SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER THE 1934 ACT
MAGICINC.COM
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(Name of Small Business Issuer in its Charter)
DELAWARE 65-0494581
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
530 North Federal Highway, Fort Lauderdale, Florida 33301
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(Address of Principal Executive Offices) (Zip Code)
(954) 764-0579
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(Issuer's Telephone Number, including Area Code)
Securities to be registered under Section 12(b) of the Exchange Act: None
Securities to be registered under Section 12(g) of the Exchange Act:
Title of Each Class to be so registered:
Common Stock ($0.0001 Par Value)
Name of each Exchange on which each Class is to be Registered: N/A
This form is being filed with the Securities & Exchange Commission in order
to become a reporting company under the Exchange Act of 1934 and to
reestablish the Company's quotation on the OTC Bulletin Board in compliance
with the National Association of Securities Dealers, Inc. Rules 6530 and
6540 to limit quotations on the OTC Bulletin Board to securities of
companies that report their current financial information to the SEC,
banking, or insurance regulators.
<PAGE>
TABLE OF CONTENTS
Page No.
PART I
Item 1. Description of Business......................................1
Item 2. Management's Discussion and Analysis or Plan of
Operation................................................6
Item 3. Property.....................................................9
Item 4. Security Ownership of Certain Beneficial Owners
and Management..........................................10
Item 5. Directors, Executive Officers, Promoters and
Control Persons.........................................11
Item 6. Executive Compensation......................................13
Item 7. Certain Relationships and Related Transactions..............14
Item 8. Description of Securities...................................15
PART II
Item 1. Market for Common Equity and Related
Stockholder Matters.....................................16
Item 2. Legal Proceedings...........................................17
Item 3. Changes in and Disagreements with Accountants...............17
Item 4. Recent Sales of Unregistered Securities.....................17
Item 5. Indemnification of Directors and Officers...................26
PART F/S
Financial Statements..........................................................26
PART III
Item 1. Index to Exhibits...........................................27
Signatures....................................................................28
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
A. Corporate History
As used herein, the term "Company" refers to Magicinc.com, a Delaware
corporation, and its predecessors, unless the context indicates otherwise. The
Company was originally incorporated in 1961 in Delaware as Magic Fingers, Inc.
Initially, the Company designed, manufactured and distributed a patented
vibrating massage device for installation in hotel and motel beds. In 1979, the
Company began attempts to diversify its operations and sought opportunities in
other industries. Currently, the Company is a development stage Internet company
with plans to engage in the distribution, promotion and production of varied
forms of entertainment via the Internet.
In April 1994, the Company entered into an agreement and plan of reorganization
to acquire in a reverse merger a 100% interest in Flash Entertainment, Inc.
("Flash"), a Florida film production and distribution corporation, which
included a wholly owned subsidiary, No Bull Distribution, Inc., a Florida film
distribution company, and the rights to three feature length films, "No More
Dirty Deals," "Shakma," and "Shoot" for 20,000,000 shares of common stock (pre
reverse split). Pursuant to the reorganization, Flash acquired approximately 79%
of the Company's outstanding stock and assumed management of the Company.
Current management obtained controlling ownership of the Company, pursuant to
this reorganization.
In May 1995, certain Company insiders attempted an unsuccessful hostile
takeover. Legal action was initiated by Gordon Scott Venters, President and CEO
of the Company, to prevent the hostile takeover, and a trustee was subsequently
assigned to the Company. The trustee appointed a new board of directors and was
eventually released from his position on August 2, 1995. As a result, the
Company became dormant and conducted minimal business operations until December
9, 1996, when the Company reorganized and elected a new Board of Directors. The
reorganization was carried out to bring about a change in the Company's focus.
Prior management had allowed the Company to become dormant and minimal business
had been conducted. The Company had substantial debt and no significant
operations. As a result of the reorganization, the Company began developing and
implementing a plan of operations designed to restructure and eliminate the
substantial debt of the Company. The last of the Company's "old debt" was
settled on December 5, 1999, leaving the Company free to pursue its present plan
of operations.
At various times in the Company's history, the Company's charter under Delaware
law has become inoperative for failure to pay taxes. However, each time the
Company has responded and corrected such delinquency by filing a Certificate for
Renewal and Revival in accordance with Section 312 of the General Corporate Law
of Delaware.
In an effort to revitalize the Company, new management undertook an aggressive
program to restructure and eliminate the Company's debt. The debt primarily
consisted of promissory notes payable to Dr. H.K. Terry (the "Terry Notes") in
the amount of $220,000; a judgment entered against the Company in favor of Ing.
Adolph Malinek Gesellschaft M.B.H., an Austrian corporation, in the 15th Circuit
Court, Palm Beach, Florida, Case No. CL94-6263AJ in the amount of $247,205.35
(the "Malinek Judgment"); and a secured convertible promissory note payable to
HDT Properties, Inc. in the sum of $100,000 (the "HDT Note").
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The Malinek Judgment was satisfied by payment of $50,000 cash and the issuance
of 100,000 shares of the Company's common stock. The HDT Note was satisfied upon
payment of $50,000 cash. The Terry Notes were first extended and then settled by
the Company by issuing to Dr. Terry a total of 84,125 shares of the Company's
common stock. (See "Recent Sales of Unregistered Securities".)
The Company entered into an agreement with Castle Hill Productions in March
1998, to grant and assign the rights in the motion picture "Shakma." The Company
received $7,220 pursuant to this agreement. This agreement was superseded by an
agreement dated February 12, 1999, in which the Company granted to Castle Hill
Productions the exclusive worldwide rights to three feature films owned by the
Company. The films were "Shakma," "Shoot," and "No More Dirty Deals." Castle
Hill Productions paid to the Company an additional $46,240 for the distribution
rights to these films in perpetuity.
B. Corporate Organization
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[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Magicinc.com
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<S> <C> <C> <C>
Magicinternetwork.com CyBars.com Magic Studios Magic Music Label
--------------------- ---------- ------------- -----------------
a division of Magicinc.com a division of Magicinc.com a division of Magicinc.com a division of Magicinc.com
</TABLE>
Magicinternetwork.com
An independent network of exclusive entertainment content owned or licensed to
Magicinc.com for distribution to the world market on the Internet.
CyBars.com
A nightclub portal using CyBarCam Internet cameras and monitors broadcasting
live on the Internet, nightclubs, bands and bars on its own network,
Magicinternetwork.com.
Magic Studios
An independent studio to produce independent films, music videos, commercials
and other core content for Magicinternetwork and for licensing to other
broadcast mediums.
Magic Music Label
An independent music label utilizing the CyBars.com portal and the
Magicinternetwork to distribute independent artists' music over the Internet.
C. Business of the Company
General
The Company is a development stage Internet entertainment company with plans to
engage in distribution, promotion and production of varied forms of
entertainment via the Internet.
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The Company's current major focus is the development of its Internet
entertainment business. The Company owns two "registered domain names" on the
Internet. These are (i) magicinternetwork.com., which the Company proposes to
use as its own Internet Service Provider (ISP) for its CyBars network, through
club monitors and (ii) CyBars.com within which the Company intends to create an
Internet link of entertainment venues to Magicinternetwork.com for Internet
broadcast of content owned by the Company.
The Company intends to focus its efforts on creating an independent Internet
entertainment network, magicinternetwork.com. (a registered domain name).
Contained within this network will be a diverse array of select entertainment
nightclub links using club monitors. Cybars.com (registered domain name) is a
live Internet nightclub membership syndication utilizing CyBarCam Internet
cameras and club monitors.
The Company websites, will contain graphically rich interactive "CyBar-Streets"
and "CyBarClubs" in a virtual entertainment network linking major cities
throughout the country. These "CyBar-Streets" will contain numerous
entertainment venues in the form of Internet "CyBarClubs." At these sites,
member patrons can literally go out "nightclubbing" from home computer terminals
linked to monitors and live camera feeds to local clubs. Future developments
will attempt to include CyBar Internet computer terminals in CyBarClubs in major
U.S. cities creating direct interaction between members and patrons.
The Company intends to sell memberships in its CyBarClub network with three
membership levels. The silver membership level (basic membership) offers access
to the website and the club membership network for a monthly fee of $4.95.
Silver level membership offers patrons menus of night club locations, events and
access to membership e-mail lists and photos of other CyBar members, live music
(DJ mixes) and live bands (audio only). The gold membership offers membership
for $9.95 per month and offers all the services of the silver membership, as
well as allowing members to peek inside the club via the cybercams (live camera
feeds, live DJ mixes and live bands) before ever leaving their home. The
platinum level membership offers members all the services of the gold
membership, plus VIP access (no cover charge with $50 minimum purchase) at all
participating CyBarClubs contained within the network, for a price of $19.95 per
month, with a three-month minimum membership required. The Company intends to
distribute CyBarCam and Internet monitors to bars and nightclubs for no charge.
Installation charge will be approximately $6,000. Once the Company's CyBars
nightclub network is in operation, the Company also intends to sell advertising
to be featured in the clubs through Magicinterwork.com.
Description of Products and Services
The Company is an Internet entertainment holding company. The Company currently
has no substantial operations or operating history. The Company is attempting to
create an independent Internet entertainment network, magicinternetwork.com.
Within this network the Company will attempt to create a diverse array of select
entertainment nightclub links through cybars.com, a live Internet nightclub
membership syndication utilizing CyBarCam Internet cameras.
The Company's plan is to create and maintain websites which will contain
graphically rich interactive "CyBar-Streets" and "CyBarClubs" in a virtual
entertainment network linking major cities throughout the country. Under the
Company's plan, these CyBar-Streets would contain numerous entertainment venues
in the form of Internet "CyBarClubs." Once these sites are developed and in
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operation, member patrons can literally go out "nightclubbing" from home
computer terminals linked to live camera feeds to their local clubs. The Company
will seek to develop CyBar Internet computer terminals in CyBarClubs in major
U.S. cities, thus creating direct interaction between members and patrons.
In addition, the Company currently has an option to purchase all of the
outstanding shares of Quantum Entertainment, Inc. ("Quantum"), a Florida
corporation, in exchange for certain rights and payment of $50,000 and 50,000
shares of the Company's common stock. Quantum owns 100% of the exclusive
worldwide distribution rights to the feature film project "Liberty City." Also,
Quantum owns 70% of the gross proceeds after print, advertising and distribution
costs up to the first $5 million. Thereafter, Quantum will receive 60% of the
gross proceeds up to $7.5 million and then 50% in perpetuity. Gordon Scott
Venters is the President and CEO as well as a major shareholder of Quantum.(For
more information, see Related Party Transactions, page 15).
Distribution Methods
The Company, through its magicinternetwork.com division, has recently installed
its first CyBarCam in the Fort Lauderdale-based blues club "The Poorhouse" and
is currently negotiating agreements for additional installations in clubs in the
downtown Fort Lauderdale area. Robert P. Pignone, a Director of the Company, is
the owner of "The Poorhouse." The Company will continue its efforts to negotiate
other links with other existing clubs nationwide for the planned future
CyBarsclub network.
The Company recently leased, with an agreement to purchase, a building where it
will locate a Company-owned CyBar. The Company plans for this location to serve
as the prototype CyBar location and it will also use the location as a live
Internet corporate broadcast facility for its planned CyBar Network. Each CyBar
location will be linked to other CyBar locations via magicinternetwork.com.
Members will be able to interact with patrons and other CyBar members while
visiting the nightclub location of their choice from the comfort of home.
Members and patrons at a CyBar location will also be able to interact with each
other at other club locations or the same club via the club's Internet computer
terminals. Chat rooms, games, contests, promotions, and if desired, a private
one-on-one live video interaction via CyBarCam would all contribute to the
unique club experience. In addition, CyBarCam plans to provide added security
for both patrons and nightclub establishments.
Magicinternetwork.com intends to record, store and own all of the content
transmitted via the CyBar network for future broadcasts and licensing, as well
as providing for the Company's own network content and programming.
New Products
The Company is attempting to establish an Internet network utilizing live
CyBarCam Internet broadcasts via CyBarCams which will be located in the
Company's proposed CyBar franchise club locations. The Company will seek to
generate income from its CyBars Nightclub Network by charging monthly membership
fees to its cybars.com members. Members of the CyBars Nightclub Network will be
charged a monthly membership fee between $4.95 and $19.95 depending on level of
membership.
The Company has an option to purchase, for $50,000, 100% of Quantum
Entertainment, Inc. ("Quantum"). Quantum is the owner of 70% (up to 2.5
million), 60% (up to 5 million), 50% (over 5 million)of the ownership rights to
a motion picture project entitled "Liberty City" and any subsequent music
soundtrack album.
