SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For Fiscal Period Ended: May 31, 1996 Commission file number:
33-3790-A
IMAGICA ENTERTAINMENT, INC.
(f/k/a Ranger International, Inc.)
(Exact name of registrant as specified in its charter)
FLORIDA 59-2762999
(State or other jurisdiction IRS Employer
Identification No.
of incorporation or organization)
1518 S. W. 12th Avenue, Ocala. Florida, 34472
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 352-867-
7860
Securities registered pursuant to Section 12(b) Or the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock: $.001 Par Value
(Title of Class)
Redeemable Common Stock Purchase Warrants
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or l5(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 __ No __
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. (__)
State Issuer's revenues for its most recent fiscal period:
$5,182,056
State the approximate aggregate value of the voting stock held
by non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such stock, as
of a specified date within the past 60 days. $2,145,900 on September
11, 1996.
State the number of shares outstanding of each of the Issuer's
classes of common equity, as of the latest practical date 2,540,391
shares of common stock and redeemable common stock as of September
11, 1996.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format (check one): Yes
No _X_
<PAGE>
PART I
Item 1. Business
Ranger International, Inc. (the Company"), was incorporated
under the laws of the State of Florida on January 21, 1987, for the
purpose of profiting from various aluminum extrusion designs and
laminating processes designed and developed by its President, Robert
S. Wormser. Effective June 10, 1996, the Company's name was changed
to Imagica Entertainment, Inc. The Company's research and
development indicated that the focus of its resources should
initially be on its display, sign, and banner division ("The Banner
Barn ) which targets the point-of-purchasing ("P-O-P") segment of the
advertising market. The Banner Barn is a registered trademark of the
Company. The Company believes the P-O-P market is greater than $20
billion and is highly fragmented and growing. Also the industry has
low inventory and labor costs, potentially high profit margins and
minimal product liability exposure.
The Company's primary objective was to develop The Banner Barn
into a national manufacturer and distributor of custom-made
advertising media which could be shipped on an expedited basis.
Accordingly, the Board of Directors established the Company's
business goals for The Banner Barn as: (1) to combine the latest in
computer-aided sign and banner equipment with a variety of low-cost,
but effective marketing, management and production techniques; (2) to
produce high quality and durable custom-made signs, banners, flags
and P-O-P displays which can be quickly delivered to customers; and
(3) to obtain more sales than any other similar organization in the
United States.
On May 29, 1996, the Company consummated a merger with Imagica,
Inc. ("Imagica") with Imagica becoming a wholly-owned subsidiary of
the Company. Imagica, Inc. was incorporated in April 1993 and in
principally engaged in the manufacturing and marketing of large scale
print specialties using computer scanning and computer directed
printing stations. The Company issued 624,912 shares of its common
stock. The acquisition is being accounted for as a pooling of
interest, and therefor, the consolidated financial statements of the
Company have been restated to include the accounts and results of
operations of Imagica for all periods presented herein.
Effective May 22, 1996, the Company's Board of Directors
authorized a one-for-eight reverse stock split of the outstanding
common stock of the Company. All share information has been adjusted
to give effect to the reverse split.
Products and Production
The Company's principal existing products are large format signs
and banners which are primarily used by customers for P-O-P
advertising. P-O-P advertising encompasses advertising that is
located in, on, or adjacent to the area where the advertised product
or service is available for purchase. The actual advertising medium
can be quite varied and can include signs, banners, flags, displays,
overheads and mobiles, and is a relatively inexpensive form of
advertising.
Each sign and banner is produced using one of two primary
production processes. High volume orders are screen-printed. Smaller
orders, and very large-scale signs and banners, are produced using a
process that integrates computer-aided design ("CAD") with computer-
driven plotting equipment. This latter process received patent
protection as a "banner manufacturing system" on March 20, 1990 (U.S.
Patent #4,909,884). The Company believes this patented process gives
it a competitive advantage in production of both small quantity
orders and very large-scale banners.
Approximately 90% of the Company's signs and banners range in
width from 12 to 48 inches and in length from 5 to 20 feet (although
the Company does have the ability to produce larger banners). A
typical banner consists of a polyester reinforced sheet of flexible
vinyl on which artwork and graphic designs are applied; however, the
Company has the ability to print on a variety of substrates
including, but not limited to, textiles, plastics, static-cling and
card stock.
Artwork and graphic designs are typically added to the Company's
signs and banners during each of its primary production processes. In
most cases, the Company's art department prepares the artwork or
graphic designs its photo laboratory, which is capable of producing
film positives as large as four feet by 16 feet. Artwork or graphic
designs are then used to create a film positive by means of a large
"blow back" style camera. The resulting film positive is then applied
to printing screens through screen printing processes, or digitized
through computer scanners into CAD systems. These processes permit
the Company to produce sophisticated artwork and detailed graphics on
its signs and banners
Banners are made using only the highest quality materials to
suit the job. This includes the best inks, highest quality paints,
strongest thread, rope and brass grommets to complete each banner.
The Company also offers D-ring construction to increase the lives of
their banners. D-rings facilitate mounting and also help the banner
lay flatter when displayed. In addition, the Company believes
durability is greatly enhanced by having all sewing accomplished on
high speed, double needle industrial application sewing machines
especially designed for banner production.
Sales
The Company sells throughout the United States and has an active
customer base of approximately 750 customers (including many Fortune
500 companies). Sales are primarily handled via a direct marketing
system with an internal sales staff that takes orders and does
telemarketing. The Company maintains a toll-free number to encourage
and facilitate telephone orders. Additionally, the Company
periodically mails out literature to promote its products and solicit
orders. The Company regularly maintains records of bids made, bids
accepted and bids lost.
Experienced manufacturing representatives support the internal
sales staff. Currently, the Company has sales representatives
covering most of the southeastern United States and has plans to
expand this form of sales throughout the contiguous United States.
The major industries served by the Company are advertising,
appliance, automotive, food and fast food, clothing, electronics,
tobacco, oil and retail.
In most instances, signs, banners and displays can be shipped
within 3 to 10 days of receipt of confirmed orders. Overnight
deliveries are available in some instances at extra cost. The Company
attempts to receive payment or partial payments in advance; however,
open accounts are provided to credit-worthy customers.
The Company's principal marketing strategy is to convey to
customers its ability to provide large, custom-made signs, banners
and displays fast. Customers have typically been large institutions,
but the Company's marketing approach also enables it to provide
novelty items spontaneously for smaller companies and individuals.
No single customer accounted for more than 5% of sales in the
fiscal period ended May 31, 1996.
Inventory
The Company normally carries only a basic inventory of supplies
to fill small orders or rush orders. Most of the Company's larger
orders are bid out and supplies are ordered as needed when bids have
been accepted. The Company has numerous suppliers and does not depend
on any one supplier for its raw materials.
Competition
Many of the Company's competitors are larger, better equipped
and possess greater financial resources, which may enable them to
deliver goods faster. However, a large number of these companies are
located in the Midwestern United States, and accordingly the Company
believes its geographic location gives it a competitive advantage
because of the area's lower labor and warehouse rates. The Company
also competes with businesses in Florida and other southeastern
states. The Company believes that it has a competitive advantage over
certain of its smaller competitors as its level of automation allows
for a fast turn-around of orders. In addition, the Company's capacity
to print on many substrates makes it unique because other companies
specialize in vinyl's or fabrics, but not both. Another significant
characteristic that gives the Company a competitive edge is that it
manufactures much of the hardware for its stands, while other
companies may have to rely on outside suppliers.
