AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1998
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 1040 13-3858917
(State or other jurisdiction (Primary Standard (I.R.S. employer
of incorporation or organization) Classification Code Number) identification number)
</TABLE>
200 EAST PALMETTO PARK ROAD
SUITE 200
BOCA RATON, FLORIDA 33431
(561) 393-6685
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
HARRY WINDERMAN, ESQ.
GENERAL COUNSEL
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
200 EAST PALMETTO PARK ROAD
SUITE 200
BOCA RATON, FLORIDA 33431
(561) 393-6685
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At such
time or times as may be determined by the Selling Stockholders after this
Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
1
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
Title of Each Class of Amount to be Proposed Proposed Amount of
Securities to be Registered registered Maximum Maximum Registration
Aggregate Aggregate Fee
Offering Price Offering Price
Per Share
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par 320,513(1) $3.77(1)(2) $1,207,042(1) $356.08
value, issuable upon
conversion of 5%
Convertible Preferred
Stock
- --------------------------------------------------------------------------------------------------
Total . . . . . . . . . .$356.00
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents 320,513 shares of Common Stock issuable upon conversion of
5% Convertible Preferred Stock at a conversion price of $3.12 per
share. Pursuant to Rule 416 and 457(i), there are also registered
hereby (i) an indeterminate number of shares of Common Stock issuable
upon conversion of the Company's 5% Convertible Preferred Stock
resulting from the fluctuating conversion rate of such Preferred Stock
that is determined based upon the market price of the Company's
publicly-traded Common Stock as of the date of the applicable
conversion thereof, and (ii) an indeterminable number of shares of
Common Stock that may become issuable by reason of anti-dilution
provisions of the shares of Preferred Stock.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Exchange Act of 1933, as
amended (the "Securities Act"), based on $3.77, the per share average
of high and low sales prices of the Common Stock on the Nasdaq
Over-the-Counter Market on June 30, 1998.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
2
<PAGE>
PROSPECTUS
320,513 SHARES
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
This Prospectus relates to the reoffer and resale by certain selling
stockholders (the "Selling Stockholders") of shares (the "Shares") of Common
Stock, $0.001 par value per share (the "Common Stock"), of Atlantic
International Entertainment, Ltd., a Delaware corporation (the "Corporation",
"Company" or "AIE") comprised of an aggregate of 320,513 shares of Common Stock
which will be issued by the Company to a certain Selling Stockholder upon the
conversion of the 5% Convertible Preferred Stock ("Preferred Stock") of the
Company. This Prospectus also relates, pursuant to Rules 417 and 457(i)
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
to the offer and resale by a certain Selling Stockholder of (i) an indeterminate
number of shares of Common Stock that may become issuable by reason of the
anti-dilution provisions of the Preferred Stock, and (ii) an indeterminate
number of shares of Common Stock issuable upon conversion of the Preferred Stock
resulting from a fluctuating conversion rate of such shares that is determined
based upon the market price of the Company's publicly-traded Common Stock as of
the date of the applicable conversion thereof. The Selling Stockholder has
advised AIE that it proposes to offer such Shares which it may acquire for sale,
from time to time, through brokers in brokerage transactions on the National
Association of Securities Dealers Automated Quotation System (Over-the-Counter)
("NASDAQ"), to underwriters or dealers in negotiated transactions or in a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Brokers, dealers and
underwriters that participate in the distribution of the Shares may be deemed to
be underwriters under the Securities Act of 1933 (as amended, and together with
the rules and regulations thereunder, the "Securities Act"), and any discounts
or commissions received by them from the Selling Stockholder and any profit on
the resale of Shares by them may be deemed to be underwriting discounts and
commissions under the Securities Act. The Selling Stockholder may be deemed to
be an underwriter under the Securities Act. See "Plan of Distribution".
AIE will not receive any part of the proceeds from the sale of the
Shares by the Selling Stockholder upon the conversion of the Preferred Stock.
The Selling Stockholder will pay all applicable stock transfer taxes, brokerage
commissions, underwriting discounts or commissions and the fees of Selling
Stockholder's counsel, but AIE will bear all other expenses in connection with
the offering made hereunder. AIE has agreed to indemnify the Selling Stockholder
and underwriters of the Selling Stockholder against certain liabilities,
including certain liabilities under the Securities Act, in connection with the
registration and the offering and sale of the Shares.
The Shares are listed on the NASDAQ (OVER-THE-COUNTER). The closing
price per share of Common Stock on the NASDAQ (OVER-THE-COUNTER) on June 22,
1998, was $3.96.
3
<PAGE>
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK AND SHOULD ONLY BE MADE BY INVESTORS WHO CAN
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" AT PAGE 7 HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is June 30, 1998.
4
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and , in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 as well as at the following
regional offices: 7 World Trade Center, Suite 1300, New York, New York 10048,
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60606-2511 upon
payment of the fees prescribed by the Commission. Such material may also be
accessed electronically by means of the Commission's home page on the internet
at http//www.sec.gov.
The Company has also filed with the Commission a Form SB-2 Registration
Statement (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Shares offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, INCLUDING THE FINANCIAL
STATEMENTS AND THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
WHICH STATEMENTS REFLECT THE COMPANY'S VIEWS WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS THAT COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THOSE
REFLECTED IN SUCH STATEMENTS, INCLUDING THOSE DISCUSSED IN "RISK FACTORS" ON
PAGES 7 THROUGH 13.
The Company
Atlantic International Entertainment, Ltd. (the "Company"), a Delaware
corporation, develops and markets Interactive products and services in the
Entertainment and Information Technology fields. The Company (formerly,
Cine-Chrome Laboratories, Inc., Medco Health Care Services, Inc., Cine-Chrome
Video Corp., Network 4, Inc. and CEEE Group Corporation) was incorporated in the
state of Colorado in October 1939 under the name "Pacific Gold, Inc." to explore
and develop gold and silver ore prospects and to operate mining and milling
facilities. The Company conducted limited mining activities until operations
ceased. The Company then sought new business opportunities as a development
stage entity.
In 1973 the Company changed its name to Cine-Chrome Laboratories, Inc.
and operated a film processing lab in California. From 1984 until June 1994, the
Company did not conduct any operations, transactions or business activities. In
June 1994, the Company began acting as a corporate
5
<PAGE>
advisory operation which included acting as a "finder" with respect to U.S.
public companies and providing advisory services concerning corporate structure
and raising capital. Beginning in 1996, the Company has concentrated its
business operations primarily on the manufacturing, marketing and development of
Interactive products and services.. These products and services are focused on
two major industries which include Interactive gaming & wagering and Information
Technology products and services.
Prior to July 16, 1996, the Company had no operations other than
searching for a business combination. In July 1996, the Company consummated a
share exchange pursuant to an Exchange of Stock Agreement and Plan of
Reorganization with Atlantic International Capital Ltd., a Delaware corporation
("Atlantic Capital") and the former stockholders of Atlantic Capital (the "Stock
Exchange Agreement"). As a result of the Stock Exchange Agreement, the business
of Atlantic Capital became the business of the Company.
On November 22, 1996, the Company merged with and into its wholly-owned
Delaware subsidiary, Atlantic International Entertainment, Ltd., whereby the
Company, among other things, (i) changed its state of incorporation to Delaware;
(ii) increased its authorized capital stock to 110,000,000 (100,000,000 shares
of common stock, $.001 per share (the "Common Stock") and 10,000,000 shares of
preferred stock, $.001 par value per share (the "Preferred Stock")); and (iii)
effectuated a 1 for 3 share exchange. All shares referred to herein (unless
specifically stated otherwise) refer to post split amounts.
The Company acquired the major assets of RAM Associates, Inc. ("RAM")
pursuant to a Purchase and Sale Agreement dated April 15, 1996. The RAM assets
acquired by the Company included COMMUNITY CASINO and REALSPORTS(TM) that formed
a part of the foundation of the Company's current gaming software products.
Other products acquired from RAM included HOTEL HOTLINKS(TM) and CLUB
INTERACTIVE. The Company has significantly improved and expanded its operational
software and the software products developed by the Company. The Company
continues to perform substantial development efforts to adapt to current
technological advances.
In March 1997, the Company concluded its purchase of the Internet
Service Provider and developer The EmiNet Domain, Inc. Through the EmiNet
Domain, Inc. the Company based it's Interactive non-gaming wagering products and
services. In addition to dial-up Internet business, EmiNet, offers web hosting
and development services to commercial markets. (See EmiNet Business, infra).
The Company's executive offices are located at 200 East Palmetto Park
Rd., Suite 200, Boca Raton, Florida 33432. The telephone number of the Company
is (561) 393-6685. The Company maintains a home page on the Internet at
http://www.aieltd.com.
The Offering
Common Stock Offered by the Selling Stockholder Up to 320,513 shares
Common Stock Outstanding 20,105,945 shares
6
<PAGE>
Common Stock to be Outstanding after the Offering 20,426,458 shares
Use of Proceeds - The Company will not receive any of the proceeds from the sale
of Shares by the Selling Stockholder or upon conversion of the Preferred Stock.
NASDAQ OTC Symbol AIEE
Risk Factors An investment in the Shares involves a high degree of risk. See
"Risk Factors" beginning on page _ of this Prospectus.
Summary Financial Data
(Dollar amounts and share data)
<TABLE>
<CAPTION>
THREE MONTHS
DECEMBER 31 ENDED MARCH 31
----------- --------------
1997 1996 1998 1997
<S> <C> <C> <C> <C>
Revenue $ 4,416,790 $ 454,656 $ 1,155,041 $ 604,248
Income [Loss] From Operations 1,394,890 (427,975) 312,994 250,853
Net Income [Loss] 1,047,317 (376,270) 278,687 245,670
Basic and Diluted Net Income [Loss]
Per Common Share-
0.11 (0.04) 0.03 0.01
BALANCE SHEET DATA:
Working Capital 352,559 199,893 (448,097) 794,263
Total Assets 6,905,999 1,982,014 7,539,043 4,306,253
Total Liabilities 1,959,380 302,879 2,015,862 333,342
Stockholder's Equity $4,946,619 $1,679,135 $ 5,523,181 $3,972,911
</TABLE>
RISK FACTORS
An investment in the Shares offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following Risk
Factors, as well as the other information contained in this Prospectus, before
making an investment decision. This Prospectus contains forward-looking
statements that involve risks and uncertainties. These statements appear
throughout this Prospectus and include statements as to the intent, belief or
current expectations of the Company and its directors, officers and management,
with respect to the future operations, performance or position of the Company.
Such forward-looking statements are not guarantees of future events and involve
risks and uncertainties. Actual events and results, including the results of the
Company's operations, could differ materially from those anticipated by such
forward-looking
7
<PAGE>
statements, as a result of various factors, including those set forth below and
elsewhere in this Prospectus. See " --Forward-Looking Statements."
Limited Operating History
The Company commenced operations in July 1996 and, accordingly, has a
limited operating history. For the year ending December 31, 1997, the Company
had a net profit of approximately $1,000,000. The Company expects that it will
continue to operate profitably in the near future. There can be no assurance
that the Company will sustain profitability or achieve positive cash flow in the
future.
Need for Additional Working Capital
The Company believes that the net proceeds from its recent stock
offerings, together with other available cash, will be sufficient to meet its
operating expenses and capital requirements at least through March 1999.
However, the Company's capital requirements depend on numerous factors,
including the level of resources required to expand the Company's marketing and
sales organization, information systems and research and development activities;
the availability of hardware and software provided by third-party vendors; and
other factors. The timing and amount of capital requirements are not entirely
within the Company's control and cannot accurately be predicted. If capital
requirements materially exceed those currently anticipated, the Company may
require additional financing sooner than anticipated. The Company has no
commitments for additional financing, and there can be no assurance that any
such additional financing would be available in a timely manner, on terms
acceptable to the Company, or at all. Further, any additional equity financing
could be dilutive to the Company's then-existing stockholders and any debt
financing could involve restrictive covenants with respect to future capital
raising activities and other financial and operational matters. If the Company
were unable to obtain additional financing as needed, it could be required to
reduce the scope of its operations or its anticipated expansion, which could
have a material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Competition
The market for Internet gaming software is extremely competitive and
highly fragmented. Inasmuch as there are no significant barriers to entry, the
Company believes that competition in this market will intensify. The Company
believes that its ability to compete successfully will depend on a number of
factors, including strong market presence in its targeted geographic regions;
the adequacy of the Company's software development and technical support
services; the pricing policies of the Company, its competitors and its
suppliers; the timing of introductions of new products by the Company and its
competitors; the Company's ability to support existing and emerging industry
standards; and industry and general economic trends. There can be no assurance
that the Company will have the financial resources, technical expertise or
marketing and support capabilities to compete successfully.
Dependence on the Internet; Uncertain Acceptance of the Internet as a Medium of
Commerce and Communication
8
<PAGE>
The Company's business is dependent upon use of the Internet, primarily
by individuals and, to a lesser extent, by businesses. The Company's success
will depend in part upon the continuing development and expansion of the
Internet and the market for Internet access. Critical issues concerning business
and personal use of the Internet (including security, reliability, cost, ease of
use, access and quality of service) remain unresolved and may significantly
affect the growth of Internet use, and additional use-related issues may arise
in the future. In addition, the volume of Internet traffic is constrained by
available bandwidth. To the extent that bandwidth is insufficient to efficiently
carry an expanding volume of traffic, users may find the Internet an
unacceptable medium of commerce and communication and, as a result, may seek
alternative media. Acceptance of the Internet for commerce and communications
generally requires that potential users accept a new way of conducting business
and exchanging information, industry participants continue to provide new and
compelling content and applications, and the Internet provides a reliable and
secure computer platform. There can be no assurance that the Internet market
will grow or as to the rate of such growth. Moreover, the novelty of the
Internet access market may also adversely affect the Company's ability to retain
new subscribers, as subscribers unfamiliar with the Internet may be more likely
to discontinue the Company's services after an initial trial period. A
diminution in the growth of demand for Internet services or an absolute decrease
in such demand could have a material adverse effect on the Company.
Rapid Technological Change; Evolving Industry Standards
The Company's business is sensitive to fundamental changes in the
method of Internet access delivery. Currently, the Internet is accessed
primarily via computers connected by telephone lines. A number of alternative
methods for users to connect to the Internet, including cable modems, satellites
and other wireless telecommunications technologies, currently are under
development. As the Internet becomes accessible through these technologies, or
as user requirements as to access methods change, the Company may have to
develop new software or modify its existing software. The Company's pursuit of
these technological advances may require substantial time and expense, and there
can be no assurance that the Company will succeed in adapting its Internet
access business to alternate access methods. Any failure on the part of the
Company to identify, adopt and use new software effectively, to develop its
technical capabilities or to develop new services or enhance existing services
in a timely and cost-effective manner could have a material adverse effect on
the Company.
Dependence on Telecommunications Carriers and Other Suppliers
The Company's customers rely on local telephone companies and others to
provide data communications via local telecommunications lines and leased long
distance lines. From time to time, the Company's customers have experienced
difficulties and delays in receiving telecommunications services, and there can
be no assurance that the Company's customers will be able to obtain such
services on the scale and within the time frame required by the Company, on
acceptable terms or at all.
9
<PAGE>
Management of Growth
The Company has experienced significant growth. This growth has placed,
and may continue to place, significant strain on the Company's managerial,
operational, financial and other resources. The Company believes that its
performance and success will depend in part on its ability to manage its growth
effectively. This, in turn, will require ongoing enhancement of its operating,
administrative and financial and accounting systems, improvement of coordination
among engineering, accounting, finance, marketing and operations functions, and
the expansion of its work force and the training and management of its
personnel. There can be no assurance that the Company will be able to manage its
growth effectively, or that the Company's facilities, systems, procedures or
controls will be adequate to support its operations. The inability of the
Company to manage its growth effectively could have a material adverse effect on
the Company.
Dependence on Key Personnel
The Company is highly dependent on the technical and managerial skills
of its key employees, including technical, sales, marketing, information
systems, financial and executive personnel. Therefore, the success of its
business is highly dependent upon its ability to retain such personnel and to
identify, hire and retain additional personnel as the need arises. Competition
for key personnel, particularly persons having technical expertise, is intense
and there can be no assurance that the Company will be able to retain existing
personnel or to identify or hire additional qualified personnel. The need for
such personnel is particularly important in light of the anticipated demands of
future growth. The inability of the Company to attract, hire or retain necessary
personnel could have a material adverse effect on the Company. See "Management."
The Company also is highly dependent on the continued services of its
senior management team, which currently is composed of a small number of
individuals. While certain executive officers and key employees are parties to
employment agreements with the Company, such agreements are of limited duration
and are subject to termination under certain circumstances. See
"Management--Employment Agreements and Related Arrangements."
Government Regulation
The legality of gaming through the use of the Internet is uncertain at
this point. Since the sale of a foreign subsidiary which ran a sports book, the
Company does not operate virtual casinos or Internet sports books. However,
sales of the Company's products depend on the continued international growth of
virtual casinos and Internet sports books. A number of United States federal and
state statutes could be construed to prohibit gaming through use of the
Internet. While the Company focuses its sales and marketing efforts in
jurisdictions that allow private network and Interactive gaming which include
Australian, Caribbean, African and American gaming markets, there can be no
assurance that international, federal, state or local laws or regulatory
procedures, including those which relate to the issue of jurisdiction over
gaming on the Internet, which would adversely affect the Company's business,
financial condition, results of operations or prospects will not be expanded or
imposed.
10
<PAGE>
Proprietary Rights; Risk of Infringement
The Company believes that its success is dependent in part on its
software and its continuing right to sell such software. The Company relies on a
combination of copyright, trademark and trade secret laws and contractual
restrictions to establish and protect its software. There can be no assurance
that the steps taken by the Company will be sufficient to prevent
misappropriation of its software and other proprietary property or that the
Company's competitors will not independently develop software that are
substantially equivalent or superior to the Company's software.
There can be no assurance that third parties will not assert that the
Company's services or its users' content infringe their proprietary rights.
There can be no assurance that infringement claims will not be asserted against
the Company in the future. Such claims could result in substantial costs and
diversion of resources, even if ultimately decided in favor of the Company, and
could have a material adverse effect on the Company, particularly if judgments
on such claims were adverse to the Company. In the event a claim is asserted
alleging that the Company has infringed the intellectual property or information
of a third party, the Company may be required to seek licenses to continue to
use such intellectual property. There can be no assurance, however, that such
licenses would be offered or could be obtained on commercially acceptable terms,
if at all. The failure to obtain necessary licenses or other rights could have a
material adverse effect on the Company.
