1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended NOVEMBER 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM __________TO ______________
Commission File No. 33-37968-A
IMAGICA ENTERTAINMENT, INC. AND SUBSIDARY
(Exact name of Registrant as specified in its charter)
FLORIDA 59-2762999
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1518 SW 12TH AVENUE, OCALA, FLORIDA 34474
(Address of principal executive offices)
(352) 867-7860
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), and (2) has been
subject to such filing requirements for the past 90 days. Yes (X) No ( )
Number of common shares outstanding as of November 30, 1996 (including the
100,000 shares of redeemable common stock) - 3,165,593.
Transitional Small Business Disclosure Format:
Yes ( ) No ( X )
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INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
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Item 1. Financial Statements (Unaudited):
Balance Sheets 3
Statements of Operations 5
Statements of Cash Flows 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
SIGNATURE 10
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IMAGICA ENTERTAINMENT, INC.
BALANCE SHEET
NOVEMBER 30, MAY 31,
ASSETS 1996 1996
------ (Unaudited) (Audited)
------------ ------------
CASH AND EQUIVALENTS 76,108 --
ADVANCES TO STOCKHOLDER 14,680 13,938
ACCOUNTS RECEIVABLE, LESS ALLOWANCE 325,250 528,048
FOR POSSIBLE LOSSES OF $24,778 & $30,611
INVENTORIES 143,971 258,625
PREPAID EXPENSES 1,984,721 68,823
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TOTAL CURRENT ASSETS 2,544,730 869,434
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PROPERTY AND EQUIPMENT, NET 694,485 871,480
OTHER ASSETS
LOAN ACQUISITION 4,640 5,886
EQUIP NOT PLACED IN SERVICE YET 37,500 37,500
DEPOSITS 215,370 206,632
OTHER 6,121 15,307
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263,631 265,325
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TOTAL ASSETS $3,502,847 $2,006,239
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IMAGICA ENTERTAINMENT, INC.
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
NOTES PAYABLE 444,777 105,000
ACCOUNTS PAYABLE - TRADE 341,617 652,204
NOTES PAYABLE TO STOCKHOLDERS 291,407 302,225
REDEEMABLE COMMON STOCK
ACCRUED LIABILITIES 490,297 520,005
CURRENT MATURITIES OF LONG-TERM DEBT 325,048 354,317
CURRENT PORTION OF OBLIGATIONS UNDER 24,644 232,329
CAPITAL LEASES
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TOTAL CURRENT LIABILITIES 1,917,791 2,166,080
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LONG-TERM DEBT, LESS CURRENT 898,357 420,294
MATURITIES
OBLIGATIONS UNDER CAPITAL LEASES, 153,665
LESS CURRENT MATURIES
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,816,147 2,740,039
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COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK 100,000 100,000
STOCKHOLDERS' EQUITY
COMMON STOCK, $.001 par value 2,915 1,820
Shares authorized 50,000,000 Issued 3,165,593
ADDITIONAL PAID-IN-CAPITAL 4,655,805 1,787,784
ACCUMULATED DEFICIT (3,725,741) (2,282,164)
Less: Treasury stock, at cost,
97,500 shares 96,280 91,240
NOTES RECEIVABLE ARISING FROM
THE EXERCISE OF STOCK OPTIONS
250,000 250,000
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TOTAL STOCKHOLDERS' EQUITY 686,699 (733,800)
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$3,502,847 $2,006,239
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See accompanying notes to financial statements
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IMAGICA ENTERTAINMENT, INC.
