UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 333-117495
MAGIC COMMUNICATIONS, INC.
--------------------------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
Delaware 13-3926203
------------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 West Main Street
Elmsford, New York 10523
------------------------------------------- ---------------------------
(Address of principal Executive Offices) (Zip Code)
Issuer's Telephone Number: (914) 391-5549
Securities registered under Section 12(b) of the Act: Common Stock par value
$.0001 per share
Securities registered under Section 12(g) of the Act: None
Check whether the issuer (1) has 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.
Yes No _X__
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form and will not 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. [X]
State Issuer's revenues for its most recent year: $ 52,976 as of December 31,
2006.
The number of shares outstanding of each of the Registrant's classes of common
stock, as of February 28, 2007 is 3,414,000 shares, all of one class, $.0001 par
value per share. Of this number, 1,632,900 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 1,632,900 shares held by non-affiliates,
based upon the book value as of February 28, 2007 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 [ x ] No
Indicate whether the issuer is a shell company [As defined in Rule 12b-2 of the
Exchange Act]
[ ] Yes [ x ] No
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
$.042that 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 were annexed as
Exhibits 99.01 and 99.02 to the Company's Form 10-KSB for year ended December
31, 2002.
As of December 31, 2006, the Company had approximately 80 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 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 ever be raised.
The Company currently purchases its phones from North Atlantic Marketing and
during the calendar year ended December 31, 2006 purchased no additional
telephones. The price for phones in the twelve month period ending December 31,
2006 averaged $1,000 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 efforts of its President
and through "word of mouth" in order to obtain customer leads.
Competition
The Company continues 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 tries 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.
1
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.
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.
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Market for Common Equity and 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 February 28, 2007 there were 96 stockholders of
record of the Registrant's Common Stock and 3,414,000 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 OPERATIONS
Year Ended December 31, 2006 vs. Year Ended December 30, 2005
Net sales decreased from $92,292 for the year ended December 31, 2005 to $52,976
for the year ended December 31, 2006. This decrease is attributable to the
continuance less reliance on pay phones in the cell phone era. The company also
earned $12,500 in consulting fees in 2005 and $0 consulting fees in 2006.
Operating expenses decreased from $177,080 to $110,503. The change in operating
expenses was due to the following items: (i) a decrease in salaries from $54,405
in 2005 to $14,855 in 2006; (ii) a decrease in general and administrative
expenses of $20,046 from $61,892 for the year ended December 31, 2005 to $41,846
for the year ended December 31, 2006; and (iii) an increase in professional fees
of $5,712 from $43,503 in the year ended December 31, 2005 to $49,215 in the
year ended December 31, 2006. Since sales decreased and operating expenses
decreased, the Company's net loss decreased from ($84,788) in the year ended
December 31, 2005 to ($57,527) in the year ended December 31, 2006. The number
of pay telephones in service was approximately 80 telephones during the year
ended December 31, 2005 and 80 telephones during the year ended December 31,
2006.
Liquidity and Capital Resources
On December 31, 2006 the Company had only $907 of 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.
2
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.
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.
Item 7. Financial Statements
The financial statements filed as part of this Annual Report on Form
10-KSB are set forth starting on page 11.
Item 8. Changes in and Disagreements with accountants on accounting
and financial disclosure.
None
Item 8A. Controls And Procedures
Our President currently serves as both our Chief Executive Officer and Chief
Financial Officer (collectively, the "Certifying Officer") and is responsible
for establishing and maintaining disclosure controls and procedures for us. He
has concluded (based upon his evaluation of these controls and procedures as of
a date within 90 days of the filing of this report) that our disclosure controls
and procedures are effective to ensure that information required to be disclosed
by us in this report is accumulated and communicated to management, including
our principal executive officers as appropriate, to allow timely decisions
regarding required disclosure.
The Certifying Officer also has indicated that there were no significant changes
in our internal controls or other factors that could significantly affect such
controls subsequent to the date of his evaluation, and there were no corrective
actions with regard to significant deficiencies and material weaknesses.
Item 8B. Other Information
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
---- --- -------------
Stephen D. Rogers 56 President, Chief Executive Officer,
Chief Financial Officer and Director
Maureen Rogers 50 Vice President and Director
3
The directors named above will serve until the next 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.
MAUREEN ROGERS: Vice President and Secretary (the latter until late
November2002) 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.
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 other than $21,000 paid to our Vice President and $6,900
paid to the our President for the fiscal year ended December 31, 2006.
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 February 28, 2007 (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 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.
Number of Shares
Name and Address of Beneficial Owner (1) Beneficially Owned (2) Percentage of Class (3)
------------------------------------- ------------------ -------------------
Maureen Rogers 240,000 8.63%
Stephen D. Rogers 0
Boulder Hill, Inc.(4) 210,000 7.55%
Karen Glenn 240,000 8.63%
Suzanne Keating 5,000 (3)
First Southwest Company(5) 252,000 9.06%
National Financial Services LLC(6) 200,000 7.19%
All officers and directors as a group (4 245,010 8.82%
persons)
(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) Represents less than 1% of the 3,414,000 outstanding shares of common stock.
