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Previous: QUEBECOR PRINTING INC, 6-K, 1998-08-27 |
Next: HARRIS INSIGHT FUNDS TRUST, NSAR-A, 1998-08-27 |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 ( d ) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________.
Commission File Number: 0-27256
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
(Exact name of small business issuer as specified in its charter)
DELAWARE 65-0512785
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
200 East Palmetto Park Road, Suite 200, Boca Raton, Florida 33432
(Address of principal executive offices)
Registrant's telephone no., including area code: (561) 393-6685
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding As Of August 26, 1998
- ---------------------------------- ---------------------------------
Common Stock, $.001 par value 20,551,857
<PAGE>
TABLE OF CONTENTS
Heading Page
PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements ................................................2
Consolidated Balance Sheet - June 30, 1998 (Unaudited) ............3-4
Consolidated Statement of Income and Comprehensive
Income (Unaudited) ..................................................5
Consolidated Statement of Changes in Stockholders'
Equity (Unaudited)...................................................6
Consolidated Statement of Cash Flows - Three and Six Months
ended June 30, 1998 (Unaudited) ................................7-10
Notes to Consolidated Financial Statements (Unaudited) ..........11-15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................16-17
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings ...................................................18
Item 2. Changes In Securities ...............................................18
Item 3. Defaults Upon Senior Securities......................................18
Item 4. Submission of Matters to a Vote of Securities Holders ...............18
Item 5. Other Information ...................................................18
Item 6. Exhibits and Reports on Form 8-K ....................................18
Signatures ..........................................................19
<PAGE>
PART 1
Item 1. Financial Statements
The following unaudited financial Statements for the
period ended June 30, 1998, have been prepared by
Atlantic International Entertainment, Ltd. (the
"Company").
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Financial Statements
June 30, 1998
-2-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
June 30, 1998
-------------------------
(Unaudited)
ASSETS
<S> <C>
CURRENT ASSETS
Cash and Cash Equivalents $3,457,834
Accounts Receivable [Net of Allowance for Doubtful Accounts of $20,296] 39,182
Notes Receivable 1,529,701
Refundable Income Tax 77,215
Deferred Tax Asset 176,812
Prepaid Expenses 6,423
Other Current Assets 14,628
-----------
TOTAL CURRENT ASSETS: 5,301,795
-----------
Furniture, Fixtures and Equipment - (Net of Accumulated Depreciation of $217,023) 436,782
Software (Net of Accumulated Amortization of $419,991) 1,484,767
Cost in Excess of Net Assets of Business Acquired
(Net of Accumulated Amortization of $129,575) 1,413,705
OTHER ASSETS
Due From Related Parties 76,361
Other Assets 18,079
Investments 535,821
Notes Receivable (Net of Discounts and Reserve) 3,544,007
-----------
TOTAL OTHER ASSETS 4,174,268
TOTAL ASSETS $12,811,317
===========
</TABLE>
-3-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEET (UNAUDITED) (Continued)
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS'EQUITY:
<S> <C>
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 760,349
Notes Payable - Officers 272,566
Due to Customers -0-
Current Portion of Long-Term Debt 217,442
Current Portion of Capital Lease Obligations 9,081
Income Taxes Payable - Federal 740,081
Income Taxes Payable - State 43,882
Line of Credit -0-
Other Current Liabilities 47,278
------------
TOTAL CURRENT LIABILITIES 2,090,679
Long-Term Debt 15,444
Capital Lease Obligations 18,011
------------
TOTAL LIABILITIES 2,124,134
------------
SHAREHOLDERS'S EQUITY:
Preferred Stock - Par Value $.001 Per Share, Authorized
10,000 Shares, Issued and Outstanding 10
Common Stock - Par Value $001 Per Share;
Authorized 100,000,000 Shares, Issued and
Outstanding 20,540,184 Shares 20,540
Additional Paid - in - Capital 9,355,396
Unrealized Holding Loss on Marketable Securities (61,615)
