SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report:
February 5, 1999
IMAGICA ENTERTAINMENT, INC.
---------------------------
(Exact name of registrant as specified in charter)
Florida 33-37968-A 59-2762999
------- ---------- ----------
(State or other jurisdiction) (Commission File Number) (IRS Employer ID No.)
1518 SW 12th Avenue, Ocala, Florida 34474
-----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 352-867-7861
<PAGE>
Item 5. Other Events
The Company's high, low and close stock price on January 27, 1999, the last
day of trading in January was $1.00. The aggregate market value of voting stock
held by non affiliates was $1,412,891 on that date. The aggregate value of all
voting stock on that date was $4,221,371.
The following financial statements are filed as a part of this report.
These statements are filed for the purpose of getting into the hands of the
investing public, the financial information that will be incorporated in the
Company's unfiled 10k's and 10q's at the earliest date. The Company is currently
preparing these unfiled reports and will submit to the SEC as soon as possible.
1. Audited 1997 fiscal year
2. Audited 1998 fiscal year
3. Unaudited first quarter 1999, August 1998
4. Unaudited second quarter 1999, November 1998
<PAGE>
Imagica Entertainment, Inc.
Financial Statements
As of May 31, 1997
and for the Years Ended May 31, 1997 and 1996
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Imagica Entertainment, Inc.
We have audited the accompanying balance sheet of Imagica Entertainment, Inc.
(formerly Ranger International, Inc.) as of May 31, 1997, and the related
statements of operations, stockholders' equity (capital deficit) and cash flows
for each of the two years in the period ended May 31, 1997. These 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 financial statements referred to above present fairly, in
all material respects, the financial position of Imagica Entertainment, Inc. at
May 31, 1997, and the results of its operations and its cash flows for each of
the two years in the period ended May 31, 1997 in conformity with generally
accepted accounting principles.
/s/ BDO Seidman, LLP
-------------------------
BDO Seidman, LLP
Orlando, Florida
April 23, 1998
<PAGE>
Imagica Entertainment, Inc.
Balance Sheet
May 31,
1997
----
Assets (Note 6)
Current:
Cash $ 67,127
Accounts receivable, less allowance for
possible losses of $13,189 316,531
Inventories 129,849
Prepaid expenses 32,887
--------
Total current assets 546,394
Property and equipment, net (Note 3) 231,494
Other assets 6,277
--------
$784,165
========
<PAGE>
Imagica Entertainment, Inc.
Balance Sheet
May 31,
1997
----
Liabilities and Capital Deficit
Current liabilities:
Debenture payable (Note 4) $ 25,000
Accounts payable 601,216
Note payable to stockholders (Note 5) 7,185
Accrued expenses:
Payroll 44,107
Interest 40,789
Other 135,605
Current maturities of long-term debt (Note 6) 110,708
Current portion of obligations under capital leases (Note 7) 52,570
-----------
Total current liabilities 1,017,180
Long-term debt, less current maturities (Note 6) 222,539
-----------
Total liabilities 1,239,719
-----------
Commitments and contingencies (Note 7)
Redeemable common stock (Note 7) 100,000
Capital deficit (Notes 6 and 9):
Common stock, $.001 par value, shares authorized 50,000,000;
issued 510,857 511
Additional paid-in capital 5,214,113
Accumulated deficit (5,678,938)
-----------
(464,314)
Less: Treasury stock, at cost, 9,750 shares 91,240
-----------
Total capital deficit (555,554)
-----------
$ 784,165
===========
See accompanying summary of significant accounting policies
and notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Imagica Entertainment, Inc.
Statements of Operations
Year ended May 31,
1997 1996
---- ----
<S> <C> <C>
Sales $ 3,158,086 $ 4,716,119
Cost of sales 2,376,499 3,713,906
----------- -----------
Gross profit 781,587 1,002,213
Operating expenses 1,118,224 1,204,544
Consulting expenses paid by issuance of common stock 2,861,406 36,960
Write off of due from stockholder and affiliate 518,788 --
Write off of notes receivable 72,500 --
----------- -----------
Loss from operations (3,789,331) (239,291)
----------- -----------
Other income (expenses):
Interest (245,737) (113,385)
Write off of equipment not yet placed in service (206,632) (39,720)
Loss on disposal of property and equipment (95,554) --
Other 474 (9,281)
----------- -----------
(547,449) (162,386)
----------- -----------
Net loss $(4,336,780) $ (401,677)
=========== ===========
Loss per share $ (13.11) $ (3.81)
=========== ===========
Weighted average common shares outstanding 330,711 105,316
=========== ===========
See accompanying summary of significant accounting policies
and notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Imagica Entertainment, Inc.
Statements of Stockholders' Equity (Capital Deficit)
Additional
Common Stock Paid-in Treasury Stock
Shares Amount Capital Shares Amount
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1995, as previously reported 163,533 $ 164 $ 1,743,469 8,500 $ (85,000)
Rescission of merger (Note 2) (58,009) (58) (117,822) -- --
----------- ----------- ----------- ----------- -----------
Balance, May 31, 1995, as restated 105,524 106 1,625,647 8,500 (85,000)
Purchase of treasury stock in settlement
of lawsuit (Note 11) -- -- -- 1,250 (6,240)
Issuance of common stock for consulting services 14,000 14 36,946 -- --
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, May 31, 1996 119,524 120 1,662,593 9,750 (91,240)
Sale of common stock 100,000 100 19,900 -- --
Issuance of common stock for consulting services 120,541 120 2,861,286 -- --
Conversion of debentures and accrued interest 97,667 98 303,749 -- --
Common stock issued for reduction in
amounts due stockholder 60,000 60 215,940 -- --
Exercise of stock options 13,125 13 17,312 -- --
Reduction of note receivable -- -- -- -- --
Write off of note receivable -- -- -- -- --
Beneficial conversion feature on issuance
of convertible debentures -- -- 133,333 -- --
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, May 31, 1997 510,857 $ 511 $ 5,214,113 9,750 $ (91,240)
=========== =========== =========== =========== ===========
<PAGE>
Imagica Entertainment, Inc.
Statements of Stockholders' Equity (Capital Deficit)
(Continued)
Notes
Receivable
Arising
from the
Exercise of
Stock Accumulated
Options Deficit
------- -------
Balance, May 31, 1995, as previously reported $ (250,000) $(1,497,037)
Rescission of merger (Note 2) -- 940,006
----------- -----------
Balance, May 31, 1995, as restated (250,000) (557,031)
Purchase of treasury stock in settlement
of lawsuit (Note 11) -- --
Issuance of common stock for consulting services -- --
Net loss -- (785,127)
----------- -----------
Balance, May 31, 1996 (250,000) (1,342,158)
Sale of common stock -- --
Issuance of common stock for consulting services -- --
Conversion of debentures and accrued interest -- --
Common stock issued for reduction in
amounts due stockholder -- --
Exercise of stock options -- --
Reduction of note receivable 177,500 --
Write off of note receivable 72,500 --
Beneficial conversion feature on issuance
of convertible debentures -- --
Net loss -- (4,336,780)
----------- -----------
Balance, May 31, 1997 $ -- $(5,678,938)
=========== ===========
See accompanying summary of significant accounting policies
and notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Imagica Entertainment, Inc.
Statements of Cash Flows
Year ended May 31,
1997 1996
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net loss $(4,336,780) $ (401,677)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 146,482 200,814
Interest expense from beneficial conversion feature 133,333 --
Write off of due from stockholder and affiliate 518,788 --
Issuance of common stock for payment of interest 48,240 --
Write off of notes receivable 72,500 --
Issuance of common stock as payment of consulting services 2,861,406 36,960
Write off of equipment not yet placed in service 206,632 39,720
Loss on disposal of property and equipment 95,554 --
Cash provided by (used for):
Accounts receivable 166,576 139,814
Inventories 110,697 69,985
Prepaid expenses 35,936 15,893
Accounts payable 8,593 93,475
Accrued expenses 28,814 40,333
----------- -----------
Net cash provided by operating activities 96,771 235,317
----------- -----------
Cash flows from investing activities:
Increase in other assets 506 10,198
Advances to affiliate (107,963) --
----------- -----------
Net cash provided by (used for) investing activities (107,457) 10,198
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 20,000 --
Proceeds from issuance of debentures payable 175,000 --
Principal payments of stockholder note payable (20,040) (21,765)
Principal payments on long-term debt (81,647) (123,964)
Principal payments on capital lease obligations (15,500) (99,786)
----------- -----------
Net cash provided by (used for) financing activities 77,813 (245,515)
----------- -----------
Net increase in cash 67,127 --
Cash, beginning of year -- --
----------- -----------
Cash, end of year $ 67,127 $ --
=========== ===========
See accompanying summary of significant accounting policies
and notes to financial statements.