(4) Boulder Hill, Inc. is a New York Corporation formed in March 1998 and its
sole shareholder is Georgia Rogers.
(5) First Southwest Company is located at 325 N. St. Paul, Suite 800, Dallas,
Texas 75201.
(6) National Financial Services LLC mailing address is P.O. Box 3731, Church
Street Station, New York, New York 10281.
4
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 Company had a 2 year oral 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.
The Company also has a payable to its President's brother in the amount of
$31,594 and a payable to its President in the amount $3,100. During the year
ended December 31, 2006, Boulder Hill, a related party, advanced the Company
money to pay for various expenses. At December 31, 2006, the Company owes
Boulder Hill $30,645. These transactions are unsecured and non-interest bearing
and have no specified payment terms.
Item 13. Exhibits
a. Exhibits
31.1 Certification of Chief Executive Officer and Principal Accounting
Officer Pursuant To Section 302 of The Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Principal Accounting
Officer Pursuant Section 906 of The Sarbanes-Oxley Act of 2002
Item 14. Principal Accountant Fees And Services
During 2006 the Company incurred professional service fees of $31,000 for audit
and audit related services provided by the principal accountant. During 2005
these fees totaled $31,000. These fees included the cost of the annual audit and
reviews of the quarterly and annual filings with the Securities and Exchange
Commission.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MAGIC COMMUNICATIONS, INC.
March 27, 2007 By: /s/ Stephen D. Rogers
------------------------------------
Stephen D. Rogers, President,
Chief Executive Officer,
Chief Financial Officer and Director
In accordance with the requirements of the Exchange Act, the report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
Signatures Title Date
---------- ----- --------
Stephen D. Rogers President/CEO/CFO/Director March 27, 2007
Maureen Rogers Vice President/Director March 27, 2007
5
MAGIC COMMUNICATIONS GROUP, INC.
FINANCIAL STATEMENTS
December 31, 2006 and 2005
INDEX
Page Number
-------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM F - 1
FINANCIAL STATEMENTS:
Balance Sheet F - 2
Statements of Operations F - 3
Statement of Stockholders' Deficit F - 4
Statements of Cash Flows F - 5
Notes to Financial Statements F - 6 to F - 8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Magic Communications, Inc.
We have audited the accompanying balance sheet of Magic Communications, Inc. as
of December 31, 2006 and the related statements of operations, stockholders'
equity and cash flows for the years ended December 31, 2006 and 2005. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly we express no such opinion. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Magic Communications, Inc. as
of December 31, 2006 and the results of their operations and their cash flows
for the years ended December 31, 2006 and 2005, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred significant
losses 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 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
March 22, 2007
F-1
MAGIC COMMUNICATIONS GROUP, INC.
BALANCE SHEET
December 31, 2006
ASSETS
CURRENT ASSETS: $ 907
------------------
Cash 907
TOTAL CURRENT ASSETS
EQUIPMENT, net -
DUE FROM RELATED PARTY 3,500
------------------
$ 4,407
==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 27,002
Loan payable 50,000
Due to related parties 117,645
------------------
TOTAL CURRENT LIABILITIES 194,647
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 3,414,000 shares 341
Additional paid-in capital 173,812
Accumulated deficit (364,393)
------------------
TOTAL STOCKHOLDERS' DEFICIT (190,240)
------------------
$ 4,407
==================
The accompanying notes are an integral part of the unaudited
financial statements.
F-2
MAGIC COMMUNICATIONS GROUP, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
-------------------------------------------
2006 2005
-------------------- -------------------
REVENUES $ 52,976 $ 92,292
-------------------- -------------------
OPERATING EXPENSES:
Depreciation 4,587 17,280
Salaries 14,855 54,405
Professional fees 49,215 43,503
General and administrative 41,846 61,892
-------------------- -------------------
TOTAL OPERATING EXPENSES 110,503 177,080
-------------------- -------------------
NET LOSS $ (57,527) $ (84,788)
==================== ===================
BASIC AND DILUTED NET LOSS PER SHARE $ (0.02) $ (0.03)
==================== ===================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and Diluted 3,191,333 2,996,667
==================== ===================
The accompanying notes are an integral part of the unaudited financial
statements.
F-3
MAGIC COMMUNICATIONS GROUP, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
Common Stock Additional Total
---------------------------- Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
------------- ------------ --------------- ----------------- ----------------
Balance, January 1, 2005 2,780,000 $ 278 $ 63,875 $ (222,078) $ (157,925)
Shares issued for cash 300,000 30 59,970 - 60,000
Net loss - - - (84,788) (84,788)
------------- ------------ --------------- ----------------- ----------------
Balance, December 31, 2005 3,080,000 308 123,845 (306,866) (182,713)
Shares issued for cash 334,000 33 49,967 - 50,000
Net loss - - - (57,527) (57,527)
------------- ------------ --------------- ----------------- ----------------
Balance, December 31, 2006 3,414,000 $ 341 $ 173,812 $ (364,393)$ (190,240)
============= ============ =============== ================= ================
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,
----------------------------------------------
2006 2005
--------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (57,527) $ (84,788)
--------------------- ---------------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 4,587 17,280
Changes in assets and liabilities:
Accounts payable (3,167) (3,583)
--------------------- ---------------------
TOTAL ADJUSTMENTS 1,420 13,697
--------------------- ---------------------
NET CASH USED IN OPERATING ACTIVITIES (56,107) (71,091)
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft (6,486) 6,486
Proceeds from related parties 13,500 3,754
Stock issued for cash 50,000 60,000
--------------------- ---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 57,014 70,240
--------------------- ---------------------
NET INCREASE (DECREASE) IN CASH 907 (851)
--------------------- ---------------------
CASH, BEGINNING OF YEAR - 851
--------------------- ---------------------
CASH, END OF YEAR $ 907 $ -
===================== =====================
Cash paid for:
Interest $ - $ -
===================== =====================
Taxes $ 179 $ 309
===================== =====================
The accompanying notes are an integral part of the unaudited financial
statements.
