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, 2006
[ ] 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
-------------------------------- --------------------------------
(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[ ]
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
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 18, 2006.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet - June 30, 2006
Statements of Operations - Three months ended and six months
ended June 30, 2006 and 2005
Statements of Cash Flows - Six months ended June 30, 2006
and 2005
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds:
a. 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 Vote of Security holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K: None
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
MAGIC COMMUNICATIONS GROUP, INC.
BALANCE SHEET
June 30, 2006
(Unaudited)
ASSETS
CURRENT ASSETS: $ -
---------------
Cash -
TOTAL CURRENT ASSETS
EQUIPMENT, net -
DUE FROM RELATED PARTY 3,500
---------------
$ 3,500
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Cash overdraft $ 5,326
Accounts payable and accrued expenses 26,203
Loan payable 50,000
Due to related parties 117,645
---------------
TOTAL CURRENT LIABILITIES 199,174
STOCKHOLDERS' DEFICIT:
Preferred stock, $.0001 par value; authorized
1,000,000 shares;
issued and outstanding -0- shares -
Common stock, $.0001 par value; authorized
50,000,000 shares;
issued and outstanding 3,080,000 shares 308
Additional paid-in capital 123,845
Accumulated deficit (319,827)
---------------
TOTAL STOCKHOLDERS' DEFICIT (195,674)
---------------
$ 3,500
===============
The accompanying notes are an integral part of the unaudited financial
statements.
MAGIC COMMUNICATIONS GROUP, INC.
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, For the Six Months Ended June 30,
--------------------------------- ------------------------------
2006 2005 2006 2005
-------------- ---------------- -------------- --------------
(Unaudited) (Unaudited)
(Unaudited) (Unaudited)
REVENUES $ 5,859 $ 25,402 $ 32,583 $ 45,221
-------------- ---------------- -------------- --------------
OPERATING EXPENSES:
Depreciation 267 4,320 4,587 8,640
Salaries - 6,679 1,500 14,589
Professional fees 6,850 37,965 13,650 46,265
General and administrative 15,531 25,985 25,807 48,841
-------------- ---------------- -------------- --------------
TOTAL OPERATING EXPENSES 22,648 74,949 45,544 118,335
-------------- ---------------- -------------- --------------
NET LOSS $ (16,789) $ (49,547) $ (12,961) $ (73,114)
============== ================ ============== ==============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.01) $ (0.02) $ (0.00) $ (0.03)
============== ================ ============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and Diluted 3,080,000 3,013,333 3,080,000 2,913,333
============== ================ ============== ==============
The accompanying notes are an integral part of the
unaudited financial statements.
MAGIC COMMUNICATIONS GROUP, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
---------------------------------
2006 2005
--------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (12,961) $ (73,114)
--------------- --------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 4,587 8,640
Changes in assets and liabilities:
Accounts payable (3,966) (221)
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TOTAL ADJUSTMENTS 621 8,419
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NET CASH USED IN OPERATING ACTIVITIES (12,340) (64,695)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft (1,160) -
Proceeds from related parties 13,500 6,600
Stock issued for cash - 60,000
--------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,340 66,600
--------------- --------------
NET INCREASE IN CASH - 1,905
--------------- --------------
CASH, BEGINNING OF PERIOD - 851
--------------- --------------
CASH, END OF PERIOD $ - $ 2,756
=============== ==============
Cash paid for:
Interest $ - $ -
=============== ==============
Taxes $ 100 $ 309
=============== ==============
The accompanying notes are an integral part of the unaudited financial statements.
MAGIC COMMUNICATIONS GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(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, 2006 are not necessarily indicative of
results that may be expected for the year ending December 31, 2006. 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, 2005.
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 ($195,674) and working capital deficit
of ($199,174) at June 30, 2006. In addition, the Company's cash account is $0.
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, 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 betterments 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, accrued
expenses, and due to related parties approximate fair value
based on the short-term maturity of these instruments.
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 - In December 2004, the FASB
issued SFAS No. 123(R), "Share-Based Payment," which
replaces SFAS No. 123 and supersedes APB Opinion No. 25.
Under SFAS No. 123(R), companies are required to measure the
compensation costs of share-based compensation arrangements
based on the grant-date fair value and recognize the costs
in the financial statements over the period during which
employees are required to provide services. Share-based
compensation arrangements include stock options, restricted
share plans, performance-based awards, share appreciation
rights and employee share purchase plans. In March 2005 the
SEC issued Staff Accounting Bulletin No. 107, or "SAB 107".
SAB 107 expresses views of the staff regarding the
interaction between SFAS No. 123(R) and certain SEC rules
and regulations and provides the staff's views regarding the
valuation of share-based payment arrangements for public
companies. SFAS No. 123(R) permits public companies to adopt
its requirements using one of two methods. On April 14,
2005, the SEC adopted a new rule amending the compliance
dates for SFAS 123R. Companies may elect to apply this
statement either prospectively, or on a modified version of
retrospective application under which financial statements
for prior periods are adjusted on a basis consistent with
the pro forma disclosures required for those periods under
SFAS 123. Effective January 1, 2006, the Company has fully
adopted the provisions of SFAS No. 123R and related
interpretations as provided by SAB 107. As such,
compensation cost is measured on the date of grant as the
excess of the current market price of the underlying stock
over the exercise price. Such compensation amounts, if any,
are amortized over the respective vesting periods of the
option grant. The Company applies this statement
prospectively.