</TABLE>
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market and
consist of raw materials.
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 splits
(see Note 9). Common stock equivalents have been excluded from the loss per
share calculations since their effect would be 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.
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
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, 1997.
The respective carrying value of certain on-balance-sheet financial instruments
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.
Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," (SFAS 121) during fiscal 1997. SFAS 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. As a result of the
adoption of SFAS 121, the Company recorded $41,110 as an impairment loss in
fiscal 1997 for certain equipment no longer in use which is included in loss on
disposal of property and equipment in the statement of operations.
Stock Based Compensation
The Company adopted Statement of Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") during 1997. However, as permitted by
SFAS 123, the Company has elected to continue to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for stock based compensation to employees.
Stock options granted to non-employees are valued using a Black-Scholes option
pricing model with appropriate assumptions for risk free investment rates,
expected lives, dividend yields and volatility factors. The value of options
granted to non-employees is charged to appropriate asset or expense accounts
when the options are granted.
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS
128 establishes new standards for computing and presenting earnings per share
("EPS"). Specifically, SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS, requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997. The adoption of SFAS 128 is not expected to have
a material effect on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("FAS
130") and No. 131, "Disclosure about Segments of an Enterprise and Related
Information," ("FAS 131"). FAS 130 establishes standards for reporting and
displaying comprehensive income, its components and accumulated balances. FAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. Both FAS 130 and FAS 131 are effective for periods
beginning after December 15, 1997. FAS 130 and FAS 131 are not expected to have
a material impact on the Company's financial statements.
Reclassifications
Certain reclassifications have been made to the financial statements for the
year ended May 31, 1996 to conform with classifications used in the financial
statements for the year ended May 31, 1997.
<PAGE>
Imagica Entertainment, Inc.
Notes to 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. The Company's headquarters and
manufacturing facilities are located in Ocala, Florida.
2. Rescission of Merger
On May 29, 1996, the Company consummated a merger with Imagica, Inc.
("Imagica") with Imagica becoming a wholly-owned subsidiary of the Company.
The Company issued 62,491 shares of its common stock for all outstanding
shares of all classes of Imagica capital stock. The merger was accounted
for as a pooling of interests and the consolidated financial statements of
the Company for fiscal 1996 and 1995 were restated to include the accounts
and results of operations of Imagica.
In May 1997, the Company filed a petition for relief under Chapter 11 of
the Bankruptcy Code. In September 1997, the Board and the President of the
Company were replaced, and in November 1997, a move for an Order to Dismiss
the Company from bankruptcy was filed by the new management. In February
1998, the bankruptcy court granted the motion to dismiss without the
requirement for a Reorganization Plan. While under bankruptcy, the new
management determined that the merger was not done in the best interests of
the Company, and in September 1997, the new Board authorized the rescission
of the merger and the Company is seeking the return of the 62,491 shares,
of which 8,598 have been returned to date. In the opinion of the Company's
legal counsel, these shares do not possess the rights of stockholders
attributable to them and therefore have not been included in the
outstanding shares of the Company. As a result of the rescission of this
merger, the financial statements were restated to exclude the accounts and
results of operations of Imagica for all periods presented herein.
<PAGE>
Imagica Entertainment, Inc.
Notes to Financial Statements
3. Property and Equipment
Property and equipment are summarized as follows:
Useful Lives
------------
Furniture, fixtures and equipment 3 - 10 years $ 1,032,409
Equipment under capital leases 5 - 10 years 185,111
Leasehold improvements 4 years 163,549
Vehicles 5 years 18,763
------------
1,399,832
Less accumulated depreciation
and amortization 1,168,338
------------
$ 231,494
============
Accumulated depreciation on equipment under capital leases was $160,675 as
of May 31, 1997.
All property and equipment is pledged as collateral (see Note 6).
4. Debenture Payable
Debenture note payable amounting to $25,000 as of May 31, 1997 is
unsecured, bears interest at 8% and is currently due to a third party. The
conversion feature of this debenture expired in July 1995.
5. Note Payable to Stockholder
The Company has a note payable to a stockholder amounting to $7,185 at May
31, 1997. The note bears interest at 12% and matures in 1998.
<PAGE>
Imagica Entertainment, Inc.
Notes to Financial Statements
6. Long-Term Debt
Long-term debt consists of the following:
Note payable to a bank, bearing interest at 9.5%,
principal of $5,000 plus interest due monthly
until August 1998 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 past president. $ 235,750
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 8,500 shares of treasury stock
held by the Company. 57,342
Various notes payable, bearing interest at 9%,
principal and interest payable in monthly
installments of $799 through November 1998,
collateralized by certain Company vehicles. 6,018
Note payable bearing interest at 8%, principal and
interest payable in monthly installments of $1,000
through December 1998, when the remaining
principal is due, collateralized by equipment. 34,137
-----------
333,247
Less current maturities (110,708)
-----------
Total long-term debt $ 222,539
===========
The aggregate maturities of long-term debt maturing in future years is as
follows as of May 31, 1997:
1998 $ 110,708
1999 222,539
----------
$ 333,247
==========
<PAGE>
Imagica Entertainment, Inc.
Notes to Financial Statements
7. Commitments and Contingencies
Leases
------
The Company leases its main operating facility from a partnership that
consists of two of the Company's stockholders. 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 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 1998.
The following is a schedule by years as of May 31, 1997 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:
Capital Operating
Leases Leases
------ ------
1998 $ 57,438 $ 60,000
1999 -- 60,000
2000 -- 20,000
--------- --------
Total net minimum lease payments 57,438 $140,000
========
Less amount representing interest 4,868
---------
Present value of net minimum lease payments 52,570
Less current portion 52,570
---------
Long-term obligations under capital leases $ --
=========
Rental expense amounted to approximately $140,000 and $156,000 for the
years ended May 31, 1997 and 1996, respectively. The rental expense
includes amounts for leases with its stockholders of approximately $64,000
during the years ended May 31, 1997 and 1996.
<PAGE>
Imagica Entertainment, Inc.
Notes to Financial Statements
Guarantees
----------
In 1989, a stockholder of the Company purchased $100,000 of common stock.
In connection with the transaction, the Company and its past 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.
Litigation
----------
During fiscal 1997, the Company's Board of Directors authorized, and the
Company issued, 25,000 common shares for the conversion of $50,000 of
debentures payable in complete satisfaction of the debt. The debenture
holder contends that the 25,000 shares were to be issued in addition to the
repayment of the debt, and therefore, the $50,000 remains outstanding. The
debenture holder has threatened litigation to settle this matter.
In the normal course of conducting its business, the Company is involved in
various other litigation. The Company is not a party to any litigation
which its management believes could result in any judgments against it that
would have a material adverse affect on the Company's financial position or
results of operations.
SEC Enforcement
---------------
The Company is currently under a private investigation by the Securities
and Exchange Commission ("SEC") Enforcement Division regarding "In the
Matter of Certain Stock Advertisements." According to the SEC, this
investigation is confidential and should not be construed as an indication
by the SEC that any violations of law have occurred, or as an adverse
reflection upon any person, entity or security.
<PAGE>
Imagica Entertainment, Inc.
Notes to Financial Statements
8. Income Taxes
The components of the net deferred income tax assets consist of the
following:
Deferred tax assets:
Net operating loss carryforwards $ 622,000
Inventory 21,000
Other 9,000
---------
Gross deferred income tax assets 652,000
Valuation allowance (642,000)
---------
Total deferred income tax assets 10,000
---------
Deferred income tax liabilities:
Depreciation (10,000)
---------
Net deferred income tax assets $ --
=========
The change in the valuation allowance for deferred tax assets was an
increase of approximately $264,000 during 1997. The deferred tax asset of
approximately $622,000 related to the tax benefit of these losses has been
offset by a valuation allowance due to the uncertainty of its realization.
The following summary reconciles differences from taxes at the federal
statutory rate with the effective rate:
1997 1996
---- ----
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%
====== ======
Unused net operating losses (NOLs) for income tax purposes, expiring in
various amounts from 2007 to 2012 of approximately $1.6 million, are
available at May 31, 1997 for carryforward against future years' taxable
income. As a result of various stock issuances, the use of these NOLs may
be limited under the provisions of section 382 of the Internal Revenue Code
of 1986, as amended.