Certain Anti-Takeover Provisions
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Charter") and Bylaws and of the Delaware General Corporation
Law (the "Delaware Corporation Law") could delay or impede the removal of
incumbent directors, make more difficult a merger, tender offer or proxy contest
involving the Company, and could discourage a third party from attempting to
acquire control of the Company, even if such events would be beneficial to the
interests of some or all of the Company's stockholders. The Company currently
has 100,000,000 shares authorized and after the possible conversion of the
Preferred Stock only approximately 20,000,000 shares will be outstanding. The
Company will have the ability to issue substantially more shares than are
currently outstanding, thereby changing the control of the current stockholders'
voting power. In addition, the Charter authorizes the Board of Directors to
provide for the issuance of shares of Preferred Stock of the Company in one or
more series. The Board of Directors is authorized to determine the rights,
preferences, privileges and restrictions granted to, and imposed upon, any
series of Preferred Stock and to fix the number of shares of any series of
Preferred Stock and the designation of any such series, subject to the consent
of the existing holders of Preferred Stock in certain instances. The Company has
no current plans to issue any such Preferred Stock. The Company is also subject
to the provisions of Section 203 of the Delaware Corporation Law. In general,
Section 203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
"interested stockholder," unless certain conditions are met. See "Description of
Capital Stock--Certain Provisions of the Company's Charter and Bylaws and of
Delaware Law."
11
<PAGE>
Limited Public Market for Common Stock; Potential Volatility of Stock Price
Prior to this offering, there has been a limited public market for the
Common Stock trading on NASDAQ Over-the-Counter. Although the Company intends to
apply to have the Common Stock approved for quotation on the American Stock
Exchange, there can be no assurance that that application will be approved, that
an increased public trading market for the Common Stock will develop or continue
after this offering, or that the public offering price will correspond to the
price at which the Common Stock will trade subsequent to this offering.
The stock market has experienced price and volume fluctuations that
have particularly affected the stocks of technology companies, resulting in
changes in the market prices of stocks of many companies that may not have been
directly related to the operating performance of those companies. Such broad
market fluctuations may adversely affect the market price of the Common Stock
following this offering. In addition, the market price of the Common Stock
following this offering may be highly volatile. Factors such as variations in
the Company's interim financial results, comments by securities analysts,
announcements of technological innovations or new products by the Company or its
competitors, changing market conditions in the industry (including changing
demand for Internet access) changing government regulations, developments
concerning the Company's proprietary rights or litigation, many of which are
beyond its control, may have a material adverse effect on the market price of
the Common Stock.
The Company's operating results, cash flows and liquidity may fluctuate
significantly over time. The Company's revenues depend on its ability to attract
and retain subscribers. The Company generally offers its new subscribers a
money-back guarantee pro-rated over the unused duration of the service term and
subscribers to the Company's services have the option of discontinuing their
service for any reason. The Company's expense levels are based in part on its
expectations as to future revenues. To the extent that revenues are below
expectations, the Company may be unable or unwilling to reduce expenses
proportionately, and operating results, cash flows and liquidity therefore could
be adversely affected. Due to the foregoing factors, it is likely that, from
time to time in the future, the Company's quarterly or other operating results
and/or growth rate will be below the expectations of public market analysts and
investors. Such a failure to meet market expectations could have a material
adverse effect on the market price of the Common Stock.
Shares Eligible for Future Sale
Upon completion of this Registration, there will be 20,426,458 shares
of Common Stock outstanding, 5,512,641 of which will be freely tradable without
restriction. Sales of a substantial number of shares of Common Stock in the
public market following this offering, or the perception that such sales could
occur, could adversely affect the market price of the Common Stock prevailing
from time to time and could impair the Company's future ability to raise capital
through a sale of its equity securities.
12
<PAGE>
Absence of Cash Dividends
The Company has never declared or paid any cash dividends on its
capital stock and does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy."
Control by Officers, Directors and Existing Shareholders
Currently, the officers, directors and existing shareholders of the Company have
the right to vote 100% of the outstanding shares of Common Stock. The officers,
directors and existing shareholders will control substantially all of the
outstanding Common Stock after any conversion of the Preferred Stock. As a
result, the present officers, directors and shareholders of the Company will
continue to control the affairs of the Company, including the election of
directors and, except as otherwise provided by law, other matters submitted to a
vote of shareholders, including a merger, consolidation or other material
matters regarding the Company.
Risks Inherent in International Operations
The Company does a substantial amount of its business in countries other than
the United States. Although the Company requires all payments in United States
Dollars, due to fluctuations in other countries' currency, the Company's
customers may be required to pay additional amounts to the Company to adjust for
said currency fluctuations. In addition, the economic conditions in other
countries and in the global economy may require foreign countries to restrict
the transfer of its capital to the United States and thereby restrict the
receipt of income to the Company to foreign currency that may fluctuate in value
in relation to the United States Dollar. The Company currently has not
experienced any such difficulty and has no plans to protect against such risks.
Indemnification of Officers and Directors
The Delaware Statutes permit a corporation to indemnify certain persons
including officers and directors who are (or are threatened to be made) parties
to any threatened, pending or completed action, suit or proceeding, against all
expenses (including attorneys' fees) actually and reasonably incurred by, or
imposed upon, him in connection with the defense of such action, suit or
proceeding by reason of his being or having been a director or officer, except
where he has been adjudged by a court of competent jurisdiction (and after
exhaustion of all appeals) to be liable for gross negligence or willful
misconduct in the performance of duty. The Company's Bylaws provide that the
Company shall indemnify its officers and directors to the extent permitted by
the Delaware law and thereby limit the actions that may be taken by the
stockholders against the officers and directors.
Forward-Looking Statements
The statements contained in this Prospectus that are not historical
fact are "forward-looking statements," which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates," the negatives thereof or other variations thereon or
comparable terminology, and include statements as to the intent, belief or
current expectations of the Company and its directors, officers and management
with respect to the future operations, performance or position of the Company.
These forward-looking statements are
13
<PAGE>
predictions. No assurances can be given that the future results indicated,
whether expressed or implied, will be achieved. While sometimes presented with
numerical specificity, these forward-looking statements are based upon a variety
of assumptions relating to the business of the Company, which, although
considered reasonable by the Company, may not be realized. Because of the number
and range of the assumptions underlying the Company's forward-looking
statements, many of which are subject to significant uncertainties and
contingencies beyond the reasonable control of the Company, some of the
assumptions inevitably will not materialize and unanticipated events and
circumstances may occur subsequent to the date of this Prospectus. These
forward-looking statements are based on current information and expectation, and
the Company assumes no obligation to update. Therefore, the actual experience of
the Company and results achieved during the period covered by any particular
forward-looking statement may differ substantially from those anticipated.
Consequently, the inclusion of forward-looking statements should not be regarded
as a representation by the Company or any other person that these estimates will
be realized, and actual results may vary materially. There can be no assurance
that any of these expectations will be realized or that any of the
forward-looking statements contained herein will prove to be accurate.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of Shares by the
Selling Stockholders or upon conversion of the Preferred Stock.
PRICE RANGE OF COMMON STOCK
Since November, 1996, the Company's Common Stock, $.001 par value, has
traded on the National Association of Security Dealers, Inc.'s OTC Electric
Bulletin Board under the trading symbol AIEE. The following table sets forth the
average range of bid and ask quotations for the Company's Common Stock as
reported by the NASDAQ Bulletin Board for each full quarterly period within the
two most recent fiscal years and subsequent interim periods.
BY QUARTER COMMON STOCK
FISCAL YEAR ENDED DECEMBER 31, 1996
QUARTER DATE HIGH LOW
------- ---- ---- ---
1st March 31, 1996 $[N/A] $[N/A]
2nd June 30, 1996 $[N/A] $[N/A]
3rd September 30, 1996 $[N/A] $[N/A]
4th December 31, 1996 $10.75 $9.75
14
<PAGE>
FISCAL YEAR ENDED DECEMBER 31, 1997
BY QUARTER COMMON STOCK
- ---------- ------------
QUARTER DATE HIGH LOW
------- ---- ---- ---
1st March 31, 1997 $10.25 $1.50
2nd June 30, 1997 $8.50 $1.469
3rd September 30,1997 $ 5.25 $3.25
4th December 30, 1997 $ 5.25 $2.75
FISCAL YEAR ENDING DECEMBER 31, 1998
BY QUARTER COMMON STOCK
- ---------- ------------
QUARTER DATE HIGH LOW
------- ---- ---- ---
1st March 31, 1998 $4.80 $3.00
2nd (through June 12, 1998) $4.375 $3.875
(1)Trading transactions in the Company's securities occur in the
over-the-counter market. All prices indicated herein are as reported to the
Company by broker -dealer(s) making a market in its securities. the
over-the-counter market quotes indicated above reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
As of June 12, 1998 there were approximately 147 holders of record of
Company's Common Stock, including brokerage firms, clearinghouses, and/or
depository firms holding the Company's securities for their respective clients.
The exact number of beneficial owners of the Company's securities is not known.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its
capital stock and does not anticipate paying cash dividends in the foreseeable
future. The payment of cash dividends, if any, in the future will be at the sole
discretion of the Board of Directors.
15
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31 MARCH 31
1997 1996 1998 1997
---- ---- ---- ----
NET SALES:
<S> <C> <C> <C> <C>
Investment Avisory Services $ - $ 366,204 $ - $ -
Internet Software / Services 4,002,894 87,000 1,032,000 604,248
Medical Products - 1,452 - -
Internet Access & Services 413,896 - 123,041 -
----------- ------------ ------------ ------------
4,416,790 454,656 1,155,041 604,248
OPERATING INCOME/LOSS:
Investment Advisory Services - 231,081 - 250,853
Internet Software / Services 1,564,666 (659,056) 341,117 -
Medical Products - - - -
Internet Access & Services (169,776) - (28,123) -
----------- ------------ ------------ ------------
1,394,890 (427,975) 312,994 250,853
TOTAL ASSETS:
Investment Advisory Services - 1,423 - -
Internet Software / Services 5,181,740 1,980,591 5,859,937 4,306,253
Medical Products - - - -
Internet Access & Services 1,724,259 - 1,679,106
----------- ------------ ------------ ------------
6,905,999 1,982,014 7,539,043 4,306,253
DEPRECIATION/AMORTIZATION:
Investment Advisory Services - 285 - -
Internet Software / Services 323,959 67,091 100,715 279,768
Medical Products - - - -
Internet Access & Services 98,579 - 36,037 -
----------- ------------ ------------ ------------
422,538 67,376 136,752 279,768
CAPITAL EXPENDITURES:
Investment Advisory Services - 1,423 - -
Internet Software / Services 490,594 1,490,395 127,115 34,260
Medical Products - - - -
Internet Access & Services 122,558 - 8,754 -
----------- ------------ ------------ ------------
$ 613,152 $ 1,491,818 $ 135,869 $ 34,260
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, [ THE COMPANY'S EXPANSION INTO NEW
MARKETS, COMPETITION, TECHNOLOGICAL ADVANCES AND AVAILABILITY OF MANAGERIAL
PERSONNEL].
OVERVIEW
During 1997, the Company focused its business efforts in two areas, Interactive
Gaming & Wagering and Information Technologies. Gaming and Wagering continues to
grow in terms of customer base and product line. A market for the gaming and
wagering products has been established whereas the Company has entered into 18
license agreements. The Company expects to expand its account base with its
existing product line for the foreseeable future.
At this time efforts in the Information Technologies area mainly consists of the
operations of The EmiNet Domain, an Internet service provider and developer. The
Company plans to increase its current base through acquisition and merger in
1998.
RESULTS OF OPERATIONS
The following is a summary of the Company's consolidated financial and operating
data:
The Company's revenues increased approximately 91% in the first quarter
1998 over the same period in 1997. Revenues from operations in the first quarter
1998 were $1,155,041, as compared with $604,248 for the same period in 1997.
Income from continuing operations rose approximately 43% or $84,381 in the first
quarter 1998 as compared to the first quarter 1997, $278,687 (.03 per share) and
$194,306 (.02 per share) respectively. In 1997, the gain on the sale of
Atlantic's foreign subsidiary added approximately $158,000 of income to the
bottom line resulting in net income between 1998 and 1997 of $278,687 (.03 per
share) and $245,670 (.03 per share) respectively.
For the first quarter of 1998, 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 income after taxes and
extraordinary items rose in the first quarter of 1998 by approximately 13% over
the first quarter of 1997, or approximately $33,000. Operating expenses for the
first quarter of 1998 were $690,327 as compared to $353,395 for the first
quarter of 1997, an increase of approximately 95%, or $336,932. This was largely
due to global
17
<PAGE>
expansion efforts, expenses related to the development of new products and
increased sales and support staffing.
For the year December 31, 1997, net income from operations represented
24% of total revenues as compared to 24% for the first quarter 1998 and 40% for
the first quarter 1997. The greater profit percentage for the first quarter of
1997 was due largely to the sale of Atlantic's wholly owned subsidiary as an
operating entity.
During the first quarter of 1998 funds of $299,900 were generated from
the sale of 100,000 shares of common stock. The shares were issued in 1997 under
an escrow provision and transfer of funds was completed in January 1998.
No income was generated from the investment advisory services for the
year ended December 31, 1997. Internet software and related activities generated
net income from operations of $1,047,317 due to the growth in the industry and
the Company's product recognition. In the first quarter of 1997, AIE(TM) NV and
its operations were sold as an operating Internet sports book. The operating
loss from this discontinued business segment totaled ($69,531) pre tax benefit.
In 1997 the Company continued its focus on Internet related products
and services while continuing to identify new markets and strategic alliances.
In 1997, expenditures were made for both software and hardware in an aggregate
amount of $613,152. Additional employees were hired in both the technical and
sales areas. With the further development of the Internet related software
products and the change of business focus, revenues increased by 912%, or
$3,962,134 to a total of $4,416,790 for 1997. Depreciation expense and software
amortization for 1997 totaled $442,538 or approximately 10 % of gross revenues.
In the first half of the year ended December 31, 1996, the focus of
Company's business activity shifted from investment advisory services to
supplying Internet related products upon the acquisition of various computer
software products from RAM. During this period, investment advisory services
were phased out and currently remain an inactive profit center of the Company.
In 1996, expenditures were made for both software and hardware in an aggregate
amount of $1,490,395. Additional employees were hired in both the technical and
sales areas. With the further development of the Internet related software
products and the change of business focus, revenues dropped by 35.26%, or
$247,651 to a total of $454,656 for 1996. Investment advisory service income for
1996 was $366,204 representing 80.55% to total revenues. Internet related sales
totaled $88,452 or 19.45% of total revenues. Depreciation expense and software
amortization for 1996 totaled $68,332 or 15.03% of gross revenues.
The operating income from the investment advisory services for the year
ended December 31, 1996 totaled $231,081. Internet related activities generated
a net loss from operations of ($659,056) due to the costs associated with the
start up of the new business segment. In the fourth quarter of 1996, a wholly
owned subsidiary of the Company, AIE(TM), NV, opened a demonstration site for
it's Internet gaming software in Curacao. In the first quarter of 1997, AIE(TM)
NV and its operations were sold as an opening Internet casino and sports book.
The net operating loss from this discontinued business segment totaled
($29,244).
18
<PAGE>
OUTLOOK
The Interactive Gaming & Wagering industry, is expected to continue to
grow for the foreseeable future. Worldwide interest in the ICE(TM) and
webSports(TM) software systems is high with particular attention coming from
Australia & South Africa where the government is supportive of private network
and Interactive gaming. Management expects continued sales growth from these
products. The Company will continue to focus its efforts on marketing these
software systems as well as the Hotel Hotlinks(TM) and Networked touch screen
kiosk products. Management believes that interest in all of the Interactive
gaming & wagering products is very high especially in Australia, South Africa
and surrounding regions. The Company expects to continue sales of these products
for the foreseeable future. The Company will also continue its development of
add-on products for both ICE(TM) and webSports(TM) including the adaptations for
Overseas gaming markets.
Management expects continued growth in the Information Technologies
areas. It is expected that through Eminet's On-line, private network, Web and
networking services that Eminet will contribute significantly to profits in 1998
due to new contracts and expanding opportunities in the IT markets. The Company
is considering expanding its portfolio of Information Technology companies and
is looking for Internationally based companies to bring into the United States
marketplace.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. At December 31, 1997 the Company had a working capital
of $352,559. At December 31, 1996, the Company had working capital of $199,893.
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES. During the years ended
December 31, 1997 and 1996, net cash provided (used) by operating activities was
($811,628) and ($193,975) respectively. Cash flows from continuing operating
activities decreased by $617,653 for the year ended December 31, 1997 compared
to the same period in 1996 primarily due to the transition from start up
activities of a new segment of business to the sales and marketing phase with
continued product enhancements.
CASH FLOWS FROM INVESTING ACTIVITIES. During the years ended December
31, 1997 and 1996, the Company made net capital expenditures of $425,862 and
$281,934, respectively, primarily for purchases of property and equipment. The
amounts expended in 1997 represent expenditures necessary for the Internet and
private network development and implementation as well as the acquisition and
upgrade of the Internet Service Provider. [EmiNet Domain].
CASH FLOWS FROM FINANCING ACTIVITIES. During the years ended December
31, 1997 and 1996, cash flows from financing activities were $852,012 and
$723,425 respectively. For the year ended December 31, 1997, cash flows from
financing activities are
19
<PAGE>
primarily from the issuance of Common Stock in connection with private
placements of the Company's Common Stock which raised proceeds to the Company of
approximately $350,000.
The Company believes that cash from operating activities will be
sufficient to fund proposed operations for at least the next 12 months at its
current rate of growth.
INFLATION
In the opinion of management, inflation has not had a material adverse
effect on its results of operations.
BUSINESS
Overview
Atlantic International Entertainment, Ltd. (the "Company"), a Delaware
corporation, develops and markets Interactive products and services in the
Entertainment and Information Technology fields. The Company (formerly,
Cine-Chrome Laboratories, Inc., Medco Health Care Services, Inc., Cine-Chrome
Video Corp., Network 4, Inc. and CEEE Group Corporation) was incorporated in the
state of Colorado in October 1939 under the name "Pacific Gold, Inc." to explore
and develop gold and silver ore prospects and to operate mining and milling
facilities. Pacific Gold, Inc. conducted limited mining activities until
operations ceased. The CEEE Group then sought new business opportunities as a
development stage entity.
