U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 1999 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. (Exact name of Registrant as specified in its charter) Florida 59-2762999 ------- ---------- (State or other jurisdiction (I.R.S. Employer Identification Number) of incorporation or organization) 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___ No X Number of common shares outstanding as of January 31, 1999 - 4,308,550. Transitional Small Business Disclosure Format: Yes _____ No X Part 1 Item 1. Financial Statements The financial statements for the 9 month period ending February 28, 1999 follow as pages A1 through A3. Item 2. Management Discussion and Analysis The Company continued to experience difficulties in the third quarter in returning to profitability. This has been due to the Company being unable to achieve a production level that will insure profitability. As a result the Company has continued to turn down business because of production constraints. To overcome this problem the Company has entered into a 15 year lease on a 55,000 sq. ft. production facility that will allow the Company to more than double its production capacity. To achieve that increased volume this space allows the Company to currently enter into a lease for three additional print production lines and high speed materials preparation equipment and new material handling equipment. Management expects these changes will position the Company to be profitable starting in fiscal 2000. The Company in April of 1999 entered into an agreement with Edge MIS to develop for the Company a total software package that will tie together all of the Company's functions. This system will give the Company the ability to schedule and control its production and inventory. Further, it will coordinate with accounting for the ultimate in financial control. This system is Y2K sensitive and should serve the Company well into the next millennium. On April 15, 1999 the Company received a loan of $300,000.00 from Kevin Howell. The terms and conditions of that loan follow as pages N1 through N3. This loan will finance the renovations of the Company's new production facility and provide the down payment on the lease of new equipment. The Company anticipates that in conjunction with obtaining this loan it will file an SB registration sometime in the first quarter of fiscal 2000. On April 16, 1999 the Company entered into a lease on its new production facility. The lease follows as pages L1 through L28. Part II Item 1. Legal Proceedings In December of 1998 the Company resolved the litigation with the Company's landlord concerning past due rent. The resolution calls for the Company to over the 9 months that remained on the lease pay all sums due and unpaid from September 1997 to the date of settlement. This will amount to an additional $2,733.13 of rent for each of the nine months. At the same time a settlement was arrived on a note with the Company's landlord calling for the Company to pay $1,000.00 per month for the nine months as full payment for this note. The Company's trademark was challenged by Imagica Corporation, a unit of the Sony Corporation. After negotiation the parties arrived at a settlement which allows the Company to continue to use the trademark in a non motion picture application. The lawsuit by the Company's former President's ex-wife, Donna Wormser, against the Company for notes entered into by Robert Wormser continues with a trial date probably in the second quarter of fiscal 2000. The Company believes the notes to be invalid, fraudulent, ultra virus and without merit. The notes were unknown to the Company until the suit and were not authorized by the Board of Directors. Further, the condition precedent for the activation of payment of the note namely the Company receiving $4,000,000.00 in a stock offering never occurred. The Company believes this matter will be adjudicated in the Company's favor. Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submissions of Matters to a Vote of Security Holders None Item 5. Other Information Under rule 14a-4(c)(1) any shareholder wishing to bring a matter before the annual meeting of shareholders must notify the Company 45 days in advance of the mailing of the proxies so the matter can be included in the proxy for the annual meeting. The proxy for the previous annual meeting was mailed on February 12, 1999. It is anticipated the proxy for the next annual meeting will be mailed on December 1, 1999. Item 6. Exhibits and Reports on Form 8K The Company on February 6, 1999 filed on an 8K the audited financials for the year end 1997 and 1998 and the first and second quarter unaudited financial statements for the 1999 fiscal year. Imagica Entertainment, Inc. Balance Sheet February 28, 1999 (Unaudited) Assets Current: Accounts receivable, less allowance for possible losses of $9,239 $ 402,681 Inventories 272,799 Prepaid expenses 31,854 Miscellaneous receivables 16,047 ----------- Total current assets 723,381 Property and equipment, net 176,966 Other assets 5,390 ----------- Total assets $ 905,737 =========== A1 Liabilities and Capital Deficit Current liabilities: Bank overdraft $ 11,867 Accounts payable 133,704 Advances from related parties 28,831 Debenture payable 25,000 Customer deposits 40,871 Accrued expenses 107,306 Current maturities of longterm debt 127,209 Current portion of obligations under capital leases 20,817 ----------- Total current liabilities 495,605 Note payable to related party 322,786 Longterm debt, less current maturities 221,311 ----------- Total liabilities 1,039,702 Commitments and contingencies -- Redeemable common stock 100,000 Capital deficit Common stock, $.001 par value, shares authorized 50,000,000 4,231 Additional paidin capital 8,838,534 Accumulated deficit (8,973,290) ----------- (130,525) Less: Treasury stock, at cost 103,440 ----------- Total capital deficit (233,965) ----------- Total liabilities and capital deficit $ 905,737 =========== A2 Imagica Entertainment, Inc. Statement of Operations (Unaudited) Nine Months Ended February 28, February 28, 1999 1998 ----------- ----------- Sales $ 2,350,469 1,989,786 Cost of sales 1,533,321 1,467,613 ----------- ----------- Gross profit 817,148 522,173 Operation expenses 912,747 640,623 ----------- ----------- Loss from operations (95,599) (118,450) Other income (expenses): Interest (25,186) (6,735) Interest stock differential (989,154) -- Other 13,164 -- ----------- ----------- Total other income (1,001,176) (6,735) Net loss $(1,096,775) (125,185) =========== =========== A3