<PAGE>
Imagica Entertainment, Inc.
Notes to Financial Statements
9. 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 25,000 options. During 1995, the Company granted
employees 25,000 options under this plan at a purchase price of $10.00. The
options were granted at or above fair market value, and no compensation
expense was recorded. All of the 25,000 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. The notes receivable were
reduced by $177,500 during 1997 in the form of a reduction in the amount
due stockholder. The remaining $72,500 was written off during 1997.
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:
Option Price
Shares Per Share
------ ---------
Balance, May 31, 1995 25,000 $2.40 - 40.00
Canceled (14,000) $2.40 - 40.00
------- -------------
Balance, May 31, 1996 11,000 $2.40 - 40.00
Canceled (11,000) $2.40 - 40.00
------- -------------
Balance at May 31, 1997 -- --
======= =============
Stock Warrants
--------------
During 1995, the Company issued 5,000 common stock warrants in connection
with financial consulting agreements. The warrants were granted at or above
fair market value, and no compensation expense was recorded. 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:
Number of Exercise
Shares Price
------ -----
2,500 $40.00
2,500 80.00
===== =====
Stock Splits and Authorized Shares
----------------------------------
In May 1996, the Board of Directors authorized an 1-for-8 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. In October 1997, the
Board of Directors authorized a 1-for-10 reverse stock split for
shareholders of record as of November 6, 1997. All common shares and per
share amounts have been adjusted to give effect to the reverse stock splits
and increase in authorized shares.
<PAGE>
Imagica Entertainment, Inc.
Notes to Financial Statements
10. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
1997 1996
---- ----
Cash paid for interest $ 252,789 $ 100,399
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 (see Note 11) -- 239,490
Issuance of common stock as payment
for consulting services 2,861,406 36,960
Reduction of note receivable paid by
increase in amounts due stockholder 177,500 --
Exercise of stock options paid by increase
in amount due stockholder 17,325 --
Increase in due stockholder for issuance
of common stock 216,000 --
Conversion of debentures and accrued interest 303,847 --
========== ==========
11. Litigation Settlement
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 1,250 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 $106.40 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 $106.40 per share. The past 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 past 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 1,250 shares of common stock.
<PAGE>
Imagica Entertainment, Inc.
Financial Statements
As of May 31, 1998
and for the Years Ended May 31, 1998 and 1997
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Imagica Entertainment, Inc.
We have audited the accompanying balance sheet of Imagica Entertainment, Inc. as
of May 31, 1998, and the related statements of operations, capital deficit and
cash flows for each of the two years in the period ended May 31, 1998. These
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 financial statements referred to above present fairly, in
all material respects, the financial position of Imagica Entertainment, Inc. at
May 31, 1998, and the results of its operations and its cash flows for each of
the two years in the period ended May 31, 1998 in conformity with generally
accepted accounting principles.
/s/ BDO Seidman, LLP
--------------------
BDO Seidman, LLP
Orlando, Florida
September 23, 1998, except for Note 6,
as to which the date is October 14, 1998
<PAGE>
Imagica Entertainment, Inc.
Balance Sheet
May 31,
1998
----
Assets (Note 6)
Current:
Accounts receivable, less allowance for
possible losses of $9,616 (Note 5) $495,263
Inventories 194,922
Prepaid expenses 36,588
--------
Total current assets 726,773
Property and equipment, net (Note 2) 172,245
Other assets 12,726
--------
$911,744
========
See accompanying summary of significant accounting policies
and notes to financial statements.
<PAGE>
Imagica Entertainment, Inc.
Balance Sheet
May 31,
1998
----
Liabilities and Capital Deficit
Current liabilities:
Bank overdraft $ 31,103
Accounts payable 211,045
Debenture payable (Note 3) 25,000
Convertible notes payable, net of discount (Note 4) 31,438
Customer deposits 43,373
Accrued expenses
Payroll and related taxes 71,351
Other 56,637
Current maturities of long-term debt (Note 6) 112,904
Current portion of obligations under capital leases (Note 7) 21,345
-----------
Total current liabilities 604,196
Due to related party (Note 5) 370,883
Note payable to related party (Note 5) 154,000
Long-term debt, less current maturities (Note 6) 93,973
-----------
Total liabilities 1,223,052
-----------
Commitments and contingencies (Note 7) --
Redeemable common stock (Note 7) 100,000
Capital deficit (Note 9):
Common stock, $.001 par value, shares authorized
50,000,000; issued 2,161,357
2,162
Additional paid-in capital 7,566,484
Accumulated deficit (7,876,514)
-----------
(307,868)
Less: Treasury stock, at cost, 27,250 shares 103,440
-----------
Total capital deficit (411,308)
-----------
$ 911,744
===========
See accompanying summary of significant accounting policies
and notes to financial statements.
<PAGE>
Imagica Entertainment, Inc.
Statements of Operations
Year ended May 31,
--------------------------
1998 1997
---- ----
Sales $ 2,908,475 $ 3,158,086
Cost of sales 2,161,343 2,376,499
----------- -----------
Gross profit 747,132 781,587
Operating expenses 1,021,185 1,118,224
Compensation and consulting expenses paid by
issuance of common stock 206,640 2,861,406
Write off of due from stockholder and affiliate -- 518,788
Write off of notes receivable -- 72,500
----------- -----------
Loss from operations (480,693) (3,789,331)
----------- -----------
Other income (expenses):
Interest (Notes 4 and 5) (1,760,804) (245,737)
Write off of equipment not yet placed in service -- (206,632)
Loss on disposal of property and equipment (2,098) (95,554)
Other 46,019 474
----------- -----------
(1,716,883) (547,449)
----------- -----------
Net loss $(2,197,576) $(4,336,780)
=========== ===========
Basic loss per share $ (3.33) $ (13.11)
=========== ===========
Weighted average common shares outstanding 660,857 330,711
=========== ===========
See accompanying summary of significant accounting policies
and notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Imagica Entertainment, Inc.
Statements of Capital Deficit
Notes
Receivable
Arising
from the
Common Stock Additional Treasury Stock Exercise
---------------------- Paid-in ---------------------- of Stock Accumulated
Shares Amount Capital Shares Amount Options Deficit
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1996 119,524 $ 120 $1,662,593 9,750 $ (91,240) (250,00) (1,342,15)
Sale of common stock 100,000 100 19,900 -- -- -- --
Issuance of common stock for
consulting services 120,541 120 2,861,286 -- -- -- --
Conversion of debentures and
accrued interest 97,667 98 303,749 -- -- -- --
Common stock issued for reduction
in amounts due stockholder 60,000 60 215,940 -- -- -- --
Exercise of stock options 13,125 13 17,312 -- -- -- --
Reduction of note receivable (Note 9) -- -- -- -- -- 177,500 --
Write off of note receivable (Note 9) -- -- -- -- -- 72,500 --
Beneficial conversion feature on
issuance of convertible debentures -- -- 133,333 -- -- -- --
Net loss -- -- -- -- -- -- (4,336,78)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, May 31, 1997 510,857 511 5,214,113 9,750 (91,240) -- (5,678,93)
Sale of common stock 300,000 300 29,700 -- -- -- --
Issuance of common stock as
compensation to employees 150,500 151 206,489 -- -- -- --
Common stock issued for reduction
in amounts due related party (Note 5) 1,200,000 1,200 238,800 -- -- -- --
Beneficial conversion feature on common
stock issued for reduction in amounts
due related party (Note 5) -- -- 1,484,400 -- -- -- --
Issuance of stock options for purchase
of treasury stock (Note 9) -- -- 12,200 17,500 (12,200) -- --
Beneficial conversion feature on issuance
of convertible notes payable (Note 4) -- -- 380,782 -- -- -- --
Net loss -- -- -- -- -- -- (2,197,57)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, May 31, 1998 2,161,357 $ 2,162 $7,566,484 27,250 $ (103,440) -- $(7,876,51)
========== ========== ========== ========== ========== ========== ==========
See accompanying summary of significant accounting policies
and notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Imagica Entertainment, Inc.