Retained Earnings 1,372,852
------------
Total Stockholders' Equity 10,687,183
------------
Total Liabilities and Stockholders' Equity $ 12,811,317
============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
-4-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENTS OF INCOME & COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
June 30, June 30,
---------------------------------------------------------------------
1997 1998 1997 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $ 1,160,180 $ 1,553,227 $ 1,764,428 $ 2,708,268
Cost of Sales (133,436) (223,683) (133,435) (375,404)
General and Administrative (380,350) (709,428) (660,118) (1,168,207)
Provision for Doubtful Accounts -- (66,477) -- (171,539)
Depreciation and Amortization (128,574) (143,185) (202,201) (279,937)
Other Gains and Losses (20,728) (27,117) (18,416) (23,746)
------------ ------------ ------------ ------------
Income (Loss) from Continuing Operations
Before Income Tax Expense 497,092 383,337 702,528 689,435
Income Tax Benefit (Expense) (60,210) (119,057) (119,068) (146,469)
------------ ------------ ------------ ------------
Income From Continuing Operations $ 436,882 $ 264,280 $ 583,460 $ 542,966
Discontinued Operations (Net of Income
Taxes of $51,047)
Loss from Discontinued Operations -- -- (45,890) --
Gain on Sale of Discontinued Operations -- -- 144,982 --
------------ ------------ ------------ ------------
NET INCOME $ 436,882 $ 264,280 $ 682,552 $ 542,966
Unrealized Holding Loss Arising During Period -- (61,615) -- (61,615)
------------ ------------ ------------ ------------
Comprehensive Income $ 436,882 $ 202,665 $ 682,552 $ 481,351
------------ ------------ ------------ ------------
Income (Loss) Per Common Share
Continuing Operations $ 0.046 $ 0.012 $ 0.005 $ 0.036
Discontinued Operations -- -- 0.068 --
------------ ------------ ------------ ------------
Basic Net Income Per Share of
Common Stock $ 0.046 $ 0.012 $ 0.073 $ 0.036
------------ ------------ ------------ ------------
Diluted Net Income Per Share of
Common Stock $ 0.046 $ 0.012 $ 0.073 $ 0.035
------------ ------------ ------------ ------------
Weighted Average Shares of Common
Stock Outstanding 9,465,184 17,107,684 9,357,934 13,400,184
------------ ------------ ------------ ------------
Weighted Average Fully Diluted Shares Of
Common Stock Outstanding 9,465,184 17,975,684 9,357,934 13,925,184
------------ ------------ ------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
-5-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized Loss
Preferred Stock Common Stock Additional On Retained Total
Number Of Number Of Paid In Marketable Earnings Sockholders'
Shares Amount Shares Amount Capital Securities (Deficit) Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1997 -- $-- 9,190,184 $ 9,190 $1,887,376 $ -- $ (217,431) $ 1,679,135
Sale of Common Stock -- -- 75,000 75 350,175 -- -- 350,250
Sale of Common Stock -- -- 25,000 25 -- -- -- 25
Asset Acquisition [Note 8] -- -- 200,000 200 1,598,880 -- -- 1,599,080
Conversion of Debt to Equity -- -- -- -- 313,475 -- -- 313,475
Issuance of Shares in Escrow -- -- 100,000 100 -- -- -- 100
Unrealized Holding Loss on
On Marketable Securities -- -- -- -- -- (42,763) -- (42,769)
Income from Continuing Operations -- -- -- -- -- -- 948,225 948,225
Income from Discontinued Operations -- -- -- -- -- -- 99,092 99,092
------ --- ---------- ------- ---------- -------- ----------- ------------
BALANCE - DECEMBER 31, 1997 -- $-- 9,590,184 $ 9,590 $4,149,906 $(42,763) $ 829,886 $ 4,946,619
------ --- ---------- ------- ---------- -------- ----------- ------------
Sale of Common Stock Shares in Escrow -- -- -- -- 299,900 -- -- 299,900
Unrealized Holding Loss on
Marketable Securities -- -- -- -- -- (2,025) -- (2,025)
Sale of Common Stock -- -- 1,250,000 1,250 3,998,750 -- -- 4,000,000
Sale of Common Stock -- -- 9,700,000 9,700 -- -- -- 9,700
Sale of Preferred Stock 10,000 10 -- -- 906,840 -- -- 906,850
Unrealized Holding Loss on
Marketable Securities -- -- -- -- -- (16,827) -- (16,827)
Income from Continuing Operations -- -- -- -- -- -- 542,966 542,966
------ --- ---------- ------- ---------- -------- ----------- ------------
BALANCE - JUNE 30, 1998 10,000 $10 20,540,184 $20,540 $9,355,396 $(61,615) $ 1,372,852 $ 10,687,183
====== === ========== ======= ========== ======== =========== ============
</TABLE>