Credit Policies
Most of the Company s business is done on the basis of an
accepted hid and, therefore, the Company does not normally offer its
customers the right to return merchandise (which is generally
specific for that customer) unless it is defective. The Company's
usual credit terms are net 10 to net 30 days; however, in certain
cases the Company will extend this period.
Personnel
The Company regularly employs from 70 to 80 full-time personnel.
The Company is not a party to any collective bargaining agreement and
believes that its relations with its employees are good.
Demographics
The Company believes that Ocala, Marion County, Florida, is
conducive to a manufacturing operation that demands considerable
facility space and labor. The cost of living index and average wage
and salaries earned by the labor force in Marion County are below the
State of Florida and national averages. Additionally, Ocala is
located in North Central Florida at the intersections of two major
highways -- I-75 and S.R. 27.
Item 2. Description of Properties
The Company presently occupies and leases two adjacent
facilities in Ocala, Marion County, Florida. One contains 25,000
square feet and the other contains 18,500 square feet. The first
contains the Company's principal manufacturing processes, including
its photo laboratory, advertising and art departments, its inventory
and heavy sheeting and printing equipment. It is leased from a
partnership in which the Company's President is a partner, and both
partners are stockholders. The second facility contains the Company's
sewing and shipping departments and facilities for its custom banner
production. It is leased from an independent third party.
The lease for the 25,000 facility has an expiration date of
September, 1999, the second facility is leased by the Company on a
month to month basis. In addition, the land and building leased for
the main facility may be purchased for $500,000 at any time during
the lease term.
Imagica, Inc.'s operations are located within an approximately
6,000 sq. ft. building in Ocala Florida which is owned by Imagica,
Inc. ("Imagica").
The Company believes its present facilities are sufficient for the
foreseeable future.
In addition to the above, in July 1992 the Company purchased
land for total consideration of approximately $240,000 (consisting of
cash of $150,500 of which approximately $125,000 was borrowed from
Sun Bank and 12,500 shares of redeemable common stock). In connection
with this transaction, the seller of the land had the option to
require the Company to repurchase the stock for $10.64 per share if
he remained the owner of such shares on July 15, 1994. Seller
demanded the repurchase of the stock and had subsequently filed suit
in Marion County, Florida, State Court to require the repurchase.
(See "Legal Proceedings.") During 1996, the lawsuit was settled by
the seller accepting the return of the property subject to
approximately $100,000 of indebtedness. As a part of the settlement
the $133,250 liability was released and the redeemable common shares
were returned to the Company.
Item 3. Legal Proceedings.
The Company is not presently a party to any material litigation
nor to the knowledge of management is any material potential
litigation foreseen, except for the following:
In July 1992, the Company purchased land from an unrelated third
party, C. L. Dinkins, Jr., as Trustee (the "Seller") for total
consideration of approximately $240,000 (consisting of cash of
$150,500 of which $125.000 was borrowed from Sun Bank of Ocala, and
12,500 shares of common stock). In connection with this transaction,
the Seller elected to require the Company to repurchase the stock for
$10.64 per share. The President of the Company, Robert S. Wormser,
personally guaranteed this repurchase. On or about October 24, 1994,
Seller filed a complaint for breach of contract and enforcement of
guarantee in the Circuit Court of Marion County, Florida, being
styled C. L. Dinkins, Jr., as Trustee, Plaintiff, vs. ranger
International, Inc., a Florida corporation and Robert S. Wormser,
individually, Defendants, Case Number 94-4342-CA-E. Such action seeks
damages of $133,250 plus interest from September 13, 1994, along with
costs and attorney's fees. During 1996, the lawsuit was settled by
the seller accepting the return of the property subject to
approximately $100,000 of indebtedness. As a part of the settlement
the $133,250 liability was released and the common shares were
returned to the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
On July 23, 1996 a majority of the outstanding shares of the
Company (1,207,905 shares) voted to increase the number of authorized
shares of the Corporation to 50,000,000.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's common stock has been quoted on the Bulletin Board
maintained by the NASD since January 11, 1995. Prior to that date
the Company's common stock was not traded publicly. On September 11,
1996, the Company's common shares traded at a high of $2.75 and a low
of $2.75. As of September 1, 1996, there were 195 holders of the
Company's common stock. The Company does not have a record of paying
cash dividends, and may be limited in its ability to pay cash
dividends in the foreseeable future because of its deficit.
Item 6. Management's Discussion and Analysis of Financial Condition
and
Results of Operation.
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
Company's audited financial statements included elsewhere herein. On May 29,
1996, Imagica Entertainment, Inc., formerly known as Ranger International,
Inc., ("Imagica") consummated a merger with Imagica, Inc., with
Imagica becoming a wholly-owned subsidiary of the Company. The
merger is being accounted for as a pooling of interests.
Accordingly, the May 31, 1996 financial statements, as well as the
discussion and analysis below relating thereto are on a consolidated
basis.
Losses and Deficit
The Company has experienced significant losses which have
resulted in an accumulated deficit of $2,282,164 and negative working
capital of $1,296,646 as of May 31, 1996. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern. The Company believes that it will be able to refinance
certain existing obligations and raise sufficient additional capital
to satisfy other obligations and to provide working capital. There
is no assurance that such additional capital can be raised or that
any of the Company's existing obligations can be successfully
restructured.
Results of Operations:
For the fiscal year ended May 31, 1996, the Company generated operating
and net losses of $560,114 and $785,127, respectively. This represents a
decline from the preceding fiscal year ended May 31, 1995, that showed
operating and net losses of $163,760 and $444,364, respectively. The
reasons for the increased losses are discussed below.
Print sales and Point of Purchase Display Stand sales declined
significantly during the year ended May 31, 1996. The primary
reasons for the decline were price competition in Print sales and
problems in acquiring sufficient quantities of extruded aluminum to
meet competitive ship dates for Point of Purchase Display Stand
sales. The following table provides information with respect to
sales mixes for the periods ended May 31, 1996 and 1995:
<TABLE>
<CAPTION>
Product Description 1996 1995
<S> <C> <C>
Sales of Screen Print Banners $4,057,333 $3,690,866
Sales of Custom Banners 419,399 434,101
P-O-P Display Stands 239,387 969,488
Print Sales 465,937 878,631
Total Sales $5,182,056 $5,973,086
__________ __________
__________ __________
</TABLE>
Costs of sales, as a percentage of net sales, increased from 72.1% for
fiscal year ended May 31, 1995, to 76.8% for the year ended May 31, 1996. The
increase is primarily the result of increased job-out work during fiscal year
ended May 31, 1996.
Operating expenses, as a percentage of net sales, increased from 30.6%
for the year ended May 31, 1995, to 34.0% for the year ended May 31, 1996.
This was mainly due to the decrease in sales that occurred during the year
ended May 31, 1996, considering actual operating expenses declined slightly.
Other expenses decreased $55,591 due primarily to a decline in
interest expense resulting from payments on notes payable, long-term
debt and capital lease obligations during fiscal 1996.
Liquidity and Capital Resources
The Company has experienced significant cash flow difficulties in recent
years. As of May 31, 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 $302,225, the current portion of long term debt of $354,317, and
the current portion of obligations under capital leases of $232,329.
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
its 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 "deposit on
equipment" in the accompanying balance sheet. The Company
anticipates that the remaining funding will come from financing as described
above. The machine is capable of producing banners in vivid colors and the
Company believes it will allow access to new markets. The Company
also believes the machine will enable it to produce banners at a much
faster pace and 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 $10.46 per share. A current
liability of $133,250 was recognized as of May 31, 1994. The Seller
filed a complaint for breach of contract on 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.