Statements of Cash Flows
Year ended May 31,
--------------------------
1998 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net loss $(2,197,576) (4,336,780)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization 82,745 146,482
Interest expense from beneficial conversion features 1,696,620 133,333
Write off of due from stockholder and affiliate -- 518,788
Issuance of common stock for payment of interest -- 48,240
Write off of notes receivable -- 72,500
Issuance of common stock as compensation 206,640 --
Issuance of common stock as payment of consulting services -- 2,861,406
Write off of equipment not yet placed in service -- 206,632
Loss on disposal of property and equipment 2,098 95,554
Cash provided by (used for):
Accounts receivable (178,732) 166,576
Inventories (65,073) 110,697
Prepaid expenses (3,701) 35,936
Accounts payable 138,407 8,593
Customer deposits (4,617) --
Accrued expenses (44,523) 28,814
----------- -----------
Net cash provided by (used for) operating activities (367,712) 96,771
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (11,334) --
Advances to affiliate -- (107,963)
Increase (decrease) in other assets (6,449) 506
----------- -----------
Net cash used for investing activities (17,783) (107,457)
----------- -----------
Cash flows from financing activities:
Increase in bank overdraft 31,103 --
Proceeds from issuance of common stock 30,000 20,000
Proceeds from issuance of convertible notes payable 200,000 --
Proceeds from issuance of debentures payable -- 175,000
Net advances under note payable to related party 154,000 --
Principal payments of stockholder note payable -- (20,040)
Principal payments on long-term debt (76,213) (81,647)
Principal payments on capital lease obligations (20,522) (15,500)
----------- -----------
Net cash provided by financing activities 318,368 77,813
----------- -----------
Net increase (decrease) in cash (67,127) 67,127
Cash, beginning of year 67,127 --
----------- -----------
Cash, end of year $ -- $ 67,127
=========== ===========
See accompanying summary of significant accounting policies
and notes to financial statements.
</TABLE>
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
Inventories
- -----------
Inventories are valued at the lower of cost (first-in, first-out) or market and
consist of raw materials.
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 splits
(see Note 9). Potential common shares have been excluded from the loss per share
calculations since their effect would be antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS
128 establishes new standards for computing and presenting earnings per share
("EPS"). Specifically, SFAS primary EPS with a presentation of basic EPS,
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS c denominator
of the diluted EPS computation. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997. The adoption of SFAS 128 did
not have a material effect on the Company's EPS presentation for 1998 and 1997
since the effects of potential common shares are antidilutive.
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
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 f 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.
Impairments
- -----------
Long-lived assets are evaluated for impairment when events change or changes in
circumstances indicate that the carrying amounts of the assets may not be
recoverable. When any such impairment exists, the related assets will be written
down to fair value.
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, 1998.
The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include trade
receivables, bank overdraft, 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 Company's long-term debt
is variable rate debt, and accordingly, the carrying amount approximates fair
value.
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
Stock-Based Compensation
- ------------------------
The Company adopted Statement of Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") during 1997. However, as permitted by
SFAS 123, the Company has elected to continue to follow Accounting Principles
Board Opinion No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123")
during 1997. However, as permitted by SFAS 123, the Company has elected to
continue to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related interpretations in accounting
for stock-based compensation to employees.
Stock options granted to non-employees are valued using a Black-Scholes option
pricing model with appropriate assumptions for risk free investment rates,
expected lives, dividend yields and volatility factors. The value of options
granted to non-employees is charged to appropriate expense accounts when the
options are granted.
Recent Accounting Pronouncements
- --------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("FAS
130") and No. 131, "Disclosure about Segments of an Enterprise and Related
Information," ("FAS 131"). FAS 130 Accounting reporting and displaying
comprehensive income, its components and accumulated balances. FAS 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected in Pronouncements in interim financial statements issued to the public.
Both FAS 130 and FAS 131 are effective for periods beginning after December 15,
1997. FAS 130 and FAS 131 are not expected to have a material impact on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 requires companies to recognize all
derivative contracts as either balance sheet and to measure them at fair value.
FAS 133 is effective for periods beginning after June 15, 1999. Historically,
the Company has not entered into derivative contracts. Accordingly, FAS 133 is
not expected to affect the Company's financial statements.
"Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS
133 requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. FAS 133 is
effective for periods beginning after June 15, 1999. Historically, the Company
has not entered into derivative contracts. Accordingly, FAS 133 is not expected
to affect the Company's financial statements.
Reclassifications
- -----------------
Certain reclassifications have been made to the financial statements for the
year ended May 31, 1997 to conform with classifications used in the financial
statements for the year ended May 31, 1998.
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
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. The Company's headquarters and
manufacturing facilities are located in Ocala, Florida.
2. Property and Equipment
Property and equipment are summarized as follows:
Useful Lives
Furniture, fixtures and equipment 3 - 10 years $ 997,101
Equipment under capital leases 5 - 10 years 198,611
Leasehold improvements 4 years 157,003
Vehicles 5 years 18,763
-----------
1,371,478
Less accumulated depreciation
and amortization 1,199,233
-----------
$ 172,245
===========
Accumulated depreciation on equipment under capital leases was $150,486 and
$160,675 as of May 31, 1998 and 1997, respectively.
All property and equipment is pledged as collateral (see Note 6).
3. Debenture Payable
Debenture note payable amounting to $25,000 as of May 31, 1998 is
unsecured, bears interest at 8% and is currently due to a third party. The
conversion feature of this debenture expired in July 1995.
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
4. Convertible Notes Payable
The Company issued convertible notes payable in fiscal 1998 amounting to
$200,000. The notes bear interest at 9.5% and are due one year from the
date of issuance. The notes are convertible into common stock of the
Company 90 days after issuance at a conversion price equal to 50% of the
quoted market price on the conversion date. The maximum conversion price is
$.25 per share of common stock. The difference between the conversion price
and the quoted market price of the common stock at the date of issuance was
$380,782. This beneficial conversion feature was recorded as a debt
discount and is being amortized to interest expense from the date of
issuance of the notes to the date the notes first became convertible.
During fiscal 1998, $212,220 was recorded as interest expense. As of May
31, 1998, the unamortized debt discount was $168,562. Subsequent to May 31,
1998, all of these notes were converted into 819,532 shares of common
stock.
5. Related Party Transactions
The Company issued a note payable to an affiliate owned by the Company's
majority stockholder, which had an outstanding balance at May 31, 1998 of
$154,000. The note bears interest at 9.75%, is due on demand any time after
May 31, 1999 and is collateralized by a second security interest in the
Company's accounts receivable. Subsequent to May 31, 1998, the affiliate
converted $80,000 of the note payable into 400,000 shares of common stock
at a conversion price of $.20 per share. The quoted market price at the
date of conversion was $.86 per share, which will result in a charge to
operations of $264,000 in fiscal 1999.
This affiliate also assumed $610,883 of the Company's liabilities during
fiscal 1998, which is due on demand any time after May 31, 1999. In May
1998, $240,000 was converted into 1,200,000 shares of common stock. The
remaining balance of $370,883 is presented as due to related party on the
balance sheet at May 31, 1998. The amount converted was at $.20 per share
and the quoted market price was $1.437 per share on the date of conversion.
The difference between the conversion price and the quoted market price of
$1,484,400 was recorded as interest expense during fiscal 1998 with a
corresponding increase to additional paid-in capital related to the
beneficial conversion feature. Subsequent to May 31, 1998, this affiliate
converted an additional $153,526 into 767,630 shares of common stock at a
conversion price of $.20 per share. The quoted conversion was $.86 per
share, which will result in a charge to operations of approximately
$507,000 in fiscal 1999.
6. Long-Term Debt
Long-term debt consists of the following:
Note payable to bank, bearing interest at prime plus
1%, principal of $10,000 plus interest due monthly
until September 2001 when the remaining outstanding
principal and accrued interest are due, collateralized
by substantially all of the Company's assets,
guaranteed by the Company's majority stockholders and
corporate attorney. On October 14, 1998, when the
outstanding balance of this note was $153,973, the
Company obtained additional financing of $200,000,
which was consolidated into the existing note payable.
The interest rate, monthly principal payments and
maturity date of the note were modified based upon the
terms noted above. $ 173,886
Note payable bearing interest at 8%, principal and
interest payable in monthly installments of $1,000
through December 1998, when the remaining principal is
due, collateralized by equipment. 21,637
Other 11,354
----------
206,877
Less current maturities (112,904)
----------
Total long-term debt $ 93,973
==========
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
7. Commitments and Contingencies
Leases
------
The Company leases its main operating facility from a partnership that
consists of two of the Company's stockholders. 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 also leases certain equipment under capital and operating
leases, expiring at various dates through 2002.
