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 September 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 November 22, 2005.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
MAGIC COMMUNICATIONS GROUP, INC.
BALANCE SHEET
September 30, 2005
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ -
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TOTAL CURRENT ASSETS -
EQUIPMENT, net 8,907
DUE FROM RELATED PARTY 1,500
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$ 10,407
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 34,523
Loan payable 50,000
Due to related parties 104,991
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TOTAL CURRENT LIABILITIES 189,514
STOCKHOLDERS' DEFICIT:
Common stock, $.0001 par value; authorized 50,000,000
shares; issued and outstanding 3,080,000 shares 308
Preferred stock, $.0001 par value; authorized 1,000,000
shares; issued and outstanding -0- shares -
Additional paid-in capital 123,845
Accumulated deficit (303,260)
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TOTAL STOCKHOLDERS' DEFICIT (179,107)
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$ 10,407
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The accompanying notes are an integral part of the financial statements.
2
MAGIC COMMUNICATIONS GROUP, INC.
STATEMENTS OF OPERATIONS
For the Three Months Ended For,the Nine Months Ended
September 30, September 30,
------------------------------- ---------------------------------
2005 2004 2005 2004
-------------- -------------- --------------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited)
REVENUES $ 37,473 $ 13,835 $ 82,694 $ 27,609
-------------- -------------- --------------- ---------------
OPERATING EXPENSES:
Depreciation 4,320 4,320 12,960 12,959
Salaries 33,121 5,371 47,710 19,171
Equipment lease - 138 - 730
Professional fees 950 13,160 47,215 19,997
General and administrative 7,150 13,638 55,991 56,455
-------------- -------------- --------------- ---------------
TOTAL OPERATING EXPENSES 45,541 36,627 163,876 109,312
-------------- -------------- --------------- ---------------
NET LOSS $ (8,068) $ (22,792) $ (81,182) $ (81,703)
============== ============== =============== ===============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.00) $ (0.01) $ (0.03) $ (0.03)
============== ============== =============== ===============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and Diluted 3,080,000 2,530,000 2,968,889 2,530,000
============== ============== =============== ===============
The accompanying notes are an integral part of the financial statements.
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MAGIC COMMUNICATIONS GROUP, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30,
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2005 2004
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(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (81,182) $ (81,703)
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Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 12,960 12,960
Changes in assets and liabilities:
Cash Overdraft 2,486 8,991
Accounts payable (1,715) 23,209
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TOTAL ADJUSTMENTS 13,731 45,160
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NET CASH USED IN OPERATING ACTIVITIES (67,451) (36,543)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Return of security deposits - 11,550
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NET CASH PROVIDED BY INVESTING ACTIVITIES - 11,550
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related parties 6,600 20,192
Stock issued for cash 60,000 -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 66,600 20,192
NET (DECREASE) INCREASE IN CASH (851) (4,801)
CASH, BEGINNING OF PERIOD 851 4,801
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CASH, END OF PERIOD $ - $ -
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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 financial statements.
4
MAGIC COMMUNICATIONS GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 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 ($179,107) and working capital deficit
of ($189,514) at September 30, 2005. 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.
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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.
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.
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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 - 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 - CONSULTING AGREEMENT
Apple Industries has hired the Company as a consultant to research locations
that could be profitable to Apple using a pay for internet kiosk using time as
the criteria. If implemented, the Company would arrange for the DSL connection.
The Company recorded $12,500 in revenues for the quarter ended September 30,
2005. Although the contract does not have an end date, the Company believes that
this project will be completed soon.
NOTE 5. 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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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.
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Item 2. Management's Discussion And Analysis Or Plan Of Operation
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Nine Months Ended September 30, 2005 vs. Nine Months Ended September 30, 2004
Net sales increased from $27,609 in the nine months ended September 30, 2004 to
$82,694 in the nine months ended September 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. The company also earned $12,500 in consulting fees in the
last quarter. Operating expenses increased from $109,312 to $163,876. The change
in operating expenses was due to the following items: (i) an increase in
salaries from $19,171 in 2004 to $47,710 in 2005; (ii) a decrease in lease
payments for phone equipment (leases expired in March 2002) of $730 from $730
for the nine months ended September 30, 2004 to $0 for the nine months ended
September 30, 2005; (iii) a decrease in general and administrative expenses of
$464 from $56,455 for the nine months ended September 30, 2004 to $55,991 for
the nine months ended September 30, 2005; and (v) an increase in professional
fees of $27,218 from $19,997 in the nine months ended September 30, 2004 to
$47,215 in the nine months ended September 30, 2005. Since sales increased and
operating expenses increased, the Company's net loss decreased from ($81,703) in
the nine months ended September 30, 2004 to ($81,182) in the nine months ended
September 30, 2005. The number of pay telephones in service was approximately
100 telephones during the nine months ended September 30, 2004 and 80 telephones
during the nine months ended September 30, 2005.
Liquidity and Capital Resources
On September 30, 2005 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, 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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PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds:
None
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
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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.
November 23, 2005
Magic Communications, Inc.
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(Registrant)
By: /s/ Stephen D. Rogers
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Stephen D. Rogers, Chief Executive
Officer and Chief Accounting Officer