The accompanying Notes are an Integral Part of these Consolidated Financial
Statements
-6-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1 9 9 8 1 9 9 7
------ -------
OPERATING ACTIVITIES:
<S> <C> <C>
Income [Loss] Income from Continuing Operations $ 264,280 $ 436,882
Adjustments to Reconcile Net Income [Loss] to
Net Cash Provided by [Used for] Operating Activities:
Depreciation and Amortization 143,185 128,574
Provision for Doubtful Accounts 48,976 --
Regulated Loss on Carrying Value of Investments 51,289 --
Unregulated Loss on Carrying Value of Investments 16,827 56,681
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 7,462 (1,002,217)
Prepaid Expenses -- 37,486
Notes Receivable (1,278,187) --
Restricted Cash -- --
Other Assets 11,564 3,460
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (62,978) 93,787
Income Taxes Payable 118,999 37,105
Other Current Liabilities (18,670) 38,836
Due to Customer (75,000) 46,000
----------- -----------
NET CASH - CONTINUING OPERATIONS (772,253) (123,406)
----------- -----------
DISCONTINUED OPERATIONS:
[Loss] from Discontinued Operations -- --
Gain on disposal of Discontinued Operations -- --
Adjustments to Reconcile Net [loss] to Net Cash Operations:
Depreciation -- --
----------- -----------
CHANGES IN ASSETS AND LIABILITIES:
(Increase) Decrease in:
Other Assets -- --
Increase (Decrease in:
Accounts Payable -- --
Customer Deposits -- --
----------- -----------
TOTAL ADJUSTMENTS -- --
NET CASH - DISCONTINUED OPERATIONS -- --
----------- -----------
NET CASH - OPERATING ACTIVITIES - FORWARD (772,253) (123,406)
----------- -----------
INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Increase in Due from Related Parties (25,759) (737)
Purchase of Investments (600,000) 35,897
Purchase of Property and Equipment (264,226) (167,927)
Sale of Investments 156,650 --
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS - (733,335) (132,767)
FORWARDED
INVESTING ACTIVITIES - DISCONTINUED OPERATIONS:
Disposition of Property and Equipment -- --
----------- -----------
NET CASH INVESTING ACTIVITIES
$ (733,335) $ (132,767)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
-7-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES - FORWARDED $ (772,253) $ (123,406)
----------- -----------
NET CASH - INVESTING ACTIVITIES - FORWARDED (733,335) (132,767)
----------- -----------
FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Proceeds from the Conversion of Debt to Equity -- --
Proceeds from Issuance of Common Stock 4,000,000 --
Proceeds from Issuance of Preffered Stock 906,850 --
Increase in Loan Payable to Shareholder 17,421 --
Proceeds from Long Term Debt 25,423 30,900
Payment from Notes Receivable 70,000 --
Payment of Notes Payable (41,733) (7,265)
Payment of Lease Payable (12,053) --
Additions to Paid In Capital -- 14,238
----------- -----------
NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS 4,965,908 37,873
----------- -----------
Financing - Activities - Discontinued Operations
Additions to Paid In Capital -- --
----------- -----------
NET CASH - FINANCING ACTIVITIES 4,965,908 37,873
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 3,460,320 (218,300)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD (2,486) 238,785
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 3,457,834 $ 20,485
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the quarter for:
Interest $ 782 $ 1,077
Income Taxes $ -0- $ 60,210
Income Tax Refund (Applied) $ -0- $ (23,100)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
-8-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1 9 9 8 1 9 9 7
------- -------
OPERATING ACTIVITIES:
<S> <C> <C>
Income [Loss] Income from Continuing Operations $ 542,967 $ 631,188
Adjustments to Reconcile Net Income [Loss] to
Net Cash Provided by [Used for] Operating Activities:
Depreciation and Amortization 279,937 202,201
Provision for Doubtful Accounts 149,552 --
Regulated Loss on Carrying Value of Investments 51,289 --
Unregulated Loss on Carrying Value of Investments 16,827 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 8,531 (1,850,217)
Prepaid Expenses 141 77,436
Notes Receivable (2,009,546) --
Restricted Cash (15,000) --
Investments -- 56,681
Other Assets 10,372 3,231
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (193,729) 139,173
Income Taxes Payable 149,627 37,105
Customer Deposits -- 83,242