Item 7. Financial Statements.
Report of Independent Certified Public Accountants F-2
Consolidated financial statements
Balance sheet F-3 - F-4
Statements of operations F-5
Statements of stockholders' equity (capital deficit) F-6
Statements of cash flows F-7
Summary of significant accounting policies F-8 - F-10
Notes to consolidated financial statements F-11 - F-23
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Imagica Entertainment, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Imagica
Entertainment, Inc. (formerly Ranger International, Inc.) and subsidiary as
of May 31, 1996, and the related consolidated statements of operations,
stockholders' equity (capital deficit) and cash flows for each of the two
years in the period ended May 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Imagica
Entertainment, Inc. and subsidiary at May 31, 1996, and the results of
their operations and their cash flows for each of the two years in the
period ended May 31, 1996 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 3 to the
financial statements, the Company has experienced significant operating
losses, has a capital deficit and has negative working capital at May 31,
1996. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these
matters are also described in Note 3. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
BDO Seidman, LLP
Orlando, Florida
August 16, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
May 31, 1996
Assets (Note 8)
<S> <C>
Current:
Accounts receivable, less allowance for
possible losses of $33,086 $ 528,048
Advances to stockholder 13,938
Inventories (Note 4) 258,625
Prepaid expenses 68,823
Total current assets 869,434
Property and equipment, net (Note 5) 871,480
Other assets:
Deferred financing costs, less accumulated
amortization of $6,159 5,886
Equipment not yet placed in service 37,500
Deposit on equipment (Note 9) 206,632
Other 15,307
265,325
$ 2,006,239
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
May 31, 1996
Liabilities and Capital Deficit
<S> <C>
Current liabilities:
Notes payable - debentures (Note 6) $ 105,000
Accounts payable - trade 652,204
Notes payable to stockholders (Note 7) 302,225
Accrued expenses:
Payroll 310,747
Interest 122,976
Other 86,282
Current maturities of long-term debt (Note 8) 354,317
Current portion of obligations under capital leases (Note 9) 232,329
Total current liabilities 2,166,080
Long-term debt, less current maturities (Note 8) 420,294
Obligations under capital leases, less current
portion (Note 9) 153,665
Total liabilities 2,740,039
Commitments and contingencies (Note 9)
Redeemable common stock (Note 9) 100,000
Capital deficit (Notes 2, 8 and 11):
Common stock, $.001 par value, shares authorized 50,000,000;
issued 1,820,155 1,820
Additional paid-in capital 1,787,784
Accumulated deficit (2,282,164)
(492,560)
Less: Treasury stock, at cost, 97,500 shares 91,240
Notes receivable arising from the
exercise of stock options 250,000
Total capital deficit (833,800)
$ 2,006,239
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Year ended May 31, 1996 1995
<S> <C> <C>
Sales $5,182,056 $5,973,086
Cost of sales 3,981,755 4,307,498
Gross profit 1,200,301 1,665,588
Operating expenses 1,760,415 1,829,348
Loss from operations (560,114) (163,760)
Other income (expenses):
Interest (217,337) (281,411)
Other (7,676) 807
(225,013) (280,604)
Net loss $ (785,127) $(444,364)
Loss per share $ (.47) $ (.31)
Weighted average common shares outstanding 1,674,336 1,456,547
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Notes
Receivable
Arising
from the
Additional Exercise
Common Stock Paid-in Treasury Stock of Stock Accumulated
Shares Amount Capital Shares Amount Options Deficit
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1994, as
previously reported 763,356 $763 $1,432,674 85,000 $(85,000) $n $(973,018)
Pooling of interests with
Imagica, Inc. (Note 2) 363,723 364 47,626 - - - (79,655)
Balance, as restated 1,127,079 1,127 1,480,300 85,000 (85,000) - (1,052,673)
Reclassification to redeemable
common stock (Note 9) - - (100,000) - - - n
Sale of common stock 5,473 5 27,495 - - - n
Issuance of common stock
for consulting services 249,015 249 50,266 - - - n
Issuance of common stock
as payment of accrued
interest to stockholders 1,288 1 4,490 - - - n
Exercise of warrants 2,475 3 29,697 - - - n
Exercise of employee
stock options 250,000 250 249,750 - - (250,000) n
Net loss - - - - - - (444,364)
Balance, May 31, 1995 1,635,330 1,635 1,741,998 85,000 (85,000) (250,000) (1,497,037)
Purchase of treasury stock
in settlement of
lawsuit (Note 13) - - - 12,500 (6,240) - n
Issuance of common stock
for consulting services 184,825 185 45,786 - - - n
Net loss - - - - - - (785,127)
Balance, May 31, 1996 1,820,155 $1,820 $1,787,784 97,500 $(91,240) $(250,000) $(2,282,164)
</TABLE>
See accompanying summary of significant accounting policies and notes
to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Year ended May 31, 1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $(785,127) $(444,364)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 336,885 375,808
Issuance of common stock as payment of
consulting services 45,970 50,516
Write down of equipment not yet placed in service 39,720 -
Loss on sale of property and equipment - 6,447
Cash provided by (used for):
Accounts receivable 154,535 (119,071)
Advances to stockholder (1,938) (12,000)
Inventories 80,680 (42,489)
Prepaid expenses 20,373 11,135
Accounts payable 87,474 230,150
Accrued expenses 180,795 60,253
Deferred compensation - (35,000)
Net cash provided by operating activities 159,367 81,385
Cash flows from investing activities:
Increase (decrease) in other assets 5,347 (37,534)
Proceeds from sale of property and equipment - 7,178
Purchase of property and equipment - (266,070)
Progress payments on equipment not yet placed
in service - (26,878)
Cash flows provided by (used for) investing activities: 5,347 (323,304)
Cash flows from financing activities:
Decrease in note payable - (85,000)
Increase in deferred financing costs - (2,400)
Proceeds from issuance of convertible notes payable - 75,000
Proceeds from issuance of stockholder notes payable 36,000 207,308
Principal payments of stockholder notes payable (21,765) (11,010)
Proceeds from issuance of long-term debt 69,000 160,000
Principal payments on long-term debt (127,130) (106,551)
Principal payments on capital lease obligations (129,283) (186,730)
Proceeds from exercise of stock warrants - 29,700
Proceeds from sale of common stock - 27,500
Net cash provided by (used for) financing activities (173,178) 107,817
Net decrease in cash (8,464) (134,102)
Cash, beginning of year 8,464 142,566
Cash, end of year $ - $ 8,464
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-7
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Imagica
Entertainment, Inc. and its wholly-owned subsidiary after elimination of
intercompany accounts and transactions.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets by the straight-line method for financial
reporting and by accelerated methods for income tax purposes.
Capital leases are recorded at the lower of fair market value or the present
value of future minimum lease payments. Assets under capital leases are
depreciated by the straight-line method over their useful lives.
Revenue
RECOGNITION
Sales are recognized upon shipment of products to customers.
LOSS PER SHARE
Loss per share is based on the weighted average number of common shares
outstanding during each period after giving effect to the reverse stock split
which occurred in 1996 (see Note 11). Options and warrants have been
excluded from the loss per share calculations because their effect is
antidilutive.
TAXES ON INCOME
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires recognition of estimated income taxes payable or refundable
on income tax returns for the current year and for the estimated future tax
effect attributable to temporary differences and carryforwards. Measurement
of deferred income tax is based on enacted tax laws including tax rates, with
the measurement of deferred income tax assets being reduced by available tax
benefits not expected to be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments. Fair value estimates discussed herein
are based upon certain market assumptions and pertinent information
available to management as of May 31, 1996.