In 1973 the Company changed its name to Cine-Chrome Laboratories, Inc.
and operated a film-processing lab in California. From 1984 until June 1994, the
Company did not conduct any operations, transactions or business activities. In
June 1994, the Company began acting as a corporate advisory operation which
included acting as a "finder" with respect to U.S. public companies and
providing advisory services concerning corporate structure and raising capital.
Beginning in 1996, the Company has concentrated its business operations
primarily on the manufacturing, marketing and development of Interactive
products and services. These products and services are focused on two major
industries that include Interactive gaming & wagering and Information Technology
products and services.
Prior to July 16, 1996, the Company had no operations other than
searching for a business combination. In July 1996, the Company consummated a
share exchange pursuant to an Exchange of Stock Agreement and Plan of
Reorganization with Atlantic International Capital Ltd., a Delaware corporation
("Atlantic Capital") and the former stockholders of Atlantic Capital (the "Stock
Exchange Agreement"). As a result of the Stock Exchange Agreement, the business
of Atlantic Capital became the business of the Company.
On November 22, 1996, the Company merged with and into its wholly-owned
Delaware subsidiary, Atlantic International Entertainment, Ltd., whereby the
Company, among other things, (i) changed its state of incorporation to Delaware;
(ii) increased its authorized capital stock to 110,000,000 (100,000,000 shares
of common stock, $.001 per share (the "Common Stock")
20
<PAGE>
and 10,000,000 shares of preferred stock, $.001 par value per share (the
"Preferred Stock"); and (iii) effectuated a 1 for 3 share exchange. All shares
referred to herein (unless specifically stated otherwise) refer to post split
amounts.
The Company acquired the major assets of RAM Associates, Inc. ("RAM")
pursuant to a Purchase and Sale Agreement dated April 15, 1996. The RAM assets
acquired by the Company included COMMUNITY CASINO and REALSPORTS(TM) that formed
a part of the foundation of the Company's current gaming software products.
Other products acquired from RAM included HOTEL HOTLINKS(TM) and CLUB
INTERACTIVE. The Company has significantly improved and expanded its operational
software and the software products developed by the Company. The Company
continues to perform substantial development efforts to adapt to current
technological advances.
In March 1997, the Company acquired the Internet Service Provider and
developer The EmiNet Domain, Inc. Through the EmiNet Domain, Inc. the Company
based it's Interactive non-gaming wagering products and services. In addition to
dial-up Internet business, EmiNet, offers web hosting and development services
to commercial markets. (See EmiNet Business, infra).
The Company's executive offices are located at 200 East Palmetto Park
Rd., Suite 200, Boca Raton, Florida 33432. The telephone number of the Company
is (561) 393-6685. The Company maintains a home page HTTP://WWW.AIELTD.COM.
PRODUCTS AND SERVICES
INTERACTIVE GAMING AND WAGERING PRODUCTS
INTERNET CASINO EXTENSION(TM)
The Company is a developer and worldwide marketer of private network
and Interactive gaming and wagering products including its proprietary flagship
product, Internet Casino Extension(TM) or "ICE(TM)." The Company licenses these
products to licensed casino, gaming operators and sports wagering businesses.
Trial operations, under the name ARUBA PALMS CASINO and SPORTSBOOK, began in
October, 1996. Upon conclusion of its successful trial in the first quarter of
1997 the casino site reverted back to its generic name, ICE(TM) and is now
available for demonstration for potential new clients. The Company has added
other variations to ICETM aimed at a specific market including the Indian Casino
ExtensionTM, Interactive Club Extension & Internet Charity Extension.
The Company has entered into eleven (11) license agreements for the
ICE(TM) product. The ICE(TM) product is offered for license in either of two (2)
ways. The base License Agreement calls for a fully customized package of four
(4) casino games, hardware, a complete back-office accounting and marketing
program for $450,000. Additional games and customizations are at additional cost
to the customer. Financing is currently available over a three-year period with
an 8.5% interest rate. A deposit of $150,000 is now required and is due at
installation. The alternative programs available offer all of the products and
services developed by the Company included for the duration of the agreement.
This plan requires $150,000 due at installation and a monthly fee equal to 10%
of the Net-Win (money players wagered versus paid out).
21
<PAGE>
Additionally, the Company will receive a fee of $2,000 per month for technical
support and product upgrades.
WEBSPORTSTM
The Company licenses the webSportsTM sportsbook software system to
casino operators and sports book businesses. The system can be accessed via the
telephone, Internet, private network, touch screen kiosk and walk-up sports
book. The system allows for automated position keeping as well as manual input
into the managing of the sports book operations. The system has American and
International sports and allows both fixed price and fractional wagering. As
with all of the Company products, there is a back-end database, accounting and
auditing features.
The Company has entered into seven (7) license agreements for the
webSportsTM product. There is financial option presently available. The complete
system integrating both Internet and phone wagering for the U.S. sports markets
is offered for $175,000, not including hardware. In addition, the Company offers
an international version that offers U.S., European, Australian and South
African style wagering for $225,000. A minimum deposit of fifty five thousands
dollars ($55,000) is required prior to installation. Additionally, the Company
will receive a monthly maintenance and support agreement in the amount of
$1,000.
NETWORK GAMING
The Company offers stand-alone Bingo, Keno and lottery systems that
utilize the ICETM and webSportsTM gaming platforms.
INTERACTIVE CLUB EXTENSION
The Company offers a system that integrates on-site networked touch
screen kiosks giving players the ability to games, both at the venue and at
home.
HOTEL HOTLINKSTM
The Company also actively markets the Hotel HotLinksTM system which is
a variation and expansion of ICETM and webSportsTM which has features specific
to hotel guests such as in-room services, Internet access and in-room
advertising of local goods and services. The product uses set top boxes and
infrared remote controls to allow hotel guests to access gaming and the
additional services mentioned above. As of the date hereof, the Company has not
consummated any sales of the Hotel HotLinksTM system.
The television set top boxes used in the Hotel HotlinksTM product
permit the use of smart cards for identification and other purposes. This same
hardware/smart card technology will be employed in other products that the
Company intends to develop throughout the year ending December 31, 1998.
22
<PAGE>
INDUSTRY OVERVIEW
The Internet is a global network of computers connecting millions of
individual computers and more than 70,000 business, commercial, government and
academic networks. This interconnectivity allows any one of these computers to
transmit information to any other computer. Management believes that there is
tremendous growth potential for Internet products as consumer and business
access becomes easier and more cost efficient. It is estimated that there are
already over 50 million Internet users, and the number of users is growing at a
rate of 10% per month.
The commodity pricing of powerful computers and the wealth of
information available on the Internet have all contributed to the creation of a
vast market of consumers and business buyers. During the last three years, the
number of Internet service providers ("ISP's") in the United States has grown
from roughly zero to over 3,000. Management attributes the influx of ISP's to
several factors which include: (i) an increasing demand for connection to the
Internet; (ii) the Internet offers significant marketing opportunities for a
variety of products and services; and (iii) providing Internet connections
requires minimum expertise and start-up costs.
The Interactive Gaming & Wagering marketplace has become the next step
in the gaming industry. Revenues from the worldwide gaming market exceeds Fifty
Billion Dollars ($50,000,000,000). Expert's estimate that gaming revenues
derived from just Internet gaming revenues will exceed Eight Billion Dollars by
the year 2000. The integrated Interactive gaming & wagering (Network gaming
terminals, lotteries, Internet, telephone) revenues will far exceed that amount.
The existing customer base from the established gaming and wagering
marketplace will be where the vast majority of these new revenues are derived.
Building upon the gaming industry's high customer loyalty level, the existing
gaming operators will be able to launch a new generation of gaming & wagering
products to it's player base.
GROWTH STRATEGY
The Company's current plan of operations is to expand its current
worldwide account base by offering a complete Interactive gaming & wagering
product line. The Company will also seek to expand upon its current Information
Technology products and services in the form of international acquisition with
or merger into existing operations. Achieving market acceptance for the
Company's services and products will require substantial marketing efforts and
the expenditure of significant funds to create awareness and demand.
MARKETING
Marketing efforts are directed by the Company's President and Chief
Executive Officer. The Company currently employs a direct sales team directed
primarily to casino operators and duly licensed sports books throughout the
Caribbean, Central & South America and Europe. The
23
<PAGE>
Company is seeking to expand direct sale coverage to the Australian-Asian and
African markets by having locally based operations in each region.
TRADEMARKS
The Company markets its services utilizing various names. The Company
is currently in the process of registering the following trademarks recognizable
in the United States: AIE(TM), Internet Casino Extension(TM), ICE(TM),
webSports(TM), realSports(TM), Indian Casino Extension(TM), Internet Charity
Extension(TM) and Hotel Hotlinks(TM). The Company has no patents but claims
copyrights on its software products.
DEPENDENCE ON CUSTOMERS
During the year ended December 31, 1997 the Company's largest customer,
Australian Advisors Corporation. ("Australian") accounted for approximately 20%
of the Company's revenues. The Company does anticipate revenues from this
customer in the year ending December 31, 1998.
REGULATORY MATTERS
The legality of gaming through the use of the Internet is uncertain at
this point. Since the sale of a foreign subsidiary which ran a sports book (see
Recent Developments), the Company does not operate virtual casinos or Internet
sports books. However, sales of the Company's products depend on the continued
international growth of virtual casinos and Internet sports books. A number of
United States federal and state statutes could be construed to prohibit gaming
through use of the Internet. While the Company focuses its sales and marketing
efforts in jurisdictions that allow private network and Interactive gaming which
include Australian, Caribbean, African and American gaming markets, there can be
no assurance that international, federal, state or local laws or regulatory
procedures, including those which relate to the issue of jurisdiction over
gaming on the Internet, which would adversely affect the Company's business,
financial condition, results of operations or prospects, will not be expanded or
imposed.
COMPETITION
The Company competes with other companies involved in the development
and marketing of gaming related entertainment and Information products and
services. The Company faces intense competition in connection with its gaming
operations. The Company believes that its Internet casino and sports book
products currently compete with four (4) companies and that its Hotel Hot-Links
product currently competes with two (2) companies. The Company continues to face
increasing competition from both established and newly emerging operations in
both the United States and elsewhere. There are numerous casinos and sports
books currently operating over the Internet, many of which use software
developed for their own purposes. The Company believes that some of these
operators may decide to offer to sell their software to other casino and sports
book operators in the future. The Company's gaming products also compete with
other forms of
24
<PAGE>
gaming activities, including state-sponsored lotteries and horse racing and
competes for discretionary spending with other leisure time activities and
alternate forms of entertainment. While competition for Interactive Gaming is
intense, the Company's marketing approach is unique in that the major marketing
& sales focus is with the established gaming and wagering marketplace.
EMPLOYEES
As of April 10, 1998, the Company had thirty (30) full-time employees
(three (3) employed by EmiNet), of whom two (2) were software engineers. None of
the Company's employees is covered by a collective bargaining agreement or is a
member of a union. The Company may also employ full-time and part-time
consultants on an as-needed basis. The Company considers its relationship with
its employees to be satisfactory.
LEGAL PROCEEDINGS
The Company is a party to pending litigation, both as plaintiff and
defendant. However, the Company believes that said litigation will not
materially affect the Company's operations or financial condition.
RECENT DEVELOPMENTS
In December 1997, the Company sold Australian Advisers 100,000 shares
of Common Stock of the Company pursuant to the completion of its S-8
Registration Statement for $3.00 per share, these shares were issued and held in
escrow until the closing in January 1998. Australian Advisors continues to
render valuable consulting services to the Company.
On April 3, 1998, the Company entered into a Securities Purchase
Agreement for the sale of $500,000.00 of a newly created 5% Convertible
Preferred Stock. The Agreement also grants the purchaser the right to purchase
up to an additional $2,500,000.00 in said class of securities at market prices.
The Preferred stock is convertible into the Company's common stock at the
purchaser's option. Contemporaneously with the execution of the Securities
Purchase Agreement described above, the Company entered into an agreement with
the Purchaser to register all of the shares of the purchased securities and the
Common Stock that may be issued pursuant to the exercise of the Purchaser's
conversion rights. The Company has agreed, not later than thirty days after the
closing of the transactions described above, to use its commercially reasonable
best efforts to file a registration statement with the Securities and Exchange
Commission for the registration of the shares of above securities and the shares
of Common Stock issuable upon exercise of the Purchaser's conversion rights and
to maintain the effectiveness of such registration statement for the term of the
above Agreement. The Company believes that, during the period of effectiveness
of such registration statement, the Purchaser may convert the securities to
Common Stock and sell all or any of the shares of Common Stock without
restriction.
25
<PAGE>
On April 30, 1998, the Company entered into a Securities Purchase
Agreement with Hosken Consolidated Investments, Ltd., ("HCI") a South African
corporation for the purchase of 1,000,000 shares of the Company's Common Stock
at $4.00 per share. Hosken is engaged in the technology industry, including
cellular, telecommunications, video gaming and media.
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.
On June 24, 1998, the Company's wholly-owned subsidiary, AIE,
Australia, Ltd. submitted an offer for the acquisition of an Australian listed
company, Coms21. The Company will offer Coms21 shareholders the equivalent of
$.70 AUD per share in the form of the Company's U.S. shares.
The Company recently added three new directors to its Board of
Directors. In addition, the Company has recently begun discussions with various
individuals regarding the formation of an advisory board. The Company
anticipates that the advisory board will be formed in the near future. Among the
employees hired during 1997, was Karen Welch, as Senior Vice President for
Operations and General Manager. Ms. Welch was formerly with IBM. On April 14,
1998, in anticipation of increased business activity, the Company engaged Harry
Winderman as General Counsel. Mr. Winderman has degrees in law, tax and business
administration and has practiced law for over twenty years. In addition, Mr.
Winderman is an adjunct professor at Florida Atlantic University.
INFORMATION PRODUCTS & SERVICES
THE EMINET DOMAIN
The Company's focus outside of Interactive gaming & wagering is in
Information Technologies ("IT"). In March, 1997, The EmiNet Domain, Inc. was
acquired as the Company's first IT asset. All non-Interactive gaming projects
and activities were placed under the supervision and direction of The EmiNet
Domain, Inc. EmiNet seeks to expand its current product line and is exploring
Internet Telephony and Internet financial transaction products to offer the
market in 1998.
REALSPORTS(TM)
The Eminet Domain offers an information service on the Web called
"realSports(TM)." This service provides real-time odds, scores and other sports
wagering information and is free of charge to users. The Company anticipates
generating revenues from this service by selling advertising space to companies
wishing to target their marketing to sports fans and individuals who wager on
sporting events. The Company uses this service to promote visits to model sites
established for its ICE(TM), webSports(TM) and Internet related products.
26
<PAGE>
On January 31, 1997, the Company entered into an agreement to purchase
all of the shares of The EmiNet Domain, Inc. ("Eminet"). The purchase price for
the shares was $2,020,000 payable by the issuance and delivery to the
shareholders of Eminet or their designees of a minimum of 200,000 shares of
fully-paid and non-assessable shares of Common Stock at the market value as of
January 31, 1997 and $20,000 cash payable at March 31, 1997. In addition, the
shareholders of Eminet or their designees will receive additional shares at
market price equal to one time EmiNet's net profit before taxes for the years
ending 1997 and 1998 up to $750,000 per annum, one and one-half times over
$750,000 to $1,000,000 and two times over $1,000,000. Eminet provides monthly
Internet service to approximately 1,000 subscribers. The current equipment and
personnel are capable of handling up to 2,500 subscribers without upgrades. As
additional profit centers, EmiNet hosts and programs web sites for businesses
and individuals, provides networking design and services and sells computer and
networking equipment.
The EmiNet Domain ("EmiNet") is a wholly owned subsidiary of Atlantic
International Entertainment, Ltd. with its offices in Boca Raton. On December
31, 1997 EmiNet had approximately 10 employees. At present, EmiNet is one of the
leading South Florida Internet Service Provider ("ISP") with a network
infrastructure comprised of a leased high speed fiber optic backbone, computer
hardware and software, and points of presence ("POPs") in 18 South Florida
cities providing access availability to thousands of customers from Miami to
Northern West Palm Beach cities. EmiNet was recently ranked number three in
South Florida by the South Florida Business Journal. EmiNet outranked all of the
Ft. Lauderdale (Broward County) ISP's. EmiNet currently offers a wide range of
Internet products as a full service Internet company. Those products include
dial-up access, dedicated high speed access, Integrated Services Digital Network
("ISDN") service, fractional T1's (transmissions speed up to 1.54 megabits per
second), Flex 56 (enhanced speed modem services), and other Internet related
services to businesses and individuals including World Wide Web ("Web")
services, which includes Web design/development and a significant amount of Web
hosting, data services and network frame relay services. EmiNet attempts
offering exemplary customer service at competitive prices. EmiNet's high speed,
digital telecommunications network provides subscribers with direct access to
the full range of Internet applications and resources in E-Mail, World Wide Web
sites, USENET newsgroups and FTP software. EmiNet is one of only a handful of
ISP's that offer co-location services. EmiNet continues to experience growth in
various areas of its subscriber base.
MEDICAL PRODUCTS
In February 1998, the Company entered into an agreement with ELG Health
Management Services to market the Atlantic International Medical ("AIM")
products & services. Atlantic is currently focused on Interactive gaming &
wagering and Information Technology. The agreement with ELG will enable the
Company to benefit from earlier efforts while not allocating additional
resources in a non-core business. ELG will provide Atlantic 40% of the net
profits from the sale and distribution of medical products. ELG is developing a
global
27
<PAGE>
distribution network for medical testing devices (e.g., HIV, pregnancy, drug
abuse, hepatitis, etc.) and other medical products.
ELG, through AIM, markets distributorships for American manufacturers
of medical testing and diagnostic kits and other medical products throughout the
world. AIM acts as a broker between the manufacturer and distribution companies
located in foreign countries. AIM does not resell products but simply collects a
commission for taking an order from the distributor and placing the order with
the manufacturer. This approach limits the risks associated with inventory and
product liability and keeps overhead and direct costs to a minimum.
INTERNET INDUSTRY OVERVIEW
The Internet had its origins in 1969 as a project of the Advanced
Research Project Agency ("ARPA") of the U.S. Department of Defense. The network
established by ARPA was designed to provide efficient connections between
different types of computers separated by large geographic areas and to function
even if part of the network became inoperative. Historically, the infrastructure
was used by academic institutions and governmental agencies for remote access to
host computers and electronic mail communications. Accordingly, the U.S.
government historically provided the majority of funding for the infrastructure.