The following is a schedule by years as of May 31, 1998 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 of one year:
Capital Operating
Leases Leases
------ ------
1999 $ 21,645 $ 127,100
2000 -- 93,200
2001 -- 73,200
2002 -- 6,100
--------- -----------
Total net minimum lease payments 21,645 $ 299,600
===========
Less amount representing interest (300)
---------
Present value of net minimum lease payments 21,345
Less current portion 21,345
---------
Long-term obligations under capital leases
$ --
=========
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
Rental expense amounted to approximately $63,600 and $140,000 for the years
ended May 31, 1998 and 1997, respectively. The rental expense includes
amounts for leases with its stockholders of approximately $64,000 during
the years ended May 31, 1998 and 1997.
Guarantees
----------
In 1989, a stockholder of the Company purchased $100,000 of common stock.
In connection with the transaction, the Company and its past 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.
Litigation
----------
Subsequent to May 31, 1998, a lawsuit was filed against the Company by a
stockholder who is the former wife of the past president (the "plaintiff").
The plaintiff was owed money from Imagica, Inc., a company owned by the
past president which was merged into Imagica Entertainment, Inc. This
merger was rescinded in September 1997 since the new management and Board
of the Company determined the merger was not done in the best interest of
the Company. During the period between the merger and the rescission of the
merger, the past president, on behalf of the Company, signed an agreement
with the plaintiff to pay her $290,493 (representing amounts due her from
Imagica, Inc.) when the Company raised $4 million in a public offering.
This agreement was not authorized by the Board, and a public offering was
never completed. The Company has and plans to file a countersuit against
the plaintiff. The Company and its counsel believe this claim has no merit
and the outcome of this lawsuit will not have a material adverse affect on
its financial position, liquidity or results of operations.
In the normal course of conducting its business, the Company is involved in
various other litigation. The Company is not a party to any litigation
which its management believes could result in any judgments against it that
would have a material adverse affect on results of operations.
SEC Enforcement
---------------
The Company is currently under a private investigation by the Securities
and Exchange Commission ("SEC") Enforcement Division regarding "In the
Matter of Certain Stock Advertisements." According to the SEC, this
investigation is confidential and should not be construed as an indication
by the SEC that any violations of law have occurred, or as an adverse
reflection upon any person, entity or security. The Company and its counsel
are unable to predict the outcome of this investigation but believe any
action taken by the SEC will not have a material adverse affect on the
Company's financial position or results of operations.
8. Income Taxes
The components of the net deferred income tax assets consist of the
following:
Deferred tax assets:
Net operating loss carryforwards $ 729,000
Inventory 15,000
Other 13,000
---------
Gross deferred income tax assets 757,000
Valuation allowance (757,000)
---------
Net deferred income tax assets $ --
=========
The change in the valuation allowance for deferred tax assets was an
increase of approximately $115,000 during 1998. The deferred tax asset of
approximately $729,000 related to the tax benefit of the net operating
losses has been offset by a valuation allowance realization.
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
The following summary reconciles differences from taxes at the federal
statutory rate with the effective rate:
1998 1997
---- ----
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%
==== ====
Unused net operating losses (NOLs) for income tax purposes, expiring in
various amounts from 2007 to 2013 of approximately $1.9 million, are
available at May 31, 1998 for carryforward against future years' taxable
income. As a result of various stock issuances, under the provisions of
section 382 of the Internal Revenue Code of 1986, as amended.
9. Capital Stock
Nonemployee Stock Options and Treasury Stock
--------------------------------------------
In May 1998, the Company granted stock options to a nonemployee for the
return of 17,500 shares of common stock. The fair value of the options of
$12,200 was recorded as treasury stock. The fair value was determined using
the Black-Scholes option pricing model with the following weighed-average
assumptions: no dividend yield, an expected life of 3.25 years, expected
volatility of 50% and a risk-free interest rate of 5.6%. The options are
exercisable over 3.25 years from the date of grant and are summarized as
follows:
Weighted-Average
Weighted-Average Fair Value of
Shares Exercise Price Options Granted
------ -------------- ---------------
Balance, May 31, 1997 -- $ -- $ --
Granted, at market value 20,000 1.50 .61
------ ----- ----
Balance, May 31, 1998 20,000 $1.50 $.61
====== ===== ====
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 25,000 options. During 1995, the Company granted
employees 25,000 options under this plan at a purchase price of $10.00. The
options were granted at or above fair market value, and no compensation
expense was recorded. All of the 25,000 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. The notes receivable were
reduced by $177,500 during 1997 in the form of a reduction in the amount
due stockholder. The remaining $72,500 was written off during 1997.
Stock Warrants
--------------
During 1995, the Company issued 5,000 common stock warrants in connection
with financial consulting agreements. The warrants were granted at or above
fair market value, and no compensation expense was recorded. 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:
Exercise
Number of Shares Price
---------------- -----
2,500 $ 40.00
2,500 $ 80.00
========
<PAGE>
Imagica Entertainment, Inc.
Summary of Significant Accounting Policies
Stock Splits and Authorized Shares
----------------------------------
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. In
October 1997, the Board of Directors authorized a 1-for-10 reverse stock
split for shareholders of record as of November 6, 1997. All common shares
and per share amounts have been adjusted to give effect to the reverse
stock split and increase in authorized shares.
10. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
1998 1997
---- ----
Cash paid for interest $ 22,113 $ 252,789
========== ==========
Noncash financing and investing activities:
Issuance of common stock as payment
for consulting services and compensation $ 206,640 $2,861,406
Reduction of note receivable paid by
increase in amounts due stockholder -- 177,500
Liabilities assumed by related party 610,883 --
Capital lease obligation assumed by related party 24,963 --
Long-term debt assumed by related party 57,342 --
Capital lease obligation incurred for
the purchase of equipment 14,260 --
Exercise of stock options paid by increase
in amount due stockholder -- 17,325
Common stock issued for reduction in
amounts due related party 240,000 216,000
Issuance of stock options for purchase
of treasury stock 12,200 --
Conversion of debentures -- 303,847
Interest expense from beneficial
conversion features 1,696,620 133,333
Debt discount recorded for issuance of
convertible notes payable at a discount 380,782 --
========== ==========
<PAGE>
Imagica Entertainment, Inc.
Balance Sheet
August 31, 1998
Assets
(Unaudited)
Current Assets:
CASH OPERATING ACCT - SUNTRUST $ 1,937.78
CASH OPERATING ACCT/IMAGICA INC 19,454.58
CREDIT CARD ACCT - SUNTRUST BK 4,994.19
PETTY CASH - RANGER INT'L 415.50
AMERICAN EXPRESS CHARGE CARDS 2,836.00
OTHER RECEIVABLES DUE COMPANY 19,914.31
ACCOUNTS RECEIVABLE - TRADE 489,546.56
ALLOWANCE FOR BAD DEBTS (9,550.96)
INVENTORY 282,660.66
PREPAID - EMPLOYEE INSURANCE 1,925.47
PREPAID - MISCELLANEOUS 12,514.26
PREPAID - LEASEHOLD EXPENSES 6,426.78
PREPAID - LEASE PAYMENTS 24,251.38
----------------
Total Current Assets $ 857,326.51
Fixed Assets:
OFFICE FURN./FIXT. & EQUIPMENT 148,821.18
COMPUTER HARDWARE 287,123.32
COMPUTER SOFTWARE 101,788.91
PLANT EQUIPMENT & FIXTURES 901,329.97
DIES 122,855.38
VEHICLES 18,763.72
ACCUMULATED DEPRECIATION (372,950.95)
----------------
Total Fixed Assets $ 207,731.53
Other Assets:
MISC. DEPOSITS 22,135.00
PATENTS 7,853.90
AMORT. - PATENT COSTS (3,656.00)
TRADEMARKS 745.00
----------------
Total Other Assets $ 27,077.90
----------------
Total Assets 1,092,135.94
================
<PAGE>
Imagica Entertainment, Inc.
