450
Equipment lease 12,539 33,973
Professional fees 14,050 4,667
General and administrative 34,639 35,508
--------- ----------
TOTAL OPERATING EXPENSES 109,044 166,194
--------- ----------
NET LOSS $ (35,427) $ (43,407)
========= ==========
BASIC AND DILUTED NET LOSS
PER SHARE $ (0.01) $ (0.02)
========= ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic and Diluted 2,500,000 2,500,000
========= =========
The accompanying notes are an integral part of the financial statements.
F-3
MAGIC COMMUNICATIONS GROUP, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock Additional Total
---------------------------- Paid-In Retained Stockholders'
Shares Amount Capital Earnings (Deficit) Equity (Deficit)
------------- ------------ --------------- ----------------- ----------------
Balance, January 1, 2001 2,500,000 $ 250 $ 750 $ 40,675 $ 41,675
Net loss - - - (43,407) (43,407)
------------- ------------ --------------- ----------------- ----------------
Balance, December 31, 2001 2,500,000 250 750 (2,732) (1,732)
Contribution of common stock (5,100) (5) 5 - -
Shares issued for services 5,100 5 148 - 153
Stock based compensation - - 5,000 - 5,000
Net loss - - - (35,427) (35,427)
------------- ------------ --------------- ----------------- ----------------
Balance, December 31, 2002 2,500,000 $ 250 $ 5,903 $ (38,159) $ (32,006)
============= ============ =============== ================= ================
The accompanying notes are an integral part of the financial statements.
F-4
MAGIC COMMUNICATIONS GROUP, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
--------------------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (35,427) $ (43,407)
--------- ----------
Adjustments to reconcile net
loss to net cash (used in)
provided by operating activities:
Depreciation 17,280 33,596
Stock based compensation 5,153 -
Changes in assets and liabilities:
Accounts payable 18,111 (11,301)
--------- ----------
TOTAL ADJUSTMENTS 40,544 22,295
--------- ----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES 5,117 (21,112)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Return of security deposits - 15,563
Capital expenditures - (9,615)
--------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES - 5,948
--------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
(Payments to) proceeds from
related parties (5,117) 14,600
--------- ----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (5,117) 14,600
--------- ----------
NET DECREASE IN CASH - (564)
CASH, BEGINNING OF YEAR - 564
--------- ----------
CASH, END OF YEAR $ - $ -
========= ==========
The accompanying notes are an integral part of the financial statements.
F-5
MAGIC COMMUNICATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
1. DESCRIPTION OF BUSINESS:
Magic Communications Group, Inc. ("Magic" or the "Company")
elected to file as an S Corporation in New York on January 16, 1997.
The Company was originally formed for the purpose of offering Internet
kiosks where the public could access the Internet for a fee. The
Company did not develop that business and the financial statements do
not include any amounts related to it. The Company's operations consist
primarily of owning and operating pay phones in New York, New Jersey
and Pennsylvania. This business commenced on February of 1997.
In November 2002 the Company was merged into a Delaware
corporation which was created for the purpose of reincorporating the
Company accounted for as a reorganization of entities under common
control
2. GOING CONCERN
The accompanying financial statements have been prepared on a
going-concern basis, which presumes that the Company will be able to
continue to meet its obligations and realize its assets in the normal
course of business.
As shown in the accompanying financial statements, the Company has a
history of losses with an accumulated deficit of $21,923 at December
31, 2002 and, as of that date, a working capital deficiency of
$106,832. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The Company's continuation as a
going concern is dependent upon its ability to ultimately attain
profitable operations, generate sufficient cash flow to meet its
obligations, and obtain additional financing as may be required.
The Company believes that its existing capital will be insufficient to
meet the Company's cash needs, including the costs of compliance with
the continuing reporting requirements of the Securities Exchange Act
of 1934, as amended, for the current fiscal year which should not
exceed $50,000. The Company may rely upon issuance of its securities
to pay for the services necessary to meet reporting requirements. If
and when the Company acquires additional intellectual properties, its
cash needs may increase significantly and such cash might not be
available to the Company. The Company can not predict the cash
requirements associated with as yet unidentified intellectual property
acquisitions.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in
the United States of America requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reporting amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
B. Cash - The Company considers all highly liquid temporary cash
investments with an original maturity of three months or less
when purchased, to be cash equivalents.
F-6
C. Revenue recognition - The Company realizes net revenues
through the difference between what is in the coin box when it
is emptied and what it must pay to the property owner, Verizon
and long distance and local service providers as well as
payments from others for toll free calls.