STATEMENTS OF OPERATION
QUARTERLY 10-QSB
Three Months Ended November 30, 1996
- -----------------------------------------------------------------------------------------------------------
Three months ended Six months ended
November 30, November 30,
1996 1995 1996 1995
---------- ---------- ---------- -----------
(unaudited) (unaudited)
SALES 869,099 1,398,488 1,832,935 2,775,748
COST OF SALES 721,105 1,125,190 1,414,506 2,134,279
- -----------------------------------------------------------------------------------------------------------
GROSS PROFIT 147,995 272,664 418,430 641,469
OPERATING EXPENSES 1,330,761 359,571 1,939,735 776,821
- -----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (1,182,767) (86,274) (1,521,306) (135,353)
Other Income (expenses): (46,046) (45,835) (65,856) (80,248)
Interest
- -----------------------------------------------------------------------------------------------------------
Net Income (loss) (1,228,813) (132,109) (1,587,162) (215,601)
===========================================================================================================
Earnings (loss) per share (0.39) (0.13) (0.50) (0.20)
Weighted Average Common 3,165,593 1,055,243 3,165,593 1,055,243
Shares Outstanding
See accompanying notes to financial statements
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IMAGICA ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
QUARTERLY 10-QSB
Three Months Ended November 30, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
November 30, November 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Cash flows from operating activities:
Net Income (loss) (1,085,228) (152,110) (1,443,576) (212,601)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and Amorizartion 61,083 75,303 122,668 149,451
Cash provided by (used for):
Accounts Receivable 189,487 104,682 202,799 90,251
Stock Holders' Advances (372) 0 (742) 0
Inventories 110,298 64,771 114,654 28,717
Prepaid Expenses (976,700) (22,057) (1,915,898) (53,896)
Checks issued against future 0 0 0 0
deposits
Accounts Payable - Trade (380,716) 13,925 (302,858) 68,791
Notes Payable 189,554 24,043 189,554 45,058
Accrued Liabilites (61,609) (74,337) 58,168 (21,055)
---------- ---------- ---------- ----------
Net Cash Provided by operating (1,954,203) 34,220 (2,975,231) 94,716
activities
Cash flows from investing activities:
Purchase of property and equipment
Decrease in other assets 55,797 12,855 56,021 32,857
---------- ---------- ---------- ----------
Net Cash provided by (used for) 55,797 12,855 56,021 32,857
investing activities
Cash Flow From Financing Activities:
Decrease in note payable
Proceeds fr issuance of conv Note Pay 281,867 0 281,867 0
Proceeds fr issuance of stock 620 0 1,095 0
Additional paid in Capital 1,742,747 0 2,868,022 0
Net decrease in stockholder note pay 0 0 41,100 0
Principal payments of long-term debt (109,171) (82,337) (196,766) (156,809)
and capital lease obligations
---------- ---------- ---------- ----------
Net Cash Used for Financing Activities 1,916,063 (82,337) 2,995,318 (156,809)
Net Increase (decrease) in cash 17,657 (35,262) 76,108 (29,236)
and cash equivalents
Cash and Cash equivalents, 58,451 14,492 0 8,464
beginning of period
Cash and cash equivalents, 76,108 (20,769) 76,108 (20,769)
end of period
See accompanying notes to financial statements
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IMAGICA ENTERTAINMENT, INC. AND SUBSIDARY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
THE UNAUDITED FINANCIAL STATEMENTS PRESENTED HEREIN HAVE BEEN PREPARED IN
ACCORDANCE WITH THE INSTRUCTIONS TO FORM 10-QSB, AND DO NOT INCLUDE ALL OF THE
INFORMATION AND DISCLOSURES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES. THESE STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED IN THE COMPANY'S FORM 10-KSB FOR THE YEAR
ENDED MAY 31, 1996. THE ACCOMPANYING FINANCIAL STATEMENTS HAVE NOT BEEN EXAMINED
BY AN INDEPENDENT ACCOUNTANT IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING
STANDARDS, BUT IN THE OPINION OF MANAGEMENT, SUCH FINANCIAL STATEMENTS INCLUDE
ALL ADJUSTMENTS, CONSISTING ONLY OF NORMAL RECURRING ADJUSTMENTS AND ACCRUALS,
TO FAIRLY REPORT THE COMPANY'S FINANCIAL POSITION AND RESULTS OF OPERATIONS. THE
RESULTS OF OPERATIONS FOR THE INTERIM PERIODS SHOWN IN THIS REPORT ARE NOT
NECESSARILY INDICATIVE OF RESULTS TO BE EXPECTED FOR THE FISCAL YEAR.
NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended November 30, 1996, the Company issued 620,415
shares of common stock as payment for current and future independent consulting
services amounting to $1,743,337. This amount will be amortized through August
1997.
NOTE 3 - SUPPLEMENTAL REGULATION S SECURITY SUBSCRIPTION AGREEMENT
A convertible debenture agreement was made with Mr. Jorge Castro Olmos of Jan
Jose, Costa Rica on November 19, 1996. The original debenture amount was
$200,000 with a $.50 bid basis for Regulation S stock issuance. The price per
share will be $.50 X 60% = $.30 per share stock price which will result in the
issuance of 666,666 shares if fully executed.
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IMAGICA ENTERTAINMENT, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Sales for the three months ended November 30, 1996 were $869,099 reflecting a
decline of $529,389 or 38% from the comparable period in fiscal 1996. The
Company believes this was primarily the result of working capital constraints
brought on by the April 1996 settlement of case number 94-4342-CA-E in the
Circuit Court of Marion County, Florida. Cash that would have been used to
purchase materials, labor and finance a higher sales volume, went to satisfy the
law suit and pay legal fees. The subsequent revenue stream was reduced. With the
Company having a very limited ability to secure outside capital, financing of
sales have been restricted.
