UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 2004 Commission File No. 1-9502
MAGIC LANTERN GROUP, INC.
(Exact name of registrant as specified in its charter)
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New York |
13-3016967 |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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1075 North Service Road West, Suite 27 Oakville, Ontario |
L6M 2G2 |
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(Address of principal executive offices) |
(Zip Code) |
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1385 Broadway New York, New York 10018 | |
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(Address of Previous Principal Executive Offices and Zip Codes) | |
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Registrant's telephone number, including area code: (905) 827-2755 | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
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Title of Class |
Outstanding at November 10, 2004 |
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Common Stock |
68,255,634 |
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MAGIC LANTERN GROUP, INC. | |
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INDEX | |
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Item I. Financial Information |
Page |
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Condensed Consolidated Balance Sheets - September 30, 2004 (unaudited) and December 31, 2003 |
2 |
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Condensed Consolidated Statements of Operations -- Three Months and Nine Months Ended |
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September 30, 2004 and 2003 (unaudited) |
3 |
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Consolidated Statements of Comprehensive Income (Loss) -- Three Months and Nine Months Ended |
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September 30, 2004 and 2003 (unaudited) |
4 |
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Consolidated Statement of Shareholders' Equity -- Nine Months Ended September 30, 2003 (unaudited) |
5 |
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Condensed Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 2004 |
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and 2003 (unaudited) |
6 |
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Notes to Condensed Consolidated Financial Statements |
7 |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
15 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
24 |
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Item 4. Controls and Procedures |
24 |
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Part II. Other Information |
25 |
PART I.
FINANCIAL INFORMATION
MAGIC LANTERN GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
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September 30, 2004 |
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December 31, 2003 |
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ASSETS: |
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(Unaudited) |
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Current assets: |
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Cash and cash equivalents |
$ |
333 |
$ |
465 |
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Accounts receivable, net of allowance of $104 at September 30, 2004 and $101 at December 31, 2003 |
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367 |
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446 |
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Miscellaneous receivable |
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-- |
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74 |
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Inventories |
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115 |
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78 |
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Prepaid expenses and other current assets |
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122 |
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129 |
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Total current assets |
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937 |
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1,192 |
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Property and equipment, at cost, less accumulated depreciation and amortization |
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830 |
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1,018 |
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Other assets: |
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Intangible assets, net of accumulated amortization |
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4,129 |
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4,581 |
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Goodwill |
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5,830 |
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5,830 |
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Security deposits and other assets |
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26 |
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32 |
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TOTAL ASSETS |
$ |
11,752 |
$ |
12,653 |
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LIABILITIES: |
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Current liabilities: |
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Bank indebtedness |
$ |
131 |
$ |
104 |
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Current portion of long-term debt |
836 |
759 | ||
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Promissory notes payable |
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1,157 |
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572 |
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Accounts payable - trade |
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1,037 |
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786 |
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Accrued liabilities |
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953 |
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1,063 |
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Total current liabilities |
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4,114 |
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3,284 |
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Long-term liabilities: |
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Long-term debt, net of current portion |
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19 |
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12 |
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Convertible term note payable |
534 |
-- | ||
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Note payable |
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2,000 |
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2,000 |
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Total long-term liabilities |
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2,553 |
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2,012 |
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COMMITMENTS AND CONTINGENCIES (See Note 4) |
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SHAREHOLDERS' EQUITY |
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Preferred stock, $.01 par value, 1,000 shares authorized; none issued and outstanding |
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-- |
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-- |
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Common stock, $.01 par value, 100,000 authorized at September 30, 2004 and December 31, 2003; 6 7 , 726 and 66,797 shares issued and outstanding at September 30, 2004 and December 31, 2003 |
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677 |
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668 |
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Additional paid-in capital |
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21,513 |
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20,021 |
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Deferred compensation |
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(193) |
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(351) |
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Accumulated deficit |
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(17,230) |
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(13,333) |
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4,767 |
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7,005 |
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Accumulated other comprehensive income |
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317 |
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352 |
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TOTAL SHAREHOLDERS' EQUITY |
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5,084 |
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7,357 |
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
$ |
11,752 |
$ |
12,653 |
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See Notes to Condensed Consolidated Financial Statements. |
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-2-
MAGIC LANTERN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
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Three Months Ended September 30, |
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Nine Months Ended September 30, | |||||
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2004 |
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2003 |
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2004 |
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2003 |
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Net revenue |
$ |
619 |
$ |
655 |
$ |
2,071 |
$ |
2,181 |
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Cost of goods sold |
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222 |
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299 |
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667 |
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871 |
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Gross profit |
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397 |
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356 |