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Quantum owns 100% of the worldwide distribution rights to the motion picture
project entitled "Liberty City." Gordon Scott Venters, President, CEO and
Director of the Company, owns a 50% interest in Quantum Entertainment, Inc. If
the option is exercised, the Company's plan would be to integrate film and the
Internet via its website. The Company has plans to create a unique "brand of
entertainment" which strategically aligns certain areas of the independent
entertainment industry. (For more information, see Related Party Transactions,
page 15).
Competition
The Internet industry is intensely competitive and there are many
well-established competitors such as Launch.com and MP3. These and other
competitors have substantially greater financial and other resources than the
Company. These companies may be better established in the entertainment
marketplace. Changes in consumer tastes, national, regional or local economic
conditions and demographic trends often affect the entertainment business. The
Company believes, however, that it is in a position to use its business plan to
develop intellectual properties with a long term residual value. There can be no
assurances, however, that the Company will be able to attain its business
strategy or to be profitable.
The market for online entertainment and entertainment products is new, rapidly
evolving and intensely competitive, and the Company expects competition to
intensify in the future. Barriers to entry are relatively low, and current and
new competitors can launch new sites at a relatively low cost using commercially
available software.
The Internet and production/distribution of online entertainment are highly
competitive businesses. In the production phase, competition affects the
Company's ability to obtain the services of preferred performers and other
creative and/or technical personnel. The Company competes with a number of
websites and Internet service providers who have substantially greater
resources, larger and more experienced production and distribution staffs and
established histories of successful production of Internet sites.
The Company also potentially faces competition from a number of large online
communities and services that have expertise in developing online commerce and
in facilitating online person-to-person interaction. Some of these potential
competitors are Amazon.com, AOL, and Microsoft Corporation. Other large
companies with strong brand recognition and experience in online commerce also
may seek to compete in the online entertainment delivery market.
D. Regulatory Overview
The Company is subject to the same federal, state and local laws as other
companies conducting business on the Internet. Today there are relatively few
laws specifically directed toward online services. However, due to the
increasing popularity and use of the Internet and online services, it is
possible that laws and regulations will be adopted with respect to the Internet
or online services. These laws and regulations could cover issues such as online
contracts, user privacy, freedom of expression, pricing, fraud, content and
quality of products and services, taxation, advertising, intellectual property
rights and information security. Applicability to the Internet of existing laws
governing issues such as property ownership, copyrights and other intellectual
property issues, taxation, libel, obscenity and personal privacy is uncertain.
Changes to existing laws or the passage of new laws intended to address Internet
issues could directly affect the way the Company does business or could create
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uncertainty in the marketplace. This could reduce demand for the services of the
Company or increase the cost of doing business as a result of litigation costs
or increased service delivery costs, or could otherwise harm the Company's
business. In addition, because the Company's services are accessible worldwide,
and the Company facilitates sales of goods to users worldwide, foreign
jurisdictions may claim that the Company is required to comply with their laws.
In some jurisdictions, the Company may be required to collect value-added or
other taxes on its fees. The Company's failure to comply with foreign laws could
subject it to penalties ranging from fines to bans on its ability to offer its
services.
E. Reports to Security Holders
The Company's annual report will contain audited financial statements. The
Company is not required to deliver an annual report to security holders and will
not voluntarily deliver a copy of the annual report to the security holders. The
Company intends, from the effective date of this filing forward, to file all of
its required information with the Securities and Exchange Commission ("SEC").
Prior to this form being filed, the Company filed a Form 10-SB on May 14, 2000,
which was subsequently withdrawn on May 28, 2000. The Company plans to file its
10-KSB, 10-QSB, and all other forms that may be or become applicable to the
Company with the SEC.
The public may read and copy any materials that are filed by the Company with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington,
D.C. 20549. The Public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The statements and forms
filed by the Company with the SEC have also been filed electronically and are
available for viewing or copying on the SEC maintained Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The Internet address
for this site can be found at http://www.sec.gov. Additional information can be
found concerning the Company on the Internet at http://www.magicinc.com.
F. Employees
The Company currently has three full time employees in management and two part
time employees. The Company typically enters into independent contractor
agreements or work for hire agreements with individuals to provide professional
services on an as needed basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Company is a development stage Internet entertainment company with plans to
engage in the distribution, promotion and production of varied forms of
entertainment via the Internet.
The Company's current major focus is the development of its Internet
entertainment business. The Company owns two "registered domain names" on the
Internet. These are (i) Magicinternetwork.com., which the Company proposes to
use as its own Internet Service Provider (ISP) for its CyBars network, and (ii)
Cybars.com within which the Company intends to create an Internet link of
entertainment venues to Magicinternetwork.com for Internet broadcast and
ownership content owned by the Company.
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RESULTS OF OPERATIONS
The following discussion and analysis provides information that the Company's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. The discussion should
be read in conjunction with the financial statements and footnotes that appear
elsewhere in this report. In 1999, the Company changed its year end from a
calendar year to a fiscal year ending October 31. The analysis herein compares a
full calendar year ending December 31, 1998 ("Fiscal Year 1998") with the short
fiscal year, 10 months, ending October 31, 1999 ("Fiscal Year 1999") and the six
months ending April 30, 2000 with the six months ending April 30, 1999.
Fiscal Year 1998 and Fiscal Year 1999.
Sales. Net sales for the Fiscal Year 1999 increased to $46,240 from $7,220 for
Fiscal Year 1998, an increase of 540%. The increase in revenues was attributable
to the licensing of distribution rights in perpetuity to three feature films
which were owned by the Company for the net sum of $46,240. This was a one time
payment for distribution rights to the films. The Company has no further rights
to use or market these films.
Cost of Sales. Cost of sales for the Fiscal Year 1999 and Fiscal Year 1998 were
$0 for each period as the films were carried on the Company's books at a zero
basis.
Expenses. Selling, general and administrative expenses for Fiscal Year 1999,
decreased to $161,639 from $238,237 for Fiscal Year 1998, a decrease of 32%.
During this same period, interest expense decreased to $0 for Fiscal Year 1999
from $11,503 for Fiscal Year 1998. The decrease in selling, general and
administrative expenses was the result of the change in fiscal year and the
resultant statement covering only a ten-month period, and primarily from the
reduction of expenses due to arrangements and agreements with the Company's
major creditors coupled with a significant reduction in legal, accounting and
administrative costs which were incurred in arranging the settlement agreements.
The decrease in interest expense was the result of settling and paying off the
debts of the Company.
Depreciation and amortization expenses for Fiscal Year 1999 and Fiscal Year 1998
were negligible, being $234 and $147, respectively.
Losses. Net losses before taxes and an extraordinary gain realized as a result
of debt restructuring for Fiscal Year 1999 decreased to $115,399 from $242,520
for Fiscal Year 1998, a decrease of 52%. As a result of the debt restructuring
efforts during Fiscal Year 1999, an extraordinary gain of $259,500 was realized
as compared to $197,205 for Fiscal Year 1998. This gain on debt restructuring
resulted in net income to the Company of $144,101 for Fiscal Year 1999 as
compared to a loss of $45,315 for Fiscal Year 1998. The substantial decrease in
losses was primarily from the reduction of expenses due to arrangements and
agreements signifying the final stages of the Company's restructuring and
settlement agreements with the Company's major creditors.
The Company hopes to break even or to operate at a slight profit during the
fiscal year 2001 as a result of the intended launching of its
Magicinternetwork.com entertainment network. There can be no assurance that the
Company will achieve or maintain profitability or that revenues will be
generated or that growth can be sustained in the future.
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Six Months Ended April 30, 2000 and April 30, 1999
Sales. During both periods, the Company was concentrating on restructuring its
debts and developing a new business model. Consequently, during this
restructuring and development state, the Company did not have any revenue from
operating sources. Also, during these two comparable six-month periods, the
Company did not dispose of any assets.
Losses. Net losses for the six months ended April 30, 2000 were $208,783
compared to $91,845 for the six months ended April 30, 1999. This increase of
127% resulted entirely from an increase in expenses, as there was no change in
sales ($0 in both periods).
Expenses. Selling, general and administrative expenses showed a $67,544, or 74%,
increase from $91,845 for the six months ended April 30,1999 to $159,839 for the
six months ended April 30, 2000. Interest expense increased from $0 to $49,394
for the six months ended April 30, 2000. Much of the increase in the
non-interest expense category resulted from the cost of professional services
and expenses in connection with the development of the Company's new business
model and the establishment of the Company's Internet operations. The interest
expense was primarily from the accrual of interest expense on the convertible
debenture issued in November 1999.
Impact of Inflation.
The Company believes that inflation has had a negligible effect on operations
over the past three years.
LIQUIDITY AND CAPITAL RESOURCES
The Company did not generate cash flow from operations in the period January 1,
1998 through April 30, 2000. In fact, the Company's operating activities
consumed cash as follows: $132,971 for Fiscal Year 1998, $19,184 for Fiscal Year
1999, and $73,862 for the six months ended April 30, 2000 -- a total of $226,017
for the 28 month period.
The Company was able to continue in business primarily from the receipt of cash
from financing activities. For Fiscal Year 1998, the Company's financing
activities provided total funds of $133,875. Similarly, the Company's financing
activities provided total funds of $37,638 for Fiscal Year 1999 and $62,000 for
the six months ended April 20, 2000. This provided the Company with a total of
$233,513 for the 28 month period.
The Company has funded its cash needs over the past 28 months through the
issuance of its common stock and convertible debentures for cash. The Company
also used its common stock, in lieu of cash, to obtain professional and
employment services. The Company intends to cover its cash needs over the next
twelve months through the sale of additional shares of its common stock and/or
convertible securities pursuant to a registration statement or an appropriate
exemption from registration. In order to support existing and proposed
operations, bank, private and/or equity financing will be necessary. However,
there is no guarantee that the Company will be able to raise additional funds
from borrowing or the sale of its securities.
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Debt Settlement
During 1998 and 1999, the Company settled $547,205 of debt for total cash
payment of $100,000 and issuance of 175,000 shares of its common stock. (See
"Description of Business, Corporate History").
Capital Expenditures
The Company made no significant capital expenditures on property or equipment
during the periods covered by this report. The Company plans to make capital
expenditures for further website development and the establishment of the
magicinternetwork and CyBar concepts. The Company has allocated $150,000 for
this development and intends to contract for the completion of this work when
funds are available. The Company's landlord has agreed to pay up to $26,935 for
repairs and renovations to the new facilities.
Income Tax Expense (Benefit)
The Company has substantial net operating loss carryforwards, which may be used
to offset operating profit. In the periods covered by this report there was no
income tax expense or benefit reported on the Company's financial statements.
Quasi-Reorganization
As of October 1999, the Company had reached settlement agreements with all its
significant creditors. Also, by that date the Company changed its business focus
so as to become an Internet entertainment company. The Board of Directors,
therefore, elected to state the Company's October 31, 1999 balance sheet as a
"quasi-reorganization." In a quasi-reorganization, the deficit in retained
earnings is eliminated by charging paid-in-capital. In effect, this gives the
Company's balance sheet a "fresh start." Beginning November 1, 1999 and
continuing forward, the Company is crediting net income and charging net losses
to retained earnings.
Ability to Continue as a Going Concern
The financial statements appearing in this registration statement have been
prepared assuming that the Company will continue as a going concern. The Company
has not had revenue in the ordinary course of business. Sales for the period
January 1998 through April 30, 2000 were from the disposition of the Company's
interest in certain films. The lack of sales and recurring losses from
operations raises substantial doubt about the Company's ability to continue as a
going concern. Management estimates it will need approximately $250,000 to fund
operations of the Company for the next twelve months. Management's plan in
regards to these matters is to seek further equity funding to allow the Company
to meet its cash needs and to build its fledgling Internet entertainment
network, Magicinternetwork.com. However, in order to support ongoing operations
for the next twelve-month period, additional financing must be obtained either
through the sale of equity or borrowing.
ITEM 3. PROPERTY
Up until May 31, 2000, the Company rented approximately 2,100 square feet of
office space in Fort Lauderdale, Florida, which housed its executive and
administrative offices. The property was rented on a month to month basis at
$1,000 per month. Then, the Company entered into a lease for an 8,500 square
foot building at 530 North Federal Highway, Fort Lauderdale, Florida. The
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building presently houses the administrative offices and computer operations.