The respective carrying value of certain on-balance-sheet financial instru-
ments approximated their fair values. These financial instruments include
cash, trade receivables, accounts payable and accrued expenses. Fair values
were assumed to approximate carrying values for these financial instruments
since they are short term in nature and their carrying amounts approximate
fair values or they are receivable or payable on demand. The fair value of the
Company's long-term debt is estimated based upon the quoted market prices
for the same or similar issues or on the current rates offered to the Company
for debt of the same remaining maturities.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," issued by the Financial Accounting Standards Board (FASB), is
effective for financial statements for fiscal years beginning after December
15, 1995. The new standard establishes new guidelines regarding when
impairment losses on long-lived assets, which include plant and equipment
and certain identifiable intangible assets and goodwill, should be recognized
and how impairment losses should be measured. The Company does not
expect adoption to have a material effect on its financial position or results
of operations.
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-
Based Compensation," (SFAS 123), issued by the Financial Accounting
Standards Board (FASB), is effective for specific transactions entered into
after December 15, 1995, while the disclosure requirements of SFAS No.
123 are effective for financial statements for fiscal years beginning no later
than December 15, 1995. The new standard encourages a fair value method
of accounting for stock-based compensation plans. This statement provides a
choice to either adopt the fair value based method of accounting or continue
to apply APB Opinion No. 25, which would require only disclosure of the
pro forma net income and earnings per share, determined as if the fair value
based method has been applied. The Company plans to continue to apply
APB Opinion No. 25 when adopting this statement, and accordingly, this
statement is not expected to have a material impact on the Company.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations
Imagica Entertainment, Inc. (the "Company"), formerly known as Ranger
International, Inc., was incorporated in January 1987 and is engaged in the
design, manufacturing and marketing of customized signs, banners, flags and
point-of-purchasing ("P-O-P") displays and the manufacturing and marketing
of large scale print specialties using computer scanning and computer directed
printing stations. The Company's headquarters and manufacturing facilities
are located in Ocala, Florida.
2. Acquisition
On May 29, 1996, the Company consummated a merger with Imagica, Inc.
("Imagica") with Imagica becoming a wholly-owned subsidiary of the
Company. Imagica, Inc. was incorporated in April 1993. The Company
issued 624,912 shares of its common stock for all outstanding shares of all
classes of Imagica capital stock. The merger is being accounted for as a
pooling of interests, and therefore, the consolidated financial statements of
the Company have been restated to include the accounts and results of
operations of Imagica for all periods presented herein.
Separate net sales and net income (loss) of the merged entities are presented
in the following table:
<TABLE>
<CAPTION>
Year ended May 31, 1996 1995
<S> <C> <C>
Net sales:
Imagica Entertainment, Inc. $4,716,119 $5,094,455
Imagica, Inc. 465,937 878,631
Total $5,182,056 $5,973,086
Net income (loss):
Imagica Entertainment, Inc. $ (401,677) $ 32,537
Imagica, Inc. (383,450) (476,901)
Total $ (785,127) $(444,364)
</TABLE>
F-11
<PAGE>
3. Going Concern and Management's Plans
As shown in the accompanying financial statements, the Company has
experienced significant losses which have resulted in an accumulated deficit
of $2,282,164 and it has negative working capital of $1,296,646. These
conditions raise substantial doubt about the Company's ability to continue as
a going concern.
The Company is planning to raise additional capital through private
placements of its securities and refinancing of its debt obligations. A portion
of the capital to be raised will be utilized to satisfy certain of the
Company's obligations and to provide working capital. Management believes that
such financing will occur and that sufficient funds will be provided to
overcome its financial difficulties. However, no assurances can be given that
the Company will be successful in obtaining financing, and if the Company is
unable to obtain adequate financing, there remains substantial doubt
concerning the Company's ability to continue as a going concern.
4. Inventories
<TABLE>
Inventories are summarized as follows:
<S> <C>
Raw materials $ 233,307
Work in process 25,318
$ 258,625
</TABLE>
All inventories are pledged as collateral (see Note 8).
5. Property and Equipment
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
Useful Lives
<S> <C> <C>
Land - $ 47,000
Building 39 years 176,420
Furniture, fixtures and equipment 3 - 10 years 1,457,475
Equipment under capital leases 5 - 10 years 707,932
Leasehold improvements 4 years 163,549
Vehicles 5 years 44,592
2,596,968
Less accumulated depreciation
and amortization 1,725,488
$ 871,480
</TABLE>
Accumulated depreciation on equipment under capital leases was $202,351 as
of May 31, 1996.
All property and equipment is pledged as collateral (see Notes 7 and 8).
6. Notes Payable - Debentures
Debenture notes payable amounting to $105,000 as of May 31, 1996 are
unsecured, bear interest at 8% and are currently due to third parties. The
conversion feature of these notes expired in July 1995.
7. Notes Payable to Stockholders
The Company has notes payable to various stockholders amounting to
$302,225 at May 31, 1996. The notes bear interest at various rates ranging
from 10% to 15% and mature in 1997. One note is collateralized by certain
Company equipment, and the remaining notes are unsecured.
8. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<S> <C>
Note payable to a bank, bearing interest at prime plus 1% (9.25% as
of May 31, 1996), principal of $10,000 plus interest due monthly
until November 1996 when the remaining outstanding principal and
accrued interest are due, collateralized by substantially all of the
Company's assets. This note is also guaranteed by the Company's
president (see Note 9). $302,283
Note payable to a former stockholder, bearing interest at 7%,
principal and interest payable in monthly installments of $2,356
through May 1999, collateralized by 85,000 shares of treasury
stock held by the Company (see Note 9). 78,788
Various notes payable, bearing interest at 9%, principal and interest
payable monthly in aggregate installments of $799 through November
1998, collateralized by certain Company vehicles. 21,965
9.25% mortgage payable to bank, due in monthly installments of
$1,647 including interest to June 1999, balance due July 1999,
collateralized by real property. 150,214
12% note payable, interest due monthly, principal due October 1998,
collateralized by real property owned by a stockholder and
guaranteed by the Company's president. 150,000
19.65% note payable, due in monthly installments of $2,001
including interest to November 2000, collateralized by certain
machinery and equipment. 71,361
774,611
Less current maturities 354,317
Total long-term debt $420,294
</TABLE>
The aggregate maturities of long-term debt maturing in future years is as
follows as of May 31, 1996:
<TABLE>
<S> <C>
1997 $354,317
1998 54,150
1999 205,172
2000 149,626
2001 11,346
$774,611
</TABLE>
The note payable to bank contains certain restrictive covenants regarding the
use of the bank's lock box, incurring additional indebtedness and increases in
officers' and directors' compensation. The Company was in violation of these
covenants during 1996 and obtained a waiver for additional indebtedness
incurred as a result of a loan from the President. However, waivers were not
obtained for the lock box and increases in officers' compensation violations.
Accordingly, the bank may demand the loan be repaid immediately if the
Company does not submit all receivables to the lock box or if additional
salary is paid to the President above the level in effect as of the date of the
loan agreement.
9. Commitments and Contingencies
Leases
The Company leases its main operating facility from a partnership that
consists of two of the Company's stockholders, one of whom is also an
officer. The lease is a five-year operating lease expiring in September 1999
and contains an option to purchase the land and building for $500,000 at any
time during the lease. The Company has guaranteed the partnership's debt
incurred in connection with the acquisition of the facility (such debt
approximated $264,000 at May 31, 1996). The Company leases additional
warehouse space from third parties expiring at various dates through 2000.