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.
I. New Accounting Pronouncements -
FASB 154 - Accounting Changes and Error Corrections
In May 2005, the FASB issued FASB Statement No. 154, which
replaces APB Opinion No.20 and FASB No. 3. This Statement
provides guidance on the reporting of accounting changes and
error corrections. It established, unless impracticable,
retrospective application as the required method for reporting
a change in accounting principle in the absence of explicit
transition requirements to a newly adopted accounting
principle. The Statement also provides guidance when the
retrospective application for reporting of a change in
accounting principle is impracticable. The reporting of a
correction of an error by restating previously issued
financial statements is also addressed by this Statement. This
Statement is effective for financial statements for fiscal
years beginning after December 15, 2005. Earlier application
is permitted for accounting changes and corrections of errors
made in fiscal years beginning after the date this Statement
is issued. Management believes this Statement will have no
impact on the financial statements of the Company once
adopted.
FASB 155 - Accounting for Certain Hybrid Financial Instruments
In February 2006, the FASB issued FASB Statement No. 155,
which is an amendment of FASB Statements No. 133 and 140. This
Statement; a) permits fair value re-measurement for any hybrid
financial instrument that contains an embedded derivative that
otherwise would require bifurcation, b) clarifies which
interest-only strip and principal-only strip are not subject
to the requirements of Statement 133, c) establishes a
requirement to evaluate interests in securitized financial
assets to identify interests that are freestanding derivatives
or that are hybrid financial instruments that contain an
embedded derivative requiring bifurcation, d) clarifies that
concentrations of credit risk in the form of subordination are
not embedded derivatives, e) amends Statement 140 to eliminate
the prohibition on a qualifying special-purpose entity from
holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial
instrument. This Statement is effective for financial
statements for fiscal years beginning after September 15,
2006. Earlier adoption of this Statement is permitted as of
the beginning of an entity's fiscal year, provided the entity
has not yet issued any financial statements for that fiscal
year. Management believes this Statement will have no impact
on the financial statements of the Company once adopted.
FASB 156 - Accounting for Servicing of Financial Assets
In March 2006, the FASB issued FASB Statement No. 156, which
amends FASB Statement No. 140. This Statement establishes,
among other things, the accounting for all separately
recognized servicing assets and servicing liabilities. This
Statement amends Statement 140 to require that all separately
recognized servicing assets and servicing liabilities be
initially measured at fair value, if practicable. This
Statement permits, but does not require, the subsequent
measurement of separately recognized servicing assets and
servicing liabilities at fair value. An entity that uses
derivative instruments to mitigate the risks inherent in
servicing assets and servicing liabilities is required to
account for those derivative instruments at fair value. Under
this Statement, an entity can elect subsequent fair value
measurement to account for its separately recognized servicing
assets and servicing liabilities. By electing that option, an
entity may simplify its accounting because this Statement
permits income statement recognition of the potential
offsetting changes in fair value of those servicing assets and
servicing liabilities and derivative instruments in the same
accounting period. This Statement is effective for financial
statements for fiscal years beginning after September 15,
2006. Earlier adoption of this Statement is permitted as of
the beginning of an entity's fiscal year, provided the entity
has not yet issued any financial statements for that fiscal
year. Management believes this Statement will have no impact
on the financial statements of the Company once adopted.
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.
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 II. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Six Months Ended June 30, 2006 vs. Six Months Ended June 30, 2005
Net sales decreased from $45,221 in the six months ended June 30, 2005 to
$32,583 in the six months ended June 30, 2006. This decrease is attributable to
a decrease in the use of the internet kiosks as well as a decrease in use of the
telephones for this quarter. Operating expenses decreased from $118,335 to
$45,544. The change in operating expenses was due to the following items: (i) a
decrease in salaries from $14,589 in 2005 to $1,500 in 2006 as the employee from
2005 is no longer with the Company; (ii) a decrease in general and
administrative expenses of $23,034 from $48,841 for the six months ended June
30, 2005 to $25,807 for the six months ended June 30, 2006; and (iii) a decrease
in professional fees of $32,615 from $46,265 in the six months ended June 30,
2005 to $13,650 in the six months ended June 30, 2006. Since sales decreased and
operating expenses decreased, the Company's net loss decreased from ($73,114) in
the six months ended June 30, 2005 to ($12,961) in the six months ended June 30,
2006. The number of pay telephones in service was approximately 100 telephones
during the six months ended June 30, 2005 and 80 telephones during the six
months ended June 30, 2006.
Liquidity and Capital Resources
On June 30, 2006 the Company had $0 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, 2005.
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.
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 18, 2006
Magic Communications, Inc.
(Registrant)
/s/ Stephen D. Rogers
By: -------------------------
Stephen D. Rogers
Chief Executive Officer and
Chief Accounting Officer