Balance Sheet
August 31, 1998
Liabilities & Equity
(Unaudited)
Current Liabilities:
ACCOUNTS PAYABLE $ 139,478.34
ADVANCE PAYABLE - LUMAR 100,716.82
SALES & USE TAXES - PAYABLE 487.13
FLORIDA SALES & USE - AUDIT 95 22,767.76
CUSTOMER DEPOSITS 50,041.44
CURRENT LEASE/OBLIGATIONS 50,478.25
NOTE PAYABLE/SUNTRUST (CURRENT) 153,886.20
NOTE PAYABLE/MUNRO LEASE 7,210.00
NOTE PAYABLE/VEHICLES 3,510.57
K.O.T. INC NOTE-PAYABLE 7,184.85
ACCRUED - AUDIT EXPENSE 2,000.00
ACCR'D TAX - TANG-INTANG-PROPERTY 15,020.08
ACCRUED PAYROLL 30,204.11
----------------
Total Current Liabilities $ 582,985.55
Debt To Majority Stockholders:
SE INVESTMENTS-PRIOR CH-11 DEBT 214,337.32
SE ADVANCES 6,821.50
----------------
Total Long-Term Liabilities $ 221,158.82
Stockholders' Equity:
COMMON STOCK - VOTING 3,821.67
ADDITIONAL PAID-IN-CAPITAL 5,017,421.61
RETAINED EARNINGS - PREV YRS (804,898.61)
Retained Earnings-Current Year 71,646.90
----------------
Total Stockholders' Equity $ 287,991.57
----------------
Total Liabilities & Equity 1,092,135.94
================
<PAGE>
<TABLE>
<CAPTION>
Imagica Entertainment, Inc.
Income Statement
For the Period Ended August 31, 1998
(Unaudited)
Current % Current % YTD
Activity Sales Balance Sales
-------- ----- ------- -----
REVENUES:
<S> <C> <C> <C> <C>
BANNER SALES - CUSTOM $ 14,487.11 5.32% $ 52,963.93 5.79%
BANNER SALES - SCREEN PRINT 206,833.40 75.94 716,485.87 78.38
P.O.P. DISPLAY STAND SALES 14,601.90 5.36 35,063.10 3.84
DIGITAL SALES 18,996.73 6.97 42,797.52 4.68
SALES - OUTSIDE/SCREEN PRINT .00 .00 32,537.68 3.56
P.O B. - SALES 17,442.96 6.40 34,284.36 3.75
BANNER aLLOWANCE (99.24) (.04) (2,058.46) (.23)
SALES DISCOUNTS (235.19) (.09) (422.96) (.05)
MISCELLANEOUS INCOME .00 .00 60.00 .01
-------------- ------ ------------- -----
TOTAL REVENUES $ 272,027.67 99.88% $ 911,711.04 99.74%
COSTS & EXPENSES:
COST OF GOODS SOLD:
HOLIDAY WAGES $ .00 .00% $ 1,704.40 .19%
VACATION BENEFITS 262.00 .10 2,609.75 .29
CUSTOM WAGES 870.75 .32 2,736.25 .30
SCREEN PRINT WAGES 18,441.87 6.77 49,812.38 5.45
SCREEN-MAKING WAGES 3,284.32 1.21 10,128.55 1.11
INCENTIVE 684.25 .25 5,750.81 .63
SEWING WAGES 9,139.69 3.36 22,696.82 2.48
CAMERA-ART-SIGN WAGES 6,354.64 2.33 20,934.03 2.29
SHIPPING WAGES 5,257.58 1.93 19,064.69 2.09
MAINT-METAL WAGES 3,431.63 1.26 10,407.52 1.14
CUTTING/RECEIVING WAGES 2,576.47 .95 7,859.00 .86
MANGMT & SUPERVISION WAGES 5,000.00 1.84 16,250.00 1.78
PURCH./O-ENTRY/ESTIMT WAGES 5,803.70 2.13 18,848.21 2.06
TAXES - PLANT PAYROLL 5,099.71 1.87 5,099.71 .56
PAYROLL SERVICE FEES .00 .00 15,988.77 1.75
WORKMAN'S COMPENSATION/PLANT .00 .00 180.00 .02
GROUP HEALTH INSURANCE 2,538.83 .93 8,721.49 .95
CONTRACT LABOR - PLANT 1,672.58 .61 4,408.72 .48
COST - POLYESTER REINF. VINAL 14,585.08 5.36 83,832.70 9.17
COST - PRESS. ENS. MASKING 1,900.30 .70 5,273.28 .58
COST - POLYETHELENE 5,596.04 2.05 11,557.89 1.26
COST - NYLON / SCREEN PRINT 6,498.70 2.39 24,431.81 2.67
COST - TYVEK MATERIAL 4,496.20 1.65 11,625.65 1.27
COST - DIGITAL MATERIAL 14,159.60 5.20 26,667.17 2.92
COST - PAINT / SCREEN PRINT 12,119.40 4.45 30,993.57 3.39
COST - ROPE, THREAD, ETC 3,872.53 1.42 11,111.93 1.22
COST - MISC. SUPPLY & MATERIAL 4,622.51 1.70 13,489.36 1.48
COST - CAMERA / SCREEN PRINT 2,129.72 .78 6,312.27 .69
COST - SHIPPING MATERIALS 4,322.51 1.59 12,443.30 1.36
<PAGE>
Imagica Entertainment, Inc.
Income Statement
For the Period Ended August 31, 1998
(Unaudited)
Current % Current % YTD
Activity Sales Balance Sales
-------- ----- ------- -----
COST - ALUMINUM/FLAGPOLE SUPPL 2,548.88 .94 6,131.90 .67
COST - OUTSIDE SERVICES 2,586.37 .95 6,252.70 .68
COST - OUTSIDE - COLOR SEPS 2,460.00 .90 13,412.70 1.47
COST - OUTSIDE / SCR/ PRT/SALE 750.50 .28 30,582.65 3.35
COST - MISC SHOP SUPPLIES 3,529.36 1.30 7,253.74 .79
TRAVEL - MEALS - ENTERTAINMENT 97.37 .04 306.56 .03
INSURANCE - BLDG/CONTENTS/AUTO 1,440.00 .53 5,717.61 .63
BUILDING RENT 5,300.00 1.95 15,756.65 1.72
AMORT. OF LEASEHOLD IMPROVEMENTS .00 .00 961.30 .11
ELECTRIC 3,107.98 1.14 8,909.58 .97
DEPRECIATION - PLANT EQUIPMENT 1,345.63 .49 3,988.71 .44
DEPRECIATION - PLANT EQUIPMENT 184.80 .07 554.39 .06
DEPRECIATION - PLANT EQUIPMENT 4,609.84 1.69 13,258.38 1.45
DEPRECIATION - COMPUTER HARDWARE 103.93 .04 286.10 .03
MAINTENANCE and REPAIR - PLANT 572.83 .21 4,743.90 .52
NATURAL GAS HEAT - SHOP 213.34 .08 770.47 .08
FREIGHT - IN-OUT BOUND 2,744.89 1.01 11,658.83 1.28
EQUIPMENT - LEASING and RENTAL 399.10 .15 1,055.08 .12
-------------- ----- -------------- -----
TOTAL COST OF SALES $ 176,715.43 64.88% $ 592,568.28 64.82%
SELLING & MARKETING:
WAGES - SALES & MARKETING 9,106.23 3.34 32,697.19 3.58
COMMISSIONS - SALES & MARKETING 15,505.09 5.69 47,516.65 5.20
VACATION BENEFITS 64.00 .02 192.00 .02
HOLIDAY WAGES .00 .00 250.40 .03
S & M INCENTIVE/BONUS 107.73 .04 1,670.99 .18
PR TAXES 2,351.72 .86 4,504.31 .49
PAYROLL SERVICE FEES - S&M .00 .00 4,702.14 .51
GROUP HEALTH INSURANCE 802.46 .29 2,751.36 .30
ADVERTISING .00 .00 2,390.85 .26
TRAVEL - MEALS - ENTERTAINMENT 1,156.12 .42 3,886.67 .43
TELEPHONE 1,456.46.5F3 14,499.43 1.59
SUPPLIES 34.00 .01 1,945.66 .21
AGENCY FEES and PROD. COSTS 328.52 .12 1,468.08 .16
POSTAGE - COURIER 327.70 .12 827.70 .09
-------------- ----- -------------- -----
Total Marketing & Selling $ 31,240.03 11.47% $ 119,303.43 13.05%
GENERAL & ADMINISTRATIVE
WAGES - G & A 20,908.19 7.68 68,850.13 7.53
PAYROLL TAXES 1,623.06 .60 1,623.06 .18
GROUP HEALTH INSURANCE 1,674.28 .61 5,619.57 .61
EMPLOYMENT COSTS 140.00 .05 1,880.00 .21
PAYROLL FEES 1,321.97 .49 6,238.61 .68
VACATION BENEFITS .00 .00 138.00 .02
G & A INCENTIVE/BONUS 27.92 .01 289.51 .03
HOLIDAY WAGES .00 .00 60.00 .01
CORPORATE APARTMENT - OCALA, FL 612.21 .22 1,878.70 .21
BLDG & GROUNDS SERVICE 1,330.00 .49 1,330.00 .15
<PAGE>
Imagica Entertainment, Inc.