Other Current Liabilities 9,913 38,836
Due to Customer (20,721) --
----------- -----------
NET CASH - CONTINUING OPERATIONS (1,019,840) (581,124)
----------- -----------
DISCONTINUED OPERATIONS:
[Loss] from Discontinued Operations -- (69,531)
Gain on disposal of Discontinued Operations -- 120,895
Adjustments to Reconcile Net [loss] to Net Cash Operations:
Depreciation -- 1,366
----------- -----------
CHANGES IN ASSETS AND LIABILITIES:
(Increase) Decrease in:
Other Assets -- 815
Increase (Decrease in:
Accounts Payable -- (14,808)
Customer Deposits -- (27,648)
----------- -----------
TOTAL ADJUSTMENTS -- (41,641)
NET CASH - DISCONTINUED OPERATIONS -- 11,089
----------- -----------
NET CASH - OPERATING ACTIVITIES - FORWARD (1,019,840) (570,035)
----------- -----------
INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Increase in Due from Related Parties (26,506) (1,582)
Purchase of Investments (600,000) (1,620,000)
Purchase of Property and Equipment (400,095) (222,719)
Sale (Purchase) of Investments -- (73,746)
Sale of Investments 156,650 --
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS - (869,951) (1,918,047)
FORWARDED
INVESTING ACTIVITIES - DISCONTINUED OPERATIONS:
(Purchase) Disposition of Property and Equipment -- 11,110
----------- -----------
NET CASH INVESTING ACTIVITIES $ (869,951) $(1,906,937)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
-9-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES - FORWARDED $(1,019,840) $ (570,035)
----------- -----------
NET CASH - INVESTING ACTIVITIES - FORWARDED (869,951) (1,906,937)
----------- -----------
FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Proceeds from the Conversion of Debt to Equity -- 1,949,330
Proceeds from Issuance of Common Stock 4,299,900 --
Proceeds from Issuance of Preffered Stock 906,850 --
Increase in Loan Payable to Shareholder 105,930 (9,709)
Proceeds from Long Term Debt 25,423 --
Payment from Notes Receivable 70,000 --
Line of Credit (1,800)
Increase in equipment loans -- 30,900
Payment of Notes Payable (41,733) (7,265)
Payment of Lease Payable (28,205) --
Additions to Paid In Capital -- 14,238
----------- -----------
NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS 5,336,365 1,977,494
----------- -----------
Financing - Activities - Discontinued Operations
Additions to Paid In Capital -- 98,775
----------- -----------
NET CASH - FINANCING ACTIVITIES 5,336,365 2,076,269
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,446,574 (400,703)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 11,260 421,188
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 3,457,834 $ 20,485
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the quarter for:
Interest $ 782 $ 1,368
Income Taxes $ -0- $ (77,215)
Income Tax Refund (Applied) $ -0- $ 119,068
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
-10-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Uunaudited)
June 30, 1998
Note 1 - BASIS OF PREPARATION
The accompanying unaudited interim financial statements include all
adjustments (consisting only of those of a normal recurring nature)
necessary for a fair statement of the results for the interim
periods. The results of operations and cash flows for the three
month period ended March 31, 1998, are not necessarily indicative of
the results of operations or cash flows to be reported for the full
year ending December 31, 1998.
Note 2 - BUSINESS ACQUISITIONS
The business acquisition in the first quarter of 1997 has been
accounted for under the purchase method. The results of operations
of the acquired business are included in the consolidated financial
statements from the date acquisition.
On March 26, 1997, the Company concluded its acquisition of 100% of
the outstanding stock of The EmiNet Domain, Inc., located in Boynton
Beach, Florida. EmiNet is an Internet Service Provider (ISP), and
developer of Internet related software products as well as hosting
commercial Web sites. The Company paid $20,000 in cash and issued
200,000 shares of the Company's common stock (approximate market
value on date of issue $2,000,000). The Stock Purchase Agreement
also contains additional payments contingent on the future earnings
performance of EmiNet. Any additional payments made, when the
contingency is resolved, will be accounted for as additional costs
of the acquired assets and amortized over the remaining life of the
assets.
