AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1999
REGISTRATION NO. 333-72007
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
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 200BOCA 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 a 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./ /
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. / /
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<PAGE>
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 any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Aggregate Aggregate Amount of
Title of Each Class of Amount to be Offering Price Offering registration
Securities to be Registered registered Per Share Price Fee
- ---------------------- ---------- --------- ----- ---
<S> <C> <C> <C> <C> <C>
common stock, $.001 par value 1,366,667(1) $2.375(1)(2) $3,321,000.81(1) $99.04(1)
</TABLE>
(1) Represents 1,216,667 shares of common stock issued to the owners of
shares of COMS 21, Ltd. in exchange for our common stock pursuant to an
offer filed with the Australian Securities and Investments Commission
and 150,000 shares of common stock paid to Monness, Crepi, Hardt & Co.,
Inc. for services rendered or to be rendered. We previously paid the
filing fee on the 1,216,667 shares of Common Stock. Accordingly, we
will wire transfer $101.33 for the 150,000 shares with this filing.
(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, based on $2.375, the per share average of high and low sales
prices of the common stock on the Nasdaq Over-the-Counter Market on
June 10, 1999.
The Registrant amends this registration statement on a 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 a date as the
Commission, acting pursuant to said Section 8(a), may determine.
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<PAGE>
PROSPECTUS
1,366,667 SHARES
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
COMMON STOCK
The selling stockholders listed on pages 30-40 are offering
1,366,667 shares of the common stock through this prospectus.
Our shares trade on the electronic bulletin board and our symbol is
AIEE. The closing price per share of common stock on the electronic bulletin
board on June 10, 1999 was $2.375.
AN INVESTMENT IN THE SECURITIES OFFERED INVOLVES A HIGH DEGREE OF RISK AND
SHOULD ONLY BE MADE BY YOU IF YOU CAN AFFORD THE LOSS OF YOUR ENTIRE INVESTMENT.
SEE "RISK FACTORS" AT PAGE 7.
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. IF ANYONE MAKES ANY OTHER
REPRESENTATION IT IS A CRIMINAL OFFENSE.
The date of this prospectus is [ ].
3
<PAGE>
TABLE OF CONTENTS
Available Information...............................................
Prospectus Summary..................................................
Risk Factors........................................................
Price Range of Common StockUse 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 AccountantsDescription of Capital stock...................
Legal Matters.......................................................
Experts.............................................................
Security Ownership of Certain Beneficial Owners
and Management
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheet (Unaudited) as of March 31, 1999..........F-2....F-3
Consolidated Statements of Operations (Unaudited)
for the three months ended March 31, 1999 and March 31, 1998.........F-4....F-5
Consolidated Statements of Cash Flow (Unaudited)
for the three months ended March 31, 1999 and March 31, 1998.........F-6....F-7
Notes to the Consolidated Financial Statements (Unaudited)...........F-8....F-10
Independent Auditor's Report.........................................F-11
Consolidated Balance Sheet as of December 31, 1998...................F-12...F-13
Consolidated Statements of Operations and Comprehensive
Income for the years ended December 31, 1998 and 1997................F-14...F-15
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1998 and 1997...............................F-16
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997...........................................F-17...F-18
Notes to Consolidated Financial Statements ..........................F-19...F-33
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
1,366,667 shares
of
common stock
PROSPECTUS
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<PAGE>
Summary
THIS IS ONLY A SUMMARY OF THE INFORMATION THAT IS IMPORTANT TO YOU AND YOU
SHOULD READ THE MORE DETAILED INFORMATION, INCLUDING THE FINANCIAL STATEMENTS
AND THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
About Us
Atlantic International Entertainment, Ltd., a Delaware corporation,
develops and markets interactive gaming products and services in the
entertainment and information technology fields. These products and services
focus on two major industries which include interactive gaming & wagering and
information technology products and services.
Our Business
We develop and market computer software that is sold to licensed
casino operators. Our software enables our customers to operate a gaming
business over the internet. Our software includes black jack, poker, bingo and
other games. We intend to develop additional games. We also operate a
manufacturer and marketer of a hand held device for playing computer generated
games including our computer software.
Our Offices
Our executive offices are located at 200 East Palmetto Park Rd.,
Suite 200, Boca Raton, Florida 33432. Our telephone number is (561) 393-6685. We
have a home page on the internet at http://www.weltd.com.
About The Offering
Common stock Offered by the selling stockholders 1,366,667 shares
Common stock Outstanding 12,273,587 shares
Common stock to be Outstanding after the Offering 12,273,587 shares
Use of Proceeds - We will not receive any of the proceeds from the sale of
shares by the selling stockholders.