D. Equipment - Equipment is recorded at cost. Expenditures for
major additions and betterment's are capitalized. Maintenance
and repairs are charged to operations as incurred.
Depreciation of equipment is computed by the straight-line
method over the assets estimated useful lives of ten years.
Upon sale or retirement of plant and equipment, the related
cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in operations.
E. Security deposit - The Company makes a deposit in the amount
of $300 to Verizon for each pay telephone installed. The
purpose of these deposits is to secure amounts owed to Verizon
by the Company for monthly phone charges as describe in Note
5. This amount is returned to the Company after three years if
it is current with all it payments.
F. Fair value of financial instruments - The carrying amounts
reported in the balance sheet for, accounts payable, and due
to related parties approximate fair value based on the
short-term maturity of these instruments.
G. Income taxes - The Company follows Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes,
which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of
events that have been included in the financial statements
or tax returns. Under this method, deferred tax assets and
liabilities are based on the differences between the
financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the
differences are expected to reverse. Since the termination
of the Company's S Corporation status in November 2002 there
are no material differences between the financial statement
and tax bases of assets and liabilities using enacted tax
rates in effect for the two months ended December 31, 2002.
H. Stock based compensation - Financial Accounting Statement No.
123, Accounting for Stock Based Compensation, encourages,
but does not require companies to record compensation cost
for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for
stock-based compensation using the intrinsic method
prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock.
The Company has adopted the "disclosure only" alternative
described in SFAS 123 and SFAS 148, which require pro forma
disclosures of net income and earnings per share as if the
fair value method of accounting had been applied.
F-7
I. New Accounting Pronouncements - In April 2002, the FASB issued
SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement rescinds SFAS No. 4, "Reporting
Gains and Losses from Extinguishment of Debt," and an
amendment of that statement, SFAS No. 44, "Accounting for
Intangible Assets of Motor Carriers," and SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." This statement amends SFAS No. 13,
"Accounting for Leases," to eliminate inconsistencies
between the required accounting for sale-leaseback
transactions and the required accounting for certain lease
modifications that have economic effects that are similar to
sale-leaseback transactions. Also, this statement amends
other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their
applicability under changed conditions. Provisions of SFAS
No. 145 related to the rescission of SFAS No. 4 were
effective for the Company on November 1, 2002 and provisions
affecting SFAS No. 13 were effective for transactions
occurring after May 15, 2002. The adoption of SFAS No. 145
did not have a material impact on our financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." This
statement covers restructuring type activities beginning with
plans initiated after December 31, 2002. Activities covered by
this standard that are entered into after that date will be
recorded in accordance with the provisions of SFAS No. 146.
Management does not believe there will be a significant impact
on our consolidated financial position or results of
operations.
In December 2002, the FASB issued SFAS 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," which
provides alternative methods of transition for a voluntary
change to fair value based method of accounting for stock-
based employee compensation as prescribed in SFAS 123,
"Accounting for Stock- Based Compensation." Additionally, SFAS
148 required more prominent and more frequent disclosures in
financial statements about the effects of stock-based
compensation. The provisions of this Statement are effective
for fiscal years ending after December 15, 2002, with early
application permitted in certain circumstances. The Company
has adopted the disclosure provisions in these consolidated
financial statements as disclosed above under Stock Based
Compensation.
In November 2002, the FASB Issued FASB interpretation (FIN)
No. 45 "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Other." FIN No. 45 requires guarantor to recognize, at the
inception of a qualified guarantee, a liability for the fair
value of the obligation undertaken in issuing or modified
after December 31, 2002. Management does not expect adoption
of this Interpretation to have a material impact on the
Company's financial condition or results of operations.
F-8
4 EQUIPMENT:
Equipment consists of the following at December 31, 2002:
Payphones $ 172,790
Less: accumulated depreciation (116,364)
-----------------
$ 56,426
=================
5. COMMITMENTS:
The Company rents office space from a related party on a month - to -
month basis at a nominal cost.
The Company has entered into third party agreements with Verizon, Qwest
and property or store owners of payphone locations. Verizon services
the local telephone calls made on the payphones owned and operated by
the Company. The Company pays Verizon $0.042 per minute for each call.
Qwest services the long-distance phone calls made on the payphones
owned and operated by the Company. The Company pays Qwest between $0.03
to $0.04 per minute on each long-distance call. The Company pays
Verizon and Qwest on a monthly basis. There is no expiration date on
the agreement with Verizon and the Qwest agreement renews annually. The
property or store owners allow the Company to place its phones on their
locations for a percentage of the money in the coin box of the
payphone.
