UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 ( d ) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________.
Commission File Number: 0-27256
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
(Exact name of small business issuer as specified in its charter)
DELAWARE 65-0512785
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
200 East Palmetto Park Road, Suite 200, Boca Raton, Florida 33432
(Address of principal executive offices)
Registrant's telephone no., including area code: (561) 393-6685
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES / X / NO / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
CLASS OUTSTANDING AS OF JUNE 5, 1998
- ----------------------------- --------------------------------
Common Stock, $.001 par value 9,832,348
<PAGE>
TABLE OF CONTENTS
Heading Page
PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements .............................................2
Consolidated Balance Sheet - March 31, 1998 (Unaudited) ........3-4
Consolidated Statement of Operations..............................5
Consolidated Statement of Changes in Stockholders' Equity ........6
Consolidated Statement of Cash Flows - Three months
ended March 31, 1998 (unaudited)................................7-8
Notes to Consolidated Financial Statements (Unaudited) ........9-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................14-15
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes In Securities ...........................................16
Item 3. Defaults Upon Senior Securities..................................16
Item 4. Submission of Matters to a Vote of Securities Holders ...........16
Item 5. Other Information ...............................................16
Item 6. Exhibits and Reports on Form 8-K ................................16
Signatures ......................................................17
<PAGE>
PART 1
Item 1. Financial Statements
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
2
<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>
3
<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.
4
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
March 31,
---------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
REVENUE $ 1,155,041 $ 604,248
Cost of Sales 151,720 -0-
-------------- -------------
Gross Profit 1,003,321 604,248
General and Administrative 452,999 279,768
Provision for Doubtful Accounts and Notes 100,576 -0-
Depreciation and Amortization 136,752 73,627
-------------- -------------
Total Operating Expenses 690,327 353,395
Income From Operations 312,994 250,853
OTHER INCOME (EXPENSE)
Interest Income 3,371 2,602
Interest Expense (6,758) (291)
Interest Expense - Related Party (3,508) -0-
Other Income Expense -0- -0-
-------------- -------------
Other (Expenses) Income - Net (6,895) 2,311
Income (Loss) From Continuing Operations Before
Income Tax Expense (Benefit) Expense 306,099 253,164
Income Tax Expense (Benefit) Expense (27,412) (58,858)
-------------- -------------
Income (Loss) From Continuing Operations 278,687 194,306
Discontinued Operations - (Net of Income Taxes of 51,047)
(Loss) from Operations of Discontinued Foreign Subsidiary -0- (69,531)
Gain on the Disposal of Discontinued Foreign Subsidiary -0- 120,895
-------------- -------------
NET INCOME $ 278,687 $ 245,670
Income (Loss) Per Common Share:
Continuing Operations .03 .021
Discontinued Operations -0- .005
-------------- -------------
Basic and Diluted Net Income Per Share of Common Stock $ .03 $ .026
============== =============
Weighted Average Shares of Common Stock Outstanding 9,590,184 9,357,934
============== =============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
5
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK 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, 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
6
<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
7
<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
8
<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.
9
<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
10
<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.
11
<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.
12
<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.
13
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAIMENT, LTD.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
On April 3, 1998 the company entered into a Securities Purchase
Agreement for the sale of $500,000 of a newly created 5% Convertible
Preferred Stock. The Agreement also grants the purchaser the right to
purchase up to an additional $2,500,000 in said class of securities at
market prices. The preferred stock contributed into the Company's common
stock at the purchaser's option. In June 1998 the second tranche for an
additional $500,000 was sold under the same rights and restrictions.
On April 30, 1998, the Company entered into a Securities Purchase
Agreement with Hosken Consolidated Investments, Ltd. ["HCI"], where HCI
purchased one million shares of the Company's common stock for
$4,000,000 pursuant to Regulation D.
In a simultaneous transaction, HCI has subscribed for 25% of the
Company's South African subsidiary, Atlantic International
Entertainment, Ltd. South Africa. HCI received its equity in
consideration for its services to be rendered related to introducing the
Company to the South African gaming and wagering community.
In May 1998, the Company's wholly-owned subsidiary, AIE, Australia, Ltd.
submitted an acquisition bid for an Australian listed company, Coms21.
The Company offered Coms21 shareholders the equivalent of $.70
Australian dollar per share in the form of the Company's U.S. shares.
In May of 1998, the Company instituted a Section 125 benefit plan for
it's Employees. In June of 1998, the Company instituted a 401K Employee
benefit plan on behalf of its Employees. The Company is not required to
make matching contributions under this plan.
In the first quarter of 1998, the Company completed installations of
three new licenses, two for Internet Casino Extension (ICE) and one for
a webSports product. In addition, contracts were signed for and deposits
received for two additional licenses.
RESULTS OF OPERATIONS
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. Net 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 (.021 per share)
respectively. In 1997, the sale of Atlantic's foreign subsidiary added
approximately $51,364 of income (.005 per share) to the bottom line
resulting in net income between 1998 and 1997 of $278,687 (.03 per
share) and $245,670 (.026 per share) respectively.
The increase in revenues was the result of continued market penetration
from industry awareness of Atlantic's products as well as a strong sales
and marketing push. The net profit after taxes and extraordinary items
rose by approximately 13% or $33,017. Operating expenses rose by
approximately 95% or $336,932 over the same period in 1997. Operating
expenses for the first quarter of 1998 were $690,327 as compared to
$353,395 for the first quarter 1997. This was largely due to global
expansion efforts, expenses related to the development of new products
and increased sales and support staffing.
14
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
RESULTS OF OPERATIONS (Continued)
For the year ended 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 of 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.
In the opinion of management, inflation has not had a material
impact on the operation of the Company.
15
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
PART II
Item 1. Legal Proceedings
Litigation - The Company is party to litigation arising from the
normal course of business. In management's' opinion, this litigation
will not materially affect the Company's financial position, results
of operations or cash flows.
Item 2. Changes in Securities
This Item is not applicable to the Company.
Item 3. Defaults upon Senior Securities
This Item is no applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
16
<PAGE>
In accordance with the requirements of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Atlantic International Entertainment, Ltd.
Date: June 15, 1998 By: /s/ Richard Iamunno
-------------------------------------
(Signature)
Richard A. Iamunno, President
And Chief Executive Officer
Date: June 15, 1998 By: /s/ David P. Halaburda
-------------------------------------
(Signature)
David P. Halaburda
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Atlantic
International Entertainment, Ltd.'s financial statements as of March 31, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,557,077
<ALLOWANCES> (595,936)
<INVENTORY> 0
<CURRENT-ASSETS> 1,526,456
<PP&E> 3,839,057
<DEPRECIATION> 624,603
<TOTAL-ASSETS> 7,539,043
<CURRENT-LIABILITIES> 1,974,553
<BONDS> 0
<COMMON> 9,590
0
0
<OTHER-SE> 5,513,591
<TOTAL-LIABILITY-AND-EQUITY> 7,539,043
<SALES> 1,155,041
<TOTAL-REVENUES> 1,155,041
<CGS> 151,720
<TOTAL-COSTS> 690,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,266
<INCOME-PRETAX> 306,099
<INCOME-TAX> (27,412)
<INCOME-CONTINUING> 278,687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278,687
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