The following unaudited pro forma consolidated results of operations
for the years ended December 31, 1997 and 1996 are presented as if
the EmiNet acquisition has been made at the beginning of each period
presented. The EmiNet Domain, Inc. operated as an S Corporation in
1995 and 1996. Included in the expenses to arrive at Net Earnings
are reclassifications of Shareholders' Draw to Officers Salaries and
Income Tax Expense in the amounts of $132,200 for the short year
1996 and $86,000 for 1997. The unaudited pro forma information is
not necessarily indicative of either the results of operations that
would have occurred had the purchase been made during the periods
presented or the future results of the combined operations.
Years ended December 31
1997 1996
Net Sales $ 4,593,078 $ 878,097
Net Earnings Income (Loss) $ 1,096,976 $ (347,072)
Basic Net Income (Loss) per common share $ .12 $ (.04)
Diluted Net Income (Loss) per common share $ .12 $ (.04)
-11-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
June 30, 1998
Note 3 - MAJOR CUSTOMERS
Income fees derived from major customers are tabulated as follow:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1998 1997 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Customer A (Software System) -- -- -- --
Customer B (Software System) -- -- -- --
Customer C (Software System) -- -- -- --
Customer D (Software System) -- -- -- --
Customer E (Software System) 410,000 -- 600,000 --
Customer F (Software System) 450,000 -- 410,000 --
Customer G (Software System) 150,000 -- 450,000 --
Customer H (Software System) -- -- 150,000 --
Customer I (Software System) -- -- -- --
Customer J (Software System) -- -- -- --
Customer K (Software System) -- -- -- 450,000
Customer L (Software System) -- -- -- 220,000
Customer M (Software System) -- -- -- 350,000
Customer N (Software System) -- 615,000 -- 615,000
Customer O (Software System) -- 675,000 -- 675,000
</TABLE>
Note 4 - CAPITAL STOCK
-------------
On September 18, 1996 and October 31, 1996, the Company issued
521,500 and 365,200 shares, respectively of common stock in a
private placement of its securities. The Company received net
proceeds of approximately $826,881.
On January 16, 1997, the Company entered into a stock purchase
agreement with Brindenberg Securities, A/S under Regulation S of the
Securities and Exchange Commission. A total of 75,000 shares were
issued under the agreement for $525,000 net of offering costs and
expenses of approximately $175,000.
In February 1997, the Company issued 25,000 shares of its common
stock to an outside consultant for services to be rendered. The
consultant never performed the required services and therefore, the
common shares issued will be returned in 1998.
In March 1997, the Company issued 200,000 shares of the Company's
common stock as part of the acquisition of EmiNet Domain, Inc. [See
Note 3].
-12-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
June 30, 1998
In December of 1997, the Company sold 100,000 shares of the
Company's common stock to Australian Advisors for a total of
$300,000 pursuant to Regulation Statement S-8.
Also in December 1997, the Company converted debt totaling $313,475
to equity. The shares related to the conversion were unissued at
December 31, 1997 and the conversion ratio has been set at $4.00 per
share.
In the second quarter of 1998, the Company sold 1,250,000 shares for
a total of $4,000,000 pursuant to Regulation Statement S-8.
Also in the second quarter of 1998, 9,700,000 shares of common stock
were issued to Atlantic International Entertainment Australia, a
wholly owned subsidiary for use in a proposed takeover of the
Australian company, Coms21. As of August 21, 1998, the offer had not
yet been accepted by the shareholders of Coms21.
In the second quarter of 1998, 10,000 shares of 5% Convertible
Preferred Stock, $.001 par value, were issued for cash. Each share
is convertible into common stock by virtue of a formula contained in
the Purchase Agreement which relates to the average price per share
of common stock within the conversion period.
Note 5 - PER SHARE DATA
Per share data are based on the weighted average number of common
shares outstanding during the respective periods, retroactively
adjusted to reflect the common shares issued in exchange for all
outstanding common shares of The EmiNet Domain, Inc., including the
additional shares sold pursuant to a "Reg S" offering in February,
1997. The diluted net income per share is based upon the options
issued and outstanding as well as the assumed conversion of the
Company's issued and outstanding preferred stock.