The Company also leases certain equipment under capital leases, expiring at
various dates through 2000.
The following is a schedule by years as of May 31, 1996 of (1) future
minimum lease payments under capital leases, together with the present value
of the net minimum lease payments and (2) future minimum rental payments
required under operating leases that have initial or remaining terms in excess
of one year:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
<S> <C> <C>
1997 $290,030 $141,840
1998 117,878 102,000
1999 47,446 102,000
2000 8,395 27,000
Total net minimum lease payments 463,749 $372,840
Less amount representing interest 77,755
Present value of net minimum lease payments 385,994
Less current portion 232,329
Long-term obligations under capital leases $153,665
</TABLE>
Rental expense amounted to approximately $156,000 and $126,000 for the
years ended May 31, 1996 and 1995, respectively. The rental expense
includes amounts for leases with its stockholders of approximately $64,000
and $62,000 during the years ended May 31, 1996 and 1995, respectively.
Deposit on Equipment
The Company has committed to lease a printing machine at an estimated cost
of $460,000. As of May 31, 1996, the Company has recorded $206,632 as
a deposit on equipment.
Litigation
During 1995, the Company settled a lawsuit with a former officer of the
Company for an alleged breach of an employment contract. Under the terms
of the settlement agreement, the Company purchased 85,000 shares of
common stock held by the former officer for a total purchase price of
$119,000. As consideration for the purchase, the Company signed a note
payable to the former officer for $119,000 to be paid over a five-year period
(see Note 8).
Employment Agreement
The Company entered into amended employment agreements in May 1996
with three key executives for a term of five years (with automatic renewal for
the President for successive five-year periods at the end of each one-year
period). The agreements require base annual compensation amounting to
$357,600 (with an increase each year in the base salary of at least 10% over
the preceding year) plus a bonus of 2% to 6% of annual pre-tax income. The
agreements also provide at the beginning of each fiscal year for the issuance
of warrants to purchase shares of stock ranging from 10,000 to 100,000
shares at an exercise price equal to the fair market value per share of
common stock plus 10% at the time of grant. All warrants shall have a term
of not less than ten years. Additional warrants may be issued upon the
achievement of certain annual pre-tax income.
Employee Bonus Plan
The Company has a bonus plan from which various employees may receive
additional compensation. The plan consists of a fund of up to 14% of the
Company's quarterly income before any provision for income taxes (except
that no bonuses are to be paid on the first $100,000 of income generated in
a year). No bonuses were paid under this plan during the years ended
May 31, 1996 and 1995.
Consulting Agreements
During June 1996, the Company entered into three agreements with various
consultants for periods of one and three years. The agreements provide for
issuance of 820,415 shares of common stock and warrants to purchase
300,000 shares of common stock at an exercise price of $2.00. In addition,
the Company is required to pay two consultants fees amounting to $264,000
per year for three years and a bonus to one consultant at 5% of funds from
investors arranged by the consultant.
Guarantees
In 1989, a stockholder of the Company purchased $100,000 of common
stock. In connection with the transaction, the Company and its President have
jointly and severally agreed to repurchase such stock for its cost of $100,000
upon the death of said stockholder, provided the beneficiaries wish to sell the
stock.
As consideration for the Company President's guarantee of certain of the
Company's indebtedness (see Note 8), the Company has agreed to guarantee
certain indebtedness for him and to pay him a fee of 2% of the net indebtedness
guaranteed. During the years ended May 31, 1996 and 1995, approximately
$15,000 and $18,000, respectively, has been included in interest
expense as a result of this agreement.
10. Income Taxes
The components of the net deferred income tax assets consist of the
following:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 608,000
Inventory 24,000
Accrued interest 17,000
Accrued compensation 96,000
Other 13,000
Gross deferred income tax assets 758,000
Valuation allowance (705,000)
Total deferred income tax assets 53,000
Deferred income tax liabilities:
Depreciation (53,000)
Net deferred income tax assets $ -
</TABLE>
The change in the valuation allowance for deferred tax assets was an increase
of approximately $301,000 during 1996.
The following summary reconciles differences from taxes at the federal
statutory rate with the effective rate:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Federal income taxes at statutory rates (34.0%) (34.0%)
Losses without tax benefits 34.0% 34.0%
Income taxes at effective rates 0% 0%
</TABLE>
Unused net operating losses (NOLs) for income tax purposes, expiring in
various amounts in 2007 and 2011 of approximately $1,615,000, are
available at May 31, 1996 for carryforward against future years' taxable
income. If the Company elects to file a consolidated federal income tax return
in future years, as a result of the acquisition of Imagica, Inc., the use of
approximately $568,000 of these NOLs may be limited under the provisions
of section 382 of the Internal Revenue Code of 1986, as amended. Addition-
ally, these NOLs are limited under the provisions of 1.1502-21 of Treasury
Regulations regarding separate return limitation years and can only be utilized
to the extent that income is generated by Imagica, Inc.
The deferred tax asset of approximately $608,000 related to the tax benefit of
these losses has been offset by a valuation allowance due to the uncertainty
of its realization.
11. Capital Stock
Employee Stock Options and Notes Receivable
Stock options were granted to certain key employees of the Company under
an incentive stock option plan adopted in 1994. The plan provided for the
granting of up to 250,000 options.
During 1995, the Company granted employees 250,000 options under this
plan at a purchase price of $1.00. The options were granted at or above fair
market value, and no compensation expense was recorded. All of the 250,000
options were exercised during 1995, and as allowed under the 1994 stock
option plan, payment for the shares was made in the form of ten-year
promissory notes bearing interest at prime (8.25% at May 31, 1996). Interest
is payable monthly, and the principal is due in full in July 2004. The notes
are collateralized by the underlying stock.
Non-Plan Stock Options
The Company granted stock options to certain consultants of the Company
which were not issued under stock option plans. The options were granted at
or above fair market value, and no compensation expense was recorded. The
options are exercisable over a ten-year period from the date of grant and are
summarized as follows:
<TABLE>
<CAPTION>
Option Price
Shares Per Share
<S> <C> <C>
Balance, May 31, 1994 - $ n
Granted 250,000 $.24 - 4.00
Balance, May 31, 1995 250,000 $.24 - 4.00
Canceled (140,000) $.24 - 4.00
Balance, May 31, 1996 110,000 $.24 - 4.00
Shares exercisable at May 31, 1996 110,000 $.24 - 4.00
</TABLE>
Stock Warrants
During 1995, the Company issued 50,000 common stock warrants in
connection with financial consulting agreements. The warrants were
exercisable upon issuance and have no expiration date. None of these
warrants have been exercised. Information relating to these warrants is
summarized as follows:
<TABLE>
<CAPTION>
Number of Exercise
Shares Price
<S> <C>
25,000 $4.00
25,000 8.00
</TABLE>
The Company had 34,001 common stock warrants outstanding as of May 31,
1994. These warrants had exercise prices of $12.00 per share and were due
to expire in February 1995. During 1995, 2,475 of the warrants were
exercised, and the remaining warrants expired.
Conversion of Class A and B Common Stock
In July 1994, the Board of Directors authorized an amendment to the
Company's Articles of Incorporation to replace its Class A and B common
stock with a single class of $.001 par value common stock and to increase the
number of authorized shares of common stock from 1,875,000 to 6,250,000.
Stock Split
In May 1996, the Board of Directors authorized an 8-for-1 reverse stock split
for shareholders of record as of May 22, 1996. In July 1996, the Board of
Directors authorized an increase in the number of authorized shares of
common stock from 6,250,000 to 50,000,000. All common shares and per
share amounts have been adjusted to give effect to the reverse stock split and
increase in authorized shares.
