SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2000
000-29921
Commission file number
MAGICINC.COM
(Exact name of small business issuer as specified in its charter)
Delaware 65-0494581
(State of incorporation) (IRS Employer
Identification Number)
530 North Federal Highway
Fort Lauderdale, Florida 33301
(Address of principal executive office)
(954) 764-0579
(Issuer's telephone number)
Check whether the issuer:
(1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports) Yes [X] No[ ]
and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
Applicable only to corporate issuers
As of September 11, 2000 (the most recent practicable date),
there were 11,115,838 shares of the issuer's Common Stock,
$0.0001 par value per share, outstanding.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
<PAGE>
Magicinc.com
Form 10-QSB Quarterly Report
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial statements 3
Item 2 Management's discussion and analysis of
financial condition and results of operations 8
PART II OTHER INFORMATION
Item 1 Legal proceedings 10
Item 2 Changes in securities and use of proceeds 10
Item 3 Defaults upon senior securities 11
Item 4 Submission of matters to a vote of security holders 11
Item 5 Other information 11
Item 6 Exhibits and reports on Form 8-K 11
SIGNATURES
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
Balance Sheet
July 31, 2000 (Unaudited) and October 31, 1999
See Notes to Unaudited Interim Financial Statements.
ASSETS
July 31, 2000 Oct 31, 1999
------------- ------------
<S> <C> <C>
Current Assets:
Cash & Cash Equivalents $ 565 $ 20,515
Receivables-Subscriptions on Convertible Debentures 0 150,000
Prepaid Expenses 18,759 0
--------- ---------
Total Current Assets 19,324 170,515
Property & Equipment-Net 12,500 351
--------- ---------
Total Assets $ 31,824 $ 170,866
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable-Trade $ 18,241 $ 24,370
Accrued Officer's Salary Under Employment Agreement 286,111 186,111
Liability to Issue Common Stock 0 5,250
--------- ---------
Total Current Liabilities 304,352 215,731
Long Term Debt-Other 65,000 250,804
-Related Parties 27,908 21,908
--------- ---------
Total Liabilities 397,260 488,443
Stockholders' Equity:
Common Stock 6,750,838 and 3,944,024 Shares Issued (67,298) (317,577)
Deficit Accumulated During Development Stage
Since Quasi-Reorganization October 31, 1999 (298,138) 0
--------- ---------
Total Stockholders' Equity (Deficit) (365,436) (317,577)
--------- ---------
Total Liabilities & Stockholders' Equity $ 31,824 $ 170,866
========= =========
The interim financial statements include all adjustments, which, in the opinion of
management, are necessary in order to make the financial statements not misleading.
3
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<TABLE>
<CAPTION>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
Statement of Operations
July 31, 2000 and 1999
(Unaudited)
See Notes to Unaudited Interim Financial Statements.
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
July 31, 2000 July 31, 1999 July 31, 2000 July 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 0 $ 21,240 $ 0 $ 21,240
Costs Applicable to Sales & Revenue 0 0 0 0
---------- ---------- ---------- ----------
Gross Profit $ 0 $ 21,240 0 21,240
Selling, General & Administrative Expenses 84,567 49,390 243,956 141,235
Interest 4,788 0 54,182 0
---------- ---------- ---------- ----------
Net Income (Loss) Before Taxes (89,355) (28,150) (298,138) (119,995)
Income Tax Expense (Benefit) 0 0 0 0
---------- ---------- ---------- ----------
Net Income (Loss) $ (89,355) $ (28,150) $ (298,138) $ (119,995)
========== ========== ========== ==========
Net Income (Loss) Per Share $ (0.014) $ (0.008) $ (0.057) $ (0.041)
========== ========== ========== ==========
Weighted Average Shares Outstanding 6,513,909 3,416,633 5,269,724 2,944,668
========== ========== ========== ==========
The interim financial statements include all adjustments, which, in the opinion of
management, are necessary in order to make the financial statements not misleading.
4
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<TABLE>
<CAPTION>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
Statement of Cash Flows
July 31, 2000 and 1999
(Unaudited)
See Notes to Unaudited Interim Financial Statements.