There are plans in place to build a recording studio and video facility at this
location.
The lease is for a term of two years beginning June 1, 2000 and ending May 31,
2002. The rent for the property is as follows:
June 1, 2000 through July 31, 2000 Rent is waived by Landlord
August 1, 2000 through November 30, 2000 $4,000 / month
December 1, 2000 through May 31, 2001 $4,500 / month
June 1, 2001 through November 30, 2001 $5,000 / month
December 1, 2001 through May 31, 2002 $5,300 / month
In addition, the Company has entered into an agreement to purchase the building
no later than May 31, 2002 for $480,000 subject to standard conditions,
including obtaining the necessary licenses and permits. The landlord/seller has
agreed to pay up to $26,935 for repairs to the building. The Company believes
these facilities are adequate to allow the Company to operate its business as
presently constituted.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the ownership of
the Company's Common Stock (par value $0.0001) as of April 30, 2000, with
respect to: (i) each person known to the Company to be the beneficial owner of
more than 5 percent of the Company's Common Stock; (ii) all directors and
executive officers of the Company; and (iii) all directors and executive
officers of the Company as a group. The notes accompanying the information in
the table below are necessary for a complete understanding of the figures
provided below. As of April 30, 2000, there were 6,198,338 (post 1 for 40
reverse split) shares of common stock outstanding.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Relationship Amount and Percent of Class
to the Nature of
Company Beneficial
Ownership
<S> <C> <C> <C>
Gordon Scott Venters Director 825,000 13.3%
2100 S. Ocean Dr. #8CD Officer
Fort Lauderdale, FL 33316
Todd Nugent Director 90,000 1.5%
1291 Claret St.
Fort Myers, FL 33919
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John J. Kearney Director 100,000 1.6%
2611 N.E. 14th St.
Fort Lauderdale, FL 33304
Robert P. Pignone Director 100,000 1.6%
1316 N.E. 4th St.
Fort Lauderdale, FL 33301
Robert M. Ingria Director 100,000 1.6%
310 174th St. #2419
Sunny Isles Beach, FL 33160
Elizabeth L. Rogers 5% 435,000 7.0%
119 N.W. 21st Court
Wilton Manors, FL 33311
Dr. H.K. Terry 5% 454,650 7.3%
600 N.E. 55th Terrace
Miami, FL 33317
HLKT Holdings, L.L.C. 5% 1,300,000(1) 17.3%
1015 So. Gaylord St., Suite 603A
Denver, CO 80209
Directors and Officers as a Group (5 1,215,000 19.6%
individuals)
</TABLE>
(1) Assumes conversion of $65,000 principal amount of 5% Series A Senior
Subordinated Convertible Debentures at the minimum conversion price of
$0.05 per share pursuant to the understanding between the Company and
the holder of the Debentures.
Changes in Control
There are currently no arrangements in place that will result in a change in
control of the Company.
ITEM 5. DIRECTORS, OFFICERS, PROMOTERS, AND CONTROL PERSONS
The directors, executive officers, control persons, and significant employees of
the Company, their respective ages, and positions with the Company are as
follows:
Name Age Positions
Gordon Scott Venters 38 Director, CEO, President, Secretary
Todd Nugent 42 Director
John J. Kearney 63 Director
Robert P. Pignone 40 Director
Robert M. Ingria 46 Director
11
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Pursuant to Article II of the Bylaws, all directors are elected to a term of one
year, and hold such office until the next meeting of the shareholders or until
their successors are elected and qualified. The executive officers serve at the
pleasure of the Board. The principal occupation and business experience for each
executive officer and director for at least the past five years are as follows:
Gordon Scott Venters, the Company's President and Chief Executive Officer, has
specialized in the entertainment industry -- including the financing, management
and production of films, videos and recordings -- for over 15 years. Mr. Venters
has served as a Director of the Company from March 15, 1994 to May 19, 1995 and
from December 9, 1996 to the present. From May 19, 1996 until December 9, 1996,
he served as President and a Director of Quantum Entertainment Company in Los
Angeles, California. From 1990 to 1993, Mr. Venters served as the President and
Chief Executive Officer of Flash Entertainment, Inc. an independent feature film
company and predecessor of the Company, during which time he was the Executive
Producer of the feature film "No More Dirty Deals" and five music videos. From
1989 to 1990, Mr. Venters was the Executive Producer of two full-length feature
films, "Shakma" and "Shoot." Mr. Venters has also been a financial advisor and a
registered stockbroker with F.D. Roberts Securities (1987-1989) and with
Prudential- Bache Securities, Inc.
Robert Michael Ingria, a Director of the Company since December of 1999, is a
native of Miami, Florida and graduated with honors from the Fine Arts Program in
Motion Pictures and Art of Florida State University. Mr. Ingria's professional
background includes over 20 years experience in the entertainment and motion
picture industry. Since February 1995, he worked as a Producer with RMI
Entertainment Company, a film production company located in Sunny Isles,
Florida. From October 1997 to August 1998, he served as President of Ocean Drive
Entertainment Company located in Miami, Florida. From December 1997 to December
1998, he served as President of Millennium Telemedia, Inc. a Miami Florida
company, which is in the entertainment business. He built, and operated for
approximately fifteen years, Quadradial Recording Studios, Video Production
Facilities and Motion Picture facilities in South Florida. Mr. Ingria's dossier
includes writing, producing and directing all forms of film and video projects
including 3 motion pictures, over 30 music videos, infomercials for
multi-million dollar grossing direct response programs, corporate videos and
television commercials. Mr. Ingria is a member of the Florida Motion Picture and
Television Association.
John J. Kearney, a Director of the Company since June 1999, brings to the
Company over 23 years of experience in the Florida entertainment industry. From
1989 to 1999, Mr. Kearney owned "Squeeze," a nightclub in Fort Lauderdale,
Florida. From 1979 to 1984, he owned "Rosebuds," a nightclub in Fort Lauderdale,
Florida, and from 1977 to 1983 he owned the "Candy Store" nightclub on Fort
Lauderdale beach, Florida
Robert P. Pignone, a Director of the Company since June 1999, is the owner of
"The Poorhouse" a successful blues nightclub, established in 1995, located in
downtown Fort Lauderdale, Florida. From 1991 to 1995, he also owned "Tavern
213," a nightclub located in Fort Lauderdale, Florida.
Todd Waddell Nugent, a Director of the Company since 1996, served as the
Company's Chief Executive Officer from July 17, 1996 to December 9, 1996 and as
the President of the Company's Entertainment Film Partners division from
December 9, 1996 to February 17, 1997, when this division was eliminated. From
June 1995 to March 1996, Mr. Nugent served as the Chief Executive Officer of
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<PAGE>
Stradigi, Inc., a telecommunications group. Mr. Nugent was a co-founder of
Multi-Channel Video Programming, Inc., a DBS system, where he served as its
Chief Executive Officer from February 1994 to March 1995. From 1986 to February
1993, Mr. Nugent was a broker with Royal Alliance and Associates, Inc., a
registered securities broker/dealer.
ITEM 6. EXECUTIVE COMPENSATION
Compensation of Executives
The following table provides summary information for the years 1999, 1998 and
1997 concerning cash and non-cash compensation paid or accrued by the Company to
or on behalf of Gordon Scott Venters, the Company's President and Chief
Executive Officer. Except as indicated below, no officer or employee of the
Company received a total salary and bonus exceeding $100,000 during the periods
reflected.
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Compensation Awards Payouts
Securities
Name Other Under-
and Annual Restricted lying All Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Awards SARs Payouts sation
-------- ---- ------ ----- ------ ------ ----- ------- ------
-------------- --------- -------------- ---------- --------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gordon 1997 40,000(2) 0 0 $12.50(1) 0 0 0
Scott 1998 40,000(2) 0 0 $50.00(1) 0 0 0
Venters 1999 40,000(2) 0 0 $12.50(1) 0 0 0
</TABLE>
(1) In 1997, the Company issued a stock option to Mr. Venters to
purchase, over three years, up to 750,000 shares of stock at
$0.0001. Mr. Venters exercised his option to purchase 125,000
shares in 1997, 500,000 shares in 1998 and the remaining 125,000
shares in 1999.
(2) On October 1,1997 Gordon Scott Venters entered into a three year
employment agreement providing for a salary of $75,000 during the
first year, $100,000 during the second year and $133,000 for the
third year. Only $40,000 per year was paid and the balance was
accrued. See "Employment Agreements, Gordon Scott Venters."
Employment Agreements
Gordon Scott Venters. Effective October 1, 1997, the Company entered into a
three year Employment Agreement with Gordon Scott Venters, the Company's
President and CEO, whereby Mr. Venters receives a salary of $75,000 for the
first year, $100,000 for the second year, and $133,000 for the third year. Mr.
Venters was paid $40,000 in each of the years 1997, 1998, and 1999. The balance
of the salary due to Mr. Venters under the terms of his Employment Agreement was
accrued, and as of October 31, 1999 totaled $186,111. Mr. Venters is also
entitled to receive two weeks paid vacation for the first year and four weeks
paid vacation for the following two years. In the event of Mr. Venters'
disability for a period of more than two weeks, Mr. Venters will receive 50% of
his compensation for a period of up to three months.
Robert Michael Ingria. Effective December 15, 1999, the Company entered into a
one year Employment Agreement with Robert Michael Ingria. Under the terms of the
agreement, Mr. Ingria serves jointly with Gordon Scott Venters as president of
two divisions of the Company, Magicinternetwork.com and MagicStudios. In this
capacity, Mr. Ingria devotes his efforts full time to the management and
13
<PAGE>
development of film and music productions for these divisions. In December 1999,
Mr. Ingria received seventy-five thousand shares of the Company's Common Stock
pursuant to the Employment Agreement. In addition, as a Director of the Company
Mr. Ingria receives twenty-five thousand additional shares annually for his
services as a Director of the Company.
John J. Kearney. Effective June 15, 1999, the Company entered into a one year
Employment Agreement with John J. Kearney, which agreement was extended until
September 15, 2000. Under the terms of the agreement, Mr. Kearney serves jointly
with Robert P. Pignone as president of the Company's MagicMusic Label division
and devotes full time to the management and development of the MagicMusic Label.
In August 1999, Mr. Kearney received seventy-five thousand shares of the
Company's Common Stock pursuant to the Employment Agreement. In addition, as a
Director of the Company Mr. Kearney receives twenty-five thousand additional
shares annually for service as a Director of the Company.
Robert P. Pignone. Effective June 15, 1999, the Company entered into a one year
Employment Agreement with Robert P. Pignone. Under the terms of the agreement,
Mr. Pignone serves jointly with John J. Kearney as president of the Company's
MagicMusic Label division and devotes full time to the management and
development of the MagicMusic Label. In August 1999, Mr. Pignone received
seventy-five thousand shares of the Company's Common Stock pursuant to the
Employment Agreement. The employment contract calls for a $5,000 contribution of
goods and services to the Company over the life of the contract. In exchange for
the forgiveness of this requirement by the Company, Mr. Pignone agreed to extend
the contract to September 15, 2000. In addition, as a Director of the Company
Mr. Pignone receives twenty-five thousand additional shares annually for service
as a Director of the Company.
Compensation of Directors
All members of the Company's Board of Directors will receive, on an annual
basis, 25,000 shares of Common Stock of the Company as payment for their service
on the Company's Board of Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 28, 1999, and amended on June 15, 1999, the Company was granted an option
to purchase all of the outstanding shares of Quantum Entertainment, Inc.
("Quantum"), a Florida corporation, in exchange for certain rights and payment
of $50,000 and 50,000 shares of the Company's common stock. Quantum owns 100% of
the exclusive worldwide distribution rights to the feature film project "Liberty
City." Also, Quantum owns 70% of the gross proceeds after print, advertising and
distribution costs up to the first $5 million. Thereafter, Quantum will receive
60% of the gross proceeds up to $7.5 million and then 50% in perpetuity. Gordon
Scott Venters is the President and CEO as well as a major shareholder of
Quantum.
14
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
The Company is presently authorized to issue 50,000,000 shares of $0.0001 par
value capital stock, of which 30,000,000 shares are Common Stock and 20,000,000
shares are Open Stock which may be issued, in the sole discretion of the Board
of Directors, in one or more classes or in one or more series within any class,
in any manner allowed by law. As of April 30, 2000, the Company had 6,198,338
shares of Common Stock issued and outstanding. Holders of shares of Common Stock
are entitled to share, on a ratable basis, such dividends as may be declared by
the Board of Directors out of funds legally available. Upon liquidation,
dissolution or winding up of the Company, after payment to creditors and holders
of any outstanding shares of preferred stock, if applicable, the assets of the
Company will be divided pro rata on a per share basis among the holders of the
Common Stock.