Shares Reserved
At May 31, 1996, the Company has reserved common stock for future
issuance as follows:
<TABLE>
<S> <C>
Non-plan stock options 110,000
Stock warrants 50,000
Total common shares reserved 160,000
</TABLE>
12. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash paid for interest $156,529 $88,616
Noncash financing and investing activities:
Disposal of land for purchase of treasury stock
and reduction of note payable and redeemable
common stock in connection with settlement of
lawsuit (Note 13) 239,490 -
Issuance of common stock as payment
for consulting services 45,970 50,516
Issuance of common stock as payment of
accrued interest to stockholders - 4,491
Purchase of equipment through capital
lease obligations - 37,236
Deposit on equipment made through a
capital lease obligation - 60,000
</TABLE>
13. Redeemable Common Stock
In July 1992, the Company purchased land for future development from an
unrelated third party (the "seller") for total consideration of approximately
$240,000 (consisting of cash of $150,500, of which $125,000 was borrowed
from a bank, and 12,500 shares of the Company's common stock). In
connection with this transaction, the Seller had the option to require the
Company to repurchase the common stock for $10.64 per share if he
remained owner of such shares on July 15, 1994. Subsequent to May 31,
1994, the Seller elected to require the Company to repurchase the common
stock for $10.64 per share. The president of the Company has personally
guaranteed this repurchase. A current liability of $133,250 was recognized as
of May 31, 1994 for the redemption value of the common stock. In October
1994, the seller filed a complaint for breach of contract and enforcement of
guarantee against the Company and the Company's president.
During 1996, a 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.
14. Subsequent Event
On June 12, 1996, the Company entered into a Stock Purchase Agreement
with MIT Acquisition Corp. ("MIT") and the sole stockholder of MIT-FX,
Inc. ("MIT-FX") pursuant to which the Company agreed to purchase all of
the outstanding shares of MIT-F/X, a company engaged in the digital video
animation business, for a purchase price of $500,000 and 150,000 restricted
shares of the Company's common stock. The agreement provides that in
consideration of MIT-FX stockholder's assignment to the Company of its
rights to acquire all of the outstanding shares of MIT-F/X, the Company will
transfer 1,000,000 restricted common shares to MIT. The agreement also
provides that MIT-F/X will enter into a five-year employment agreement with
the stockholder of MIT-F/X at a minimum base salary of $60,000 per year.
The agreement further provides that the acquisition shall be void and all
payments previously made to the stockholder forfeited in the event the
Company is not able to arrange for production financing no later than
January 15, 1997 for MIT-F/X in an amount not less than $4,934,000.
Closing has not occurred under the Stock Purchase Agreement and is not
scheduled.
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
On April 19, 1995, the Company dismissed DeLoitte & Touche as
its auditors and retained BDO Seidman to act as the Company's
auditors. There were no disagreements on accounting or auditing
issues.
PART III.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The following are the officers, directors and/or key employees
of the Company as of May 31, 1996:
Name Age Position
Robert S. Wormser 66 President, Chief Executive
Officer,
Treasurer, Director
William J. White 30 Vice President of Manufacturing
Director
Pruitt L. Hall, Jr. 37 Vice President of Computer Systems
Tracie M. Dawson 40 Secretary
Directors are normally elected for a term of one year or until
their successors are elected and have been qualified. Robert S.
Wormser and William J. White were re-elected as directors at the
annual stockholders' meeting on October 30, 1995, for a term of one
year or until their successors were elected and seated. None of the
persons listed in this section are related to each other. Robert S.
Wormser is the major stockholder of the Company's Common Stock and
thereby will control the election of the Company's Board of Directors
for the foreseeable future. Directors are not compensated for their
services as such.
Robert S. Wormser, who founded the Company in 1987, has served
as its President and Chief Executive Officer since its inception.
Prior to the Company's formation, Mr. Wormser successfully
started and sold numerous companies, including Emergency One, Inc.,
which he co-founded in 1974 and subsequently sold to Federal Signal
Corporation ("Federal"), a New York Stock Exchange company for
$6,000,000. Subsequent to the sale, Mr. Wormser continued to serve as
Emergency One's Chairman and Chief Executive Officer (from 1979 to
1984), during which time annual sales rose to $50,000,000.
Subsequently, and at Federal's request, Mr. Wormser developed a new
subsidiary named Federal Motors. During the period September 1984 to
April 1986, Mr. Wormser served as President of Federal Motors.
Through his management and policy decisions, he developed the
subsidiary in one year's time to a profitable position and sales in
1985 of $21,000,000.
William J. White joined the Company in 1986 and was instrumental
in its start-up, participating in all areas of product development
and production. In so doing, be played a large part in the design and
development of the Company's computerized sign masking equipment and
was also responsible for the development of the custom banner masking
process. During the period 1986 to 1990, Mr. White served the Company
in various capacities, including plant supervisor and art department
supervisor, where he was responsible for production planning, custom
banner design and plotting, dark room and art department development
and screen print art generation.
Mr. White left the Company's employ in 1990 to establish his own
business, William White's Maintenance. Mr. White owned and operated
this business for approximately two years during which time he was
responsible for all phases of the business, serving over 50 accounts
in central Florida, including many large companies such as J.C.
Penney's and LaPetite Academy Day Care Centers.
Mr. White returned to the Company's employ in August 1992 as
Plant Manager and was appointed Vice President of Manufacturing in
the latter half of the fiscal year ended June 30, 1993.
Pruitt L. Hall. Jr. joined the Company in May 1990 and is
currently serving as its Vice President of Computer Systems. As such,
Mr. Hall is responsible for the control and supervision of all
computer operations, including business and accounting, manufacturing
and data collection and graphics arts systems.
Prior to joining the Company and during the period 1987-1990,
Mr. Hall served as the Asset-Liability Manager at Mid-State Federal
Savings Bank. His primary responsibilities included maintenance of
the Sendero Asset-Liability Model, determining the bank's Gap
Position and developing and maintaining deposit and branch
performance reporting.
Tracie M. Dawson has been employed by the Company since its
inception and is one of the Company's top salespersons. She is also
the Secretary of the Company, and as such is responsible for
stockholder relations and maintenance of the Company's stock transfer
ledger.
Item 10. Executive Compensation.
During the periods ended May 31, 1996, 1995, and 1994, the
Company's Chief Executive Officer was the only executive whose
compensation exceeded $100,000. The following table sets forth
information relative to his compensation for each of the last three
fiscal periods:
<TABLE>
<CAPTION>
Name and All Other
Principal Position Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
Robert S. Wormser, 1996 $145,728 $-0- $126,525 <F1>
C.E.O.
1995 $146,000 $-0- $48,542
1994 $134,000 $7,000 $42,300
<FN>
<F1>
Includes accrued but unpaid salary from Imagica, Inc. of $88,000
</TABLE>
The Company entered into a five (5) year employment agreement
with its President May 31, 1996, which provides for an annual salary
of $252,600 with 10% increases annually and a bonus of 6% of pre-tax
income. The agreement is automatically renewed for a period of five
(5) years annually. Additionally on the first day of each year that
the employment agreement is in effect, Mr. Wormser shall receive
warrants to purchase 100,000 shares of common stock at an exercise
price equal to the 110% of the fair market value of the shares on the
date of the grant for a period of ten (10) years. Under the terms of
the Agreement Mr. Wormser receives the use of a company car and to
have his health and life insurance premiums paid. Lastly, and as
consideration for the President's guarantee of substantially all of
the Company's indebtedness, the Company has agreed to guarantee
indebtedness for him which approximated $133,000 at May 31, 1996, and
to pay him a fee of 2% of the net indebtedness he has guaranteed. The
cost of these items has been included in "All Other Compensation"
above.