Note 6 - INCENTIVE STOCK OPTION PLAN
On January 1, 1997, the Company adopted an Incentive Stock Option
Plan for Employees, Directors, Consultants and Advisors [the
"Plan"]. The Plan will expire December 31, 2006 unless further
extended by appropriate action of the Board of Directors. Employees,
directors, consultants and advisors of the Company, or any of its
subsidiary corporations, are eligible for participation in the Plan.
The Plan provides for stock to be issued pursuant to options granted
and shall be limited to 250,000 shares of Common Stock, $.001 par
value. The shares have been reserved for issuance in accordance with
the terms of the Plan. The exercise of these options may be for all
or any portion of the option and any portion not exercised will
remain with the holder until the expiration of the option period.
The options expire on December 23, 2002.
-13-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
June 30, 1998
Note 6 - INCENTIVE STOCK OPTION PLAN (CONTINUED)
---------------------------------------
In addition, options were granted to the Board of Directors on April
2, 1998 for an aggregate amount of 700,000 options. A summary of the
changes in outstanding Common Stock options for all outstanding
plans is as follows:
<TABLE>
<CAPTION>
Weighted-average
----------------
Shares Exercise Price
------ --------------
<S> <C> <C>
OUTSTANDING AT DECEMBER 31, 1995 -- --
Granted -- --
Exercised -- --
Canceled -- --
OUTSTANDING AT DECEMBER 31, 1996 -- --
Granted 175,000 3.25
Exercised -- --
Canceled -- --
------- -----
OUTSTANDING AT DECEMBER 31, 1997 175,000 3.25
------- -----
EXERCISABLE AT DECEMBER 31, 1997 175,000 3.25
------- -----
GRANTED AT APRIL 2, 1998 700,000 4.125
------- -----
OUTSTANDING AT JUNE 30, 1998 875,000 3.95
------- -----
</TABLE>
The following table summarizes information about stock options at December 31,
1997:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS EXERCISABLE
WEIGHTED-AVERAGE STOCK OPTIONS
RANGE OF REMAINING WEIGHTED-AVERAGE WEIGHTED AVERAGE
- -------- --------------------------------------- ----------------
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- --------------- ------ --------------------------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$ 3.25 175,000 4.50 $ 3.25 175,000 $ 3.25
$ 4.125 700,000 4.75 $ 4.75 700,000 $ 4.75
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, for stock options issued
to employees in accounting for its stock option plans. The exercise price of
certain options issued during 1997 was the market price at the date of grant.
Accordingly, no compensation expense has been recognized for the Company's
stock-based compensation plans for fiscal year 1997.
-14-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
June 30, 1998
Note 7 - Business Agreements
In February 1998, the Company entered into an agreement with ELG
Health Management Services ["ELG"] to market the Atlantic
International Medical ["AIM"] products and services. ELG will
provide the Company 40% of the net profits from the sale and
distribution of medical products.
In February 1998, the Company entered into a Development Service
Agreement with International Transaction System Corp. ["ITS']. The
Company's responsibilities under the agreement include engaging in
the development activity required to host ITS on the Company's
software and selling debt card processing [`DCP']. ITS'
responsibilities include development activity required to develop
the DCP test methodology and/or test cases so that the Company may
validate correct operation of the DCP and provide service support.
Under the Agreement, the Company paid $20,000 to acquire access to
DCP through ITS for the purpose and exclusive application in the
Company's software. Transaction fees earned by customers will be
distributed 75% and 25% to the Company and ITS, respectively. The
initial term of the agreement is 10 years, and automatically renews
in 5 year consecutive periods, unless terminated by either party.
-15-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAIMENT, LTD.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
On April 3, 1998 the company entered into a Securities Purchase
Agreement for the sale of $500,000 of a newly created 5% Convertible
Preferred Stock. The Agreement also grants the purchaser the right
to purchase up to an additional $2,500,000 in said class of
securities at market prices. The preferred stock contributed into
the Company's common stock at the purchaser's option. In June 1998
the second tranche for an additional $500,000 was sold under the
same rights and restrictions.
On April 30, 1998, the Company entered into a Securities Purchase
Agreement with Hosken Consolidated Investments, Ltd. ["HCI"], where
HCI purchased one million shares of the Company's common stock for
$4,000,000 pursuant to Regulation D.