The holders of Common Stock are entitled to one vote per share for the election
of directors and with respect to all other matters submitted to a vote of
shareholders. Shares of Common Stock do not have cumulative voting rights, which
means that the holders of more than 50% of such shares voting for the election
of directors can elect 100% of the directors if they choose to do so and, in
such event, the holders of the remaining shares so voting will not be able to
elect any directors.
The holders of the Common Stock do not have preemptive or conversion rights to
subscribe for any securities of the Company and have no right to require the
Company to redeem or purchase their shares. The holders of Common Stock are
entitled to share equally in dividends if, as and when declared by the Board of
Directors of the Company, out of funds legally available therefor, subject to
the priorities accorded any class of preferred stock which may be issued. A
consolidation or merger of the Company, or a sale, transfer or lease of all or
substantially all of the assets of the Company, which does not involve
distribution by the Company of cash or other property to the holders of Common
Stock, will not be deemed to be a liquidation, dissolution or winding up of the
Company.
On February 17, 1997, the Board of Directors authorized a 1 for 40 reverse split
of the Company's outstanding common stock.
Preferred Stock
There are no shares of preferred stock authorized.
Transfer Agent
Continental Stock Transfer & Trust Company
Two Broadway
New York, New York 10004.
15
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS
Price Range of Common Stock
The Company's Common Stock was traded on the OTC Bulletin Board until December
19, 1999 under the symbol "MAGC" and then under the symbol "MAGCE" until January
19, 2000 when it was delisted. Since January 20, 2000, the Company's stock has
been quoted in the National Quotation Bureau "Pink Sheets" under the symbol
"MAGC." Upon this filing becoming effective with the Securities and Exchange
Commission, and clearing any comments of the SEC staff, the Company will attempt
to become re-listed as a fully reporting (OTC:BB) public company.
The following table sets forth the high and low bid quotations for the Company's
common stock for the periods listed. However, records provided by the Trading
Market Service of NASD for OTC Quarterly Trading Summaries indicate that, for
the period January 1997 through September 30, 1999, trading in the Company's
common stock was negligible and could not be considered a true indication of
market value. During 1997 only 500 shares of the Company's common stock traded
in three transactions with a total market value of less than $1,000. Likewise,
during 1998 NASDAQ trading records indicate that for the entire year there were
nine transactions representing 6,650 shares. For the first three quarters of the
calendar year 1999, the market was likewise negligible and sporadic. The
following quotations reflect prices between dealers; they do not include retail
markups, markdowns, and commissions and may not necessarily represent actual
transactions.
Year Quarter Ending High Low
1997 March 31 $0.25 $0.25
June 30 $0.50 $0.25
September 30 $1.75 $0.50
December 31 $0.50 $0.25
1998 March 31 $1.00 $0.25
June 30 $0.00 $0.00
September 30 $0.02 $0.02
December 31 $0.02 $0.02
1999 March 31 $0.00 $0.00
June 30 $0.87 $0.43
September 30 $0.75 $0.16
October 31 $0.49* $0.31
16
<PAGE>
Year Quarter Ending High Low
2000 January 31 $0.50 $0.06
2000 April 30 $0.20 $0.05
*to coincide with the Company's new fiscal year. Quarters following October 31,
1999 are based on the new fiscal year which ends October 31.
On May 1, 2000, there were 471 shareholders of record of the common stock of the
Company. The holders of the Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Holders of
the Common Stock have no preemptive rights and no right to convert their Common
Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock.
Dividends
The Company has not declared any cash dividends since inception and does not
anticipate paying any dividends in the foreseeable future. The payment of
dividends is within the discretion of the Board of Directors and will depend on
the Company's earnings, capital requirements, financial condition, and other
relevant factors. There are no restrictions that currently limit the Company's
ability to pay dividends on its Common Stock other than those generally imposed
by applicable state law.
ITEM 2. LEGAL PROCEEDINGS
The Company is currently not a party to any pending legal proceedings. The
Company is not aware of any legal, governmental or administrative proceedings
contemplated either against or on behalf of the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company has had no changes in or disagreements with its accountants in its
two most recent fiscal years or any later interim period.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following is a list of all securities issued by the Company within the last
three years without registration under the Securities Act of 1933, including,
where applicable, the identity of the person who purchased the securities, title
of the securities, the date sold and the exemption for registration relied upon
by the Company. No underwriters were involved in any stock issuances nor were
any commissions paid in connection therewith. The Company may have paid finders
fees in the form of cash, stock or warrants in connection with various
securities issuances. All shares are adjusted to reflect a 1 for 40 reverse
split effected on February 17, 1997.
On July 21, 1997, the Company issued a total of 353,000 shares of its common
stock at $0.20 to $0.25 per share to the following individuals for cash pursuant
to section 4(2) of the Securities Act of 1933. The Company made this offering
based on the following factors: (1) the issuance was an isolated private
transaction by the Company which did not involve a public offering; (2) there
were only thirteen offerees who were issued stock for cash; (3) the offerees
stated an intention not to resell the stock and have continued to hold it for at
least two years; (4) there were no subsequent or contemporaneous public
17
<PAGE>
offerings of the stock; (5) the stock was not broken down into smaller
denominations; and (6) the negotiations for the sale of the stock took place
directly between the offerees and the Company.
Name Price Number of Shares
Dr. H. K. Terry $ 0.20 125,000
Dr. H. K. Terry $ 0.25 30,000
Mary Law $ 0.25 15,000
George Price $ 0.25 20,000
Jay Schenck $ 0.25 50,000
Ron Perranonski $ 0.25 20,000
Elliot Butts $ 0.25 10,000
Larry Wright $ 0.25 10,000
Fred Roberts $ 0.25 15,000
Russell Wright $ 0.25 30,000
Bill Kenthan $ 0.25 4,000
Ted Mozino $ 0.25 10,000
William R. Burdette $ 0.25 4,000
Jane Adams $ 0.25 10,000
On August 4, 1997, the Company issued a total of 438,860 shares of its common
stock at $0.0001 per share to the following individuals for services rendered to
the Company pursuant to section 4(2) of the Securities Act of 1933. The Company
made this offering based on the following factors: (1) the issuance was an
isolated private transaction by the Company which did not involve a public
offering; (2) there were only nine offerees who were issued stock for services
rendered to the Company, or in the exercise of options; (3) the offerees stated
an intention not to resell the stock and have continued to hold it for at least
two years; (4) there were no subsequent or contemporaneous public offerings of
the stock; (5) the stock was not broken down into smaller denominations; and
)6) the negotiations for the sale of the stock took place directly between the
offerees and the Company.
Name Number of Shares Type of Service
David Charlip 50,000 Legal
Brett Bernstein 26,360 Film Distribution
Chicky McDaniels 20,000 Consulting
Robert Venters 50,000 Guarantee of Promissory Note
18
<PAGE>
Name Number of Shares Type of Service
Richard Greene 25,000 Legal
Scott Venters 175,000* Officer and Director
Elizabeth Rogers 25,000 Officer and Director
Todd Nugent 25,000 Officer and Director
John Venters 42,500 Officer and Director
* 125,000 shares were issued pursuant to the exercise of an option granted in
Mr. Venters' employment contract and 50,000 shares were issued for current
services.
On September 18, 1997, the Company issued 6,250 shares of common stock to Dr.
H.K. Terry at $0.0001 as compensation for Dr. Terry's personal guarantee of a
loan made to the Company. The shares were issued pursuant to section 4(2) of the
Securities Act of 1933 in an isolated private transaction by the Company which
did not involve a public offering. The Company made this offering based on the
following factors: (1) the issuance was an isolated private transaction by the
Company which did not involve a public offering; (2) there was only one offeree
who was issued stock for his personal guarantee of a loan made to the Company;
(3) the offeree stated an intention not to resell the stock and has continued to
hold it for over two years; (4) there were no subsequent or contemporaneous
public offerings of the stock; (5) the stock was not broken down into smaller
denominations; and (6) the negotiations for the sale of the stock took place
directly between the offeree and the Company.
On November 11, 1997, the Company issued 2,000 shares of common stock to Scott
Lawrence at $0.0001 per share as compensation for services involved in the
repair of Company equipment. The Company also issued 20,000 shares of common
stock to George Price and 100,000 shares of common stock to Jay Schenck for
cash. These shares were valued at $0.25. These shares were issued pursuant to
section 4(2) of the Securities Act of 1933. The Company made this offering based
on the following factors: (1) the issuance was an isolated private transaction
by the Company which did not involve a public offering; (2) there were only
three offerees who were issued stock for cash or services; (3) the offerees
stated an intention not to resell the stock and have continued to hold it for
over two years; (4) there were no subsequent or contemporaneous public offerings
of the stock; (5) the stock was not broken down into smaller denominations; and
(6) the negotiations for the sale of the stock took place directly between the
offerees and the Company.
On April 2, 1998, the Company issued 1,875 shares of common stock to Dr. H.K.
Terry at $0.0001 per share as compensation for granting an extension on a
promissory note; 7,500 shares of common stock at $0.0001 to Michael Hyde for
legal services; and 100,000 shares of common stock at $0.0001 to Ing. Adolph
Malinek Gesselschaft, M.B.H., an Austrian corporation in settlement of a
Judgment. The shares were issued pursuant to section 4(2) of the Securities Act
of 1933. The Company made this offering based on the following factors: (1) the
issuance was an isolated private transaction by the Company which did not
involve a public offering; (2) there were only three offerees who were issued
stock for debt adjustment, guarantee of a loan made to the Company or services
to the Company; (3) the offerees stated an intention not to resell the stock and
have continued to hold it for over two years; (4) there were no subsequent or
contemporaneous public offerings of the stock; (5) the stock was not broken down
into smaller denominations; and (6) the negotiations for the sale of the stock
took place directly between the offerees and the Company.
19
<PAGE>
On May 4, 1998, the Company issued 25,000 shares of common stock at $0.0001 per
share to Todd Nugent; 25,000 shares of common stock at $0.0001 per share to John
M. Venters; 325,000 shares of common stock at $0.0001 per share to Elizabeth
Rogers; and 525,000 shares of common stock at $0.0001 per share to Gordon Scott
Venters (500,000 of these shares were issued on exercise of options) for
services rendered as officers and directors of the Company, and upon exercise of
options granted for services rendered to the Company. The shares were issued
pursuant to section 4(2) of the Securities Act of 1933. The Company made this
offering based on the following factors: (1) the issuance was an isolated
private transaction by the Company which did not involve a public offering; (2)
there were only four offerees who were issued stock on exercise of options
granted for service to the Company, or were issued for personal services to the
Company as Officers and Directors; (3) the offerees stated an intention not to
resell the stock and have continued to hold it for over two years; (4) there
were no subsequent or contemporaneous public offerings of the stock; (5) the
stock was not broken down into smaller denominations; and (6) the negotiations
for the sale of the stock took place directly between the offerees and the
Company.
On May 7, 1998, the Company issued 5,000 shares of common stock at $0.0001 per
share to Ted Kieta for granting an option for rights to a screenplay. These
shares were issued pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933. The Company made this offering based
on the following factors: (1) the issuance was an isolated private transaction
by the Company which did not involve a public offering; (2) there was only one
offeree who was issued stock for granting an option to a screenplay; (3) the
offeree stated an intention not to resell the stock and has continued to hold it
for over two years; (4) there were no subsequent or contemporaneous public
offerings of the stock; (5) the stock was not broken down into smaller
denominations; and (6) the negotiations for the sale of the stock took place
directly between the offeree and the Company.
In April and May of 1998, the company issued a total of 85,500 shares of its
common stock at $0.25 to $0.50 per share to the following individuals for cash
pursuant to section 4(2) of the Securities Act of 1933. The Company made this
offering based on the following factors: (1) the issuance was an isolated
private transaction by the Company which did not involve a public offering; (2)
there were only twelve offerees who were issued stock for cash; (3) the offerees
stated an intention not to resell the stock and have continued to hold it for
over two years; (4) there were no subsequent or contemporaneous public offerings
of the stock; (5) the stock was not broken down into smaller denominations; and
(6) the negotiations for the sale of the stock took place directly between the
offerees and the Company.