Under the terms of the employment contract, the President has
agreed that during his period of employment with the Company, he will
not directly or indirectly, through one or more intermediaries,
compete with, or for such period divulge the trade secrets of the
Company, without the prior written consent of the Board of Directors
of the Company. The deferred compensation arrangement in a previous
agreement was eliminated, and accordingly deferred compensation of
$35,000 previously recorded was reversed during fiscal 1995.
The Company non-qualified Profit Sharing Bonus Plan was
established September 17, 1990 (for various employees as determined
by the President). The plan consists of a fund of up to 14% of the
Company's net quarterly profits before provision for taxes (except
that no bonuses are to be paid on the first $100,000 of income
generated in any given year). No bonuses were paid under this plan
during the fiscal periods ended May 31, 1996 and May 31, 1995.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth information, as of September 11,
1996, relative to stockholders known by the Company to be the
beneficial owners of more than 5% of its outstanding common stock,
stock owned by directors individually and by all officers and
directors as a group.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial Relationship<F2> % of Common
Stock
<S> <C> <C>
Robert S. Wormser<F1> 1,257,905<F2> 49.52%
William J. White 22,400 .8%
Donna M. Wormser 152,074 5.99%
P.O. Box 916
Summerfield, FL 34491
Tim Murray 140,000 5.51%
All Officers and
Directors as a Group
(2 persons) 1,257,905 45.62%
<FN>
<F1>
Address in care of the Company, 1518 S. W. 12th Avenue, Ocala,
Florida 34474.
<F2>
Includes 530,075 shares for which Mr. Wormser holds voting power.
<F3>
The Company believes that all persons referred to in the table have
sole voting and investment power with respect to all shares of Common
Stock reflected except Mr. White and Ms. Dawson who have irrevocably
assigned to Robert S. Wormser for a period of 10 years the right to
vote their stock in the Company. Because of such assignments,
ownership of All Officers and Directors as a Group is the same as
Robert S. Wormser's ownership. Mr. Wormser holds voting rights under
similar arrangements covering the stock issued to most other
employees and some other stockholders. 934,000 shares held under
such voting proxies are included as beneficially owned by Robert S.
Wormser.
</FN>
</TABLE>
Item 12. Certain Relationships and Related Transactions.
Pursuant to the terms of the lease on the Company's principal
facilities at 1518 S. W. 12th Avenue, Ocala, Florida, prior to
September 27, 1989, the Company held the option to purchase the
facilities for $295,000. The lease at that time provided for rental
payments of $39,600 per annum or $1.98 per square foot of usable
space. The Board of Directors of the Company was presented with the
opportunity to have the Company exercise its option to purchase the
facilities, but the option was unable to be exercised at that time
because of the Company's financial condition.
Accordingly, and because the Company plans to expand its
facilities (the landlord imposed various restrictions relative to
same), on September 27, 1989, J. R. Gunter (a stockholder of the
Company), Robert S. Wormser and Mark K. Wormser (doing business as
"GWW Partnership") purchased the facilities from an unaffiliated
third party landlord for $295,000 and then entered a five-year
operating lease agreement with the Company (currently, only Robert
Wormser and J. R. Gunter are partners in the GWW Partnership). The
Company has an option to purchase the property from GWW Partnership
for $500,000, exercisable at any time during the lease term (which
expires September, 1999). GWW Partnership obtained recourse purchase
money financing from First Union National Bank of Florida, which
required the guaranty of the Company to consummate the purchase. As
originally signed, the Company's guaranty was unconditional and a
continuing guaranty of payment, and not of collection, and
unintentionally secured all indebtedness of any of the members of GWW
Partnership to First Union National Bank of Florida. On October 22,
1990, the guaranty was modified to exclude from its provisions any
indebtedness of the individual members of GWW Partnership except that
specifically related to the acquisition of the facility acquired by
GWW Partnership (such debt approximated $264,000 at May 31, 1996).
After the purchase, the facility was expanded by approximately 5,000
square feet. The Company paid approximately $23,350 of the total
costs of leasehold improvements which was for rewiring the facility
to accommodate the Company's equipment; the remaining $38,000 was
paid by GWW Partnership.
The Company's lease with GWW Partnership provides for $60,000 of
rent per annum or $2.40 per square foot, and includes customary terms
and conditions. The Company believes the lease terms are as favorable
as could be expected from a third party lessor based on the Company's
existing lease (with a third party lessor) on a second facility of
approximately 18,500 square feet, which has rent of approximately
$2.79 per square foot.
Pursuant to the Company's 1994 Employee Stock Option Plan
approved by the shareholders at the 1994 shareholders' meeting, on
November 29, 1994, the Company issued options to purchase common
shares at a price of $1.00 per share to certain officers and
directors in the following amounts: Robert S. Wormser - 177,500
shares; Terry Putty - 12,500 shares; William White - 15,000 shares;
and Tracie Dawson - 15,000 shares. During 1995, all options were
exercised by the execution of promissory notes bearing interest at
the prime rate payable ten years from execution.
The Company also has executed a two-year note to Kenworth of
Tampa, an entity controlled by J. R. Gunter (at May 31, 1996, this
obligation approximated $25,000). The note is secured by certain
equipment.
In 1989, Mr. J. R. Gunter purchased $100,000 of stock. In
connection with the transaction, the Company and its President have
jointly and severally agreed to repurchase such stock for its cost of
$100,000 upon the death of said stockholder, provided the
beneficiaries wish to sell such stock.
Robert S. Wormser has personally guaranteed substantially all of
the Company's long-term indebtedness and capital lease obligations.
In consideration of these guarantees, the Company has guaranteed
certain indebtedness for him and to pay him a fee of 2% of the net
indebtedness guaranteed. During the fiscal periods ended May 31,
1996, and May 31, 1995, approximately $15,000 and $18,000 was earned
by the President under the agreement.
In July 1992, the Company purchased land from an unrelated third
party (the "Seller") for total consideration of approximately
$240,000 (consisting of cash of $150,500 of which $125,000 was
borrowed from Sun Bank of Ocala, and 12,500 shares of redeemable
common stock). In connection with this transaction, the Seller has
elected to require the Company to repurchase the stock for $10.64 per
share. The President of the Company has personally guaranteed this
repurchase. (See "Legal Proceedings.")
On August 19, 1992, and September 8, 1992, the Company sold
8,333 and 4,167 shares of its Class B common stock to Robert D. Gober
for $100,000 and $50,000, respectively (representing a price of
$12.00 per share). No underwriting discounts or commissions were paid
on the transactions.
In connection with the settlement of litigation, Mark Wormser
(Robert S. Wormser's son) allowed the Company to repurchase his stock
for a total purchase price of $119,000. Payment for the shares is to
be over a period of five years in monthly principal and interest
installments of approximately $2,400.
In September, 1994, January, 1995, and June, 1996, the Company
issued 625, 37,500, and 820,415 common shares to four individuals for
consulting services, respectively. In August, 1996, one consultant
was granted a three-year option to purchase 300,000 shares at a price
of $2.00 per share.