However, as the modern Internet developed and became commercial, funding shifted
to the private sector. The number of worldwide Internet users continues to
increase significantly. In a recent government study, it was stated that traffic
on the Internet doubles every 100 days. Business use is growing the faster and
as many as 62 million Americans now have Internet access. In addition, the
number of domains registered, which EmiNet believes is a forward-indicator of
activity on the Internet, has increased at a rapid pace. EmiNet believes that
there are several key drivers responsible for the rapid proliferation of
Internet use:
SERVICE QUALITY: Quality is the differentiating aspect that sets EmiNet
apart from the other carriers.
IMPROVING PERFORMANCE - There have been significant bandwidth,
communications, and price/performance improvements in communications over the
Internet. These developments make the Internet an increasingly attractive medium
for conducting business, adding convenience, and attracting more users.
HIGH SPEED MODEMS - As the installed personal computer ("PC") base has
grown, it has become increasingly common for those PCs to have a modem
connection. Many new computers now have higher speed, pre-installed modems, such
as a K56 Flex, allowing connections to be made even more easily.
IMPROVED CONTENT - As the Internet grows new information and services
available on the Internet have attracted attention and created a more widespread
appeal.
EXPANSION OF LANS AND WANS - Corporate, government, and educational
local area networks ("LANs") and wide area networks ("WANs") are expanding and
these installed networks enable multiple users to be connected to the Internet
through a single point of
28
<PAGE>
contact. Therefore, the actual number of Internet users connected through these
LANs and WANs greatly exceeds the number of connection points.
EXTRANET - Businesses can set up a proprietary Network or Virtual
Private Network ("VPN") using the Internet. A VPN is a secure and cost effective
means of data communication.
EXPECTATIONS FOR ELECTRONIC COMMERCE OVER THE INTERNET - With the
increased recognition of the Internet's potential as a medium for marketing and
purchasing, a growing number of companies are initiating or expanding their use
of the Internet for commercial purposes. The United States Department of
Commerce stated that 10 million North American made purchases over the Internet
by the end of 1997.
DRAMATIC INCREASE IN NAVIGATIONAL AND UTILITY TOOLS - The proliferation
and improvement of software tools and browsers, which facilitate Internet use,
have attracted more users. The World Wide Web browsers and other user-friendly
interfaces have made it easier for users to access desired information on the
Internet.
A convergence is occurring in the Internet industry as more traditional Internet
providers become communications companies and communication companies become
Internet companies. These factors are creating an environment in which
individuals and businesses and other organizations perceive a compelling need to
establish Internet access and an Internet presence. EmiNet believes that its
Internet access, Web services and value-added service offerings are particularly
appealing to businesses for a number of reasons. For example, many businesses
are accustomed to working with a vendor with a local presence and may prefer to
contract with an Internet service provider such as EmiNet which has a local
presence and the experience and reputation of providing quality and dependable
service. Furthermore, many businesses have Internet requirements that go beyond
the simple access that most Internet service providers offer. These Internet
requirements include security, network consulting, high-bandwidth managed access
and data services.
EMINET STRATEGY
EmiNet is implementing a strategy to become a full service
telecommunications company providing a full complement of communication
services, a one-stop shop for the small and medium size business user and the
consuming public. As a full service Internet provider EmiNet will continue to
offer full Web services, including production of Web sites, the hosting of Web
sites and the marketing of Web sites. EmiNet believes the foundation for
business growth and Electronic Commerce ("E Commerce") will be through the
creation, hosting and marketing of Web sites. As more companies want to sell
their products and services over the Internet, the demand for Web services is
expected to increase rapidly. This will require an E Commerce solution for most
Web sites that will be developed for the business community. EmiNet has provided
this capability to its customers and expects to expand this through additional E
Commerce offerings such as ATM. Marketing will play a more important role for
Web Site owners, as more people will want to monitor the activity on their site.
As the demand for speed increases, EmiNet will meet the challenges of providing
greater bandwidth to its customers.
29
<PAGE>
EmiNet will seek to meet the challenge through various types of dedicated
connections at the local loop level and greater bandwidth at the backbone level.
The cable industry faces considerable challenges to enter the Internet
access market. The high cost of cable modems and the cost to upgrade systems may
continue to slow that segment of the industry. Given the significant cost for
the cable companies to rapidly deploy Internet services over coaxial cable, the
traditional wire line carriers will remain the dominant providers of Internet
access in the near term.
IP Telephony is an anticipated source of potential revenue enhancement
for EmiNet. It will become more prevalent in its use for companies and people
who want a low cost solution to long distance telephone communication. EmiNet
has been evaluating the WebPhone product by a local company Netspeak. EmiNet
also recognizes the increased security requirements being demanded by some of
their medium to large customers. This coming year, they will begin offering
security services, which include: producing security documents, installing and
configuring firewalls, and for those who request it, EmiNet will remotely manage
the customer's firewall.
Additionally, vertical markets are becoming more and more important in
expanding the level of services. This coming year will see EmiNet enter the
world of documents on demand. This is extremely important as the revenues comes
from a per page fee per year. This leads to a reoccurring revenue stream, which
fits nicely with the many law offices, legal offices and small business which
currently are EmiNet customers.
EMINET SERVICES
EmiNet primarily provides two high quality services which it believes,
are competitively priced: Internet access service and Web services. Internet
access services can be divided into two basic categories: personal accounts for
individuals and small businesses that connect to the Internet via a modem
(referred to as "dial-up" accounts), and high speed dedicated accounts
(principally for medium to large business users) that connect to the Internet
via dedicated telecommunications lines. Dial-up subscribers can access the
Internet by calling EmiNet's local POPs. EmiNet's dedicated accounts consist of
subscribers that desire to connect internal computer networks to the Internet.
EmiNet offers a wide variety of service options, which vary in price
depending upon the features included and the data rate, the amount of space, or
bandwidth, of the connection. EmiNet bills its Internet access subscribers
monthly, quarterly or annually in advance. A significant percentage of
individual accounts are billed automatically through pre-authorized credit card
accounts. EmiNet also provides complete installation services, sales of turnkey
networking equipment, education and training services, through their technical
support and network monitoring support teams.
Web services can also be divided into three basic categories: Web
hosting services and Web production (or content) and Web Marketing. EmiNet
designs Web sites and performs
30
<PAGE>
additional programming for Web sites on behalf of its business subscribers.
Charges for Web site design and programming vary widely with the size and
complexity of the project. EmiNet's Web services produce Web sites that make use
of original graphic arts, interactive forms, data base queries and search
engines. EmiNet hosts a substantial number of Web sites on behalf of its
customers enabling them to have a continued presence on the Internet. In
addition, EmiNet offers its customers a marketing strategy to insure that their
Web sites are visited by potential customers.
ON-LINE NETWORK REPORTS
EmiNet operates a password-protected on-line network reporting service
and provides a report to all customers on the traffic and performance of both
EmiNet's network and the client's Web page hits.
TRAINING
EmiNet provides on site training or one on one training in their
offices.NETWORK INFRASTRUCTURE EmiNet believes that its future success in the
Internet access services market depends in part on its ability to enhance its
current service offerings for individuals and businesses and to advance the
capabilities and capacity of its telecommunications network. EmiNet operates Ten
(10) PRI circuits and Three T-1 lines that simultaneously supports Frame Relay,
Integrated Services Digital Network ("ISDN"), and Asynchronous Transfer Mode
("ATM") on a single platform. EmiNet installed these PRI's in various locations
in the cities of Palm Beach, Boca Raton, Ft. Lauderdale and Miami. These PRI's
are interconnected via an ICI network.
EmiNet is continuing to optimize and increase the capacity and
capabilities of its telecommunications network. EmiNet currently is working to
increase its speed, reliability, and network fault tolerance. EmiNet operates a
data center, which is located in their Boca Raton office. This facility not only
provides redundancies and stability to the Company's network, but also allows
EmiNet to make this facility available to those clients that want the ability to
collocate their Web servers in the data center and pay EmiNet for use of the
facility and gain high bandwidth access to the Internet.
OPERATIONS AND CUSTOMER SUPPORT
EmiNet has approximately 3 employees dedicated to technical dial-up
support, commercial account support, network operations and customer service.
SALES & MARKETING
EmiNet's growth in its subscriber base is attributable to word-of-mouth
referrals primarily in the individual dial-up market. EmiNet has a direct sales
group in order to support a strong focus on business customers. EmiNet is
delivering high-speed Internet access solutions and Web
31
<PAGE>
services to business customers in its regional markets and is differentiating
itself through a non-site consultative approach, high-quality services and
exemplary customer service.
EmiNet believes that its ability to differentiate itself from the
national Internet access providers, long distance providers and regional
telephone companies can best be achieved in the business market by becoming a
one stop shop and providing the highest quality of service at competitive
prices.
EmiNet intends to increase its advertising and to maximize the amount
of local newspaper, yellow pages support with press releases and interest
articles on EmiNet.
COMPETITION
The Internet connectivity business is highly competitive, and there are
no substantial barriers to entry. EmiNet believes that competition will
intensify in the future and its ability to successfully compete depends on a
number of factors including market presence, the capacity, reliability, and the
security of its network infrastructure, its pricing of services compared to its
competitors, the timing of new products and services by EmiNet and its
competitors, EmiNet's ability to react to changes in the market, and industry
and economic trends. EmiNet's competitors and positioning was recently published
in the March 13th, 1998 issue of the South Florida Business Journal. The number
one (Icanect) is located in Miami and has 17,000 subscribers primarily in the
Miami and Southern portion of Ft. Lauderdale. The number two (Florida Internet)
is in West Palm Beach and extends Northward and has 7,000 subscribers. EmiNet is
conveniently located in Boca Raton and address the northern Ft. Lauderdale and
Southern Palm Beach area with 4,000 potential subscribers. Numbers 4 through 10
in the survey are all located in Broward county with four in Ft. Lauderdale, one
in Hollywood and one in Plantation ranging from 1500 subscribers to 500.
The Company, including EmiNet, leases approximately 5,150 square feet
of office space in Boca Raton, Florida pursuant to a lease expiring on September
30, 2002 with a monthly rent of approximately $8,757.10. The Company believes
that its existing facilities are adequate for its current needs and that
additional facilities in its service area are available to meet future needs.
32
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their positions
with the Company are set forth below.
NAME AGE POSITION
---- --- --------
Norman J. Hoskin 63 Chairman of the Board, Secretary
and Treasurer
Richard A. Iamunno 40 President, Chief Executive
Officer and Director
David Halaburda 45 Chief Financial Officer
Steven D. Brown 51 Director
Martin V. McCarthy 42 Director
Jeffrey L. Hurwitz 42 Director
Dr. Leonard Haimes 70 Director
NORMAN J. HOSKIN has served as the Chairman of the Board, Secretary and
Treasurer since July 16, 1996 and served as Chairman of the Board, Secretary and
Treasurer of Atlantic since its inception in 1994. Mr. Hoskin served a Senior
Vice President of Rentar Industries Group from 1972 to 1982, one of the largest
transportation, warehousing and banking conglomerates in the United States. Mr.
Hoskin was former Chairman of the Board of Tapistron International and Director
and Officer of Trinitech System, Aquacare Systems, Consolidated Technologies ,
Spintek Gaming and American Artists Corporation . Mr. Hoskin is also a Director
and Secretary of Aqua Care Systems.
RICHARD A. IAMUNNO has served as a Director, the Chief Executive
Officer and President since July 16, 1996 and served as a Director, the Chief
Executive Officer and President of Atlantic since its inception in 1994. Prior
to starting the Company, Mr. Iamunno was President of Ameristar International,
an investment banking firm which provided European-based companies with merger
assistance into the U.S. public marketplace from December 1992 to June 1994. Mr.
Iamunno's business experience includes positions as Senior Director of Marketing
and Vice President of Western Union Corporation. Mr. Iamunno has in the past
served as a Director of Tapistron International, as a Director and officer of
Trinitech Systems, Inc.. Mr. Iamunno earned his Business degree from Drake
University in Des Moines, Iowa.
33
<PAGE>
DAVID HALABURDA was appointed Chief Financial Officer in June of 1997.
Prior to Atlantic, Mr. Halaburda was with the regional accounting firm of
Buchbinder Tunick & Co. LLP. Mr. Halaburda earned both CPA & CFP designations
and has held various positions in both professional and civic organizations. Mr.
Halaburda earned his Bachelor of Science degree from Monmouth University in New
Jersey.
STEVEN D. BROWN was appointed a Director of the Company on July 16,
1996. Mr. Brown is the Chairman of American Artists Film Corporation, A
Georgia-based public Company. Since 1989, Mr. Brown has been active in the
development of feature film projects, through Movie America Corporation, a
Georgia corporation which Mr. Brown helped organize and for which he served as
President and Director until leaving that Company in 1991 to found American
Artists Film Corporation.
MARTIN V. MCCARTHY was appointed a Director of the Company in March of
1998. Mr. McCarthy was the President and CEO of IDD Enterprises, L.P. The
Company was recently sold to Dow Jones and Company. Mr. McCarthy has been a
pioneer in the online world for almost two decades. He has led organization of
scale that have created, commercialized and deployed leading edge technologies
in the areas of communications, information services and transactions. Prior to
joining IDD in 1988, Mr. McCarthy served as Vice President, Office Message and
Information Services at Western Union and was the youngest corporate officer in
the firm's 130 year history. Mr. McCarthy has an MBA from Harvard University.
JEFFREY L. HURWITZ was appointed a Director of the Company in March of
1998. Mr. Hurwitz had been the Managing Director of South African based Clinic
Holdings since 1987. While at Clinic Holdings, the Company grew to 26 Hospitals
with annual turnover of over $370,00,000. In November 1997 Mr. Hurwitz left
Clinic Holdings under the terms of Agreement of Sale of the Company. Prior to
Clinic Holdings Mr. Hurwitz was employed as a Chartered Accountant with Deloitte
& Touche. Mr. Hurwitz graduated from the University of Witwatersrand in South
Africa with degrees in Commerce and Accounting.
DR. LEONARD HAIMES was appointed Director of the Company in October of
1997. Since1985, Dr. Haimes has been the Medical Director at the Haimes Centre
Clinic in Boca Raton, Florida. As an expert in alternative care & medicine, Dr.
Haimes is an often featured media speaker in the United States and
Internationally. Dr. Haimes was formally the Chief of Staff of the Nevada Clinic
of Preventative Medicine. Dr. Haimes has a medical degree from Hahnemann Medical
College in Philadelphia, PA.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the Company's chief
executive officer during the years ended December 31, 1997 and 1996 . No other
executive officer's salary and bonus exceeded $100,000 for services rendered to
the Company during such years.
34
<PAGE>
SUMMARY COMPENSATION TABLE
NAME AND
PRINCIPAL POSITION YEAR SALARY ($) BONUS($)
------------------ ---- ------ --- --------
Richard A. Iamunno 1997 $91,000 -0-
President and Chief 1996 $63,000(2) -0-
Executive Officer
1. The columns for "Other Annual Compensation" and "Long-term Compensation"
have been omitted as there is no compensation required to be reported in
such columns. The aggregate amount of perquisites and other personal
benefits did not exceed the lesser of $50,000 or 10% of the total of
salary and bonus. In addition, the Option Grants in Last Year Table and
Aggregated Option Exercises in Last Year and Year End Option Values Table
have been omitted as the above named executive officer was not granted any
options during the last year and owns no options.
2. Represents salary paid for services rendered as an executive of Atlantic
International Capital, Ltd.,a wholly-owned subsidiary of the Company, at
December 31, 1996
BOARD OF DIRECTORS COMPENSATION
The Company does compensate directors who are also executive officers
of the Company for service on the Board of Directors. Directors receive $1,500
per meeting & are reimbursed for their expenses incurred in attending meetings
of the Board of Directors.
LONG-TERM INCENTIVE AND PENSION PLANS
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.
35
<PAGE>
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.
OTHER
No director or executive officer is involved in any material legal
proceeding in which he is a party adverse to the Company or has a material
interest adverse to the Company.
EMPLOYMENT AGREEMENTS
The Company currently has employment agreements with Messrs. Iamunno
and Hoskin pursuant to which they will continue to serve as the Company's
President and Chief Executive Officer, Chairman of the Board, Secretary and
Treasurer respectively. It is anticipated that as compensation for their
services, the Company will pay Messrs. Iamunno and Hoskin base salaries of
$140,000 each per annum, respectively which shall be subject to annual cost of
living increases plus annual raises of up to 10%. The agreements will continue
for three years and will expire in the year 2000. Other than the aforementioned
agreements, the Company has not entered into any other employment agreement with
any of its officers, directors or any other persons and no such agreements are
anticipated in the immediate future. Board Committees and Compensation
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Charter and Bylaws provide that the Company shall
indemnify all directors and officers of the Company to the full extent permitted
by the Delaware Corporation Law. Under such provisions, any director or officer
who, in such person's capacity as such, is made or threatened to be made a party
to any suit or proceeding, may be indemnified if the Board determines such
director or officer acted in good faith and in a manner such director reasonably
believed to be in or not opposed to the best interest of the Company. The
Charter, Bylaws, and the Delaware Corporation Law further provide that such
indemnification is not exclusive of any other rights to which such individuals
may be entitled under the Charter, the Bylaws, any agreement, any vote of
stockholders or disinterested directors, or otherwise.
The Company has power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or agent of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, or
other enterprise against any expense, liability, or loss incurred by such person
in any such capacity or arising out of his status as such, whether or not the
Company would have the power to indemnify such person against such liability
under Delaware law.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGMENT
The following table sets forth, as of June 12, 1998, information
regarding the beneficial ownership of the Company's Common Stock by each person
known by the Company to own five
36
<PAGE>
percent or more of the outstanding shares, by each of the directors and
officers, and by the directors and officers as a group. As of June 12, 1998,
there were outstanding 20,426,458 shares of the Common Stock of the Company.
Amount of
Name and Address Beneficial Percent of
of Beneficial Owner(2) Ownership Class
Norman J. Hoskin 1,115,935 11.53%
Richard A. Iamunno 1,133,270 11.71%
Steven D. Brown 50,000 0.52%
David Halaburda N/A
Martin V. McCarthy 10,000 0.10%
Jeffrey L. Hurwitz N/A
Dr. Leonard Haimes 8,333 0.09%
The AWIXA Trust 1,161,536 12.0%
C/o Mello, Hollis, Jones & Martin
31 Church Street
Hamilton, Bermuda
The Kunni Lemmel Trust 1,154,868 11.94%
C/o Mello, Hollis, Jones & Martin
31 Church Street
Hamilton, Bermuda
All Officers and Directors as a 2,317,538 23.95%
Group (5 persons)
(1) Beneficial ownership has been determined in accordance with Rule 13d-3 of
the Securities Exchange Act of 1934. Generally, a person is deemed to be the
beneficial owner of a security if he has the right to acquire voting or
investment power within 60 days.
