UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT For the transition period from _______ to ____________
Commission file number: 0-50090
MAGIC COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3926203
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5 West Main Street, Elmsford, New York 10523
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(Address of principal executive offices)
(914) 345-0800
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(Issuer's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section l3 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. Yes[X] No[ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 3,080,000 shares of Common Stock as
of August 5, 2005.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
MAGIC COMMUNICATIONS GROUP, INC.
BALANCE SHEET
June 30, 2005
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 2,756
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TOTAL CURRENT ASSETS 2,756
EQUIPMENT, net 13,227
DUE FROM RELATED PARTY 1,500
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$ 17,483
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 33,531
Loan payable 50,000
Due to related parties 104,991
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TOTAL CURRENT LIABILITIES 188,522
STOCKHOLDERS' DEFICIT:
Common stock, $.0001 par value; authorized 50,000,000
shares; issued and outstanding 3,080,000 shares 308
Preferred stock, $.0001 par value; authorized 1,000,000
shares; issued and outstanding -0- shares -
Additional paid-in capital 123,845
Accumulated deficit (295,192)
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TOTAL STOCKHOLDERS' DEFICIT (171,039)
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$ 17,483
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The accompanying notes are an integral part of the
unaudited financial statements.
2
MAGIC COMMUNICATIONS GROUP, INC.
STATEMENTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended
June 30, June 30,
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2005 2004 2005 2004
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES $ 25,402 $ 13,411 $ 45,221 $ 13,774
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OPERATING EXPENSES:
Depreciation 4,320 4,319 8,640 8,639
Salaries 6,679 7,600 14,589 13,800
Equipment lease - 187 - 592
Professional fees 37,965 1,087 46,265 6,837
General and administrative 25,985 16,172 48,841 42,816
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TOTAL OPERATING EXPENSES 74,949 29,365 118,335 72,684
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NET LOSS $ (49,547) $ (15,954) $ (73,114) $ (58,910)
============= ============== =============== ===============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.02) $ (0.01) $ (0.03) $ (0.02)
============= ============== =============== ===============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and Diluted 3,013,333 2,530,000 2,913,333 2,530,000
============= ============== =============== ===============
The accompanying notes are an integral part of the
unaudited financial statements.
3
MAGIC COMMUNICATIONS GROUP, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
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2005 2004
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(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (73,114) $ (58,910)
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Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 8,640 8,639
Changes in assets and liabilities:
Accounts payable (221) 11,020
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TOTAL ADJUSTMENTS 8,419 19,659
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NET CASH USED IN OPERATING ACTIVITIES (64,695) (39,251)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Cash overdraft - 22,250
Return of security deposits - 7,700
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NET CASH PROVIDED BY INVESTING ACTIVITIES - 29,950
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related parties 6,600 4,500
Stock issued for cash 60,000 -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 66,600 4,500
NET (DECREASE) INCREASE IN CASH 1,905 (4,801)
CASH, BEGINNING OF PERIOD 851 4,801
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CASH, END OF PERIOD $ 2,756 $ -
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Cash paid for:
Interest $ - $ -
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Taxes $ 309 $ 100
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The accompanying notes are an integral part of the
unaudited financial statements.
4
MAGIC COMMUNICATIONS GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-QSB. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 2005 are not necessarily indicative of
results that may be expected for the year ending December 31, 2005. For further
information, refer to the audited financial statements and footnotes thereto
included in the Company's Form 10-KSB for the year ended December 31, 2004.
NOTE 2. GOING CONCERN
The accompanying financial statements have been prepared in conformity with U.S.
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has incurred recurring losses
resulting in a stockholders' deficit of ($171,039) and working capital deficit
of ($185,766) at June 30, 2005. In addition, the Company's cash account is
$2,756. These factors raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.
In view of these matters, the continued existence of the Company is dependent
upon its ability to meet its financing requirements and, ultimately, the success
of its planned future operations. There can be no assurance that the Company
will obtain the necessary financing nor that the planned future operations will
be successful.
NOTE 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 and cash equivalents - The Company considers all highly liquid
temporary cash investments with an original maturity of three months or
less when purchased, to be cash equivalents.
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 equipment, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is
reflected in operations.