F-5
MAGIC COMMUNICATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
1. DESCRIPTION OF BUSINESS:
Magic Communications Group, Inc. ("Magic" or the "Company")
was incorporated 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.
Effective December 28, 2006, Magic Communications, Inc.
(the "Company") entered into a memorandum of understanding with
Post Tension of Nevada, Inc., a Nevada corporation in which Post
Tension of Nevada, Inc., will be merged with and into the Company.
The Company and Post Tension of Nevada, Inc. shall memorialize
the terms and conditions of the memorandum of understanding in
a definitive agreement.
The consideration to be paid by the Company includes Post
Tension of Nevada, Inc.'s existing shareholders receiving (pro rata)
27,312,000 shares of Magic Communications, Inc. The parties intend, by
executing this Agreement, to adopt a plan of reorganization within
the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368 of the Code, so
that such exchange will constitute a tax-free share exchange under the
Code.
2. GOING CONCERN:
The Company's financial statements as of December 31, 2006 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 $370,528 at December
31, 2006 and, as of that date, a working capital deficiency of
$190,240. These conditions would 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.
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 reporting 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.
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. Fair value of financial instruments - The carrying amounts
reported in the balance sheet for accounts payable, loans
payable and due to/from related parties are approximate fair
value based on the short-term maturity of these instruments.
G. 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 in 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.
F-6
H. Stock based compensation - In December 2004, the Financial
Accounting Standards Board ("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 prospectively. As
such, compensation cost is measured on the date of grant as
its fair value.
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.
4 EQUIPMENT:
Equipment consists of the following at December 31, 2006:
Payphones $ 172,790
Less: accumulated depreciation (172,790)
-----------------
$ -
=================
Depreciation expense for the years ended December 31, 2006 and 2005 was
$4,587 and $17,280, respectively.
5. LOAN PAYABLE:
On August 14, 2003, the Company signed a promissory note for $50,000.
The note is due on demand and bears interest at a rate of 4% per annum.
As per the terms of the note the Company was supposed to issue 25,000
shares which have not been issued as of the above balance sheet date.
The Company has accrued interest of $6,750 from the date of the note to
December 31, 2006.
6. 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.
7. DUE TO RELATED PARTIES:
At December 31, 2006, the Company has a payable to Magic Consulting of
$52,306 for consulting services performed. The Company also has payable
to a related party in the amount of $31,594, a receivable from an
officer in the amount $3,500, and a payable to another officer in the
amount of $3,100. During the year ended December 31, 2006, Boulder
Hill, a related party, advanced the Company money to pay for various
expenses. At December 31, 2006, the Company owes Boulder Hill $30,645.
These transactions are unsecured and non-interest bearing and have no
specified payment terms.
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8. 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 year ended December 31, 2005 and $0 in 2006. All of
the revenue was earned in the third quarter of 2005. The Consulting
agreement was not renewed in 2006.
9. 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. As of December 31, 2005, no options have
been issued.
10. Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes ("SFAS
No.109"). SFAS No.109 requires the recognition of deferred tax assets
and liabilities for both the expected impact of differences between the
financial statements and tax basis of assets and liabilities, and for
the expected future tax benefit to be derived from tax loss and tax
credit carry-forwards. SFAS No. 109 additionally requires the
establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. Prior to 2003, the Company and its
stockholders elected to be taxed under subchapter S of the Internal
Revenue Code. As a result, all income and losses were reported by the
Company's stockholders. The following is a reconciliation of income
taxes computed using the statutory Federal rate to the income tax
expense in the financial statements for December 31, 2006.
Income tax (benefit) computed at statutory rate $ (22,000)
State income tax (benefit), net of federal benefit (3,000)
Change in valuation allowance 25,000
------------
Provision for income taxes $ -
============
As of December 31, 2006, the Company has net operating losses for
Federal income tax purposes totaling approximately $193,000, expiring
at various times through December 31, 2026.
The following is a schedule of deferred tax assets as of December 31,
2006:
Net operating loss $ 73,340
Valuation allowance (73,340)
------------
Net deferred tax asset $ -
============
10. 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). All securities
were sold for cash for aggregate gross proceeds of $60,000.
In August 2006, the Company sold 334,000 of its common shares for
$50,000.
F-8