Gross profit for the three months ended November 30, 1996 decreased by 45.7% to
$147,995 from $272,664 for the comparable period in fiscal 1996. Despite the 38%
reduction in the sales volume, the gross profit only declined to 17% from 19.5%
during the comparable period in fiscal 1996.
Selling, general and administrative expenses (reflected as operating expenses in
the accompanying statements of operations) took a dramatic jump to $1,330,761
for the three months ended November 30, 1996 from the $359,571 for the same
period in 1995. The accrual for an executive pay increase, consulting fees, and
the amortization of consulting fees for the 7/10/96 and 9/06/96 S-8s, accounted
for $950,000 of the $1,330,761 first quarter operating expenses. Declining sales
and increased operating expenses as a percentage of sales, operating expenses
increased to 153% for the first quarter of fiscal 1997 as compared to 25.7% for
the same period in fiscal 1996.
The net loss increased to ($1,228,813) for the three months ended November 30,
1996 as compared to a net loss of ($132,109). When the $950,000, accrued for
consulting fees and an executive pay increase , is factored out, the net loss
for the quarter ended November 30, 1996 is only ($278,813).
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Liquidity and Capital Resources
The Company has experienced significant cash flow difficulties in recent years.
As of November 30, 1996, the Company has certain obligations which are currently
due or due within one year including debenture notes payable of $105,000,
various notes payable to stockholders amounting to $291,407, current maturities
of long-term debt of $325,048, and the current portion of obligations under
capital leases of $24,644. The Company currently does not have sufficient funds
to repay such obligations. The Company has engaged Gulf Atlantic Capital
Corporation to develop an operating plan that will maximize profitability and
cash flow, contact vendors and secured creditors, negotiate a repayment plan,
and provide plan monitoring and future assistance in acquiring working capital.
During June 1996 the Company entered into three agreements with various
consultants to arrange the acquisition of funds from investors. The Company
anticipates that the funds generated from raising additional capital coupled
with the implementation of the Gulf Atlantic plan will be sufficient to enable
the Company to: (1) pay current maturities on debts; (2) acquire new printing
equipment; and (3) provide working capital for current operations and future
growth. There can be no assurance however, that any additional funds can be
obtained, nor that net income generated, if any, will be sufficient to enable
the Company to meet its obligations or continue operations as a going concern.
The Company intends to acquire various equipment in the near future, most
notably a printing machine having a cost of approximately $460,000. Of this
amount $206,632 has been paid to date and is included in the "deposit on
equipment" in the accompanying balance sheet. The Company anticipates that the
remaining funding will come from financing as described above. The Company
believes the machine will enable it to produce banners at a much faster pace and
at a much lower cost.
In 1992 the company purchased land for future development with cash ($150,000,
of which $125,000 was borrowed from the bank) and 12,500 shares of common stock.
In connection with this transaction, the Seller had the option to require the
Company to repurchase the common stock for $10.46 per share. The seller elected
to require the Company to repurchase the stock for $10.64 per share. A current
liability of $133,250 was recognized as of May 31, 1994. The Seller filed a
complaint for breach of contract in October 1994. During 1996, settlement was
reached between the Company and the Seller. The Company was released of the
$133,250 liability, and the Seller was required to repay the remaining balance
owed the bank of $100,000 in exchange for the return of the land and 12,500
shares of common stock.
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IMAGICA ENTERTAINMENT, INC. AND SUBS DIARY
FORM 10-Q
(For the Quarter Ended November 30, 1996)
ITEM 6: Exhibits and Reports
(a) Exhibits
99.1 Form S-8 Registration No. 333-11379
99.2 Convertible Debenture Agreement with Mr. Jorge Castro
Olmos of Jan Jose, Costa Rica.
27 Financial Data Schedule (for SEC Use Only)
(b) Form 8-K
No reports on Form 8-K were filed by the Registrant during the
quarter ended November 30, 1996.
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SIGNATURE
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.
IMAGICA ENTERTAINMENT, INC AND SUBSIDARY
(Registrant)
Date: January 14, 1997 By:/s/ Robert S. Wormser
--------------------------------
Robert S. Wormser, President
(President, Chief Executive
Officer and Chief Financial
Officer)
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IMAGICA ENTERTAINMENT, INC. AND SUBS DIARY
FORM 10-Q
(For the Quarter Ended November 30, 1996)
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- ------ -----------------------
99.1 Form S-8 Registration No. 333-11379
99.2 Convertible Debenture Agreement with Mr. Jorge Castro Olomos
27 Financial Data Schedule (for SEC Use Only)