Name Price Number of Shares
Christian Trefz $ 0.50 10,000
Larry Wright $ 0.25 8,000
Chris Hyde $ 0.25 12,000
J. Lloyd Woods $ 0.25 2,500
Ivy Kimmel $ 0.25 2,500
B.L. & Brenda Stalnaker $ 0.25 20,000
Cara Ebert Cameron $ 0.25 2,500
Nina Flinn $ 0.25 2,500
20
<PAGE>
Name Price Number of Shares
Ilene Armour $ 0.25 2,500
Winjo Enterprises $ 0.25 5,000
David Pettit $ 0.25 8,000
Paul Elgart $ 0.25 10,000
On November 30, 1998, the Company issued 2,000 shares of common stock at $0.0001
per share to AIBC Investment Corp. and 38,000 shares of common stock at $0.0001
per share to William Burdette for settlement of a contract dispute. These shares
were issued pursuant to the exemption from registration provided by Section 4(2)
of the Securities Act of 1933. The Company made this offering based on the
following factors: (1) the issuance was an isolated private transaction by the
Company which did not involve a public offering; (2) there were only two
offerees who were issued stock for settlement of a contract dispute with the
Company; (3) the offerees stated an intention not to resell the stock and have
continued to hold it for over nineteen months; (4) there were no subsequent or
contemporaneous public offerings of the stock; (5) the stock was not broken down
into smaller denominations; and (6) the negotiations for the sale of the stock
took place directly between the offerees and the Company.
On December 23, 1998, the Company issued 11,000 shares of common stock at
$0.0001 per share to Michael Peters for settlement of a contract dispute. These
shares were issued pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933. The Company made this offering based
on the following factors: (1) the issuance was an isolated private transaction
by the Company which did not involve a public offering; (2) there was only one
offeree who was issued stock for settlement of a contract dispute; (3) the
offeree stated an intention not to resell the stock and has continued to hold it
for over eighteen months; (4) there were no subsequent or contemporaneous public
offerings of the stock; (5) the stock was not broken down into smaller
denominations; and (6) the negotiations for the sale of the stock took place
directly between the offeree and the Company.
In November and December of 1998, the Company issued a total of 140,000 shares
of its common stock at $0.50 per share to the following individuals for cash
pursuant to section 4(2) of the Securities Act of 1933. The Company made this
offering based on the following factors: (1) the issuance was an isolated
private transaction by the Company which did not involve a public offering;
(2) there were only eight offerees who were issued stock for cash; (3) the
offerees stated an intention not to resell the stock and have continued to hold
it for over eighteen months; (4) there were no subsequent or contemporaneous
public offerings of the stock; (5) the stock was not broken down into
smaller denominations; and (6) the negotiations for the sale of the stock
took place directly between the offerees and the Company.
Name Number of Shares
Douglas Newland 10,000
Jet Potato Seed 20,000
21
<PAGE>
Name Number of Shares
Paul Elgart 10,000
George Price 10,000
Chris Hyde 10,000
Dean Buescher 40,000
Imogene H. Redmon 10,000
Clayton Verboon Unlimited 30,000
In January of 1999, the Company issued 50,000 shares of common stock at $0.50
per share to Orange Buick; 10,000 shares of common stock at $0.50 per share to
Christian Trefz and 20,000 shares of common stock at $0.50 per share to Case
Holding Corporation for cash pursuant to section 4(2) of the Securities Act of
1933. The Company made this offering based on the following factors: (1) the
issuance was an isolated private transaction by the Company which did not
involve a public offering; (2) there were only three offerees who were issued
stock for cash; (3) the offerees stated an intention not to resell the stock and
have continued to hold it for over eighteen months; (4) there were no
subsequent or contemporaneous public offerings of the stock; (5) the stock was
not broken down into smaller denominations; and (6) the negotiations for the
sale of the stock took place directly between the offerees and the Company.
On April 5, 1999, the Company issued a total of 500,000 shares of its common
stock pursuant to a Private Placement Memorandum dated April 1, 1999 to the
individuals listed below. The Company issued the shares pursuant to Rule 504
under Regulation D of the Securities Act of 1933. The Company issued the shares
to investors who were given a Private Placement Memorandum and offered the
opportunity to inspect the books and records of the Company. The Company relied
on the following facts in determining that Rule 504 Regulation D was available:
(a) the Company was not subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act; (b) the Company was engaged in the production and
distribution of entertainment products and was neither a development stage
Company with no specific business plan or purpose, nor a Company whose plan was
to merge with an unidentified Company; (c) the aggregate offering price did not
exceed one million dollars and (d) the Company filed a Form D within 15 days of
the first sale of the shares subject to the offering.
Name Price Number of Shares
Martin Rothstein $ 0.17 100,000
Milton Barbarosh $ 0.17 100,000
Peter Trojiano $ 0.17 50,000
Steven Krause $ 0.17 50,000
Steven Krause $ 0.03 200,000
On June 24, 1999, the Company issued 40,000 shares of common stock at $0.0001
per share to Todd Nugent; 50,000 shares of common stock at $0.0001 per share to
22
<PAGE>
John M. Venters; 85,000 shares of common stock at $0.0001 per share to Elizabeth
Rogers; and 25,000 shares of common stock at $0.0001 per share to Gordon Scott
Venters for services rendered as officers and directors of the Company. These
shares were issued pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933. The Company made this offering based
on the following factors: (1) the issuance was an isolated private transaction
by the Company which did not involve a public offering; (2) there were only four
offerees who were issued stock for services as Officers and Directors of the
Company; (3) the offerees stated an intention not to resell the stock and have
continued to hold it since it was acquired, a period of over one year; (4) there
were no subsequent or contemporaneous public offerings of the stock; (5) the
stock was not broken down into smaller denominations; and (6) the negotiations
for the sale of the stock took place directly between the offerees and the
Company.
On August 13, 1999, the Company issued 100,000 shares of common stock at $0.0001
per share to John J. Kearney and 100,000 shares of common stock at $0.0001 per
share to Robert Pignone for services rendered as officers and directors and
employees of the Company. These shares were issued pursuant to the exemption
from registration provided by Section 4(2) of the Securities Act of 1933. The
Company made this offering based on the following factors: (1) the issuance was
an isolated private transaction by the Company which did not involve a public
offering; (2) there were only two offerees who were issued stock for services as
Officers, Directors and Employees of the Company; (3) the offerees stated an
intention not to resell the stock and have continued to hold it since it was
acquired, a period of over ten months; (4) there were no subsequent or
contemporaneous public offerings of the stock; (5) the stock was not broken down
into smaller denominations; and (6) the negotiations for the sale of the stock
took place directly between the offerees and the Company.
On September 27, 1999, the Company issued 100,000 shares of common stock at
$0.0001 per share to A-Z Professional Consultants, Inc. for consulting services
pursuant to a written consulting agreement, and 50,000 shares of common stock at
$0.0001 to David H. Charlip, Esq., for legal services. These shares were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. The Company made this offering based on the following
factors: (1) the issuance was an isolated private transaction by the Company
which did not involve a public offering; (2) there were only two offerees who
were issued stock for services to the Company; (3) the offerees stated an
intention not to resell the stock and have continued to hold it since it was
acquired; (4) there were no subsequent or contemporaneous public offerings of
the stock; (5) the stock was not broken down into smaller denominations; and
(6) the negotiations for the sale of the stock took place directly between
the offerees and the Company.
On November 1, 1999, the Company issued 60,000 shares of common stock at $0.0001
per share to Richard Surber for consulting services pursuant to a written
compensation plan. These shares were issued pursuant to a written employee
benefit plan under Rule 701 adopted pursuant to the Securities Act of 1933. Mr.
Surber provided bona fide services to the Company, which services were not in
connection with the offer or sale of securities in a capital raising
transaction, or to directly or indirectly promote or maintain a market for the
Company's securities.
On November 15, 1999, the Company issued 30,000 shares of common stock to A-Z
Professional Consultants, Inc., pursuant to a consulting contract, for
consulting services, and 20,000 shares of common stock to Rebecca Pack for
consulting services. The shares were valued at $0.05, which approximated market
value. These shares were issued pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act of 1933. The Company made this
offering based on the following factors: (1) the issuance was an isolated
private transaction by the Company which did not involve a public offering;
(2) there were only two offerees who were issued stock for consulting services;
(3) the offerees stated an intention not to resell the stock and have continued
23
<PAGE>
to hold it since the date of acquisition; (4) there were no subsequent or
contemporaneous public offerings of the stock; (5) the stock was not broken down
into smaller denominations; and (6) the negotiations for the sale of the stock
took place directly between the offerees and the Company
On November 17, 1999 the Company issued 75,000 shares of common stock at $0.0001
per share to Dr. H.K. Terry in exchange for cancellation of a promissory note
pursuant to an agreement in August 1999. These shares were issued pursuant to
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933. The Company made this offering based on the following factors: (1) the
issuance was an isolated private transaction by the Company which did not
involve a public offering; (2) there was only one offeree who was issued stock
for his cancellation of debt owed to him by the Company; (3) the offeree stated
an intention not to resell the stock and has continued to hold it since the date
of acquisition; (4) there were no subsequent or contemporaneous public offerings
of the stock; (5) the stock was not broken down into smaller denominations; and
(6) the negotiations for the sale of the stock took place directly between the
offeree and the Company.
On December 13, 1999, the Company issued to PMR and Associates 500,000 shares of
its common stock, of which 250,000 shares were later canceled by agreement. The
shares were issued for corporate public relations services and were valued at
$0.05 per share, which approximated market value. These shares were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. The Company made this offering based on the following
factors: (1) the issuance was an isolated private transaction by the Company
which did not involve a public offering; (2) there was onl9 one offeree who was
issued stock for services rendered to the Company; (3) the offeree stated an
intention not to resell the stock and has continued to hold it since the date of
acquisition; (4) there were no subsequent or contemporaneous public offerings of
the stock; (5) the stock was not broken down into smaller denominations; and (6)
the negotiations for the sale of the stock took place directly between the
offeree and the Company.
On December 13, 1999, the Company issued a total of 275,000 shares of its common
stock. 125,000 shares were issued to Gordon Scott Venters, pursuant to exercise
of an option, at par value ($0.0001). 50,000 shares were issued to John M.
Venters and 100,000 shares were issued to Robert Ingria. These shares were
valued at $0.05, which approximated market value. These shares were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. The Company made this offering based on the following
factors: (1) the issuance was an isolated private transaction by the Company
which did not involve a public offering; (2) there were only three offerees who
were issued stock for services as Officers and Directors of the Company or upon
exercising options granted for services to the Company; (3) the offerees stated
an intention not to resell the stock and have continued to hold it since it was
acquired; (4) there were no subsequent or contemporaneous public offerings of
the stock; (5) the stock was not broken down into smaller denominations; and (6)
the negotiations for the sale of the stock took place directly between the
offerees and the Company.
On December 13, 1999, the Company issued 30,000 shares of common stock to A-Z
Professional Consultants, Inc., pursuant to a consulting contract, for
consulting services. The shares were valued at $0.05, which approximated market
value. These shares were issued pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act of 1933. The Company made this
offering based on the following factors: (1) the issuance was an isolated
private transaction by the Company which did not involve a public offering; (2)
there was only one offeree who was issued stock for consulting services; (3) the
offeree stated an intention not to resell the stock and has continued to hold it
since the date of acquisition; (4) there were no subsequent or contemporaneous
public offerings of the stock; (5) the stock was not broken down into smaller
24
<PAGE>
denominations; and (6) the negotiations for the sale of the stock took place
directly between the offeree and the Company.
In March and April 2000, the Company issued for cash, 200,000 shares to Dr. H.K.
Terry, 200,000 shares to Steedley & Company and 100,000 shares to Christian
Trefz, which shares were valued at $0.05 per share. These shares were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. The Company made this offering based on the following
factors: (1) the issuance was an isolated private transaction by the Company
which did not involve a public offering; (2) there were only three offerees who
were issued stock for cash; (3) the offerees stated an intention not to resell
the stock and have continued to hold it since the date of acquisition; (4) there
were no subsequent or contemporaneous public offerings of the stock; (5) the
stock was not broken down into smaller denominations; and (6) the negotiations
for the sale of the stock took place directly between the offerees and the
Company.
In March 2000, the Company issued 60,600 shares to A-Z Professional Consultants,
Inc. for consulting services and 100,000 shares to Christopher J. Hooper for Web
design services. These shares were valued at $0.05. These shares were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. The Company made this offering based on the following
factors: (1) the issuance was an isolated private transaction by the Company
which did not involve a public offering; (2) there were only two offerees who
were issued stock for services; (3) the offerees stated an intention not to
resell the stock and have continued to hold it since the date of acquisition;
(4) there were no subsequent or contemporaneous public offerings of the stock;
(5) the stock was not broken down into smaller denominations; and (6) the
negotiations for the sale of the stock took place directly between the offerees
and the Company.