In a simultaneous transaction, HCI has subscribed for 25% of the
Company's South African subsidiary, Atlantic International
Entertainment, Ltd. South Africa. HCI received its equity in
consideration for its services to be rendered related to introducing
the Company to the South African gaming and wagering community.
In May 1998, the Company's wholly-owned subsidiary, AIE, Australia,
Ltd. submitted an acquisition bid for an Australian listed company,
Coms21. The Company offered Coms21 shareholders the equivalent of
$.70 Australian dollar per share in the form of the Company's U.S.
shares.
In May of 1998, the Company instituted a Section 125 benefit plan
for it's Employees. In June of 1998, the Company instituted a 401K
Employee benefit plan on behalf of its Employees. The Company is not
required to make matching contributions under this plan.
In the second quarter of 1998, the Company completed installations
of four new licenses, two for Internet Casino Extension (ICE) and
two for webSports products.
RESULTS OF OPERATIONS
The Company's revenues increased approximately 34% in the second
quarter 1998 over the same period in 1997. Revenues from operations
in the second quarter 1998 were $1,553,227, as compared with
$1,160,180 for the same period in 1997. Net income from continuing
operations declined approximately 52% in the second quarter 1998 as
compared to the second quarter 1997, $202,664 (0.01 per share) and
$436,882 (0.04 per share) respectively.
The increase in revenues was the result of continued market
penetration from industry awareness of Atlantic's products as well
as a strong sales and marketing push. The net profit after taxes and
extraordinary items declined approximately
-16-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAIMENT, LTD.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
52% or $234,218. Operating expenses rose by approximately 45% or
$306,802 over the same period in 1997. Operating expenses for the
second quarter 1998 were $1,103,413 as compared to $663,088 for the
second quarter 1997. This was largely due to global expansion
efforts, expenses related to the development of new products and
increased sales and support staffing.
Operating expenses rose by approximately 77% or $508,089 over the
same period in 1997. Operating expenses for the second quarter 1998
were $709,428 as compared to $380,350 for the second quarter 1997.
This was largely due to global expansion efforts, expenses related
to the development of new products and increased sales and support
staffing.
For the six months ended June 30, 1998 net income from operations
represented 20% of total revenues as compared to 38% for the six
months ended June 30, 1997. The decline in net income to total
revenues was a result of continued global expansion and product
development.
During the second quarter of 1998, funds of $5,216,450 were
generated from the sale of 10,950,000 shares of common and 10,000
shares of preferred stock. In the opinion of management, inflation
has not had a material impact in the operations of the Company.
-17-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
PART II
Item 1. Legal Proceedings
Litigation - The Company is party to litigation arising from the
normal course of business. In management's' opinion, this litigation
will not materially affect the Company's financial position, results
of operations or cash flows.
Item 2. Changes in Securities
This Item is not applicable to the Company.
Item 3. Defaults upon Senior Securities
This Item is no applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
-18-
<PAGE>
In accordance with the requirements of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Atlantic International Entertainment, Ltd.
Date: August 27, 1998 By:/s/ Richard A. Iamunno
---------------------------------
(Signature)
Richard A. Iamunno, President
And Chief Executive Officer
Date: August 27, 1998 By:/s/ David P. Halaburda
---------------------------------
(Signature)
David P. Halaburda
Chief Financial Officer
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Atlantic
International Entertainment, Ltd.'s financial statements as of June 30, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S>
<C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,457,834
<SECURITIES> 0
<RECEIVABLES> 1,568,883
<ALLOWANCES> (20,296)
<INVENTORY> 0
<CURRENT-ASSETS> 5,301,795
<PP&E> 2,558,563
<DEPRECIATION> 637,014
<TOTAL-ASSETS> 12,811,317
<CURRENT-LIABILITIES> 2,090,679
<BONDS> 0
<COMMON> 20,540
0
10
<OTHER-SE> 10,666,633
<TOTAL-LIABILITY-AND-EQUITY> 12,811,317
<SALES> 2,708,268
<TOTAL-REVENUES> 2,708,268
<CGS> 375,404
<TOTAL-COSTS> 2,332,864
<OTHER-EXPENSES> 1,446,501
<LOSS-PROVISION> 171,539
<INTEREST-EXPENSE> 25,389
<INCOME-PRETAX> 689,435
<INCOME-TAX> 146,469
<INCOME-CONTINUING> 542,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 542,966
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
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