(2) Unless otherwise indicated, all addresses are at the Company's office at 200
East Palmetto Park Rd., Suite 200, Boca Raton, Florida 33432.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company has an authorized capital of 100,000,000 shares of Common
Stock, par value $0.001 per share, and 10,000,000 shares of Preferred Stock, par
value $0.001 per share. As of June 5, 1998, 20,426,458 shares of Common Stock
were outstanding, held of record by 147 persons, and 10,000 shares of Preferred
Stock were outstanding.
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including the election of directors. Except as
otherwise required by law or provided in any resolution adopted by the Board
with respect to any series of Preferred Stock, the holders of Common Stock
exclusively possess all voting power. Subject to any preferential rights of any
outstanding series of Preferred Stock of the Company, the holders of Common
Stock are entitled to such dividends as may be declared from time to time by the
Board from funds available for distribution to such holders. No holder of Common
Stock has any preemptive right to subscribe to any securities of the Company of
any kind or class or any cumulative voting rights. The outstanding shares of
Common Stock are, and the Shares, upon issuance and sale as contemplated hereby
will be, duly authorized, validly issued, fully paid and nonassessable.
Preferred Stock
Shares of the Company's Preferred Stock have been issued solely to the
Selling Stockholder pursuant to a Securities Purchase Agreement filed with the
Securities Exchange Commission as part of the Company's recent 10KSB. The
Selling Stockholder has purchased a total of $1,000,000 of the Preferred Stock
and has an option to purchase another $1,500,000. The Selling Stockholder has
the right to convert the Preferred Stock for the Common Stock of the Company
based on a formula which roughly equates to 78% of the trading price for the
Company's Common Stock on an average of several business days. The holder of the
Preferred Stock has the right to require registration of the Common Stock into
which the Preferred Stock may be converted.
Other Preferred Stock
The Company may issue other preferred stock of a different class from
time to time in one or more series. The Board of Directors is authorized to
determine the rights, preferences, privileges and restrictions granted to, and
imposed upon, any series of Preferred Stock and to fix the number of shares of
any series of Preferred Stock and the designation of any such series, subject to
the consent of the existing holders of Preferred Stock in certain instances. The
issuance of Preferred Stock could be used, under certain circumstances, as a
method of preventing a takeover of the Company and could permit the Board of
Directors, without any action of the holders of the Common Stock to issue
Preferred Stock which could have a detrimental effect on the rights of holders
of the Common Stock, including loss of voting control. See ""--Certain
Provisions of the Company's Charter and Bylaws and of Delaware Law" and "Risk
Factors--Certain Anti-Takeover Provisions."
38
<PAGE>
Registration Rights
Following this offering, no shareholders of the Company's Common Stock
will have rights to register those shares for sale to the public under the
Securities Act of 1933, as amended (the "Securities Act").
Certain Provisions of the Company's Charter and Bylaws and of Delaware Law
General
The Company's Charter and Bylaws contain certain provisions that could
make difficult the acquisition of control of the Company by means of a tender
offer, open market purchases, proxy fight or otherwise. These provisions may
discourage certain types of coercive takeover practices and inadequate takeover
bids and encourage persons seeking to acquire control of the Company first to
negotiate with the Company. The Company believes that the benefits of its
potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to take over or restructure the Company outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms. See
"Risk Factors--Certain Anti-Takeover Provisions."
The Company's Certificate of Incorporation and By-laws contain certain
provisions which may deter, discourage, or make more difficult the assumption of
control of the Company by another corporation or person through a tender offer,
merger, proxy contest or similar transaction or series of transactions. These
provisions include an unusually large number of authorized shares of Common
Stock (100,000,000) the authorization of the Board of Directors to issue
Preferred Stock as described above and the prohibition of cumulative voting. The
overall effect of these provisions may be to deter a future tender offer or
other takeover attempt that some shareholders might view to be in their best
interest as the offer might include a premium over the market price of the
Company's capital stock at the time. In addition, these provisions may have the
effect of assisting the Company's current management in retaining its position
and place it in a better position to resist changes which some stockholders may
want it to make if dissatisfied with the conduct of the Company's business. See
"Risk Factors - Certain Anti-Takeover Provisions."
Set forth below is a summary of certain provisions in the Charter and Bylaws.
Delaware General Corporation Law
The Company is subject to the provisions of Section 203 of the Delaware
Corporation Law. Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or affiliate or associate of such person who is an "interested
stockholder" for a period of three years from the date such person became an
interested stockholder unless (i) the transaction resulting in a person's
becoming an interested stockholder, or the business combination, is approved by
the board of directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquires 85% or more of
the outstanding voting stock of the corporation in the same transaction which
makes it an interested stockholder (excluding certain employee stock plans); or
(iii) on or after the date the
39
<PAGE>
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66 2/3%
of the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An "interested
stockholder" is defined as any person that is (x) the owner of 15% or more of
the outstanding voting stock of the corporation or (y) an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the three year-period immediately
prior to the date on which it is sought to be determined whether such person is
an interested stockholder.
Limitations on Directors' Liability
The Charter contains provisions to (i) eliminate the personal liability
of its directors for monetary damages resulting from breaches of their fiduciary
duty (other than breaches of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
violations under Section 174 of the Delaware Corporation Law or for any
transaction from which the director derived an improper personal benefit) and
(ii) indemnify its directors and officers to the fullest extent permitted by
Section 145 of the Delaware Corporation Law, including circumstances in which
indemnification is otherwise discretionary. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company, the Company has been advised
that, in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. The
Company believes that these provisions are necessary to attract and retain
qualified persons as directors and officers.
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company, New York, New York.
CHANGE OF ACCOUNTANTS
On January 30, 1997, the Board of Directors of the Company dismissed
Buchbinder Tunick & Company LLP as independent accountants to the Company and on
March 5, 1997 appointed Moore Stephens, P.C. as the new independent accountants
to the Company. Buchbinder Tunick & Company LLP has not reported on any of the
Company's financial statements. Since, December 19, 1996 (the date on which
Buchbinder was engaged as the Company's independent accountants), there were no
disagreements between the Company and Buchbinder Tunick & Company LLP on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Buchbinder Tunick & Company LLP, would have caused Buchbinder
Tunick & Company LLP to make a reference to the subject matter of the
disagreements in connection with its reports.
40
<PAGE>
SELLING STOCKHOLDER
The following table sets forth (i) the number of shares of Common Stock
beneficially owned by each Selling Stockholder as of June 12, 1998, (ii) the
number of Shares of Common Stock to be offered for resale by the Selling
Stockholder and (iii) the number and percentage of Shares of Common Stock to be
beneficially owned by the Selling Stockholder after completion of the offering.
The Selling Stockholder has not had a material relationship with the Company
during the past three years.
<TABLE>
<CAPTION>
No. of Shares of Common Stock No. of Shares Shares Beneficially
Name Beneficially Owned Offered Owned After Offering (1)
- ---------------------------- ------------------------------------- ---------------------- ------------------------
<S> <C> <C> <C>
Shaar Fund . . . . . . . 320,513 (2) 320,513 (3) *
</TABLE>
*Less than 1%
(1) Assume that all Common Stock offered by the Selling Stockholders is sold
and that no other shares beneficially owned by the Selling Stockholder is
sold.
(2) Represents 320,513 shares of Common Stock that would be issuable upon
conversion of Preferred Stock having an aggregate stated value of
$1,000,000.00. The number of shares of Common Stock issuable upon the
conversion of the Preferred Shares is an approximation which is based on
the hypothetical conversion of such Preferred Shares on June 12, 1998. The
actual number of shares of Common Stock that would be issuable upon
conversion of the Preferred Shares and available for resale hereunder is
determined by a conversion formula which is based, in part, on cannot be
determined on the date hereof.
There is no assurance that the Selling Stockholder which holds Preferred Shares
will convert such Preferred Shares, or that such selling Stockholder or any
other Selling Stockholder will otherwise opt to sell any of the Shares offered
hereby. To the extent required, the specific Shares of Common Stock beneficially
owned by such Selling Stockholders, the public offering price of the Shares to
be sold, the names of any agent, dealer or underwriter employed by such Selling
Stockholders in connection with such sale, and any applicable commission or
discount with respect to a particular offer will be set forth in an accompanying
Prospectus Supplement.
THE SHARES COVERED BY THIS PROSPECTUS MAY BE SOLD FROM TIME TO TIME SO
LONG AS THIS PROSPECTUS REMAINS IN EFFECT; PROVIDED , HOWEVER, THAT THE SELLING
STOCKHOLDERS ARE FIRST REQUIRED TO CONTACT THE COMPANY'S CORPORATE SECRETARY TO
CONFIRM THAT THIS PROSPECTUS IS IN EFFECT. THE SELLING STOCKHOLDER EXPECTS TO
SELL THE SHARES AT PRICES THEN ATTAINABLE, LESS ORDINARY BROKERS' COMMISSIONS
AND DEALERS' DISCOUNTS AS APPLICABLE.
41
<PAGE>
THE SELLING STOCKHOLDER AND ANY BROKER OR DEALER TO OR THROUGH WHOM ANY
OF THE SHARES ARE SOLD MAY BE DEEMED TO BE UNDERWRITERS WITHIN THE MEANING OF
THE SECURITIES ACT WITH RESPECT TO THE COMMON STOCK OFFERED HEREBY, AND ANY
PROFITS REALIZED BY THE SELLING STOCKHOLDER OR SUCH BROKERS OR DEALERS MAY BE
DEEMED TO BE UNDERWRITING COMMISSIONS. BROKERS' COMMISSIONS AND DEALERS'
DISCOUNTS, TAXES AND OTHER SELLING EXPENSES TO BE BORNE BY THE SELLING
STOCKHOLDERS ARE NOT EXPECTED TO EXCEED NORMAL SELLING EXPENSES FOR SALES
OVER-THE-COUNTER OR OTHERWISE, AS THE CASE MAY BE. THE REGISTRATION OF THE
SHARES UNDER THE SECURITIES ACT SHALL NOT BE DEEMED AN ADMISSION BY THE SELLING
STOCKHOLDERS OR THE COMPANY THAT THE SELLING STOCKHOLDERS ARE UNDERWRITERS FOR
PURPOSES OF THE SECURITIES ACT OF ANY SHARES OFFERED UNDER THIS PROSPECTUS.
PLAN OF DISTRIBUTION
This Prospectus covers 320,513 shares of the Company's Common Stock.
All of the Shares offered hereby are being sold by the Selling Stockholder. The
Securities covered by this Prospectus may be sold under Rule 144 instead of
under this Prospectus. The Company will realize no proceeds from the sale of the
Shares by the Selling Stockholder or upon conversion of the Preferred Shares by
the Selling Stockholder.
The distribution of the Shares by the Selling Stockholder is not
subject to any underwriting agreement. The Selling Stockholder may sell the
Shares offered hereby from time to time in transactions on one or more
exchanges, in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices relating to prevailing
market prices or at negotiated prices. In addition, from time to time the
Selling Stockholder may engage in short sales, short sales against the box, puts
and calls and other transactions in securities of the Company or derivatives
thereof, and may sell and deliver the shares in connection therewith.
From time to time the Selling Stockholders may pledge their Shares
pursuant to the margin provisions to its customer agreements with its brokers.
Upon a default by the Selling Stockholder, the broker may offer and sell the
pledge Shares.
Such transactions may be effected by selling the Shares to or through
broker-dealers, and such broker-dealer may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholder and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of the customary commissions). The Selling
Stockholder and any broker-dealers that participate with the Selling Stockholder
in the distribution of the Shares may be deemed to be underwriters within the
meaning of Section 2 (11) of the Securities Act and any commissions received by
them and any profit on the resale of the Shares may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Stockholder will
pay any transaction costs associated with effecting any sales that occur.
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
42
<PAGE>
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with by the Company and the Selling
Stockholder.
Any broker-dealer acquiring Common Stock offered hereby may sell such
securities either directly, in its normal market-making activities, through or
to other brokers on a principal or agency basis or to its customers. Any such
sales may be at prices then prevailing on Nasdaq, at prices related to such
prevailing market prices or at negotiated prices to its customers or a
combination of such methods . In addition and without limiting the foregoing,
the Selling Stockholders will be subject to applicable provisions of Regulation
M, which may limit the timing of the purchases and sales of shares of Common
Stock by the Selling Stockholder.
The Selling Stockholder is not restricted as to the price or prices at
which it may sell its Shares. Sales of such Shares may have an adverse effect on
market price of Common Stock. Moreover, the Selling Stockholder is not
restricted as to the number of Shares that may be sold at any time, and it is
possible that a significant number of Shares could be sold at the same time
which may also have an adverse effect on the market price of the Company's
Common Stock.
The Company has agreed to pay all fees and expenses incident to the
registration of the Shares , except selling commissions and fees and expenses of
counsel or any other professionals or other advisors, if any, to the Selling
Stockholder.
This Prospectus also may be used, with the Company's consent, by donees
or other transferees of the Selling of the Selling Stockholder, or by other
persons acquiring the Common Stock under circumstances requiring or making
desirable the use of this Prospectus for the offer and sale of such shares.
LEGAL MATTERS
The validity of the Shares will be passed upon for the Company by its
counsel, Harry Winderman, Esq., Boca Raton, Florida.
EXPERTS
The financial statements of Atlantic International Entertainment, Ltd.
at December 31, 1997 and 1996, appearing in this Registration Statement have
been audited by Moore Stephens, P.C., independent auditors, as set forth in
their reports thereon appearing elsewhere herein, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY THE SELLING
STOCKHOLDERS OR BY ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FUNC SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SHARES DESCRIBED IN THIS PROSPECTUS OR AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY SUCH SHARES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report ...............................................F-2
Consolidated Balance Sheet as of December 31, 1997 ....................F-3..F-4
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996..................................................F-5
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1997 and 1996......................................F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996..................................................F-7
Notes to Consolidated Financial Statements .................................F-9
Unaudited Balance Sheets at March 31, 1998..................................F-27
Unaudited Statement of Operations for the three
months ended March 31, 1998 and 1997......................................F-29
Unaudited Statements of Cash Flows for the three
months ended March 31, 1998 and 1997......................................F-31
Notes to Unaudited Financial Statements.....................................F-33
. . . . . . . . . . . .
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Atlantic International Entertainment, Ltd.
We have audited the accompanying consolidated balance sheet of Atlantic
International Entertainment, Ltd. and its subsidiaries as of December 31, 1997,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the two years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Atlantic International Entertainment, Ltd. and its subsidiaries as of December
31, 1997, and the consolidated results of their operations and their cash flows
for each of the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/S/ MOORE STEPHENS, P. C.