Income Statement
For the Period Ended August 31, 1998
(Unaudited)
Current % Current % YTD
Activity Sales Balance Sales
-------- ----- ------- -----
OFFICE SUPPLIES 2,502.32 .92 5,526.55 .60
MISC SERVICE CHARGES 697.30 .26 2,962.07 .32
TRAVEL - ENTERTAINMENT - LODGING 640.15 .24 3,157.32 .35
EMPLOYEE EXPENSES 127.65 .05 783.39 .09
LEASED VEHICLE - COMPANY 496.30 .18 1,405.22 .15
LEGAL FEES 2,000.00 .73 4,500.00 .49
ACCOUNTING and TAX RETURNS 2,000.00 .73 8,090.00 .88
OTHER PROFESS and CONSULTATION 2,851.32 1.05 3,448.32 .38
SHAREHOLDER EXPENSE 495.00 .18 990.00 .11
TAXES - REST-TANGIBLE-INTANGIBLE (2,000.00) (.73) .00 .00
TAXES and LICENSES .00 .00 60.73 .01
DEPREC - OFFICE FURN/FIXT/EQUI 260.89 .10 758.74 .08
MAINT & REPAIRS - OFFICE EQUIP .00 .00 249.85 .03
DUES and SUBSCRIPTIONS 262.89 .10 832.89 .09
-------------- ----- -------------- -----
Total General & Administrative $ 37,971.45 13.94% $ 120,672.66 13.20%
FINANCING COSTS:
INTEREST - SUN BANK 1,340.68 .49 4,108.10 .45
INTEREST - LU-MAR 2,777.66 1.02 2,777.66 .30
INTEREST - ROMAR LEASE CORP 297.27 .11 297.27 .03
INTEREST - FMCC and SANWA 244.01 .09 336.74 .04
-------------- ----- -------------- -----
Total Financing Costs $ 4,659.62 1.71% $ 7,519.77 .82%
-------------- ----- -------------- -----
Total Costs & Expenses $ 250,586.53 92.00% $ 840,064.14 91.90%
-------------- ----- -------------- -----
NET INCOME (LOSS) BEFORE TAXES $ 21,441.14 7.87% $ 71,646.90 7.84%
PROVISION FOR INCOME TAXES:
Total Income Taxes .00 .00 .00 .00
-------------- ----- -------------- -----
NET INCOME (LOSS) $ 21,441.14 7.87% $ 71,646.90 7.84%
============== ===== ============== =====
</TABLE>
<PAGE>
Imagica Entertainment, Inc.
Balance Sheet
November 30, 1998
Assets
(Unaudited)
Current Assets:
CASH OPERATING ACCT - SUNTRUST 18,380.28
CASH OPERATING ACCT/IMAGICA INC 9,522.75
CREDIT CARD ACCT - SUNTRUST BK 5,494.19
RENT - TRUST ACCOUNT 10,100.00
PETTY CASH - RANGER INT'L 628.13
AMERICAN EXPRESS CHARGE CARDS 2,715.00
OTHER RECEIVABLES DUE COMPANY 19,914.31
ACCOUNTS RECEIVABLE - TRADE 385,663.63
ALLOWANCE FOR BAD DEBTS (9,550.96)
INVENTORY 283,987.17
PREPAID - MISCELLANEOUS 8,607.58
PREPAID - LEASEHOLD EXPENSES 6,426.78
PREPAID - ATTORNEY FEES 1,168.21
PREPAID - LEASE PAYMENTS 24,251.38
--------------
Total Current Assets $ 767,308.45
Fixed Assets:
LEASEHOLD IMPROVEMENTS 163,549.34
OFFICE FURN./FIXT. & EQUIPMENT 148,821.18
COMPUTER HARDWARE 287,123.32
COMPUTER SOFTWARE 101,788.91
PLANT EQUIPMENT & FIXTURES 901,329.97
DIES 122,855.38
VEHICLES 18,763.72
ACCUMULATED DEPRECIATION (556,205.55)
--------------
Total Fixed Assets $ 188,026.27
Other Assets:
MISC. DEPOSITS 38,045.00
PATENTS 7,853.90
AMORT. - PATENT COSTS (3,840.00)
TRADEMARKS 745.00
--------------
Total Other Assets $ 42,803.90
--------------
Total Assets $ 998,138.62
==============
<PAGE>
Imagica Entertainment, Inc.
Balance Sheet
November 30, 1998
Liabilities & Equity
(Unaudited)
Current Liabilities:
ACCOUNTS PAYABLE $ 204,197.48
ADVANCE PAYABLE - LUMAR 108,004.28
SALES & USE TAXES - PAYABLE 804.18
FLORIDA SALES & USE - AUDIT 95 22,767.76
CUSTOMER DEPOSITS (75,785.11)
CURRENT LEASE/OBLIGATIONS 47,719.41
NOTE PAYABLE/SUNTRUST (CURRENT) 153,886.20
NOTE PAYABLE/MUNRO LEASE 6,180.00
NOTE PAYABLE/VEHICLES 2,852.07
K.O.T. INC NOTE-PAYABLE 7,184.85
ACCRUED - AUDIT EXPENSE 25,410.00
Accrued - Legal Fees 2,000.00
ACCR'D TAX - TANG-INTANG-PROPERTY 14,246.08
ACCRUED - BLDG RENT/TRUST FUND 10,000.00
ACCRUED PAYROLL 6,384.98
----------------
Total Current Liabilities $ 535,852.18
Debt To Majority Stockholders:
SE INVESTMENTS-PRIOR CH-11 DEBT 210,419.52
SE ADVANCES 23,304.25
----------------
Total Long-Term Liabilities $233,723.77
Stockholders' Equity:
COMMON STOCK - VOTING 3,821.67
ADDITIONAL PAID-IN-CAPITAL 5,017,421.61
RETAINED EARNINGS - PREV YRS (870,400.31)
Retained Earnings-Current Year 77,719.70
----------------
Total Stockholders' Equity $ 228,562.67
----------------
Total Liabilities & Equity $ 998,138.62
================
<PAGE>
<TABLE>
<CAPTION>
Imagica Entertainment, Inc.
Income Statement
For the Period Ended November 30, 1998
(Unaudited)
Current % Current % YTD
Activity Sales Balance Sales
-------- ----- ------- -----
REVENUES:
<S> <C> <C> <C> <C>
BANNER SALES - CUSTOM $ 8,616.34 4.05% $ 105,627.77 6.35%
BANNER SALES - SCREEN PRINT 175,917.05 82.70 1,299,653.25 78.12
P.O.P. DISPLAY STAND SALES 7,421.24 3.49 56,229.38 3.38
DIGITAL SALES 10,716.33 5.04 77,724.44 4.67
SALES - OUTSIDE/SCREEN PRINT 863.74 .41 54,588.45 3.28
P.O B. - SALES 9,182.36 4.32 69,927.16 4.20
BANNER aLLOWANCE .00 .00 (2,148.44) (.13)
SALES DISCOUNTS (251.86) (.12) (1,039.57) (.06)
Forgiveness of Debt 891.80 .42 1,504.80 .09
MISCELLANEOUS INCOME 178.13 .08 423.99 .03
-------------- ------ ---------------- -----
TOTAL REVENUES $ 213,535.13 100.38% 1,662,491.23 99.92%
COSTS & EXPENSES:
COST OF GOODS SOLD:
HOLIDAY WAGES $ 1,845.60 .87% $ 5,054.80 .30%
VACATION BENEFITS 1,356.80 .64 7,212.72 .43
CUSTOM WAGES 645.00 .30 5,044.00 .30
SCREEN PRINT WAGES 13,805.18 6.49 98,348.52 5.91
SCREEN-MAKING WAGES 2,627.88 1.24 18,854.39 1.13
INCENTIVE 1,393.93 .66 14,213.21 .85
SEWING WAGES 5,277.05 2.48 44,999.56 2.70
CAMERA-ART-SIGN WAGES 5,944.94 2.79 40,115.91 2.41
SHIPPING WAGES 3,357.40 1.58 31,243.31 1.88
MAINT-METAL WAGES 1,672.13 .79 18,620.86 1.12
CUTTING/RECEIVING WAGES 1,506.19 .71 14,189.17 .85
MANGMT & SUPERVISION WAGES 5,000.00 2.35 32,000.00 1.92
PURCH./O-ENTRY/ESTIMT WAGES 5,442.38 2.56 36,200.92 2.18
TAXES - PLANT PAYROLL 3,192.04 1.50 20,245.94 1.22
PAYROLL SERVICE FEES .00 .00 15,988.77 .96
WORKMAN'S COMPENSATION/PLANT .00 .00 7,205.49 .43
GROUP HEALTH INSURANCE 3,089.62 1.45 20,277.14 1.22
CONTRACT LABOR - PLANT .00 .00 5,185.77 .31
COST - POLYESTER REINF. VINAL 20,053.39 9.43 130,634.51 7.85
COST - PRESS. ENS. MASKING 1,687.75 .79 11,075.56 .67
COST - POLYETHELENE 3,401.46 1.60 24,570.90 1.48
COST - NYLON / SCREEN PRINT 2,895.01 1.36 34,110.79 2.05
COST - TYVEK MATERIAL 2,898.13 1.36 20,145.47 1.21
COST - DIGITAL MATERIAL 8,770.88 4.12 47,956.36 2.88
COST - PAINT / SCREEN PRINT 16,939.60 7.96 75,124.33 4.52
COST - ROPE, THREAD, ETC 2,217.67 1.04 19,267.83 1.16
COST - MISC. SUPPLY & MATERIAL 2,727.08 1.28 22,762.31 1.37
COST - CAMERA / SCREEN PRINT 2,148.64 1.01 12,194.64 .73
COST - SHIPPING MATERIALS 2,829.17 1.33 21,409.11 1.29
<PAGE>
Imagica Entertainment, Inc.