On October 4, 1995, the Company entered in to a letter of intent
to acquire KMC Leasing, Inc., a company engaged in heavy equipment
leasing ("KMC"). The letter of intent provide that the Company would
acquire substantially all of the assets of KMC in exchange for
1,600,000 shares of the Company's common stock. Closing was subject
to a number of conditions including the negotiation and execution of
a definitive agreement, due diligence reviews by both parties and the
ability of the Company to obtain listing on the NASDAQ Small Cap
market immediately following the acquisition. On May 17, 1996, the
Company elected not to proceed with the acquisition.
On June 12, 1996, the Company entered into a Stock Purchase
Agreement with Larry Mitchell and MIT Acquisition Corp pursuant to
which the Company agreed to purchase all of the outstanding shares of
MIT-F/X, Inc., a company engaged in the digital video animation
business for a purchase price of $500,000 and 150,000 of the
Company's common shares. The agreement provides that in
consideration of MIT Acquisition, Inc.s' assignment to the Company of
its rights to acquire all of the outstanding shares of MIT F/X, the
Company will transfer 1,000,000 common shares to MIT Acquisition,
Inc. The agreement also provides that MIT F/X will enter into a
five-year employment agreement with Mr. Mitchell at a minimum base
salary of $60,000 per year. The agreement further provides that the
acquisition shall be void and all payments previously made to Mr.
Mitchell forfeited in the event the Company is not able to arrange
for production financing for MIT F/X in an amount not less than
$4,934,000. Closing has not occurred under the Stock Purchase
Agreement and is not scheduled.
PART IV.
Item 13. Exhibits.
Page
(a) Exhibits
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession.
None
(3) Restated Articles of Incorporation and By-Laws
previously filed as an Exhibit to Form S-18 filed
January 7, 1991, incorporated herein by reference.
(4) Instruments defining the rights of holders,
including indentures.
None
(9) Voting Trust Agreement
None
(10) Material Contracts
(a) Facility Lease between the Company and GWW
Partnership, dated September 27, 1989,
previously filed as an Exhibit to Form S-18
filed on January 7, 1991, incorporated herein
by reference.
(b) Facility Lease between the Company and CYNWD
dated June 16, 1990, previously filed as an Exhibit
to Form S-18 filed January 7, 1991, incorporated
herein by reference.
(c) Contract for Sale and Purchase (including Addendum
and Subscription Agreement) between the Company
and C.L. Dinkins, Jr. Trustee, dated May 15,
1992,
previously filed as an Exhibit to Form 10-K filed
on April 26, 1993, incorporated herein by reference.
(d) Irrevocable Voting Proxy between Richard D. Brown
and the Company, dated June 30, 1988, previously filed
as an Exhibit to Form 10-K filed on April 26,
1993,
incorporated herein by reference.
(e) Irrevocable Voting Proxy between Robert W. Burnham
and the Company dated June 30, 1988, previously filed
as an Exhibit to Form 10-K filed on April 26, 1993,
incorporated herein by reference.
(f) Irrevocable Voting Proxy between Mark S. Heller and
the Company, dated June 30, 1988, previously filed
as an Exhibit to Form 10-K filed on April 26, 1993,
incorporated herein by reference.
(g) Irrevocable Voting Proxy between John Leard and
the Company, dated October 31, 1989, previously filed
as an Exhibit to Form 10-K filed on April 26, 1993,
incorporated herein by reference.
(h) Irrevocable Voting Proxy between William J. White and
the Company, dated June 30, 1988, previously filed
as an Exhibit to Form 10-K filed on April 26, 1993,
incorporated herein by reference.
(i) Irrevocable Voting Proxy between Tracie Dawson and
the Company, dated June 30, 1988, previously filed
as an Exhibit to Form 10-K filed on April 26, 1993,
incorporated herein by reference.
(j) Commitment for Equipment between Climax, Inc. and
the Company, dated February 13, 1992, previously filed
as an Exhibit to Form 10-K filed on April 26, 1993,
incorporated herein by reference.
(k) Stock Repurchase Agreement between J. R. Gunter,
Robert Wormser, Mark Wormser and the Company
dated April 27, 1989.
(l) Employment Agreement between the Company and
Robert Wormser dated June 1, 1993, previously filed
as an Exhibit to Form 10-KSB filed on or about
December 20, 1993, incorporated herein by reference.
(m) Agreement between the Company and Florida Gulf
Capital & Equity Corp., Inc. previously filed as an
Exhibit to Form 10-QSB filed on or about May 13,
1994, incorporated herein by reference.
(n) Irrevocable Voting Proxy between Donna Wormser
and the Company, dated March 3, 1993, previously
filed as an Exhibit to Form 10-KSB filed October 26,
1994, incorporated herein by reference.
(o) Irrevocable Voting Proxy between Pruitt Hall
and the Company, dated July 22, 1994, previously
filed as an Exhibit to Form 10-KSB filed October 26,
1994, incorporated herein by reference.
(p) Irrevocable Voting Proxy between William J. White
and the Company, dated July 22, 1994, previously
filed as an Exhibit to Form 10-KSB filed October 26,
1994, incorporated herein by reference.
(q) Irrevocable Voting Proxy between Tracie Dawson
and the Company, dated July 22, 1994, previously
filed as an Exhibit to Form 10-KSB filed October 26,
1994, incorporated herein by reference.
(r) Irrevocable Voting Proxy between Carol Monroe
and the Company, dated July 29, 1994, previously
filed as an Exhibit to Form 10-KSB filed October
26,
1994, incorporated herein by reference.
(s) Irrevocable Voting Proxy between Sharon Rava
and the Company, dated July 22, 1994, previously
filed as an Exhibit to Form 10-KSB filed October 26,
1994, incorporated herein by reference.
(t) Irrevocable Voting Proxy between Ricky Brown
and the Company, dated July 22, 1994, previously
filed as an Exhibit to Form 10-KSB filed October 26,
1994, incorporated herein by reference.
(u) Irrevocable Voting Proxy between Mark Slaughter
and the Company, dated July 22, 1994, previously
filed as an Exhibit to Form 10-KSB filed October 26,
1994, incorporated herein by reference.
(v) Irrevocable Voting Proxy between John Fernung
and the Company, dated July 22, 1994, previously
filed as an Exhibit to Form 10-KSB filed
October 26, 1994, incorporated herein by
reference.
(w) Consulting Agreement Tod Lotz
and the Company, dated June 12, 1996,
previously filed as an Exhibit to Form S-8
filed July 10, 1996, incorporated herein
by reference.
(x) Consulting Agreement Mark Schultz
and the Company, dated July 10, 1996,
previously filed as an Exhibit to Form S-8
filed July 10, 1996, incorporated herein
by reference.
(y) Consulting Agreement Tod Lotz
and the Company, dated August 12, 1996,
previously filed as an Exhibit to Form S-8
filed September 4, 1996, incorporated herein
by reference.
(z) Consulting Agreement between Tim Murray
and the Company, dated August 12, 1996,
previously filed as an Exhibit to Form S-8
filed September 4, 1996, incorporated herein
by reference.
(11) Statement re: computation of per share earnings None
(18) Letter on change in accounting principles None
(21) Subsidiaries of the Registrant None
(22) Published report re: matters submitted to vote of security holders None
(24) Power of Attorney None
(28) Information from reports furnished to state
insurance regulatory authorities None
(99) Additional Exhibits None
(b) Form 8-K
There were no reports on Form 8-K filed during the last quarter
in the period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
(Registrant) IMAGICA ENTERTAINMENT, INC. (f/k/a Ranger International, Inc.)
/s/ Robert S. Wormser
ROBERT S. WORMSER
President, Chief Executive Officer, Chief Financial Officer, Chief Operating
Officer
Date: September 30, 1996
/s/ William J. White
WILLIAM J. WHITE
Director