E. Fair value of financial instruments - The carrying amounts reported in the
balance sheet for accounts payable and accrued expenses, and due to related
parties approximate fair value based on the short-term maturity of these
instruments.
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F. Income taxes - Income taxes are accounted for in accordance with the
provisions of SFAS No. 109. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized as income in the period
that includes the enactment date. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amounts expected to be
realized, but no less than quarterly.
G. 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.
H. Basic and diluted loss per share - Basic and diluted loss per share is
based on the weighted average number of common shares and common share
equivalents outstanding. As of June 30, 2004, no options have been issued.
I. New Accounting Pronouncements - Management does not believe that recently
issued, but not yet effective accounting pronouncements if currently
adopted would have a material effect on the accompanying financial
statements.
NOTE 4. STOCKHOLDERS' DEFICIT
From March 24, 2005 through June 3, 2005, the Company sold 300,000 shares of its
common stock (100,000 shares on March 24, 2005 for $20,000 and 200,000 shares on
June 3, 2005 for $40,000). There were no underwriters. All securities were sold
for cash for aggregate gross proceeds of $60,000.
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ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Six Months Ended June 30, 2005 vs. Six Months Ended June 30, 2004
Net sales increased from $13,774 in the six months ended June 30, 2004 to
$45,221 in the six months ended June 30, 2005. This increase is attributable to
a switch in telephone carriers in which a favorable flat rate pricing structure
was obtained as well as a rate increase from 25 cents to 35 cents on all phones.
Operating expenses increased from $72,684 to $118,335. The change in operating
expenses was due to the following items: (i) an increase in salaries from
$13,800 in 2004 to $14,589 in 2005; (ii) a decrease in lease payments for phone
equipment (leases expired in March 2002) of $592 for the six months ended June
30, 2004 to $0 for the six months ended June 30, 2005; (iii) an increase in
general and administrative expenses of $6,025 from $42,816 for the six months
ended June 30, 2004 to $48,841 for the six months ended June 30, 2005; and (v)
an increase in professional fees of $39,428 from $6,837 in the six months ended
June 30, 2004 to $46,265 in the six months ended June 30, 2005. Since sales
increased and operating expenses increased, the Company's net loss increased
from ($58,910) in the six months ended June 30, 2004 to ($73,114) in the six
months ended June 30, 2005. The number of pay telephones in service was
approximately 100 telephones during the six months ended June 30, 2004 and 80
telephones during the six months ended June 30, 2005.
Liquidity and Capital Resources
On June 30, 2005 the Company had only $2,756 cash on hand. 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. The Company's auditors have included a "going
concern" opinion in their report on the Company's financial statements contained
in the Company's 10-KSB for the year ended December 31, 2004.
Need for Additional Financing
The Company believes that its existing capital will be insufficient to meet the
Company's cash needs, including costs of compliance with the continuing
reporting requirements of the Securities Exchange Act of 1934, as amended. The
Company may rely upon issuance of its securities to pay for services necessary
to meet reporting requirements.
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Forward-Looking Statements
When used in this form 10-QSB, 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.
Item III. CONTROLS AND PROCEDURES
Our management, Stephen D. Rogers, 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 his evaluation, our chief executive officer and
chief accounting officer has 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 Quarterly Report on Form 10-QSB 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds:
a. From March 24, 2005 through June 3, 2005, the company sold 300,000 shares of
its common stock (100,000 shares on March 24, 2005 for $20,000 and 200,000
shares on June 3, 2005 for $40,000). There were no underwriters. All securities
were sold for cash for aggregate gross proceeds of $60,000. The transaction
referred to herein is claimed to be exempt from registration in accordance to
rule 506D and section 4(2) of the 33 act as transactions by an issuer not
involving any public offering
b. All proceeds received were utilized for working capital and related
corporation expenses.
c. There were no Company repurchases of equity securities during the period
covered by this Form 10-QSB.
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security holders: None
Item 5. Other Information: None
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Item 6. Exhibits
Exhibit Number Description
31.1 Section 302 Certification of Chief Executive Officer and
Chief Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of The Sarbanes-Oxley
Act of 2002
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
August 15, 2005
Magic Communications, Inc.
(Registrant)
By: /s/ Stephen D. Rogers
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Stephen D. Rogers,
Chief Executive Officer and
Chief Accounting Officer