Debentures
In October 1999, the Company's Board of Directors authorized the issuance of up
to $900,000 of 5% Series A Subordinated Convertible Redeemable Debentures.
Pursuant to an agreement with three Colorado limited liability companies, HLKT
Holdings, L.L.C., M&B Trading L.L.C. and BVH Holdings L.L.C., the Company may
issue up to $300,000 principal amount of the debentures to each of the three
companies.
The debentures entitle the holder to convert them into the Company's common
stock at 75% of the average closing bid price of the three trading days prior to
the election to convert. Accrued interest may also be paid in the same fashion.
At any time after 90 days, the Company has the option to redeem the principal in
whole, or increments of $10,000, for 125% of the face value.
In November 1999 the Company issued $150,000 (of the $300,000 authorized)
principal amount of 5% Senior Subordinated Convertible Redeemable Debentures due
October 20, 2001 to HLKT Holdings, L.L.C. The Company received net proceeds of
$130,500, after expenses of $19,500, from the issuance. During the six months
ended April 30, 2000, the holder converted $85,000 of the debenture into 913,714
shares of common stock under the above prescribed formula as follows:
November 19, 1999 $15,000 converted into 128,000 shares $0.1172 /share
November 30, 1999 $15,000 converted into 285,714 shares $0.0525 /share
December 29, 1999 $ 5,000 converted into 166,667 shares $0.03 /share
March 27, 2000 $50,000 converted into 333,333 shares $0.15 /share
25
<PAGE>
Upon issuance of the debentures, Original Issue Discount ("OID") in the amount
of $50,000 was recorded to reflect the additional shares required to be issued
under the discount feature of the conversion provision of the debentures. The
OID is charged to interest expense over the term of the debenture. For the six
months ended April 30, 2000 OID charged to operations totaled $27,283. At April
30, 2000, debentures in the principal amount of $65,000 remained outstanding.
HLKT Holdings L.L.C. is an accredited investor as that term is defined under the
Securities Act of 1933. The debenture and underlying stock were issued under an
exemption from registration afforded by Rule 504 of Regulation D of the
Securities Act of 1933.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Title 8 Section 145 of the Delaware Statutes provides for indemnification of a
corporation's officers and directors in certain situations where they might
otherwise personally incur liability, judgments, penalties, fines and expenses
in connection with a proceeding or lawsuit to which they might become parties
because of their position with the Company.
In accordance with the provisions referenced above, the Company shall indemnify
to the fullest extent permitted by its bylaws, and in the manner permissible
under the laws of the State of Delaware, any person made, or threatened to be
made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that he is or was a
director or officer of the Company, or served any other enterprise as director,
officer or employee at the request of the Company. The Board of Directors, in
its discretion, shall have the power on behalf of the Company to indemnify any
person, other than a director or officer, made a party to any action, suit or
proceeding by reason of the fact that he/she is or was an employee of the
Company.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceedings) is asserted by such
director, officer, or controlling person in connection with any securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issues.
PART F/S
The Company's financial statements for the fiscal year ended October 31, 1999
and the year ended December 31,1998, and for the six month periods ending April
30, 2000 and 1999 are attached hereto as F- 1 through F-21.
26
<PAGE>
MAGICINC.COM
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report...........................................F-2
Financial Statements:
Balance Sheet as of October 31, 1999 and December 31, 1998..........F-3
Statement of Operations for the ten months ended October 31, 1999
and the year ended December 31, 1998 ..............................F-4
Statement of Cash Flows for the ten months ended October 31, 1999
and the year ended December 31, 1998...............................F-5
Statement of Changes in Stockholders' Equity for the ten
months ended October 31, 1999 and the year ended December
31, 1998........................................................... F-6
Notes to Financial Statements.......................................F-7
Unaudited Interim Financial Statements:
Accountants' Review Report.........................................F-16
Balance Sheet as of April 30, 2000 and April 30, 1999..............F-17
Statement of Operations for the six months ended
April 30, 2000 and April 30, 1999 .................................F-18
Statement of Cash Flows for the six months ended
April 30, 2000 and April 30, 1999 ................................F-19
Notes to Unaudited Interim Financial Statements....................F-20
F-1
<PAGE>
Cronin & Company
Certified Public Accountants
1574 Eagle Nest Circle
Winter Springs, Florida 32708
Board of Directors and Shareholders
Magicinc.com
Ft. Lauderdale, Florida
We have audited the accompanying balance sheet of Magicinc.com as of
October 31, 1999 and December 31, 1998 and the related statements of operations,
cash flows and stockholders' equity for the ten months and year then ended. The
financial statements are the responsibility of the directors. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards except as described in the last paragraph. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Magicinc.com as of October
31, 1999 and December 31, 1998 and the results of its operations, its cash flows
and changes in stockholders' equity for the ten months and year then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has incurred operating
losses of $5,360,000 through October 31, 1999. As a result of these continued
losses, the Company has been unable to generate sufficient cash flow from its
operating activities to support current operations. The Company's ability to
generate sufficient future cash flows from its operating activities in order to
sustain future operations cannot be determined at this time. Its plan is
included in Note 10 of the financial statements. The Company has primarily
funded its operations through the sale of its common stock and proceeds of debt
borrowings. There can be no assurance that the Company will be able to do so in
the future, and, if so, provide it with sufficient capital and on terms
favorable to the Company. These uncertainties raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might arise from the outcome of these
uncertainties.
December 3, 1999
/s/ Cronin & Company
Cronin & Company
Certified Public Accountants
F-2
<PAGE>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
Balance Sheet
October 31, 1999 and December 31, 1998
See Summary of Accounting Policies and Notes to Financial Statements.
ASSETS
================================================================================
Oct. 31, 1999 Dec. 31, 1998
Current Assets:
Cash & Cash Equivalents $ 20,515 $ 2,061
Receivables -Subscriptions on Convertible
Debentures 150,000 0
-------- --------
Total Current Assets 170,515 2,061
Property & Equipment-Net 351 586
Total Assets $ 170,866 $ 2,647
======== ========
================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
================================================================================
Current Liabilities:
Accounts Payable-Trade $ 24,370 $ 14,500
Accrued Officer's Salary Under
Employment Agreement 186,111 100,000
Fully Paid But Unissued Common Stock 0 40,000
Liability to Issue Common Stock 5,250 0
-------- --------
Total Current Liabilities 215,731 154,500
-------- --------
Long Term Debt
-Other 250,804 372,837
-Related Parties 21,908 34,000
Total Liabilities 488,443 561,337
Stockholders' Equity:
Common Stock 3,944,024 Shares Issued (317,577) 4,926,349
Deficit Accumulated During Development Stage
Quasi Reorganization October 31, 1999 0 (5,485,039)
-------- -----------
Total Stockholders' Equity (Deficit) (317,577) (558,690)
Total Liabilities & Stockholders' Equity $ 170,866 $ 2,647
========== ============
================================================================================
F-3
<PAGE>
<TABLE>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
Statement of Operations
October 31, 1999 and December 31, 1998
See Summary of Accounting Policies and Notes to Financial Statements.
==========================================================================================================
<CAPTION>
Ten Months Fiscal Year
Ended Ended
Oct. 31, 1999 Dec. 31, 1998
--------------- ------------------
<S> <C> <C>
Net Sales $ 46,240 $ 7,220
Costs Applicable to Sales & Revenue 0 0
------------ -----------
Gross Profit 46,240 7,220
Selling, General & Administrative Expenses 161,639 238,237
Interest 0 11,503
------------ -----------
Net Income (Loss) Before Taxes & Extraordinary Item (115,399) (242,520)
Extraordinary Item-Gain Realized Upon
Debt Restructuring 259,500 197,205
------------- ------------
Net Income (Loss) Before Taxes 144,101 (45,315)
Income Tax Expense (Benefit) 0 0
------------- -----------
Net Income (Loss) $ 144,101 $ (45,315)
============= ===========
Net Income (Loss) Per Share $ 0.05 $ (0.02)
============= ===========
Weighted Average Shares Outstanding 3,096,906 2,080,917
============= ===========
=========================================================================================================
</TABLE>
F-4
<PAGE>
<TABLE>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
Statement of Cash Flows
October 31, 1999 and December 31, 1998
See Summary of Accounting Policies and Notes to Financial Statements.
====================================================================================================
<CAPTION>
Ten Months Fiscal Year
Ended Ended
Oct. 31, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
Operating Activities:
Net Profit (Loss) $ 144,101 $ (45,315)
Non-Cash Expenses Included in Net Income:
Depreciation & Amortization 234 147
Extraordinary Item (259,500) (197,205)
Adjustments to Reconcile Net Loss to Cash
Provided (Consumed) by Operating Activities:
Increase in Accounts Payable & Accruals 95,981 109,402
-------- --------
Cash Consumed by Operating Activities (19,184) (132,971)
Financing Activities:
Proceeds From the Issuance of Common Stock 57,104 133,875
(Payment) of Long Term Debt (7,270) 0
(Payment) of Long Term Debt-Related Parties (12,196) 0
-------- --------
Cash Generated by Financing Activities 37,638 133,875
Net Decrease in Cash 18,454 904
Cash & Cash Equivalents-Beginning 2,061 1,157
--------- --------
Cash & Cash Equivalents-Ending $ 20,515 $ 2,061
========== ========
=========================================================================================
</TABLE>
F-5
<PAGE>
<TABLE>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
Statement of Changes in Stockholders' Equity
October 31, 1999 and December 31, 1998
See Summary of Accounting Policies and Notes to Financial Statements.
=========================================================================================================================
Common Stock
=========================================================================================================================
<CAPTION>
Paid-in Accumulated
Shares Capital Deficit
<S> <C> <C> <C>
Balance January 1, 1998 1,463,158 $ 4,832,381 $ (5,439,724)
Shares Issued in Exchange for Cash 225,500 93,875
Shares Issued as Part of Debt Settlement Agreements 100,000
Shares Issued for Services 465,366
Shares Issued Through Employment Agreements 500,000
Net Loss December 31,1998 (45,315)
---------- ------------ -------------
Balance December 31, 1998 2,754,024 $ 4,926,256 $ (5,485,039)
Stock Issued for Services 610,000 0
Shares Issued in Exchange for Cash 580,000 97,104
Reclassification of Paid In Capital Due to Quasi Reorganization (5,340,937) 5,340,937
Net Income October 31, 1999 144,102
---------- ------------ -------------
Balance October 31, 1999 3,944,024 $ (317,577) $ 0
========= ============ =============
=========================================================================================================================
</TABLE>
F-6
<PAGE>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
Summary of Significant Accounting Policies
Fiscal Years Ended December 31, 1998 and October 31, 1999
Change in Accounting Year
Beginning January 1, 1999, the Company changed it accounting reporting
period from a calendar year ending December 31 to a fiscal year ending
October 31. The financial statements, accordingly, present the results of
operations, changes in stockholders' equity and cash flows for the
ten-month transition period ended October 31, 1999 and the twelve months
ended December 31, 1998.
Quasi-Reorganization
As of October 31, 1999 the Company concluded its period of reorganization
by reaching a settlement agreement with all its significant creditors. The
Company, as approved by its Board of Directors, has elected to state its
October 31, 1999 balance sheet as a "quasi-reorganization", pursuant to ARB
43. These rules require the revaluation of all assets and liabilities to
their current values through a current charge to earnings and the
elimination of any deficit in retained earnings by charging
paid-in-capital. The Company will report future earnings as retained
earnings from November 1, 1999 forward.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statement and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from the
estimates.
Cash & Cash Equivalents
For financial statement presentation purposes, the Company considers those
short-term, highly liquid investments with original maturities of three
months or less to be cash or cash equivalents.
Property & Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally 5 years. Expenditures for renewals and betterments are
capitalized. Expenditures for minor items, repairs and maintenance are
charged to operations as incurred. Gain or loss upon sale or retirement due
to obsolescence is reflected in the operating results in the period the
event takes place.
F-7
<PAGE>
Summary of Accounting Principles (Cont'd)
Revenue Recognition
Sales are recognized when a product is delivered or shipped to the customer
and all material conditions relating to the sale have been substantially
performed. Film production costs are capitalized as film cost inventory and
are amortized using the individual-film-forecast-computation method over
the licensing period.