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1,404 |
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1,310 |
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Royalty and other income |
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-- |
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25 |
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-- |
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25 |
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397 |
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381 |
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1,404 |
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1,335 |
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Selling, general and administrative expenses |
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1,355 |
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872 |
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3,675 |
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2,702 |
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Depreciation and amortization |
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262 |
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206 |
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672 |
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600 |
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Compensation adjustment from options, net |
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53 |
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(23) |
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158 |
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108 |
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Compensation adjustment from replacement options |
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(335) |
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(177) |
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(441) |
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(1,410) |
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Operating income (loss) |
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(938) |
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(497) |
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( 2,661 ) |
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(665) |
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Other (expenses): |
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Interest |
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(702) |
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(82) |
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(1,237) |
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(186) |
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Net (loss) |
$ |
(1,640) |
$ |
(579) |
$ |
( 3,897 ) |
$ |
(851) |
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( L oss) per common share: |
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Basic and fully diluted |
$ |
(.02) |
$ |
(.01) |
$ |
(.06) |
$ |
(.01) |
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Weighted average common shares outstanding: |
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Basic |
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66,986 |
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66,739 |
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66,986 |
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66,377 |
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Fully diluted |
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66,986 |
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66,739 |
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66,986 |
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66,377 |
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See Notes to Condensed Consolidated Financial Statements. |
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-3-
MAGIC LANTERN GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, | ||||
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2004 |
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2003 |
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2004 |
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2003 |
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Net (loss) |
$ |
( 1,640 ) |
$ |
(579) |
$ |
( 3,897 ) |
$ |
(851) |
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Other comprehensive income (loss): |
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Foreign currency translation adjustment |
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(4) |
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169 |
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(35) |
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336 |
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Comprehensive (loss) |
$ |
( 1,664 ) |
$ |
(410) |
$ |
( 3,992 ) |
$ |
(515) |
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See Notes to Condensed Financial Statements. |
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-4-
MAGIC LANTERN GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
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Common Stock |
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Additional Paid-In Capital |
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Deferred Compensation |
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Retained Earnings (Accumulated Deficit) |
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Accumulated Other Comprehensive Income (Loss) |
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Total Shareholders Equity (Deficit) | ||
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Shares |
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Amount |
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Balance at December 31, 2003 |
66,797 |
$ |
668 |
$ |
20,021 |
$ |
(351) |
$ |
(13,333) |
$ |
352 |
$ |
7,357 |
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Issuance of shares, Compensation for professional services provided
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500 |
5 |
345 |
350 | |||||||||
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Warrants, in connection with professional services |
146 |
146 | |||||||||||
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Exercise of debt conversion |
429 |
4 |
287 |
291 | |||||||||
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Warrants, in connection with notes payable |
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1,155 |
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1,155 |
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Compensation adjustment from replacement options |
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(441) |
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(441) |
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Amortization of deferred compensation, net of cancellations |
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158 |
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158 |
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Foreign currency translation adjustment |
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(35) |
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(35) |
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Net loss |
-- |
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-- |
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-- |
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-- |
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(3,897) ) |
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-- |
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(3,897) |
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Balance at September 30, 2004 |
67,726 |
$ |
677 |
$ |
21,513 |
$ |
(193) |
$ |
(17,230) |
$ |
317 |
$ |
5,084 |
See Notes to Condensed Consolidated Financial Statements.
-5-
MAGIC LANTERN GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended September 30, | |||
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2004 |
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2003 |
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Net cash used in operating activities |
$ |
(1,605) |
$ |
(1,100) |
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Investing Activities: |
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Reimbursement (Purchase) of property and equipment |
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54 |
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(96) |
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Purchase of intangible assets |
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-- |
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(257) |
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Proceeds from redemption of life insurance policies |
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-- |
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35 |
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Net cash provided by (used in) investing activities |
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54 |
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(318) |
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Financing Activities: |
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Bank indebtedness |
27 |
-- | ||
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Net proceeds from Notes payable with detachable warrants |
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-- |
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998 |
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Net proceeds from private placement of Units, net of issue costs of approximately $40 |
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-- |
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260 |
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Exercise of stock options |
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-- |
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14 |
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Repayment of long-term debt |
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-- |
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(4) |
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Net proceeds from convertible term note payable |
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1,399 |
-- | |
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Net cash provided by financin | ||||