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
July 31, 2000 July 31, 1999 July 31, 2000 July 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating Activities:
Net Loss $ (89,355) $ (28,150) $ (298,138) $ (119,995)
Non-Cash Expenses Included in Net Loss:
Depreciation and Amortization 4,303 60 51,668 177
Stock Issued for Services 8,500 0 46,780 0
Adjustments to Reconcile Net Loss to Cash
Provided by Operating Activities:
Increase in Accounts Payable & Accruals 43,788 25,000 93,064 75,000
---------- ----------- ---------- ----------
Cash (Consumed) by Operating Activities (32,764) (3,090) (106,626) (44,818)
Financing Activities:
Proceeds from the Issuance of Common Stock 38,250 0 63,250 61,000
Payment of Long Term Debt 0 0 (100,000) (10,000)
Proceeds (Repayment) of Long Term Debt 0 0 150,000 0
Payment of Offering Costs 0 0 (19,500) 0
Proceeds of Long Term Debt-Related Parties (500) 4,000 6,000 4,000
---------- ----------- ---------- ----------
Cash Generated by Financing Activities 37,750 4,000 99,750 55,000
Investing Activities:
Acquisition of Fixed Assets (5,663) 0 (13,074) 0
---------- ----------- ---------- ----------
Net (Decrease) Increase in Cash (677) 910 (19,950) 10,182
Cash & Cash Equivalents-Beginning 1,242 2,061 20,515 (7,211)
---------- ----------- ---------- ----------
Cash & Cash Eequivalents-Ending $ 565 $ 2,971 $ 565 $ 2,971
========== =========== ========== ==========
The interim financial statements include all adjustments, which, in the opinion of
management, are necessary in order to make the financial statements not misleading.
5
</TABLE>
<PAGE>
MAGICINC.COM
(formerly known as MAGIC FINGERS, INC.)
Notes to Interim Financial Statements
July 31, 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-QSB 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 nine month period ended July 31, 2000 the Company issued an aggregate
of 935,600 shares of restricted common stock for professional services,
consulting and employment. The shares were valued at $46,780 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 nine months ended July 31, 2000 the Company issued an aggregate of
882,500 shares of restricted common stock for $63,250.
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 nine months ended July
31, 2000 the holder converted $85,000 of the debentures into 913,714 shares of
common stock under the prescribed formula.
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 nine
months ended July 31, 2000 OID charged to operations totaled $50,741. At July
31, 2000, debentures in the principal amount of $65,000 remain outstanding.
6
<PAGE>
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 entered into an
agreement to purchase the building for $480,000 no later than May 31, 2002.
Note 5.
Subsequent Events:
------------------
Stock Issued:
-------------
During the period from August 1, 2000 through September 11, 2000 the Company
issued an additional 4,365,000 shares of common stock. These shares were issued
for: cash proceeds of $199,000; services valued at $20,000 based on a per share
value of $0.05; and a license valued at $5,000. The total shares outstanding at
September 11, 2000 are 11,115,838.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
We are a development stage Internet entertainment company with plans to
engage in the distribution, promotion and production of varied forms of
entertainment via the Internet.
Our current major focus is the development of our Internet
entertainment business. We own two "registered domain names" on the Internet.
These are (i) Magicinternetwork.com., which we propose to use as our own
Internet Service Provider (ISP) for our CyBars network, and (ii) Cybars.com
within which we intend to create an Internet link of entertainment venues to
Magicinternetwork.com and for the Internet broadcast of content owned by us.
RESULTS OF OPERATIONS
The following discussion and analysis provides information that our
management believes is relevant to an assessment and understanding of our
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, we changed our year-end from a calendar year to a fiscal
year, ending October 31.
Three months ended July 31, 2000 and three months ended July 31, 1999
Sales
-----
We are presently in the development stage of our Internet-related
entertainment businesses. We did not have any sales for the three months ended
July 31, 2000. This compares to sales of $21,240 in the three-month period ended
July 31, 1999. In the quarter ended July 31, 1999, we licensed certain
distribution rights, in perpetuity, to feature films which were owned by us for
the net sum of $21,240. This was a one-time payment for distribution rights to
the films. We have no further rights to use or market these films.
Cost of Sales
-------------
The cost of sales for both quarterly periods was $0. In the quarter
ended July 31, 2000 there were no sales and, consequently, no cost of sales. In
the prior comparable period, there was no cost of sales as the film rights were
carried on our books at a zero basis.