Income Statement
For the Period Ended November 30, 1998
(Unaudited)
Current % Current % YTD
Activity Sales Balance Sales
-------- ----- ------- -----
COST - ALUMINUM/FLAGPOLE SUPPL 3,136.75 1.47 15,222.08 .91
COST - OUTSIDE SERVICES 1,684.21 .79 12,001.05 .72
COST - OUTSIDE - COLOR SEPS 7,964.00 3.74 39,321.70 2.36
COST - OUTSIDE / SCR/ PRT/SALE 2,304.50 1.08 48,724.40 2.93
COST - MISC SHOP SUPPLIES 1,607.45 .76 14,526.49 .87
TRAVEL - MEALS - ENTERTAINMENT .00 .00 882.71 .05
INSURANCE - BLDG/CONTENTS/AUTO 1,440.00 .68 10,037.61 .60
BUILDING RENT 5,300.00 2.49 31,656.65 1.90
AMORT. OF LEASEHOLD IMPROVEMENTS .00 .00 961.30 .06
ELECTRIC 2,506.59 1.18 17,260.81 1.04
DEPRECIATION - PLANT EQUIPMENT 1,347.29 .63 8,026.89 .48
DEPRECIATION - PLANT EQUIPMENT 184.81 .09 1,108.78 .07
DEPRECIATION - PLANT EQUIPMENT 4,653.52 2.19 27,183.76 1.63
DEPRECIATION - COMPUTER HARDWARE 131.19 .06 679.61 .04
MAINTENANCE and REPAIR - PLANT 15.90 .01 5,550.86 .33
NATURAL GAS HEAT - SHOP .00 .00 1,713.83 .10
FREIGHT - IN-OUT BOUND (386.01) (.18) 8,179.10 .49
EQUIPMENT - LEASING and RENTAL 1,485.36 .70 7,843.16 .47
-------------- ----- ------------- -----
TOTAL COST OF SALES $ 156,100.48 73.38% 1,105,133.08 66.42%
SELLING & MARKETING:
WAGES - SALES & MARKETING 7,546.95 3.55 57,707.83 3.47
COMMISSIONS - SALES & MARKETING 13,162.73 6.19 88,942.38 5.35
VACATION BENEFITS 168.00 .08 488.00 .03
HOLIDAY WAGES 120.00 .06 486.40 .03
S & M INCENTIVE/BONUS 190.02 .09 3,151.59 .19
PR TAXES 2,069.72 .97 12,156.56 .73
PAYROLL SERVICE FEES - S&M .00 .00 4,702.14 .28
WORKMAN COMP .00 .00 285.84 .02
GROUP HEALTH INSURANCE 426.61 .20 6,083.96 .37
ADVERTISING .00 .00 4,998.21 .30
MARKETING EXPENSES - SALES .00 .00 1,264.04 .08
TRAVEL - MEALS - ENTERTAINMENT 2,894.82 1.36 7,543.67 .45
TELEPHONE 3,674.75 1.73 26,956.68 1.62
SUPPLIES 1,006.70 .47 3,960.04 .24
AGENCY FEES and PROD. COSTS .00 .00 1,594.08 .10
POSTAGE - COURIER 500.00 .24 1,827.70 .11
-------------- ----- ------------- -----
Total Marketing & Selling $ 31,760.30 14.93% $ 222,149.12 13.35%
GENERAL & ADMINISTRATIVE
WAGES - G & A 18,946.17 8.91 130,063.49 7.82
PAYROLL TAXES 2,009.82 .94 8,181.73 .49
WROKMAN COMPENSATION .00 .00 452.53 .03
GROUP HEALTH INSURANCE 2,158.38 1.01 14,288.35 .86
EMPLOYMENT COSTS 263.20 .12 4,778.78 .29
PAYROLL FEES 346.95 .16 7,856.78 .47
VACATION BENEFITS 300.00 .14 438.00 .03
G & A INCENTIVE/BONUS 63.34 .03 772.69 .05
HOLIDAY WAGES 60.00 .03 180.00 .01
CORPORATE APARTMENT - OCALA, FL 563.27 .26 3,588.74 .22
BLDG & GROUNDS SERVICE .00 .00 1,705.00 .10
<PAGE>
Imagica Entertainment, Inc.
Income Statement
For the Period Ended November 30, 1998
(Unaudited)
Current % Current % YTD
Activity Sales Balance Sales
-------- ----- ------- -----
OFFICE SUPPLIES 1,451.74 .68 10,940.74 .66
MISC SERVICE CHARGES 2,683.27 1.26 9,123.61 .55
TRAVEL - ENTERTAINMENT - LODGING 4,906.43 2.31 14,839.39 .89
EMPLOYEE EXPENSES 1,270.02 .60 2,670.84 .16
LEASED VEHICLE - COMPANY 553.30 .26 3,008.32 .18
LEGAL FEES 2,000.00 .94 8,605.00 .52
ACCOUNTING and TAX RETURNS .00 .00 12,000.00 .72
OTHER PROFESS and CONSULTATION .00 .00 3,448.32 .21
SHAREHOLDER EXPENSE .00 .00 990.00 .06
AMORTIZATION - PATENT COSTS .00 .00 184.00 .01
TAXES and LICENSES .00 .00 378.73 .02
DEPREC - OFFICE FURN/FIXT/EQUI 265.55 .12 1,552.54 .09
MAINT & REPAIRS - OFFICE EQUIP 734.10 .35 1,492.97 .09
DUES and SUBSCRIPTIONS .00 .00 1,085.89 .07
-------------- ------ ------------- -----
Total General & Administrative $ 38,575.54 18.13% $ 242,626.44 14.58%
FINANCING COSTS:
INTEREST - S/E INVESTMENTS .00 .00 973.37 .06
INTEREST - SUN BANK 1,665.90 .78 8,321.12 .50
INTEREST - LU-MAR .00 .00 4,464.31 .27
INTEREST - ROMAR LEASE CORP 233.89 .11 531.16 .03
INTEREST - FMCC and SANWA 57.11 .03 572.93 .03
-------------- ------ ------------- -----
Total Financing Costs $ 1,956.90 .92% $ 14,862.89 .89%
-------------- ------ ------------- -----
Total Costs & Expenses $ 228,393.22 107.37% 1,584,771.53 95.25%
-------------- ------ ------------- -----
NET INCOME (LOSS) BEFORE TAXES $ (14,858.09) (6.98)%$ 77,719.70 4.67%
PROVISION FOR INCOME TAXES:
Total Income Taxes .00 .00 .00 .00
-------------- ------ ------------- -----
NET INCOME (LOSS) $ (14,858.09) (6.98)% $ 77,719.70 4.67%
============== ====== ============= =====
</TABLE>