6. DUE TO RELATED PARTIES:
At December 31, 2002, the Company has a payable to Magic Consulting of
$52,306 for consulting services performed. The Company also has
payables to a related party in the amount of $5,000, a receivable from
an officer in the amount $3,000, and a payable to the same officer in
the amount of $10,000. These transactions are unsecured and
non-interest bearing and have no specified payment terms.
7. STOCK OPTION PLAN
The board of directors, on November 24, 2002, adopted the Company's
2002 Non-Statutory Stock Option Plan ("Plan") so as to provide a
critical long-term incentive for employees, non-employee directors,
consultants, attorneys and advisors of the Company and its
subsidiaries, if any. The board of directors believes that the
Company's policy of granting stock options to such persons will
continue to provide it with a critical advantage in attracting and
retaining qualified candidates. In addition, the Plan is intended to
provide the Company with maximum flexibility to compensate plan
participants. It is expected that such flexibility will be an integral
part of the Company's policy to encourage employees, non-employee
directors, consultants, attorneys and advisors to focus on the
long-term growth of stockholder value. The board of directors believes
that important advantages to the Company are gained by an option
program such as the 2002 Plan which includes incentives for motivating
employees of the Company, while at the same time promoting a closer
identity of interest between employees, non-employee directors,
consultants, attorneys and advisors on the one hand, and the
stockholders on the other.
F-9
During the year ended December 31, 2002, management issued 1,000,000
options to certain current members of its management team as well as
other persons whom it considered to be important to its current and
proposed business activities. On December 13, 2002 the Company voided
these options as if never issued and without receipt by any of the
option holders of any form of consideration. The fair value of each
option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions dividend yield of
-0- percent; -0- percent volatility; risk-free interest rate of 4.00
percent and an expected holding period of 19 days. In connection with
these options the Company recorded consulting expense of $5,000 for the
year ended December 31, 2002.
The Company uses the intrinsic value method in accounting for stock
options issued to employees and directors. Had compensation cost for
the Company's option plans been determined based on the fair value at
the grant dates for awards, the Company's net loss and loss per share
would have resulted in the pro forma amounts indicated below at
December 31, 2002:
Net loss as reported $ 35,427
Pro forma net loss $ 50,427
Net loss per share as reported $ 0.01
Pro forma net loss per share $ 0.02
A summary of stock option transactions for the year ended December 31,
2002 is presented below:
Number of Weighted average
Shares exercise price
---------- ------------------------
Granted on November 24, 2002 1,000,000 $ .01
Canceled on December 13, 2002 (1,000,000) (.01)
---------- ------------------------
Outstanding at December 31, 2002 -0- $ -0-
========== ========================
8. STOCKHOLDERS' EQUITY (DEFICIT):
In November 2002 the Company was merged into a Delaware corporation
which was created for the purpose of reincorporating the Company
accounted for as a reorganization of entities under common control. In
connection with the reincorporation merger the original shares of the
Company were changed into 2,500,000 shares, par value $.0001 per share.
All but 240,000 shares were gifted to 109 persons or entities. Of these
shares, 5,000 shares were issued to employee and 100 shares issued to a
director. The shares were valued at $.03 per share and were recorded as
stock based compensation. The authorized capital stock of the Company
consists of 50,000,000 shares of common stock, par value $.0001 per
share, of which 2,500,000 were issued an outstanding as of the date of
this filing, and 1,000,000 shares of preferred stock, par value $.0001
per share, none of which were issued, outstanding or designated as of
the date of this filing.
F-10
Item 8. Changes In and Disagreements With Accountants and Financial
Disclosure
None
PART III
Item 9. Directors and Executive Officers of the Registrant
Set forth below is certain information concerning each current director and
executive officer of the Registrant, including age, position(s) with the
Registrant, present principal occupation and business experience during the past
five years.
Name Age Position Held and Tenure
..................... ............ ..............................................
Stephen D. Rogers 53 President and a Director since inception
..................... ............ ..............................................
Maureen Rogers 47 Vice President, and a Director since inception
.................... ............ ..............................................
Edwin Osias 56 Director
.................... ............ ..............................................
Suzanne Keating 32 Secretary
The directors named above will serve until the first annual meeting of the
Company's stockholders. Thereafter, directors will be elected for one-year terms
at the annual stockholders' meeting. Officers will hold their positions at the
pleasure of the board of directors, absent any employment agreement, of which
none currently exists or is contemplated. There is no arrangement or
understanding between the directors and officers of the Company and any other
person pursuant to which any director or officer was or is to be selected as a
director or officer.