Expenses
--------
Selling, general and administrative expenses for the quarter ended July
31, 2000 increased $35,177, or 71.2%, to $84,567 from $49,390 in the comparable
1999 quarter. The increase in selling, general and administrative expenses was
primarily the result of expenses associated with the relocation to new
facilities and the general expenses associated with the start-up of our new
Internet-related entertainment business. Included in the selling, general and
administrative expenses, for the current period, is the accrued but unpaid
salary of our president and chief executive officer, Mr. Gordon Scott Venters,
in the amount of 33,333. Also included in the expenses for the July 2000 quarter
are professional consulting services paid for with the issuance of our common
stock, valued at $8,500.
During this same period, interest expense increased to $4,788 from $0.
The increase in interest expense results from the accrual of interest on our
convertible debentures and the amortization of the original issue discount of
these debentures.
Another non-cash expense, which impacted our expenses, was depreciation
expense, which increased to $4,303 for the quarter, ended July 31, 2000, up
significantly from $60 in the prior year's comparable quarter.
Losses
------
Our net losses, before taxes, for the quarter ended July 31, 2000
increased 217% from $28,150 to $89,355. Because we already have substantial tax
carryforwards, we have not reduced our net losses for the quarter by any tax
benefit and, therefore, our net losses, both before and after taxes, are the
same. Our loss per share for the quarter ended July 31, 2000 was $0.014, based
on 6,513,909 shares, compared to $0.008, based on 3,416,633 shares, in the
previous year's comparable quarter.
It is our hope to begin generating revenue in the fiscal year ended
October 31, 2001 and reduce our losses so as to operate at close to break-even
level as a result of the intended launching of our Magicinternetwork.com
entertainment network. There can be no assurance that we will achieve or
maintain profitability, or be able to reduce our losses, or that revenues will
be generated or that growth can be sustained in the future.
8
<PAGE>
Nine months ended July 31, 2000 and nine months ended July 31, 1999
Sales
-----
During both periods, we concentrated our efforts on restructuring our
debts and developing our new Internet entertainment business model.
Consequently, during this restructuring and development period, we did not have
revenue from operating sources. In the nine months ended July 31, 2000, we had
no revenue from any source. In the nine months ended July 31, 1999, we licensed
certain distribution rights, in perpetuity, to feature films which were owned by
us for the net sum of $21,240. This was a one-time payment for distribution
rights to the films. We have no further rights to use or market these films.
Cost of Sales
-------------
The cost of sales for both nine-month periods was $0. In the nine
months ended July 31, 2000 there were no sales and, consequently, no cost of
sales. In the prior comparable period, there was no cost of sales as the film
rights were carried on our books at a zero basis.
Expenses
--------
Selling, general and administrative expenses increased $102,721, or
73%, from $141,235, for the nine months ended July 31, 2000, to $243,956 for the
nine months ended July 31, 2000. Much of this increase resulted from the cost of
professional services and expenses in connection with the development of our new
business model and the establishment of the our Internet operations. Interest
expense increased from $0 to $54,182 for the nine months ended July 31, 2000.
The increase in interest expense results primarily from the accrual of interest
on our convertible debentures issued in November 1999 and the amortization of
the original issue discount of these debentures.
Losses
------
Net losses for the nine months ended July 31, 2000 were $298,138
compared to $119,995 for the nine months ended July 31, 1999. This increase of
$178,143, or 148%, resulted from the $156,903 increase in expenses and the sales
decline of $21,240. Our loss per share for the nine months ended July 31, 2000
was $0.057, based on 5,269,724 shares, compared to $0.041, based on 2,944,668
shares, in the previous year's comparable nine-month period.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 2000, we had cash and cash equivalents of $565.
We have not been able to generate cash flow from operations. In fact,
our operating activities consumed $32,764 cash in the three months ended July
31, 2000 and consumed $3,090 in the three months ended July 31, 1999. For the
nine months ended July 31, 2000, our operations used $106,626 and in the
comparable previous year's nine months, used $44,818.
We have been able to continue in business primarily from the receipt of
cash from financing activities. During the nine months ended July 31, 2000, we
sold 882,500 shares of our common stock for $63,250 and issued an additional
935,600 shares, in lieu of cash, in exchange for services, valued at $46,780.
We used 75,000 shares of our common stock as part of a settlement to
extinguish debt. We also funded our cash needs through the issuance of
convertible debentures in the net amount of $130,500.