-------------------------
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
April 24, 1998
F-2
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
<TABLE>
<CAPTION>
ASSETS:
CURRENT ASSETS:
<S> <C>
Cash and Cash Equivalents $ 11,260
Accounts Receivable [Net of Allowance for Doubtful Accounts of $22,204] 43,228
Notes Receivable 1,927,899
Refundable Income Taxes 77,215
Deferred Tax Asset 176,812
Prepaid Expenses 6,564
Other Current Assets 10,000
----------
TOTAL CURRENT ASSETS 2,252,978
----------
FURNITURE, FIXTURES AND EQUIPMENT - NET 464,454
----------
SOFTWARE [NET OF ACCUMULATED AMORTIZATION OF $313,655] 1,285,574
----------
COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED -
[NET OF ACCUMULATED AMORTIZATION OF $78,132] 1,465,149
----------
OTHER ASSETS:
Due from Related Parties 49,855
Other Assets 18,781
Investments 10,125
Notes Receivable [Net of Discounts and Reserve] 1,359,083
----------
TOTAL OTHER ASSETS 1,437,844
----------
TOTAL ASSETS $6,905,999
==========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-3
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 951,592
Notes Payable - Officers 166,636
Due to Customers 20,721
Current Portion of Long-Term Debt 36,000
Current Portion of Capital Lease Obligations 41,427
Income Taxes Payable - Federal 605,213
Income Taxes Payable - State 29,123
Line of Credit 24,391
Other Current Liabilities 25,316
-----------
TOTAL CURRENT LIABILITIES 1,900,419
LONG-TERM DEBT 4,500
CAPITAL LEASE OBLIGATIONS 54,461
COMMITMENTS AND CONTINGENCIES --
-----------
TOTAL LIABILITIES 1,959,380
-----------
STOCKHOLDERS' EQUITY:
Preferred Stock - Par Value $.001 Per Share; Authorize
10,000,000 Shares, None Issued or Outstanding --
Common Stock - Par Value $.001 Per Share;
Authorized 100,000,000 Shares, Issued and
Outstanding 9,590,184 Shares 9,590
Additional Paid-in Capital 4,149,906
Unrealized Holding Loss on Marketable Securities (42,763)
Retained Earnings 829,886
-----------
TOTAL STOCKHOLDERS' EQUITY 4,946,619
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,905,999
===========
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-4
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
REVENUE $ 4,416,790 $ 454,656
COST OF SALES 527,344 48,894
----------- -----------
GROSS PROFIT 3,889,446 405,762
----------- -----------
GENERAL AND ADMINISTRATIVE 1,895,616 766,361
PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES 412,698 --
DEPRECIATION AND AMORTIZATION 186,242 67,376
----------- -----------
TOTAL OPERATING EXPENSES 2,494,556 833,737
----------- -----------
INCOME [LOSS] FROM OPERATIONS 1,394,890 (427,975)
----------- -----------
OTHER INCOME [EXPENSES]:
Interest Income 17,331 4,350
Interest Expense (10,477) (2,870)
Interest Expense - Related Party (7,525) (1,302)
Other Income [Expense] (34,669) 3,556
----------- -----------
OTHER [EXPENSES] INCOME - NET (35,340) 3,734
----------- -----------
INCOME [LOSS] FROM CONTINUING OPERATIONS BEFORE
INCOME TAX EXPENSE [BENEFIT] EXPENSE 1,359,550 (424,241)
INCOME TAX EXPENSE [BENEFIT] EXPENSE 411,325 (77,215)
----------- -----------
INCOME [LOSS] FROM CONTINUING OPERATIONS 948,225 (347,026)
DISCONTINUED OPERATIONS - [NET OF INCOME TAXES OF 51,047]:
[Loss] from Operations of Discontinued Foreign Subsidiary (45,890) (29,244)
Gain on the Disposal of Discontinued Foreign Subsidiary 144,982 --
----------- -----------
NET INCOME [LOSS] $ 1,047,317 $ (376,270)
=========== ===========
INCOME [LOSS] PER COMMON SHARE:
Continuing Operations .10 (.04)
Discontinued Operations .01 --
----------- -----------
BASIC AND DILUTED NET INCOME PER SHARE OF COMMON STOCK $ .11 $ (.04)
=========== ===========
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING 9,452,992 8,514,537
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-5
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
--------------------- ADDITIONAL LOSS ON RETAINED TOTAL
PREFERRED NUMBER OF PAID-IN MARKETABLE EARNINGS STOCKHOLDERS'
--------- --------- ------- ---------- -------- -------------
STOCK SHARES AMOUNT CAPITAL SECURITIES (DEFICIT) EQUITY
----- ------ ------ ------- ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1995 $ -- 6,803,451 $ 6,803 $ (6,713) $ -- $ 158,839 $ 158,929
Equity of CEEE [1] -- 1,500,033 1,500 (6,794) -- -- (5,294)
Sale of Common Stock -- 13 13 35,749 -- -- 35,762
Recapitalization
Adjustment [1] -- (13) (13) 13 -- -- --
Private Placement [1] -- 886,700 887 825,994 -- -- 826,881
Asset Acquisition [4] -- 200,000 -- 1,200,000 -- -- 1,200,000
Recapitalization
Adjustment [1] -- (200,000) -- -- -- -- --
Recapitalization Costs [1] -- -- -- (160,873) -- -- (160,873)
[Loss] from Continuing
Operations -- -- -- -- -- (347,026) (347,026)
[Loss] from Discontinued
Foreign Subsidiary -- -- -- -- -- (29,244) (29,244)
------- ------------- --------- ------------- ---------- ----------- -----------
BALANCE - DECEMBER 31, 1996 -- 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
Marketable Securities -- -- -- -- (42,763) -- (42,763)
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
======= ============= ========= ============= ========== =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-6
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 7 1 9 9 6
------- -------
OPERATING ACTIVITIES:
<S> <C> <C>
Income [Loss] from Continuing Operations $ 948,225 $ (347,026)
Adjustments to Reconcile Net Income [Loss] to
Net Cash Provided by [Used for] Operating Activities:
Depreciation and Amortization 422,538 67,376
Provision for Doubtful Accounts 412,698 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (65,432) (63,965)
Prepaid Expenses (2,195) 20,723
Notes Receivable (3,677,476) --
Deferred Taxes (176,812) --
Restricted Cash (10,000)
Other Assets (13,915) (6,900)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 698,647 225,686
Income Taxes Payable 634,336 (90,500)
Other Current Liabilities 25,316 631
Due to Customers (7,558) --
----------- -----------
NET CASH - CONTINUING OPERATIONS (811,628) (193,975)
----------- -----------
DISCONTINUED OPERATIONS:
[Loss] from Discontinued Operations (45,890) (29,244)
Adjustments to Reconcile Net [Loss] to Net Cash Operations:
Depreciation 1,366 1,278
Changes in Net Assets and Liabilities (44,411) 41,641
----------- -----------
NET CASH - DISCONTINUED OPERATIONS (88,935) 13,675
----------- -----------
NET CASH - OPERATING ACTIVITIES - FORWARD (900,563) (180,300)
----------- -----------
INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Increase in Due from Related Parties (1,582) (37,177)
Purchase of Investments (109,418)
Sale of Investments 35,671 10,252
Purchase of EmiNet - Net of Cash Acquired (18,268) --
Purchase of Property and Equipment (425,862) (281,934)
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARD (519,459) (308,859)
----------- -----------
INVESTING ACTIVITIES - DISCONTINUED OPERATIONS:
Purchase of Property and Equipment -- (13,755)
Gain on the Disposal of Discontinued Foreign Subsidiary
[Net of Tax] 144,982 --
Sale of AIE NV - Net of Cash 13,100 --
----------- ------------
NET CASH INVESTING ACTIVITIES - DISCONTINUED OPERATIONS -
FORWARD $ 158,082 $ (13,755)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-7
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES - FORWARDED $ (900,563) $ (180,300)
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARDED (361,377) (322,614)
----------- -----------
NET CASH INVESTING ACTIVITIES - DISCONTINUED OPERATIONS -
FORWARDED 158,082 (13,755)
----------- -----------
FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Proceeds from the Conversion of Debt to Equity 313,475 --
Proceeds from Issuance of Common Stock 350,250 701,770
Increase in Loan Payable to Shareholder 144,981 21,655
Proceeds from Long-Term Debt 45,000 --
Payment of Notes Payable (4,500) --
Proceeds from Line of Credit 24,391 --
Payment of Lease Payable (21,585) --
----------- -----------
NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS 852,012 723,425
----------- -----------
[DECREASE] INCREASE IN CASH AND CASH EQUIVALENTS (409,928) 220,511
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 421,188 200,677
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 11,260 $ 421,188
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 5,903 $ 4,172
Income Taxes $ -- $ 77,215
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On April 15, 1996, the Company entered into an asset acquisition
agreement. The non-cash portion of the transaction included the issuance of
200,000 shares of common stock with a fair value of $1,200,000 [See Note 1 for
details of recapitalization].
On March 26, 1997, the Company issued 200,000 shares of the Company's
common stock as part of the acquisition of its subsidiary, The EmiNet Domain
[See Note 7].
As part of the acquisition of EmiNet Domain, Inc. [See Note 7], capital
lease obligations of approximately $106,000 were incurred for the purchase of
equipment [See Note 10].
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-8
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] ORGANIZATION AND STOCK ACQUISITION
CORPORATE STRUCTURE - CEEE Group, Inc. ["CEEE"] was incorporated under the laws
of the State of Colorado in October of 1939 as Pacific Gold, Inc. CEEE was
organized to explore, develop, mine and mill gold and silver deposits of ore.
The Company conducted limited mining activities until operations ceased. CEEE
was seeking new business opportunities as a development stage entity.
On July 16, 1996, CEEE entered into an exchange of stock and plan of
organization with Atlantic International Capital, Ltd. ["AIC"] pursuant to which
CEEE acquired all of the common shares of AIC in exchange for an aggregate of
6,803,451 common shares of CEEE. Following the share exchange and the issuance
of all shares, the shareholders of AIC own approximately 94% of CEEE.
For accounting purposes, the acquisition was recorded as a recapitalization of
AIC, with AIC as the acquirer. The shares issued were treated as issued by AIC
for cash and are shown as outstanding for all periods presented in the same
manner as for a stock split. Recapitalization costs totaling $160,873 were
charged to additional paid-in capital. The consolidated financial statements of
the Company reflect the results of operations of CEEE and AIE from July 1, 1996
through December 31, 1996. The consolidated financial statements prior to July
1, 1996 reflect the results of operations and financial position of AIC. Pro
forma information on this transaction is not presented as, at the date of this
transaction, CEEE is considered a public shell and, accordingly, the transaction
will not be considered a business combination. CEEE changed its name to Atlantic
International Entertainment, Ltd. ["AIE or the "Company"]. AIE was incorporated
under the laws of the State of Delaware on August 22, 1996.
Upon consummation of the merger, the Company's authorized capital was increased
to 100,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of
preferred stock, $.001 par value. The combined entity operates under the name of
Atlantic International Entertainment, Ltd.
In March 1997, the Company concluded its acquisition of the EmiNet Domain, Inc.,
an Internet service provider and developer of Internet related software products
as well as hosting commercial web sites [See Note 8].
In October 1997, the Company formed two subsidiaries, Atlantic International
Entertainment, Australia, Ltd. ["AIE, Australia"] and Atlantic International
Entertainment, South Africa, Ltd. ["AIE, SA"]. The Company advanced $10,000 to
AIE, SA to assist in the incorporation process [see restricted cash]. Both AIE,
Australia and AIE, SA were inactive for the year ended December 31, 1997.
NATURE OF BUSINESS - The Company is located in Southern Florida and develops and
markets interactive products and services which are offered and operated via the
Internet and World Wide Web. The operations are focused on two segments which
include Internet software licensing and Internet service providers and developer
of Internet related software products.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its subsidiaries. All material intercompany accounts
and transactions have been eliminated.
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 and
disclosure of contingent 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.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments,
with a maturity of three months or less when purchased, to be cash equivalents.
At December 31, 1997, the Company did not have any cash equivalents.
F-9
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
PROPERTY AND EQUIPMENT AND DEPRECIATION - Property and equipment are stated at
cost. Depreciation is computed primarily using the straight-line method over the
estimated useful lives of the assets, which range from 5 to 7 years. Leasehold
improvements are amortized using the straight-line method over the lesser of the
term of the related lease or the estimated useful lives of the improvements.
Routine maintenance and repair costs are charged to expense as incurred and
renewals and improvements that extend the useful life of the assets are
capitalized. Upon sale or retirement, the cost and related accumulated
depreciation are eliminated from the respective accounts and any resulting gain
or loss is reported as income or expense.
ORGANIZATION COSTS - Costs incurred with the organization of the Company have
been capitalized and are being amortized over a period of five-years on the
straight-line method. As of December 31, 1997, organization costs net of
accumulated amortization totaled $2,096. Net organization costs are included in
other assets as of December 31, 1997.
COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED - The cost in excess of net
assets of business acquired is being amortized on a straight-line basis over 15
years. Amortization expense amounted to $77,099 and $-0- for the years ended
December 31, 1997 and 1996, respectively.
REVENUE RECOGNITION - Revenue from computer software licensing agreements is
accounted for under the completed contract method, income of all revenue and
related expenses are recognized at completion of installation or acceptance by
the user. Revenue from providing Internet service and web hosting and
development services is recognized when services are rendered.
INVESTMENTS - The Company accounts for investments in accordance with Statement
of Financial Accounting Standards ["SFAS"] No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Management determines the
appropriate classification of its investments in debt and equity securities at
the time of purchase and reevaluates such determination at each balance sheet
date. Equity securities, and debt securities which the Company does not have the
intent to hold to maturity, are classified as trading or available for sale.
Securities available for sale are carried at fair value, with any unrealized
holding gains and losses, net of tax, reported in a separate component of
shareholders' equity until realized. Trading securities are carried at fair
value with any unrealized gains or losses included in earnings. Held to maturity
securities are carried at amortized cost. Marketable debt and equity securities
available for current operations are classified in the balance sheet as current
assets while securities held for non-current uses are classified as long-term
assets. Realized gains and losses are calculated utilizing the specific
identification method [See Note 6].
INCOME TAXES - Pursuant to SFAS No. 109, "Accounting for Income Taxes," income
tax expense [or benefit] for the year is the sum of deferred tax expense [or
benefit] and income taxes currently payable [or refundable]. Deferred tax
expense [or benefit] is the change during the year in a company's deferred tax
liabilities and assets. Deferred tax liabilities and assets are determined based
on differences between financial reporting and tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
ADVERTISING EXPENSES - The Company expenses advertising costs as incurred. Total
advertising costs charged to expenses for the years ended December 31, 1997 and
1996 amounted to approximately $122,000 and $51,500, respectively.
NET INCOME PER SHARE - The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards ["SFAS"] No. 128, Earnings per
Share, which is effective for financial statements issued for periods ending
after December 15, 1997. Accordingly, earnings per share data in the financial
statements for the year ended December 31, 1997, have been calculated in
accordance with SFAS No. 128. Prior periods loss per share data did not require
restatement. Potential common Shares are included if dilutive.
F-10
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
NET INCOME PER SHARE [CONTINUED] - SFAS No. 128 supersedes Accounting Principles
Board Opinion No. 15, Earnings per Share, and replaces its primary earnings per
share with a new basic earnings per share representing the amount of earnings
for the period available to each share of common stock outstanding during the
reporting period. Basic earnings [loss] per share is computed by dividing income
[loss] available to common stockholders by the weighted average number of common
shares outstanding during the period. SFAS No. 128 also requires a dual
presentation of basic and diluted earnings per share on the face of the
statement of operations for all companies with complex capital structures.
Diluted earnings per share reflects the amount of earnings for the period
available to each share of common stock outstanding during the reporting period,
while giving effect to all dilutive potential common shares that were
outstanding during the period, such as common shares that could result from the
potential exercise or conversion of securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise, or contingent issuance of securities that would have an antidilutive
effect on per share amounts (i.e., increasing earnings per share or reducing
loss per share). The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants.
STOCK-BASED COMPENSATION - The Company follows Accounting Principles Board
Opinion No. 25. "Accounting for Stock Issued to Employees" ["APB No. 25"] with
regard to the accounting for its employee stock options. Under APB No. 25,
compensation expense is recognized only when the exercise price of options is
below the market price of the underlying stock on the date of grant.
Accordingly, no compensation expense has been recognized for the Company's
stock-based compensation plan for fiscal year 1997. The Company applies the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" to
non-employee stock-based compensation and the pro forma disclosure provisions of
SFAS No. 123 to employee stock-based compensation.
SOFTWARE AND AMORTIZATION - Costs related to the conceptual formulation and
design of licensed programs are expensed as research and development. Costs
incurred subsequent to establishment of technological feasibility to produce the
finished product are capitalized. The annual amortization of the capitalized
amounts is the greater of the ratio that current gross revenues for a product
bear to the total of current and anticipated future gross revenues for that
product or the straight-line method over the remaining estimated economic life
of the product including the period being reported on. Amortization begins when
the product is available for general release to customers. Periodic reviews are
performed to ensure that unamortized program costs remain recoverable from
future revenues. Costs to support or service licensed programs are charged
against income as incurred, or when related revenue is recognized, whichever
occurs first. Amortization expense related to software amounted to $236,296 and
$48,894 for the years ended December 31, 1997 and 1996, respectively. The
amortization expense is included in cost of sales.
IMPAIRMENT - Certain long-term assets of the Company are reviewed when changes
in circumstances require as to whether their carrying value has become impaired,
pursuant to guidance established in Statement of Financial Accounting Standards
["SFAS"] No. 121, "Accounting for the Impairment of Long-Lived Assets and for
F-11
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #3
[3] SIGNIFICANT RISKS AND UNCERTAINTIES
Long-Lived Assets to be Disposed Of." Management considers assets to be impaired
if the carrying value exceeds the future projected cash flows from related
operations [undiscounted and without interest charges]. If impairment is deemed
to exist, the assets will be written down to fair value. Management also
reevaluates the periods of amortization to determine whether subsequent events
and circumstances warrant revised estimates of useful lives. As of December 31,
1997, management expects these assets to be fully recoverable.
RECLASSIFICATION - Certain prior year amounts have been reclassified to conform
to current year's financial statement presentation.
[A] CONCENTRATIONS OF CREDIT RISK - CASH - Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents and trade accounts and notes
receivable.
The Company places its cash and cash equivalents with high credit quality
institutions to limit its credit exposure. The Company believes no significant
concentration of credit risk exists with respect to these investments. The
Company routinely assesses the credit worthiness of its customers before a sale
takes place and believes its credit risk exposure on notes receivable is
limited. Five major customers accounted for approximately 67% of the Company's
notes receivable portfolio. The Company performs ongoing credit evaluations of
its customers but does not require collateral. The Company maintains allowances
for potential credit losses.
[B] OTHER CONCENTRATIONS - All of the Company's sales from Internet software
licensing is from outside the United States. These sales however, are not
subject to currency fluctuations as payment is made in U.S. dollars. The Company
had a portion of its revenues from five customers in 1997, totaling
approximately 66% of total revenues. The customers account for approximately
$2,935,000 of revenues for the year ended December 31, 1997. For the year ended
December 31, 1996, two customers accounted for 46% of revenues which accounted
for $125,500 [Investment Advisory Services] and $87,000 [Internet Software] of
revenues.
The Company purchases software from two vendors. Management believes that there
is no business vulnerability regarding this concentration of purchases from the
vendor as the software is available from other sources.
[4] NOTES RECEIVABLE
Notes receivable at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Australian Advisors, Ltd., minimum monthly principal and interest payments of
$3,000 or 40% of net win before expenses until June 1999 and $6,222
thereafter, interest at 8%, remaining balance due in full by June 2007. $ 826,000
Casinos of the South Pacific, monthly principal payments of $10,000
through August 2000; non-interest bearing. 310,000
BTN, Inc., monthly principal payments of $11,111 through June 2000,
non-interest bearing. 400,000
Carib Sportsbook, Inc., varying monthly payments, through June 1999,
non-interest bearing. 129,137
Intercoin AVV, monthly principal payment of $9,722, through
November 2000, non-interest bearing. 350,000
Tropical Reef Resorts, monthly principal payment of $2,542, through
November 2001, non-interest bearing. 122,000
Tropical Reef Resorts, monthly principal payment of $9,833 through
February 2001, non-interest bearing. 354,000
----------
Total - Forward $2,491,137
</TABLE>
F-12
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #4
[4] NOTES RECEIVABLE [CONTINUED]
<TABLE>
<CAPTION>
<S> <C>
Total - Forwarded $2,491,137
Permanent Mutual Investment Limited, monthly principal payment of
$11,388 through August 2000, non-interest bearing. 410,000
Tradewinds Virtual Gaming, Inc., monthly principal and interest payments of
$10,725 through May 2001, interest at prime rate
plus 2% [10.5% at December 31, 1997]. 385,000
Tradewinds Virtual Gaming, Inc., monthly principal and interest payments of
$1,950, through May 2001, interest at prime
rate plus 2% [10.5% at December 31, 1997]. 70,000
Cyber Gold Casino, Corp., monthly principal and interest payments of $10,575,
through July 2001, interest at prime rate plus 2%
[10.5% at December 31, 1997]. 400,000
-----------
Total Notes Receivable 3,756,137
Less: Reserve for Uncollectible Notes (385,052)
Discounts for Non-Interest Bearing Notes (84,103)
-----------
Total 3,286,982
Less: Amounts Shown as Current (1,927,899)
-----------
NOTES RECEIVABLE - NON-CURRENT PORTION $ 1,359,083
-------------------------------------- ===========
</TABLE>
The Collateral for notes receivable are the activation codes supplied by AIE to
its customers in order for them to commence uninterrupted use of the software.
If payment is withheld from AIE, for any reason, AIE can in effect shut down the
Internet operation and make the program inoperable until a new activation code
is supplied by Atlantic. To this date, the Company has not shut down any service
to any of its customers.
[5] ASSET ACQUISITION
On April 15, 1996, the pre-merger Company [See Note 1] purchased certain assets
consisting principally of computer software for Internet products and hardware.
