I know that I'm bringing this back from the dead, but I don't really care, because it's at least SOME news on the "sequel". This is straight from Roninsong's DeviantArt journal,
"Good news and bad news on the Magic Shop front. The bad news is that the "Magic Shop" series is officially canceled. Tears all around
It's disappointing I know, but let me explain what happened. "Website A" bought Magic Shop 1 and all rights to publish Magic Shop 1. Magic Shop 2 was an update to Magic Shop 1 with 4 new ingredients unlocked. When we gave Magic Shop 2 to "Website A", they said that it was just like Magic Shop 1 and not different enough to be considered a sequel. We than stated that it wasn't a sequel, it was more of an update. Apparently they wanted brand new pics and actions for every single spell in Magic Shop 2 (which is a ridiculous amount of work for the amount of money we were being paid). We then decided to take Magic Shop 2 to "Website B" and "Website C" to see if they would publish it but they refused. The reason being Magic Shop 2 (which was an "update" to Magic Shop 1) was not different enough to be considered a sequel and if they had published it, it would mean that "Website A" could sue them for property violations. Makes since. All this resulted in a game that could not be sold or published online. Magic Shop 2 was dead in the water.
-Now for some good news. "Website A" owns the rights to the Magic Shop 1 game but not the content inside the game (characters, art, plot, etc.), that remains fully with Roninsong Studios. The simple solution is to create a brand new series with the same characters, better plots, and the zany transformations that everyone loves. Yaaaay!!! In order to avoid the mistakes that led to the death of Magic Shop, instead of releasing a huge game with lots of art, we're going to make a large amount of games with a smaller amount of art. Think of it as about 5 or 6 ingredients per game, spread out over 10 games. That's still a pretty good deal. The future looks bright for out former Magic Shop cast!"