We intend to cover our cash needs over the next twelve months through
the sale of additional shares of our common stock and/or convertible securities
pursuant to a registration statement or an appropriate exemption from
registration.
During the period from August 1, 2000 through September 11, 2000, we
issued 4,365,000 shares of our common stock for cash proceeds of $199,000 and
for services, valued at $20,000 and for the acquisition of a license, valued at
$5,000.
In order to support existing and proposed operations, bank, private
and/or equity financing will be necessary. However, there is no guarantee that
We will be able to raise additional funds from borrowing or from the sale of our
securities.
9
<PAGE>
Capital Expenditures
We have begun to make modest capital expenditures on property and
equipment during the three months ended July 31, 2000. We plan to make
additional capital expenditures for further website development and to establish
the magicinternetwork and CyBar concepts. We expect to spend up to $150,000 for
this development and intend to contract for the completion of this work when
funds are available. Our landlord has agreed to pay up to $26,935 for repairs
and renovations to our new facilities.
Quasi-Reorganization
As of October 1999, we reached settlement agreements with all of our
significant creditors. Also, by that date, we changed our business focus to
become an Internet entertainment company. Our board of directors, therefore,
elected to state our 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 our balance sheet a "fresh
start." Beginning November 1, 1999 and continuing forward, we are crediting net
income and charging net losses to retained earnings.
Ability to Continue as a Going Concern
Our financial statements in this Form 10-QSB have been prepared
assuming that we will continue as a going concern. We have not had revenue in
the ordinary course of business. Our only revenue in recent years has been from
the disposition of our interest in certain films. The lack of sales and
recurring losses from operations raises substantial doubt about our ability to
continue as a going concern. We estimate that we will need approximately
$200,000 to fund our operations for the next twelve months. Our plan regarding
these matters is to seek further equity funding to allow us to meet our cash
needs and to build our 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In June 2000, we issued 100,000 shares of our common stock to Steedley
& Co. and 50,000 shares to Ms. Blenda Ray at $0.10 per share. The issuances were
made in reliance on Section 4(2) of the Securities Act of 1933 and were made
without general solicitation or advertising. The recipients were sophisticated
investors with access to all relevant information necessary to evaluate the
investment, and who represented to us that the securities were being acquired
for investment purposes. We used the $15,000 proceeds of the sale for general
working capital requirements.
In June 2000, we also issued 170,000 shares of our common stock for
consulting services, as follows: 100,000 shares to Mr. John M. Venters; 10,000
shares to Steven Silvers and 60,000 shares to A-Z Professional Consultants, Inc.
The stock was valued at $0.05 per share which approximated market value. The
issuances were made in reliance on Section 4(2) of the Securities Act of 1933
and were made without general solicitation or advertising. The recipients were
sophisticated investors with access to all relevant information necessary to
evaluate the investment, and who represented to us that the securities were
being acquired for investment purposes. Mr. Venters, our former treasurer, is
the son of Gordon Scott Venters, our president and chief executive officer.
10
<PAGE>
In July 2000, we issued 200,000 shares of our common stock to Dr. H. K.
Terry and 32,500 shares to Ms. Mary Law at $0.10 per share. The issuances were
made in reliance on Section 4(2) of the Securities Act of 1933 and were made
without general solicitation or advertising. The recipients were sophisticated
investors with access to all relevant information necessary to evaluate the
investment, and who represented to us that the securities were being acquired
for investment purposes. We used the $23,250 proceeds of the sale for general
working capital requirements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
(a) Resignation of directors
On August 8, 2000, John Kearney and Robert Pignone resigned from our
board of directors.
(b) Subsequent events
During the period August 1, 2000 through September 11, 2000, we issued
4,365,000 additional shares of our common stock, increasing our total issued and
outstanding to 11,115,838. The shares were issued for cash consideration of
$199,000, in exchange for services, valued at $20,000, and for the purchase of a
license, valued at $5,000, for a total of $224,000.
The shares were issued as follows: 3,450,000 were issued pursuant to
Rule 504 of Regulation D; 815,000 were issued in reliance on Section 4(2) of the
Securities Act of 1933 and 100,000 were issued pursuant to Rule 701. The shares
issued for services were valued at $0.05, which approximated market value.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended July 31,
2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAGICINC.COM
September 15, 2000 By: /s/ Gordon Scott Venters
------------------------
Gordon Scott Venters
President and Chief Executive Officer
11