The purchase price was $1,230,000 payable as $30,000 in cash and issued 200,000
shares of common stock with a fair value of $1,200,000.
F-13
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #5
[6] INVESTMENTS IN EQUITY SECURITIES
At December 31, 1997, the Company's available for sale securities consisted of
equity securities. A summary of the Company's investments in equity securities
is as follows:
DECEMBER 31, 1997
-----------------
FINANCIAL STATEMENT CAPTION CARRYING VALUE FAIR VALUE
- --------------------------- -------------- ----------
Available for Sale:
Common Stock $ 10,125 $10,125
======== =======
Gross proceeds from sale of available for sale securities was $35,671 and net
realized loss on sales was $20,859 for the year ended December 31, 1997. The net
unrealized holding loss on securities available for sale securities was $42,763
and is included as a separate component of stockholder's equity for the year
ended December 31, 1997.
[7] BUSINESS ACQUISITION
On January 31, 1997, the Company entered into an agreement to purchase all of
the shares of EmiNet Domain, Inc. ["EmiNet"]. The purchase price for the shares
was $2,020,000 payable by the issuance and delivery to the shareholders of
EmiNet or their designees of a minimum of 200,000 shares of fully-paid and
non-assessable common stock of the Company at the market value as of January 31,
1997 and $20,000 cash payable at March 31, 1997. In addition, the shareholders
of EmiNet or their designees will receive additional shares at market equal to
one time EmiNet's net profit before taxes for the years ending 1997 and 1998 up
to $750,000 per annum, one and one-half times over $750,000 to $1,000,000 and
two times over $1,000,000. No additional shares were issued in 1997 due to the
net loss of EmiNet. The transaction, effective April 1, 1997 was accounted for
as a purchase and the results of EmiNet's operations are included in the
statement of operations from that date. As a result of the acquisition, cost in
excess of net assets of approximately $1,563,000 was recorded. The cost in
excess of net assets is being amortized using the straight-line method over 15
years.
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. EmiNet
operated as an S corporation in 1996. Included in the expenses to arrive at Net
Income are reclassifications of Shareholders' Draw to Officers Salaries and
Income Tax Expense in the amounts of approximately $86,000 and $132,000 for 1997
and 1996, respectively. 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,
------------
1 9 9 7 1 9 9 6
------- -------
Net Sales $4,593,078 $ 878,097
Net Income [Loss] $1,096,976 $(347,072)
Basic Net Income [Loss] Per Share of Common Stock $ .12 $ (.04)
Diluted Net Income [Loss] Per Share of Common Stock $ .12 $ (.04)
F-14
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #6
[8] 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 $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 7].
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 the
Registration 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 yet to be determined.
[9] PROPERTY AND EQUIPMENT
The following details the composition of property and equipment:
ACCUMULATED
COST DEPRECIATION NET
---- ------------ ---
Computer Hardware $485,031 $88,867 $396,164
Equipment, Office Fixtures and Furnishings 56,296 6,803 49,493
Leasehold Improvements 19,352 555 18,797
-------- ------- --------
TOTALS $560,679 $96,225 $464,454
------ ======== ======= ========
Depreciation expense for the years ended December 31, 1997 and 1996 was $97,976
and $19,438, respectively.
[10] LEASES
CAPITAL LEASES - The Company is the lessee of office equipment under capital
leases expiring in various years through December 2001. The various leases are
collateralized by the related assets. The assets and liabilities under capital
leases are recorded at the present value of the net future minimum lease
payments. The assets are amortized over their estimated productive lives.
Amortization of assets under capital leases is included in depreciation expense.
Following is a summary of property held under capital leases:
Office Equipment $105,750
Less: Accumulated Amortization 8,860
--------
TOTAL $ 96,890
========
F-15
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #7
[10] LEASES [CONTINUED]
CAPITAL LEASES [CONTINUED] - Minimum future lease payments under capital leases
for each of the next five years and in the aggregate are:
1998 $ 48,732
1999 31,930
2000 20,984
2001 7,227
2002 --
Thereafter --
---------
Net Minimum Lease Payments 108,873
Less: Amount Representing Interest 12,985
---------
Present Value of Net Minimum Lease Payments 95,888
Less: Current Portion 41,427
---------
LONG-TERM PORTION $ 54,461
----------------- =========
OPERATING LEASES - The Company leases office space and equipment under operating
leases expiring through September 2002, and has a $10,236 security deposit with
its landlord. The lease grants an option for renewal for an additional 5 years.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1997.
YEAR ENDING OPERATING
DECEMBER 31, LEASES
- ------------ ------
1998 $ 114,266
1999 116,988
2000 119,344
2001 119,347
2002 92,121
Thereafter --
---------
TOTAL $ 562,066
----- =========
Rent expense for the years ended December 31, 1997 and 1996 was $91,525 and
$53,427, respectively.
[11] FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ["SFAS'] No. 107, "Disclosure About
Fair Value of Financial Instruments" requires disclosing fair value to the
extent practicable for financial instruments which are recognized or
unrecognized in the balance sheet. The fair value of the financial instruments
disclosed herein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement. The following table summarizes
financial instruments by individual balance sheet classifications as of December
31, 1997:
CARRYING FAIR
AMOUNT VALUE
Due from Related Parties $49,855 $41,275
F-16
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #8
[11] FAIR VALUE OF FINANCIAL INSTRUMENTS [CONTINUED]
In assessing the fair value of financial instruments, the Company used a variety
of methods and assumptions, which were based on estimates of market conditions
and risks existing at that time. For certain instruments, including cash and
cash equivalents, short term notes receivable, related party and trade and notes
payables, it was assumed that the carrying amount approximated fair value for
the majority of these instruments because of their short maturities.
The long-term notes receivable approximate fair value as all non-interest
bearing notes have been discounted to their present value.
[12] LINE OF CREDIT - BANK
The Company has a credit facility with a bank consisting of a revolving line of
credit under which the Company can borrow up to a maximum of $25,000. The
Company has borrowings of approximately $24,400 under the line of credit
outstanding at December 31, 1997. The revolving line of credit bears interest at
2.25% above the prime rate [8.5% at December 31, 1997] and is payable on
demand. The line of credit is guaranteed by the former shareholders of EmiNet
[See Note 7] and collateralized by certain assets. At December 31, 1997, the
Company had approximately $600 available under the line of credit.
[13] LONG-TERM DEBT
At December 31, 1997, long-term debt consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable bank, payable in thirty-six monthly installments of $500 plus
interest of 2.8% above a variable interest rate [prime rate] per annum,
[8.5% at December 31, 1997] through August 1999, collateralized by all
borrower's deposits and accounts on deposit with the lending institution. $ 10,500
Note payable - consultant, demand notes due September 5, 1998.
The notes accrue interest at 6% per annum. 30,000
----------
Total 40,500
Less: Current Portion (36,000)
----------
TOTAL $ 4,500
----- ==========
</TABLE>
Long-term debt at December 31, 1997, matures as follows:
1998 $ 36,000
1999 4,500
2000 --
----------
TOTAL $ 40,500
----- ==========
The Company is subject to restrictive covenants including maintaining primary
banking depositary relations with the lender and no additional debt to be
incurred unless it is in the normal and ordinary course of business.
Management believes the Company was in compliance with all debt covenants at
December 31, 1997.
The weighted average interest rate on short-term borrowings as of December 31,
1997 was 10%.
F-17
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #9
[14] RELATED PARTY TRANSACTIONS
The Company made advances to an affiliated company whose shareholders are also
shareholders of the Company during the year ended December 1997, increasing the
balance receivable to $49,855. The advances accrue interest at a rate of 6% per
annum, and are due on demand.
The Company has notes payable to two officers in the aggregate amount of
$166,636 at December 31, 1997. The notes are demand notes and incur interest at
8% per annum. Interest expense related to the shareholders notes totaled $7,525
and $1,302 for the years ended December 31, 1997 and 1996, respectively.
[15] PROVISION FOR INCOME TAXES
Income tax [benefit] expense consists of the following
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Current:
Federal $610,061 $(77,215)
State 29,123 --
-------- --------
Total Current 639,184 (77,215)
-------- --------
Deferred:
Federal 167,062 --
State 9,750 --
-------- --------
Total Deferred 176,812 --
-------- --------
TAX EXPENSE BENEFIT $462,372 $(77,215)
------------------- ======== =========
Income tax at the federal statutory rate reconciled to the Company's effective
rate is as follows:
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Federal Statutory Rate 34.0% (34.0)%
Non-Deductible Expenses -- (13.3)
Benefit of Net Operating Loss (3.6) 52.8
State Income Taxes 3.6 (5.5)
-------- ------
EFFECTIVE RATE 34.0% --%
-------------- ======== ======
In 1996, the Company recognized the benefit of $77,215 from the utilization of
an operating loss carryback which was filed in 1997.
F-18
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #10
[15] PROVISION FOR INCOME TAXES [CONTINUED]
The major components of deferred income tax assets and liabilities are as
follows:
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Deferred Tax Liabilities
Accelerated Depreciation $ -- $ (85,620)
Deferred Tax Assets:
Net Operating Loss -- 138,700
Allowance for Doubtful Accounts 176,812 --
--------- ------------
Net Deferred Tax Asset:
Before Valuation Allowance 176,812 53,080
Valuation Allowance -- 53,080
--------- ------------
NET DEFERRED INCOME TAX ASSET $ 176,812 $ --
----------------------------- ========= ============
The Company did not record a valuation allowance for the year ended December 31,
1997, because in managements judgement, the related deferred tax asset will be
realized within the next year. Accordingly, the valuation allowance decreased
$53,080 from December 31, 1996.
[16] BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into four business segments:
investment advisory services Internet software licensing, and medical products
and equipment and Internet access and services.
1 9 9 7 1 9 9 6
------- -------
Revenue:
Investment Advisory Services $ -- $ 366,204
Internet Software Licensing 4,002,894 87,000
Medical Products and Equipment -- 1,452
Internet Access and Services 413,896 --
----------- ----------
$ 4,416,790 $ 454,656
=========== ==========
Income [Loss] From Operations:
Investment Advisory Services $ -- $ 231,081
Internet Software Licensing 1,564,666 (659,056)
Medical Products and Equipment -- --
Internet Access and Services (169,776) --
----------- ----------
$ 1,394,890 $ (427,975)
=========== ==========
Total Assets:
Investment Advisory Services $ -- $ 1,423
Internet Software Licensing 5,181,740 1,980,591
Medical Products and Equipment -- --
Internet Access and Services 1,724,259 --
----------- ----------
$ 6,905,999 $1,982,014
=========== ==========
F-19
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #11
[16] BUSINESS SEGMENT INFORMATION [CONTINUED]
1 9 9 7 1 9 9 6
------- -------
Depreciation and Amortization:
Investment Advisory Services $ -- $ 285
Internet Software Licensing 323,959 67,091
Medical Products and Equipment -- --
Internet Access and Services 98,579 --
--------- -------------
$ 422,538 $ 67,376
========= =============
Capital Expenditures:
Investment Advisory Services $ -- $ 1,423
Internet Software Licensing 490,594 1,490,395
Medical Products and Equipment -- --
Internet Access and Services 122,558 --
--------- -------------
$ 613,152 $ 1,491,818
========= =============
[17] COMMITMENTS AND CONTINGENCIES
[A] EMPLOYMENT AGREEMENTS - The Company has employment agreements with certain
of its executives which commenced January 1, 1997 and expire on December 31,
2000. The aggregate annual commitment for future salaries at December 31, 1997
was $289,000. Also, included in the agreements are incentive bonus based upon
net income and net cash flows. Bonuses totaling approximately $151,000 have been
accrued at December 31, 1997.
[B] On June 17, 1996, the Company entered into a three year consulting agreement
with a well known personality to act as the Company's spokesman. The agreement
calls for the issuance of 5,000 shares of common stock during each year of the
three year term of the agreement. The shares are to be issued in quarterly
installments commencing September 30, 1996. No shares have yet been issued but
the Company has recorded a liability of $35,700 which represents the fair market
value of the quarterly installments of shares to be issued through December 31,
1997.
[C] On August 7, 1996, the Company's medical division signed an exclusive
distribution agreement for world wide sales of medical testing devices for HIV,
hepatitis, pregnancy, ovulation and other tests using the Internet as its means
of sales and distribution.
[D] On November 25, 1996, the Company signed and agreement with
Telecommunication Information Services Systems, NV ["TISS"], a Curacao based
company to provide international sports and entertainment information services.
As of December 31, 1996, $11,625 was received as revenues.
The agreement was terminated in February 1997 in contemplation of the
consummation of the Company's sale of its foreign subsidiary [See Note 19].
[E] In August 1997, the Company entered into a joint effort agreement with
OzEmail Limited ["OzEmail"]. The Company and OzEmail are jointly marketing and
selling the Company's software and business applications to customers and
prospective customers in Australia and Asia. The Agreement is for a term of one
year and will continue until terminated by either party.
[F] LITIGATION - The Company is party to litigation arising from the normal
course of business. In managements' opinion, this litigation will not materially
affect the Company's financial position, results of operations or cash flows.
F-20
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #12
[18] 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.
A summary of the changes in outstanding Common Stock options for all outstanding
plans is as follows:
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
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
======== =======
The following table summarizes information about stock options at December 31,
1997:
<TABLE>
<CAPTION>
EXERCISABLE
OUTSTANDING STOCK OPTIONS STOCK OPTIONS
------------------------- -------------
WEIGHTED-AVERAGE
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 5.0 $3.25 175,000 $ 3.25
</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.
F-21
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #13
[18] INCENTIVE STOCK OPTION PLAN [CONTINUED]
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. The
weighted average fair value of stock options granted to employees used in
determining pro forma amounts is estimated at $2.63, and $-0- during 1997 and
1996, respectively.
Pro forma information regarding net loss and net loss per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method prescribed under SFAS No. 123, Accounting for Stock Based
Compensation. The fair value of these options was estimated at the date of grant
using the Black-Scholes option-pricing model for the pro forma amounts with the
following weighted average assumptions:
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Risk-Free Interest Rate 5.7% --%
Expected Life 2.0% --%
Expected Volatility 181.0% --%
Expected Dividends --% --%
The pro forma amounts are indicated below [in thousands, except per share
amounts]:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 7 1 9 9 6
------- -------
Net Income [Loss]:
<S> <C> <C>
As Reported $1,047,317 $ --
Pro Forma $ 586,367 $ --
Basic Net Income [Loss] Per Share of Common Stock:
As Reported $ .11 $ --
Pro Forma $ .06 $ --
Diluted Net Income [Loss] Per Share of Common Stock:
As Reported $ .11 $ --
Pro Forma $ .06 $ --
</TABLE>
[19] DISCONTINUED OPERATIONS
On December 15, 1996, the Company adopted a plan to discontinue and sell its
foreign subsidiary, known as Atlantic International, N.V. ["AIE, NV"], which
operated a Sportsbook operation. The sales price was $850,000, $2,000 payable at
closing and beginning 60 days after closing, 40% of net win before expenses on a
minimum of $3,000 monthly, until the balance is paid. Interest on the unpaid
balance shall be accrued at 8% per annum. The effective date of this transaction
is January 1, 1997. The foreign subsidiary was reported as a discontinued
operation for the year ended December 31, 1996.
The closing date of the sale was March 26, 1997. Revenues for the discontinued
operation totaled approximately $14,000. For the year ended December 31, 1997,
the gain on disposal of "AIE, NV" was approximately $220,000 [$144,982 net of
tax] and the loss from operations was approximately $70,000 [$45,890 net of tax
benefit].
F-22
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #14
[20] SUBSEQUENT EVENTS
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 Systems 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.
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 is
convertible into the Company's common stock at the purchaser's option based upon
a formula included in the Securities Purchase Agreement.
[21] SUBSEQUENT EVENTS [Unaudited]
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. intends
to submit an acquisition bid for an Australian listed company, Coms21. The
Company will offer Coms21 shareholders the equivalent of $.70 Australian dollars
[$.44 US dollars] per share in the form of the Company's U.S. shares.
[22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ["FASB"] issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company is in the process of
determining its preferred format. The adoption of SFAS No. 130 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows.
F-23
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #15
[22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS [CONTINUED]
In June 1997, the FASB has issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. Financial
statement disclosures for prior periods are required to be restated. The Company
is in the process of evaluating the disclosure requirements. The adoption of
SFAS No. 131 will have no impact on the Company's consolidated results of
operations; financial position or cash flows.
In October 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, after clearance by the FASB, issued
Statement of Position (SOP) 97-2, Software Revenue Recognition. This SOP
supersedes SOP 91-1 of the same name and provides the most recent guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. SOP 97-2 is effective for transactions entered into in
fiscal years beginning after December 15, 1997.
SOP 97-2 requires that in arrangements to deliver software or a software system
that does not require significant production, modification, or customization,
revenue should be recognized when there is persuasive evidence that an
arrangement does in fact exist; delivery has occurred; the fee is fixed or
determinable; and collectibility is probable. If the software or software system
selling contract arrangement, either alone or together with other products or
services, requires significant production, modification or customization
construction type/production type contract accounting should be used for the
entire arrangement. Such accounting would recognize revenues and costs on a
contract arrangement as it progresses toward completion, rather than deferred
recognition of these items until persuasive evidence of delivery has occurred.
In software or software system selling arrangements that consist of multiple
elements (that is, additional software products, upgrades/enhancements, rights
to exchange or return software, postcontract customer support, or services), and
contract accounting does not apply, the fee must be allocated to the various
elements based on vendor-specific objective evidence of fair values. In general,
if sufficient vendor-specific objective evidence of fair values does not exist,
all revenue from the arrangement should be deferred until such sufficient
evidence exists, or until all elements have been delivered. The principle
difference between SOP 97-2 and its predecessor SOP 91-1 is in the accounting
for multiple-element arrangements based on vendor-specific objective evidence of
fair values. Management does not believe that SOP 97-2 will materially affect
the way the Company recognizes revenue.
. . . . . . . . . . .
F-24
<PAGE>
The following unaudited financial Statements for the period ended
March 31, 1998, have been prepared by Atlantic International
Entertainment, Ltd. (the "Company").