Biographical Information
STEPHEN D. ROGERS, President, has been in the communications business since 1997
along with his wife Maureen. He has installed and maintained hundreds of Public
Pay Phones and public access equipment including Internet kiosks in hotels,
hospitals, truck stops and multiple other locations. Prior to working in the
communication field, Mr. Rogers was a principal and founder in Magic
Restaurants, and its subsidiaries from September 1985 until December 1994, which
owned and operated over 30 restaurants throughout the Northeast. He graduated
from Queens College in 1971with a Bachelors degree in Psychology and Education
and is currently living in Westchester with his wife and 3 children.
7
MAUREEN ROGERS, Vice President and Secretary (the latter until late November
2002) has been in the communications business since January 1997 along with her
husband Stephen. In addition to the communications field, Mrs. Rogers is the
principal and founder of Just Desserts, a small baking business which she
continues to own and operate since 1992. She was born and raised in England and
is currently living in Westchester, New York with her husband and 3 children.
EDWIN OSIAS, Director, is a former U.S. Naval Officer who worked from 1981
through 1985 with Chemical Bank as an officer, then from 1985 through 1998 as
the National Sales Manager for Tungsram and then from 1989 through 1994 as the
Executive Vice President for Sternberger Warehousing Trucking in Long Island
City, New York. He is currently the President and owner of Osias Sales Inc.
since 1994, a company which designs and produces custom ties and scarves for the
museum industry. He currently is married and resides in Long Island, New York.
SUZANNE KEATING, became Secretary of the Company in late November 2002, having
previously been employed by the Company since 1999 in administrative and
clerical capacities. Prior thereto and from 1994 until 1999, she was employed by
Magic Restaurant, Inc., holding positions from Accounts Payable Manager to
Office Manager until the firm filed for bankruptcy. From 1992 until 1994 Ms.
Keating was employed by Universal Hotels, a hotel management company. Ms.
Keating graduated in 1992 from the Westchester Business Institute in White
Plains, New York with an Associates Degree in Accounting and Business
Administration.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended requires the
Company's directors and executive officers, and persons who beneficially own
more than 10% of a registered class of the Company's equity securities, to file
reports of beneficial ownership and changes in beneficial ownership of the
Company's securities with the SEC on Forms 3 (Initial Statement of Beneficial
Ownership), 4 (Statement of Changes of Beneficial Ownership of Securities) and 5
(Annual Statement of Beneficial Ownership of Securities). Directors, executive
officers and beneficial owners of more than 10% of the Company's common stock
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms that they file. Except as otherwise set forth herein, based
solely on review of the copies of such forms furnished to the Company, or
written representations that no reports were required, the Company believes that
for the fiscal year ended December 31, 2002 beneficial owners complied with
Section 16(a) filing requirements applicable to them in that each officer,
director and beneficial owner of 10% or more of the Company's securities has
filed a Form 3 with the SEC and has had no change of ownership since such
filing. Each of such necessary filings, as required to be made by Stephen
Rogers, Maureen Rogers, Edwin Oasis and Suzanne Keating (officers and/or
directors of the Company) were filed with the SEC during the month of January
2003 except for Suzanne Keating whose Form 3 was filed in June 2003. There has
been no change in beneficial ownership by each of these persons and/or entities
since ownership indicated on date of filing or ownership as of June 19, 2003.
8
Item 10. Executive Compensation
There are no written agreements or oral understandings as relates to executive
compensation. To date, there has not been any executive compensation paid or
accrued except that Suzanne Keating (Secretary) received 5,000 shares valued at
$150 and Edwin Oasis (Director) received 100 shares valued at $3, both in
November 2002.
Pursuant to the November 24, 2002 board of directors approval and subsequent
stockholder approval, the Company adopted its 2002 Non-Statutory Stock Option
Plan (the "Plan") whereby it reserved for issuance up to 1,500,000 shares of its
common stock. The Company intends to file a Registration Statement on Form S-8
so as to register those 1,500,000 shares of common stock underlying the
aforesaid options.
Management had issued 1,000,000 of the aforesaid options to certain current
members of its management team as well as other persons whom it considered to be
important to its current and proposed business activities. The individuals to
whom options were granted (Stephen D. Rogers, 250,00; Maureen Rogers, 500,000;
and Gary B. Wolff, 250,000) each thereafter agreed on December 13, 2002 with the
Company to void these options as if never issued and without receipt by any of
the option holders of any form of consideration.