Stock Based Compensation
Stock based compensation is accounted for by using the intrinsic value
based method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). The Company has
adopted Statements of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation", ("SFAS 123") which allows companies to
either continue to account for stock based compensation to employees under
APB 25, or adopt a fair value based method of accounting. The Company has
elected to continue to account for stock based compensation to employees
under APB 25 but has made the required SFAS 123 pro forma disclosures in
accordance with SFAS 123.
Fair Value of Financial Instruments
Statements of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments. Fair value estimates discussed
herein are based upon certain market assumptions and pertinent information
available to management as of October 31, 1999. The respective carrying
value of certain on-balance sheet financial instruments approximated their
fair values. These financial instruments include cash and cash equivalents,
marketable securities, trade receivables, accounts payable and accrued
expenses. Fair values were assumed to approximate carrying values for these
financial instruments since they are short term in nature and their
carrying amounts approximate fair values or they are receivable or payable
on demand. The fair value of the Company's notes payable is estimated based
upon the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining
maturities. The carrying value approximates the fair value of the notes
payable.
Earnings Per Common Share
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 replaces the
previous "primary" and "fully diluted" earnings per share with "basic" and
"diluted" earnings per share. Unlike "primary" earnings per share that
included the dilutive effects of options, warrants and convertible
securities, "basic" earnings per share reflects the actual weighted average
of shares issued and outstanding during the period. "Diluted" earnings per
share are computed similarly to "fully diluted" earnings per share. In a
loss year, the calculation for "basic" and "diluted" earnings per share is
considered to be the same as the impact of potential common shares is
antidilutive.
F-8
<PAGE>
Summary of Accounting Principles (Cont'd)
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
("SFAS 109") which requires recognition of estimated income taxes payable
or refundable on income tax returns for the current year and for the
estimated future tax effect attributable to temporary differences and carry
forwards. Measurement of deferred income tax is based on enacted tax laws
including tax rates, with the measurement of deferred income tax assets
being reduced by available tax benefits not expected to be realized.
Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," ("SFAS 121"). SFAS 121 requires impairment
losses to be recorded on long-lived assets used in operations and goodwill
when indications of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amount
of the asset.
Recent Accounting Pronouncements
Effective for periods beginning after December 15, 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information," ("SFAS 131"). SFAS 131 establishes standards for the way that
public companies report information about operating segments in annual
financial statements and requires reporting of selected information about
operating statements in interim financial statements issued to the public.
The Company has not determined the impact the adoption of this new
accounting standard will have on its future financial statements and
disclosures.
F-9
<PAGE>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
NOTES TO FINANCIAL STATEMENTS
Fiscal Years Ended December 31, 1998 and October 31, 1999
1. The Company:
Magicinc.com (the "Company") is a Delaware corporation formed in 1961 under the
name Magic Fingers, Inc. The Company changed its name in 1999. Through the
periods ended October 31, 1999 and December 31, 1998, the Company has devoted
substantially all its efforts to reorganizing its financial affairs and settling
its debt obligations. It has not engaged in any substantial operations.
2. Notes Payable & Long Term Debt:
In January 1998 the Company settled the first of three troubled debt
obligations. Significant concessions were granted by the creditors that resulted
in the recognition of Extraordinary Gain on the settlement of these debts. The
Company's common stock has been valued at fair market value, if recent trading
data existed, where it was included as part of the settlement. Since the shares
of the Company's common stock which were issued as part of the settlement of
Obligation A were restricted as to transfer, and at the time of settlement of
this obligation the Company had a negative tangible book value and the trading
market for the stock was very limited and sporadic, the shares were valued at
par value. The shares issued as part of the Settlement of Obligation B were
valued at $5,250 or $0.07 per share which approximated market value at the date
of issuance in November 1999. A summary of these obligations and their
respective settlements is as follows:
<TABLE>
<CAPTION>
Carrying Value Total Extraordinary Extraordinary
Note or Settlement on Restructuring Amount of Gain Recognized Gain Recognized
Obligation Date Date Settlement Year ended 12/31/98 Year ended 10/31/99
<S> <C> <C> <C> <C> <C>
A January 5, 1998 $ 247,205 $ * 50,000 $ 197,205 $ 0
B August 23, 1999 220,000 **10,500 0 209,500
C November 19, 1999 100,000 50,000 0 50,000
------- ---------- ------------ ------
Totals $ 567,205 $ 110,500 $ 197,205 $ 259,500
======== ======== ========== =========
-------------------------------------------------------------------------------------------------------------------------
* Includes 100,000 shares of common stock
** Includes 75,000 shares of common stock
</TABLE>
F-10
<PAGE>
(Notes to Financial Statements Cont'd)
3. Income Taxes:
The Corporation has approximately $5,300,000 in net operating loss carryovers
available to reduce future income taxes. These carryovers may be utilized
through the year 2014. The Company has adopted SFAS 109 which provides for the
recognition of a deferred tax asset based upon the value the loss carryforwards
will have to reduce future income taxes and management's estimate of the
probability of the realization of these tax benefits. A summary of the deferred
tax asset presented on the accompanying balance sheet is as follows:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Oct. 31, 1999 Dec. 31, 1998
------------- ------------
<S> <C> <C>
Federal Deferred Tax Asset Relating to Net Operating Losses $ 1,906,715 $ 1,958,159
State Deferred Tax Asset Relating to Net Operating Losses 267,047 274,252
Less Valuation Allowance ( 2,173,762) ( 2,232,411)
------------ ------------
Total Deferred Tax Asset $ 0 $ 0
============ =============
</TABLE>
--------------------------------------------------------------------------------
4. Commitments:
Facilities
The Company rents its office location on a month-to-month basis from John
Venters, the Company's treasurer. Rent expense for the year ended October 31,
1999 was $6,000.
Employment Agreements
The Company is also obligated under several employment agreements, to provide
minimum cash compensation to the contracted employees. In addition to the cash
compensation, the employees are also entitled to receive approximately 800,000
shares of common stock through stock grants and options to acquire the
Company's common stock at $0.0001 per share. The following table summarizes
these arrangements:
<TABLE>
<CAPTION>
==============================================================================================================================
Initial Termination
Commencement Annual Clause Change in
Name Position Date Term Cash Stock Salary Control
Compensation Options Continuation Arrangement
Granted Period
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
G.Scott Venters President/Chief Oct. 1, 1997 3 Yrs. $ 75,000 750,000 None No
Executive Officer
John M. Venters Treasurer June 1, 1999 1 Yr. 0 50,000 None No
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
(Notes to Financial Statements Cont'd)
Mr. Scott Venters' agreement allows for increases in year two to $100,000 and
year three to $133,000. The earned portion of Mr. Venters' compensation is
carried as a current payable and reflects any payments made through December
31, 1998 and October 31, 1999. The amount owing on those dates was $100,000
and $186,111 respectively.
Consulting Agreements
The Company is obligated, under two business consulting agreements, to pay an
aggregate of 400,000 shares of common stock and $99,000 in cash. 100,000
shares of the stock have been issued. The balance of 300,000 shares is to be
issued monthly over the following 10 months beginning November 19, 1999. In
November 1999 the Company paid $16,500 under one of these agreements. The
balance of $82,500 is to be paid in monthly installments of $11,000 with the
final installment of $5,500 due 240 days after October 20, 1999. This fee is
to be paid and deducted from the proceeds of any Debenture remitted to the
Company.
5. Stockholders' Equity:
Stock Issued for Services:
During 1999 and 1998, the Company issued an aggregate of 1,575,366 common
shares, or about 40% of outstanding common stock at October 31, 1999, for
professional services, consulting and employment. There was no valuation
reflected due to the fact that only a limited and sporadic trading market
existed at the time of issuance and the shares were restricted as to transfers
and the Company had a negative tangible book value.
Stock Issued in Payment of Long Term Debt:
During 1998-1999 the Company also issued or promised to issue 175,000 shares
of its common stock as part of the settlement agreements in satisfaction of
$467,000 of its long term debt. This transaction has been recorded at the
value of the stock at the date of agreement where a fair market value could be
determined.
Stock Based Compensation:
Stock based compensation is accounted for by using the intrinsic value based
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). The Company has adopted
Statements of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation, ("SFAS 123") which allows companies to either continue to
account for stock based compensation to employees under APB 25, or adopt a
fair value based method of accounting. The Company has elected to continue to
account for stock based compensation to employees under APB 25. APB 25
recognizes compensation expense for options granted to employees only when the
market price of the stock exceeds the grant exercise price at the date of the
grant. The amount reflected as compensation expense is measured as the
difference between the exercise price and the market value at the date of the
grant.
F-12
<PAGE>
(Notes to Financial Statements Cont'd)
SFAS 123 requires pro forma disclosures regarding net income and earnings per
share as if the compensation expense had been determined in accordance with
the fair value based method described in SFAS 123. The Company estimates the
fair value of each stock option at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions for
grants issued in 1998 and 1999
Dividend Yield None
Expected Life 2 Years
Expected Volatility 68%
Risk Free Interest Rate 6%
A Summary of employee and non employee options and warrants granted and
exercised for each of the fiscal years ended December 31, 1998 and October 31,
1999 is presented below:
<TABLE>
<CAPTION>
1998 1999
------ ----
Weighted Weighted
Average Average
Shares Exercise Shares Exercise
Price Price
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at Beginning of Year 625,000 $ 0.0001 125,000 $ 0.0001
Grants Made During Year:
Employment Agreements 0 - 0 -
Other 0 - 0 -
Less Options Exercised During Year 500,000 0.0001 0 -
Less Options That Expired During Year 0 - 0 -
------- -------- -------- ---------
Amount of Options Outstanding at End of Fiscal Year 125,000 $ 0.0001 125,000 $ 0.0001
======== ======== ======== =========
-----------------------------------------------------------------------------------------------------------------
Options Exercisable at Year End None $ N/A 125,000 $ 0.0001
-----------------------------------------------------------------------------------------------------------------
Weighted Average Fair Value of Options Granted
During Year $ N/A $ N/A
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Summary information for Options outstanding at October 31, 1999 is as follows:
<CAPTION>
Options Outstanding Options Exercisable
Range of Number Outstanding Weighted Weighted Amount Weighted Average
Exercise Prices at Oct 31, 1999 Average Average Exercisable Exercise Price
Remaining Exercise Price at Oct 31, 1999
Contractual Life
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.0001-$ 1.00 125,000 11 Months $ 0.0001 125,000 $ 0.0001
</TABLE>
F-13
<PAGE>
(Notes to Financial Statements Cont'd)
6. Related Party Transactions:
The Company is obligated to pay Mr. Venters, the Company's President and Chief
Executive Officer, under an employment agreement. The agreement is for a term of
three years beginning October 1, 1997, and consists of a base salary of $75,000;
$100,000 and $133,000 for years one, two and three respectively. The earned
portion of Mr. Venters' compensation is carried as a current payable to related
parties and reflects any payments made through December 31, 1998 and October 31,
1999. The amount owing on those dates was $100,000 and $186,111 respectively.
In addition to cash compensation, the Company also granted Mr. Venters the
option to purchase 750,000 shares of the Company's common stock at $ 0.0001 per
share. Mr. Venters also has an option to acquire an additional 500,000 shares at
$ 0.0001 per share upon the successful procurement of financing for the motion
picture "Liberty City". A summary is as follows:
<TABLE>
<CAPTION>
Number of Securities Value of In-The-Money
Name Shares Value Underlying Options and SARs
and Position Acquired Realized Unexercised Options and SARs at October 31, 1999
on Exercise at October 31, 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
G. Scott Venters
President & CEO None None 125,000 None $ 8,750 None
</TABLE>
The Company rents its office location on a month-to-month basis from John
Venters, the Company's treasurer. Rent expense for the year ended October 31,
1999 was $6,000.
7. Supplemental Cash Flow Information:
Selected non cash investing and financing activities are summarized as follows:
1999 1998
--------------------------------------------------------------------------------
Cash Paid for Interest $ 0 $ 11,583
--------------------------------------------------------------------------------
Non Cash Equity Transactions:
Future Issuance of Common Stock to Retire Debt $ 5,250 $ 0
--------------------------------------------------------------------------------
F-14
<PAGE>
(Notes to Financial Statements Cont'd)
8. Subsequent Events:
In November 1999 the Company received $130,500 (net of expenses of $19,500) from
its offering of 5% Senior Subordinated Convertible Redeemable Debentures. These
Debentures entitle the holder to convert incremental face amounts of $10,000
into the Company's common stock at 75% of the average closing bid price of the
three trading days prior to the election to convert. Accrued interest may also
be paid in the same fashion. At any time after 90 days, the Company has the
option to redeem the debentures, in whole or in increments of $10,000, for 125%
of the face amount. On November 10, 1999 $15,000 in face value was converted
into 128,000 shares of common stock under the prescribed formula.