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Financial Statements
March 31, 1998
F-25
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
(Unaudited)
ASSETS
CURRENT ASSETS
<S> <C>
Cash and Cash Equivalents $ -0-
Accounts Receivable [Net of Allowance for Doubtful Accounts of $24,781 42,159
Notes Receivable 1,197,655
Refundable Income Tax 77,215
Deferred Tax Asset 176,812
Prepaid Expenses 6,423
Other Current Assets 26,192
------------
TOTAL CURRENT ASSETS: 1,526,456
------------
Furniture, Fixtures and Equipment - (Net of Accumulated Depreciation of $161,162) 439,557
Software (Net of Accumulated Amortization of $359,588) 1,335,470
Cost in Excess of Net Assets of Business Acquired
(Net of Accumulated Amortization of $103,853) 1,439,427
OTHER ASSETS
Due From Related Parties 50,602
Other Assets 18,104
Investments 8,100
Notes Receivable (Net of Discounts and Reserve) 2,721,327
------------
TOTAL OTHER ASSETS 2,798,133
TOTAL ASSETS $7,539,043
------------
</TABLE>
F-26
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEET (UNAUDITED) (Continued)
AS OF MARCH 31, 1998
LIABILITIES AND STOCKHOLDERS'EQUITY:
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C>
Accounts Payable and Accrued Expenses $ 823,327
Notes Payable - Officers 255,145
Due to Customers 75,000
Current Portion of Long-Term Debt 39,073
Current Portion of Capital Lease Obligations 51,096
Income Taxes Payable - Federal 630,841
Income Taxes Payable - State 34,123
Line of Credit 24,791
Other Current Liabilities 41,157
-----------
TOTAL CURRENT LIABILITIES 1,974,553
Long-Term Debt 3,000
Capital Lease obligations 38,309
-----------
TOTAL LIABILITIES 2,015,862
-----------
SHAREHOLDERS'S EQUITY:
Preferred Stock - Par Value $.001 Per Share, Authorized
10,000,000 Shares, None Issued or Outstanding -0-
Common Stock - Par Value $001 Per Share;
Authorized 100,000,000 Shares, Issued and
Outstanding 9,590,184 Shares 9,590
Additional Paid - in - Capital 4,449,806
Unrealized Holding Loss on Marketable Securities (44,788)
Retained Earnings 1,108,573
-----------
Total Stockholders' Equity 5,523,181
-----------
Total Liabilities and Stockholders' Equity $ 7,539,043
===========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-27
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
THREE MONTHS THREE MONTHS
MARCH 1998 MARCH 1997
Revenues $1,155,041 $ 604,248
Expenses (842,047) (353,395)
Other gains and losses (6,895) 53,675
---------- ----------
Income from operations before tax 396,099 304,528
Income tax benefit (expense) (27,412) (58,858)
---------- ----------
Net Income 278,687 245,670
Unrealized holding loss arising during period (1,336) -
---------- ----------
Comprehensive Income $ 277,351 $ 245,670
========== ==========
F-28
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER RETAINED TOTAL
PREFERRED NUMBER OF PAID IN COMPREHENSIVE EARNINGS STOCKHOLDERS'
STOCK SHARES AMOUNT CAPITAL INCOME (DEFICIT) EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 -- 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
Marketable Securities -- -- -- -- (42,763) -- (42,763)
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)
Income from Continuing
Operations -- -- -- -- -- 278,687 278,687
-------- --------- ------- ----------- -------- ---------- --------------
BALANCE - MARCH 31, 1998 $ -- 9,590,184 $9,590 $4,449,806 $(44,788) $1,108,573 $5,523,181
-------- --------- ------- ----------- ------ ---------- --------------
</TABLE>
The accompanying Notes are an Integral Part of these Consolidated Financial
Statements
F-29
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1 9 9 8 1 9 9 7
------- -------
OPERATING ACTIVITIES:
<S> <C> <C>
Income [Loss] Income from Continuing Operations $ 278,687 $ 194,306
Adjustments to Reconcile Net Income [Loss] to
Net Cash Provided by [Used for] Operating Activities:
Depreciation and Amortization 136,752 73,627
Provision for Doubtful Accounts 100,576 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 1,069 (848,000)
Prepaid Expenses 141 39,950
Notes Receivable (731,359) --
Restricted Cash (15,000) --
Other Assets (1,192) (229)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (130,751) 45,386
Income Taxes Payable 30,628 --
Other Current Liabilities 28,583 --
Due to Customer 54,279 37,242
--------- ---------
NET CASH - CONTINUING OPERATIONS (247,587) (457,718)
--------- ---------
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
--------- ---------
-- 52,730
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 (247,587) (446,629)
--------- ---------
INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Increase in Due from Related Parties (747) (845)
Purchase of Investments -- (109,643)
Purchase of Property and Equipment (135,869) (54,792)
--------- ---------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS - (136,616) (165,280)
FORWARDED
INVESTING ACTIVITIES - DISCONTINUED OPERATIONS:
Disposition of Property and Equipment -- 11,110
--------- ---------
NET CASH INVESTING ACTIVITIES
$(136,616) $(154,170)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
F-30
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES - FORWARDED $(247,587) $(446,629)
--------- -----------
NET CASH - INVESTING ACTIVITIES - FORWARDED (136,616) (154,170)
--------- -----------
FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Proceeds from the Conversion of Debt to Equity -- --
Proceeds from Issuance of Common Stock 299,900 329,330
Increase in Loan Payable to Shareholder 88,509 (9,709)
Proceeds from Long-Term Debt -- --
Line of Credit (1,900) --
Payment of Notes Payable -- --
Payment of Lease Payable (16,152) --
--------- -----------
NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS 370,457 319,621
--------- -----------
Financing - Activities - Discontinued Operations
Additions to Paid In Capital -- 98,775
--------- -----------
NET CASH - FINANCING ACTIVITIES 370,457 418,396
--------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (13,746) (182,403)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 11,260 421,188
--------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ (2,486) $ 238,785
========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 6,758 $ 291
Income Taxes $ -0- $ -0-
Income Tax Refund (Applied) $ -0- $ 58,858
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
F-31
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Uunaudited)
March 31, 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 COMBINATION
On July 16, 1996, the Company entered into an Exchange of Stock
Agreement and Plan of Reorganization ( the "Stock Exchange
Agreement"). Under the terms of the Stock Exchange Agreement, the
Company acquired all of the shares of Atlantic International
Capital, Ltd. ("Atlantic Capital"), a Delaware corporation, in
exchange for an aggregate of 25,183,759 shares of its common stock,
of which 7,000,000 shares were immediately issuable and 18,153,759
shares were to be issued following an increase in the Company's
authorized capital. The Company plans to satisfy this obligation by
issuing approximately 6,061,253 shares of Common Stock to the former
Atlantic Capital stockholders following a 1-for-3 share exchange
upon the consummation of a merger with and into its wholly-owned
subsidiary, Atlantic International Entertainment, Ltd. which was
approved by the Company's stockholders on November 18, 1996. Upon
consummation of the merger, the Company's authorized capital will
increase to 100,000,000 shares of Common Stock, $.001 par value and
10,000,000 shares of Preferred Stock, $.001 par value. The
combination has been accounted for as a reverse acquisition, and the
combined entity intends to operate under the name Atlantic
International Entertainment, Ltd. The consolidated balance sheet as
of March 31, 1997 does not reflect the effects of the
recapitalization, issuance of the additional common shares, or the
reverse stock split, all of which were approved by the stockholders
on November 18, 1996.
CEEE has conducted only limited operations prior to 1984, and has
been substantially inactive since that time. It previously
considered itself to be a development stage company as defined in
Statement of Financial Accounting Standards No.7.
F-32
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
March 31, 1998
Note 3 - 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.
<TABLE>
<CAPTION>
Years ended December 31
1997 1996
<S> <C> <C>
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)
</TABLE>
Note 4 - MAJOR CUSTOMERS
Income fees derived from major customers are tabulated as follow:
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1997 1998
(Unaudited) (Unaudited)
Customer A - (Software System) $ 600,000 $ 350,000
Customer I - (Software System) -0- 220,000
Customer J - (Software System) -0- 350,000
F-33
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
March 31, 1998
Note 5 - 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].
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 the Regulation Statement S8.
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.
Note 6 - 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.
Note 7 - 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.
F-34
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
March 31, 1998
Note 7 - INCENTIVE STOCK OPTION PLAN (CONTINUED)
A summary of the changes in outstanding Common Stock options for all outstanding
plans is as follows:
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
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
------- ----------
OUTSTANDING AT MARCH 31, 1998 175,000 3.25
------- ----------
EXERCISABLE AT MARCH 31, 1998 175,000 3.25
------- ----------
The following table summarizes information about stock options at December 31,
1997:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS
WEIGHTED-AVERAGE
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 4.75 $ 3.25 175,000 $ 3.25
</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.
F-35
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
March 31, 1998
Note 8 - 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.
F-36
<PAGE>
TABLE OF CONTENTS
Available Information..........................
Prospectus Summary.............................
Risk Factors...................................
Price Range of Common Stock....................
Use of Proceeds................................
Dividend Policy................................
Selected Financial Data........................
Management's Discussion and Analysis
of Financial Condition and Results of
Operations...................................
Business.......................................
Management.....................................
Certain Transactions...........................
Change of Accountants..........................
Description of Capital Stock...................
Legal Matters..................................
Experts........................................
Security Ownership of Certain Beneficial Owners
and Management.................................
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report.................................... F-2
Balance Sheet at December 31, 1997.............................. F-3, F-4
Statements of Operations for the years ended
December 31, 1997 and 1996.................................. F-5
Statements of Cash Flows for the years ended
December 31, 1997 and 1996.................................. F-6
Statement of Stockholders' Equity (Deficit)
For the years ended December 31, 1997 and 1996.............. F-7
Notes to Audited Financial Statements........................... F-9
Unaudited balance Sheets at March 31, 1998...................... F-27
Unaudited Statement of operations for
the three months ended March 31, 1998 and 1997............ F-29
Unaudited Statements of Cash Flows for
the three months ended March 31, 1998 and 1997............ F-31
Notes to Unaudited Financial Statements......................... F-33
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
320,513 Shares
of
Common Stock
PROSPECTUS
45
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemization of all estimated expenses in
connection with the issuance and distribution of the securities being
registered, none of which are payable by the Selling Stockholders:
Registration Statement Filing Fee $ 200
Legal Fees and Expenses 5,000
Accounting fees and expenses 4,000
Miscellaneous 1,000
Total $10,200
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the following securities were sold by the
Company without registration under the Securities Act. Except as otherwise
indicated, the securities were sold by the Company in reliance upon the
exemption provided by Section 4 (2) of the Securities Act, among others, on the
basis that such transactions did not involve any public offering and the
purchasers were sophisticated with access to the kind of information
registration would provide:
Shaar Fund 5000 shares of 5% Convertible Preferred Stock.
Hoskin Consolidated Industries 1,000,000 shares of Common Stock
Item 27. Indemnification of Directors and Officers.
Section 102 of the Delaware General Corporation Law, as amended, allows
a corporation to eliminate the personal liability of directors of a corporation
to the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except where the director breached his or her duty
of loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit. The Registrant has limited the liability of its directors for
money damages in Article VIII of its Amended and Restated Certificate of
Incorporation (its "Charter"), which reads as follows:
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except liability for (i) any breach of the director's duty
of loyalty to the Corporation or its stockholders; (ii) any acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of the General Corporation Law; or (iv) any
transaction from which the director derived any improper personal benefit. The
foregoing sentence notwithstanding, if the General Corporation Law is hereafter
amended to authorize further elimination or a limitation on the liability of a
director of a corporation, then the liability of a director of this Corporation
shall be
46
<PAGE>
eliminated or limited to the fullest extent permitted by the General Corporation
Law, as so amended.
Any repeal or modification of this Article VIII by (i) the stockholders of the
Corporation or (ii) amendment to the General Corporation Law of Delaware (unless
such statutory amendment specifically provides to the contrary) shall not
adversely affect any right or protection, existing immediately prior to the
effectiveness of such repeal or modification with respect to any acts or
omissions occurring either before or after such repeal or modification, of a
person serving as a director at the time of such repeal or modification.
Section 145 of the Delaware General Corporation Law, as amended, provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation), by reason of the fact that he
is or was a director, officer, employee or agent of the corporation or is or was
serving at its request in such capacity in another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
Registrant has provided for indemnification of directors, officers, employees
and agents in Article VII of its Charter, which reads as follows:
The Corporation shall indemnify, and advance expenses to, its
directors, officers, employees and agents, and all persons
who at any time served as directors, officers, employees or
agents of the Corporation, to the maximum extent permitted,
and in the manner provided by, Section 145 of the Delaware
General Corporation Law, as amended, or any successor
provisions, and shall have power to make any other or further
indemnity permitted under the laws of the State of Delaware.
The indemnification provided for herein shall not be deemed
exclusive of any other right to which those indemnified may
be entitled under any Bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent
and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
Any repeal or modification of this Article VIII by (i) the
stockholders of the Corporation or (ii) amendment to the
General Corporation Law of Delaware (unless such statutory
amendment specifically provides to the contrary) shall not
adversely affect any right or protection, existing
immediately prior to the effectiveness of such repeal or
modification with respect to any acts or omissions occurring
either before or after
47
<PAGE>
such repeal or modification, of a person serving as a
director at the time of such repeal or modification.
In addition, Section 5 of Article VII of the Bylaws of the Registrant, as
amended, provides as follows:
The Corporation shall indemnify and advance expenses to, its
directors, officers, employees and agents, and all persons
who at any time served as directors, officers, employees or
agents of the Corporation, to the fullest extent permitted,
and in the manner provided by, Section 145 of the Delaware
General Corporation Law, as amended, or any successor
provisions, and shall have power to make any other or further
indemnity permitted under the laws of the State of Delaware.
Without limiting the foregoing, to the fullest extent
permitted by the Delaware General Corporation Law, the
Corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to these Bylaws.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
Item 27. Exhibits and Financial Statement Schedules.
(a) Exhibits:
3.1 -- Certificate of Incorporation of the Company
(including Certificate of Designation)
3.2 -- Bylaws of the Company.
4.1 -- Specimen Common Stock Certificate.
10.1 -- Incentive Stock Option Plan for Employees,
Directors, Consultants and Advisers.
48
<PAGE>
10.2 -- Exchange of Stock Agreement and Plan of
Reorganization dated July 16, 1996 by and
between the Company (formerly known as CEEE
Group Corporation), Edward Cowle, Deworth
Williams, Atlantic International Capital, Ltd.,
and each of the former stockholders of Atlantic
International Capital, Ltd. listed on Schedule
I thereto.
10.3 -- Amendment No. 1 to Exchange of Stock Agreement
and Plan of Reorganization dated September 5,
1996 by and between the Company (formerly known
as CEEE Group Corporation), Edward Cowle,
Deworth Williams, Atlantic International
Capital, Ltd., and each of the former
stockholders of Atlantic International Capital,
Ltd. listed on Schedule I thereto.
10.4 -- Agreement and Plan of Merger dated as of
November 18, 1996, between Atlantic
International Entertainment, Ltd., a Delaware
corporation and CEEE Group Corporation, Ltd., a
Colorado corporation.
10.5 -- Purchase and Sale Agreement dated as of April
15, 1996 by and between the Company, RAM
Associates and James A Dougherty.
10.6 -- Agreement for Purchase and Sale of Stock dated
as of December 15, 1996 by and between the
Company, Atlantic International Entertainment,
NV and Australian Advisers, Ltd.
10.7 -- Agreement for Purchase and Sale of Stock dated
as of January 31, 1997 by and between the
Company and Eminet Domain, Inc.
10.8 -- Securities Purchase Agreement dated April 3,
1998 by and between the Company and The Shaar
Fund
10.9 -- Employment Agreements with Richard Iamunno and
Norman Hoskin
*23.1 -- Consent of Moore Stephens, P.C.
*23.2 -- Consent of Harry Winderman, Esq., included in
Exhibit 5
*25.0 -- Power of Attorney, included on the signature
page to this Registration Statement
__________________________
* Included herein.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) File, during any period in which it offers or sales securities, a
post-effective amendment to this registration statement to;
49
<PAGE>
(i) Include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1993;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act of 1933,
treat each post- effective amendment as a new registration statement
of the securities offered, and in the offering of such securities at
that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expense incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in Boca Raton, Florida, on
the 22th day of June, 1998.
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
By: NORMAN J. HOSKIN
--------------------
Norman J. Hoskin
Chairman of the Board
50
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Norman J. Hoskin and Richard
Iamunno and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, or any
related registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended (the "Securities Act"),
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ NORMAN J. HOSKIN Chairman of the Board, June 22,1998
- ------------------------------- Secretary, and Treasurer
Norman J. Hoskin
/S/ RICHARD A. IAMUNNO President, Chief June 22, 1998
- ------------------------------- Executive Officer
Richard A. Iamunno and Director
/S/ DAVID HALABURDA Chief Financial Officer June 22, 1998
- ------------------------------- (principal accounting
David Halaburda officer)
/S/ STEVEN D. BROWN Director June 22, 1998
- -------------------------------
Steven D. Brown
/S/ JEFFREY HURWITZ Director June 22, 1998
- -------------------------------
Jeffrey Hurwitz
/S/ DR. LEONARD HAIMES Director June 22, 1998
- -------------------------------
Dr. Leonard Haimes
51
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
of our report dated April 24, 1998, on our audits of the consolidated balance
sheet of Atlantic International Entertainment, Ltd. and its subsidiaries as of
December 31, 1997, and the related consolidated statements of operations,
changes in stockholders' eqioty, and cash flows for each of the two years in the
period ended December 31, 1997. We also consent to the reference to our firm
under the caption "Experts."
/s/ MOORE STEPHENS, P.C.
------------------------
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
June 22, 1998
Exhibit 23.2
Consent of Harry Winderman, Esq.
June 30, 1998
Board of Directors
Atlantic International Entertainment, Ltd.
Gentlemen:
I have acted as counsel for Atlantic International Entertainment, Ltd.
(the "Corporation") in connection with the registration on Form SB-2 (the
"Registration Statement") of 320,513 shares of the Corporation's Common Stock,
$.0001 par value per share registering the shares of Common Stock of the Selling
Stockholders enumerated on Schedule "A" attached hereto.
On the basis of such investigation as I deemed necessary, I am of the
opinion that:
(1) the Corporation has been duly incorporated and is validly existing
under the laws of the State of Delaware; and
(2) the Common Shares have been duly authorized and are validly
issued, fully paid and nonassessable.
I hereby consent to the use of my name under the heading "Validity of
Shares of Common Stock" in the Prospectus included in the Registration
Statement and to the filing of this opinion as an Exhibit to the
Registration Statement.
Very truly yours,
/S/ HARRY WINDERMAN
HARRY WINDERMAN, ESQ.