Each of these options (originally issued on November 24, 2002) prior to being
voided, were exercisable at $.01 per share. No consideration was paid for such
options and none of these options were ever exercised nor was any consideration
paid to the option holders who agreed to cancellation.
Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of December 31, 2002 (except where otherwise
noted) with respect to (a) each person known by the Registrant to be the
beneficial owner of more than five percent of the outstanding shares of Common
Stock, (b) each director of the Registrant, (c) the Registrant's executive
officers and (d) all officers and directors of the Registrant as a group. Except
as may be indicated in the footnotes to the table, all of such shares of Common
Stock are owned with sole voting and investment power. The title of class of all
securities indicated below is Common Stock with $.0001 par value per share.
Name and Address of Number of Shares
Beneficial Owner1 Beneficially Owned1 Percentage of Class
----------------- ------------------- -------------------
Maureen Rogers 240,000 9.60%
Stephen D. Rogers 0 0
Edwin Osias 100 *
Boulder Hill, Inc. 240,000 3 9.60%
Karen Glenn 240,000 9.60%
Suzanne Keating 5,000 *
All officers and 245,100 9.80%
directors as
a group (4persons)
9
* Represents less than 1% of the 2,500,000 outstanding shares of common
stock.
1 The address for each person is c/o Magic Communications, Inc., 5 West
Main Street, Elmsford, New York 10523.
2 Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of the Common Stock beneficially owned by them. A person is
deemed to be the beneficial owner of securities which may be acquired
by such person within 60 days from the date indicated above upon the
exercise of options, warrants or convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
options, warrants or convertible securities that are held by such
person (but not those held by any other person) and which are
exercisable within 60 days of the date indicated above, have been
exercised.
3 Boulder Hill, Inc. is a New York Corporation formed in March 1998 and
its sole shareholder is Georgia Rogers.
Management has no plans to issue any additional securities to management,
promoters or their affiliates or associates and will do so only if such issuance
is in the best interests of shareholders of the Company and complies with all
applicable federal and state securities rules and regulations.
Item 12. Certain Relationships and Related Transactions
The New York predecessor to the Company was formed in January 1997 and sold 10
shares to its founder Maureen Rogers for $1,000. In connection with the
reincorporation merger into the Company, these shares were changed into
2,500,000 shares par value, $.0001 per share. Maureen Rogers then gifted all but
240,000 of her 2,500,000 shares to 109 persons or entities.
The Company has a 2 year consulting agreement with Magic Consulting Group, Inc.,
a company owned by Barbara Bennett, the adult niece of the Company's President
which provides consulting services. This is an oral agreement and no payments
have been made to date, however, the Company has accrued a payable of $52,306
for services performed. Magic Consulting was hired to assist and consult in
finding locations for communications equipment including public payphones and
public Internet terminals (kiosks). It assisted in designing a marketing package
as well as setting up appointments with various hotels in the New York
metropolitan area. The Company's President disclaims any beneficial interest in
this Agreement.
Item 13. Exhibits, Lists and Reports on Form 8-K
Reference is herewith made to the financial statements and notes thereto
included in this Form 10-KSB.
(a) 99.01 Certification by Chief Executive Officer
99.02 Certification by Chief Financial Officer
(b) Reports on Form 8-K None
Item 14. Controls and Procedures
Our management, under the supervision and with the participation of our chief
executive officer and chief accounting officer, conducted an evaluation of our
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934 (the "Exchange Act") Rules 13a-14(c)). Based on their evaluation, our
chief executive officer and chief accounting officer have concluded that as of
the Evaluation Date, our disclosure controls and procedures are effective to
ensure that all material information required to be filed in this Annual Report
on Form 10-KSB has been made known to them in a timely fashion.
There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the Evaluation Date set forth above.
Item 15. Principal Accountant Fees and Services
Not applicable to the Company since disclosure requirements to this Item need
only be complied with in filings with respect to fiscal years ending after
December 15, 2003.
10
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAGIC COMMUNICATIONS, INC.
(Registrant)
By: /s/ Stephen D. Rogers
---------------------
Stephen D. Rogers
President
Date: September 24, 2003
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signatures Dates
By: /s/ Stephen D. Rogers September 24, 2003
---------------------
Stephen D. Rogers
President and Director
By: /s/ Maureen Rogers September 24, 2003
---------------------
Maureen Rogers
Vice-President and Director
By: /s/ Edwin Oasis September 24, 2003
---------------------
Edwin Oasis
Director
By: /s/ Suzanne Keating September 24, 2003
---------------------
Suzanne Keating
Secretary
11