During November 1999, the Company paid $100,000 in full satisfaction of its
obligations under two settlement agreements.
9. Transition Period Due to Change in Fiscal Year:
During 1999, the Company changed its fiscal period from December 31 to October
31. Accordingly, the audited financial statements reflect operating results and
cash flows for a twelve-month period and a ten-month period ended December 31,
1998 and October 31, 1999, respectively. The following table presents the
comparative results of operations for the period ended October 31, 1998:
Revenues $ 7,220
Income Taxes 0
Net Loss Before Extraordinary Item (200,792)
Extraordinary Item-Gain From Debt Restructuring 197,205
Net Loss (3,587)
Net Loss Per Share Nil
Weighted Average Shares 1,993,034
10. Ability to Continue as a Going Concern and Management Plan
The financial statements have been prepared assuming that the Company will
continue as a going concern. The Company has not had revenue in the ordinary
course of its business. Its only sales for the period January 1998 through
October 31, 2000 were from the disposition of its interest in certain films. The
lack of sales and recurring losses from operations raises substantial doubt
about the Company's ability to continue as a going concern. Management's plan in
regards to these matters is to seek further equity funding to allow it to build
its Internet entertainment network, MagicInternetwork.com. In order to support
its ongoing operations, additional financing must be obtained either through the
sale of equity or debt.
F-15
<PAGE>
Board of Directors and Shareholders
Magicinc.com
We have reviewed the unaudited balance sheet of Magicinc.com as of April 30,
2000 and the related statements of operations and cash flows for the six-month
period then ended which are included in the Magicinc.com Form 10-SB. All
information included in these financial statements is the representation of the
management of Magicinc.com.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an examination in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to these interim financial statements in order for them to be in
conformity with Generally Accepted Accounting Principles.
Cronin & Company
June 15, 2000
F-16
<PAGE>
<TABLE>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
Balance Sheet
April 30, 2000 and 1999
(Unaudited)
See Notes to Unaudited Interim Financial Statements.
<CAPTION>
ASSETS
April 30, 2000 April 30, 1999
Current Assets:
<S> <C> <C>
Cash & Cash Equivalents $ 1,242 $ 2,061
Prepaid Expenses 22,717 0
--------- ----------
Total Current Assets 23,959 2,061
Property & Equipment-Net 7,182 470
Total Assets $ 31,141 $ 2,531
======== ========
=====================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable-Trade $ 7,786 $ 14,500
Accrued Officer's Salary Under Employment Agreement 252,778 133,333
Fully Paid But Unissued Common Stock 0 40,000
----------- --------
Total Current Liabilities 260,564 187,833
Long Term Debt-Other 65,000 372,838
-Related Parties 28,408 34,000
Total Liabilities 353,972 594,671
Stockholders' Equity:
Common Stock 6,198,338 Shares Issued (114,048) 4,926,349
Deficit Accumulated During Development Stage
Since Quasi Reorganization October 31, 1999 (208,783) (5,518,489)
------- ----------
Total Stockholders' Equity (Deficit) (322,831) (592,140)
Total Liabilities & Stockholders' Equity $ 31,141 $ 2,531
====== =========
=====================================================================================
</TABLE>
The interim financial statements include all adjustments, which, in the opinion
of management, are necessary in order to make the financial statements not
misleading.
F-17
<PAGE>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
Statement of Operations
April 30, 2000 and 1999
(Unaudited)
See Notes to Unaudited Interim Financial Statements.
Six Months Six Months
Ended Ended
Apr. 30, 2000 Apr. 30, 1999
--------------- ------------
Net Sales $ 0 $ 0
Costs Applicable to Sales & Revenue 0 0
-------------- ------------
Gross Profit 0 0
Selling, General & Administrative Expenses 159,389 91,845
Interest 49,394 0
-------------- -------------
Net Income (Loss) Before Taxes (208,783) (91,845)
Income Tax Expense (Benefit) 0 0
-------------- -------------
Net Income (Loss) $ (208,783) $ (91,845)
============== =============
Net Income (Loss) Per Share $ (0.045) $ (0.034)
============== =============
Weighted Average Shares Outstanding 4,637,320 2,704,774
============== =============
================================================================================
The interim financial statements include all adjustments, which, in the opinion
of management, are necessary in order to make the financial statements not
misleading.
F-18
<PAGE>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
Statement of Cash Flows
April 30, 2000 and 1999
(Unaudited)
See Notes to Unaudited Interim Financial Statements.
Six Months Six Months
Ended Ended
Apr. 30, 2000 Apr. 30, 1999
Operating Activities:
Net Loss $ (208,783) $ (91,845)
Non-Cash Expenses Included in Net Income:
Depreciation & Amortization 47,365 117
Stock Issued for Services 38,280 -
Adjustments to Reconcile Net Loss to Cash
Provided (Consumed) by Operating Activities:
Increase in Accounts Payable & Accruals 49,276 50,000
---------- -----------
Cash Consumed by Operating Activities (73,862) (41,728)
Financing Activities:
Proceeds From the Issuance of Common Stock 25,000 61,000
(Payment) of Long Term Debt (100,000) (10,000)
Proceeds of Long Term Debt 150,000 0
Payment of Offering Costs (19,500) 0
Proceeds of Long Term Debt-Related Parties 6,500 0
---------- -----------
Cash Generated by Financing Activities 62,000 51,000
Investing Activities:
Acquisition of Fixed Assets (7,411) 0
Net Decrease in Cash (19,273) 9,272
Cash & Cash Equivalents-Beginning 20,515 (7,211)
---------- -----------
Cash & Cash Equivalents-Ending $ 1,242 $ 2,061
========== ==========
================================================================================
The interim financial statements include all adjustments, which, in the opinion
of management, are necessary in order to make the financial statements not
misleading.
F-19
<PAGE>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
Notes to Interim Financial Statements
April 30, 2000 and 1999
(Unaudited)
Note 1. The interim financial statements include all adjustments, which, in the
opinion of management, are necessary in order to make the financial statements
not misleading. The accompanying unaudited financial statements have been
prepared in accordance with the instructions to Form 10-SB and do not include
all of the information and footnotes required by Generally Accepted Accounting
Principles for complete financial statements.
Note 2.
Stockholders' Equity:
Stock Issued for Services:
During the six month period ended April 30, 2000 the Company issued an aggregate
of 765,600 shares of restricted common stock for professional services,
consulting and employment. The shares were valued at $38,280 or $0.05 per share.
The valuation approximated market at the time of issuance.
Stock Issued in Payment of Debt:
In November 1999 the Company issued 75,000 shares of restricted common stock as
part of the settlement agreements reached in the fiscal period ended October 31,
1999 in satisfaction of its long-term debt. The shares were valued at $5,250 or
$0.07 per share. The valuation approximated market at the time of issuance.
Stock Issued for Cash:
During the six months ended April 30, 2000 the Company issued in an aggregate of
500,000 shares of restricted common stock for $25,000.
Note 3.
Convertible Debentures:
In November 1999 the Company received $130,500 (net of expenses of $19,500) from
its offering of $150,000 of 5% Series A Senior Subordinated Convertible
Redeemable Debentures. These debentures entitle the holder to convert into the
Company's common stock at 75% of the average closing bid price of the three
trading days prior to the election to convert. During the six months ended April
30, 2000 the holder converted $85,000 of the debentures into 913,714 shares of
common stock under the prescribed formula.
F-20
<PAGE>
(Notes to Interim Financial Statements Cont'd)
Upon issuance of the debentures, Original Issue Discount ("OID") in the amount
of $50,000 was recorded to reflect the additional shares required to be issued
under the discount feature of the conversion provision of the debentures. The
OID is charged to interest expense over the term of the debentures. For the six
months ended April 30, 2000 OID charged to operations totaled $27,283. At April
30, 2000, debentures in the principal amount of $65,000 remain outstanding.
Note 4.
Commitments:
Facilities:
The Company is leasing an 8,500 square foot building to house its administrative
and operations facilities in Fort Lauderdale, Florida. The lease term is two
years beginning June 1, 2000 with rent at $4,000 per month with semi-annual
increases up to $5,300 beginning in December 2001. The Company has entered into
an agreement to purchase the building for $480,000 no later than May 31, 2002.
F-21
<PAGE>
PART III
ITEM 1. EXHIBITS
(a) Exhibits. Exhibits required to be attached are listed in the Index to
Exhibits beginning on page 31 of this Form 10-SB under "Item 2. Description
of Exhibits."
[THIS SPACE LEFT INTENTIONALLY BLANK]
27
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, this 6th day of July, 2000.
Magicinc.com.
/s/ Gordon Scott Venters
------------------------------------------
Gordon Scott Venters, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signatures Title Date
/s/Todd Nugent
___________________ Director July 6, 2000
Todd Nugent
/s/John J. Kearney
_______________________ Director July 6, 2000
John J. Kearney
/s/Robert P. Pignone
________________________ Director July 6, 2000
Robert P. Pignone
/s/Robert M. Ingria
________________________ Director July 6, 2000
Robert M. Ingria
28
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS
INDEX TO EXHIBITS
Exhibit
No. Page No. Description
2 31 Agreement and Plan of Reorganization, March 15, 1994.
3(i) 67 Articles of Incorporation of Magic Fingers, Inc. dated July
26, 1961
3(ii) 71 Articles of Merger for Magic Fingers Inc. wherein Magic
Fingers, Inc., a New Jersey Corporation, incorporated on
December 24, 1959 is merged into Magic Fingers, Inc., dated
September 27, 1961.
3(iii) 84 Certificate of Reduction of Capital of Magic Fingers, Inc.,
filed May 1, 1963.
3(iv) 85 Articles of Amendment of Magic Fingers, Inc., filed January
13, 1978.
3(v) 86 Certificate of Correction to Articles of Amendment of Magic
Fingers, Inc., filed April 7, 1978.
3(vi) 87 Certificate of Renewal and Revival of Charter of Magic
Fingers, Inc., filed September 16, 1981.
3(vii) 89 Certificate of Renewal and Revival of Charter of Magic
Fingers, Inc., filed January 7, 1985.
3(viii) 90 Certificate of Restoration and Revival of Certificate of
Incorporation of Magic Fingers, Inc., filed February 5,
1992.
3(ix) 91 Certificate of Amendment of Certificate of Incorporation of
Magic Fingers, Inc., filed February 27, 1992
3(x) 93 Certificate for Renewal and Revival of Charter of Magic
Fingers, Inc., filed April 29, 1997
3(xi) 94 Certificate for Renewal and revival of Charter of Magic
Fingers, Inc., filed April 23, 1999.
3(xii) 95 Certificate of Amendment of Certificate of Incorporation of
Magic Fingers, Inc., changing name to Magicinc.com, filed
April 23, 1999.
3(xiii) 96 By-Laws of Magic Fingers, Inc. (Magicinc.com) dated February
25, 1992.
29
<PAGE>
10(i) 103 5% Series A Senior Convertible Redeemable Debenture Due
October 20, 2001
10(ii) 107 Motion Picture Agreement between Magic Fingers, Inc. and
Castle Hill Productions, Inc., dated March, 1998 re: Motion
Picture entitled "Shakma."
10(iii) 119 Agreement between Magic Fingers, Inc. and Castle Hill
Productions, Inc., dated February 12, 1999 licensing all
exclusive rights to Three Motion Pictures (Shakma, Shoot,
and No More Dirty Deals).
10(iv) 131 Consulting Agreement dated October 20, 1999 between
Magicinc.com and Commonwealth Partners NY, L.L.C.
10(v) 132 Employment Contract for Gordon Scott Venters.
10(vi) 136 Employment Contract for John J. Kearney.
10(vii) 141 Employment Contract for Robert M Ingria.
10(viii) 146 Employment Contract for Robert P. Pignone.
10(ix) 151 Consulting Agreement with PMR and Associates.
10(x) 152 Advisory Agreement with A-Z Professional Consultants, Inc.
10(xi) 158 Lease of June 1, 2000.
23(i) 164 Consent of Accountant
23(ii) 165 Consent of Accountants
27 Financial Data Schedule "CE"
30