Bulletin Board Symbol AIEE
Risk Factors - An investment in the shares involves a high degree of risk. See
"Risk Factors" beginning on page 6 of this prospectus.
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<PAGE>
Summary Financial Data
(Dollar amounts and share data)
1998 1997
Revenue $ 2,426,230 $ 3,991,041
[Loss} Income from Operations (2,401,793) 1,546,929
Net [Loss] Income (1,332,400) 1,067,796
Basic and Diluted Net
[Loss] Income Per Common Share $ (0.15) $ 0.11
BALANCE SHEET DATA
Working Capital $ 4,667,465 $ 447,813
Total Assets 10,406,587 5,181,740
Total Liabilities 1,427,969 1,685,345
Stockholders' Equity 8,978,618 3,496,395
STATEMENTS OF DISCONTINUED
OPERATIONS DATA:
Revenue $ 544,057 $ 413,896
[Loss] Income from Operations (371,448) (165,458)
Net [Loss] Income (371,448) (165,458)
Basic and Diluted Net [Loss]
Income per Common Share $ (0.04) $ --
BALANCE SHEET DATA -
DISCONTINUED OPERATIONS:
Working Capital $ (65,845) $ (95,254)
Total Assets 1,546,350 1,724,259
Total Liabilities 195,078 274,035
Stockholders' Equity 1,351,272 1,450,224
Risk Factors
An investment in the shares discussed in this prospectus involves a
high degree of risk. You should carefully consider the following risk factors,
as well as the other information contained in this prospectus, before making an
investment decision.
We Are a New Company with a limited operating History
We can not be sure that we will sustain profitability or positive cash
flow in the future. We commenced operations in July 1996 and, have a limited
operating history. As of March 31, 1999 and December 31, 1998, we had an
accumulated deficit of approximately $1,097,664 and $1,143,405, respectively.
We Do Not Have Sources for Additional Working Capital if Needed
The timing and amount of capital requirements are not entirely within
our control and cannot accurately be predicted. If capital requirements
materially exceed those currently
6
<PAGE>
anticipated, we may require additional financing sooner than anticipated. We
have no commitments for additional financing, and we can not be sure that any
additional financing would be available in a timely manner, on terms acceptable
to us, or at all. Further, any additional equity financing could reduce
ownership of existing stockholders and any borrowed money could involve
restrictions on future capital raising activities and other financial and
operational matters. If we were unable to obtain additional financing as needed,
we could be required to reduce our operations or any anticipated expansion,
which could hurt us financially.
Our Requirement for Additional Working Capital Depends on the Funds
Used by Our Competition
We believe that the net proceeds from our recent stock offerings,
together with other available cash, will be sufficient to meet our operating
expenses and capital requirements at least through September 1999. However, our
capital requirements depend on numerous factors, including:
o the level of resources required to expand our marketing and sales
organization, information systems and research and development
activities
o the availability of hardware and software provided by third-party
vendors
We Have Substantial Competition in The New Business of Internet Gaming
We cannot know that we will have the financial resources, technical
expertise or marketing and support capabilities to compete successfully in the
internet gaming software business. The market for internet gaming software is
new, extremely competitive and highly fragmented. Inasmuch as there are no
significant barriers to entry, we believe that competition in this market will
intensify. Currently, we have identified four other companies that compete
directly with us in the sale of casino gaming software to our potential
customers. We believe that our ability to compete successfully will depend on:
o strong market presence in our targeted geographic regions
o adequacy of our software development and technical support
services
o our pricing policies and the price of our competitors and our
suppliers
o timing of introductions of new products by us and our competitors
o our ability to support existing and emerging industry standards
o industry and general economic trends.
So far, these competitors have been more profitable than we have due to their
direct sharing of gaming winnings. Our focus has been on the development of
better software and we have spent our funds to accomplish this goal.
Our Potential Customers Will be Asked to Use the Internet as a Medium of
Commerce and Communication But They may Lack Knowledge or Capacity to Use the
Internet
Our success in developing methods for delivery and use of our products
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
7
<PAGE>
growth of internet use, and additional use-related issues may arise in the
future. We believe this is critical for our business since substantial funds
will be transmitted over the internet.
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 provide a reliable and secure
computer platform. We are not sure that the internet market will grow or as to
the rate of growth. Moreover, the novelty of the internet access market may also
adversely affect our ability to retain new subscribers, as subscribers
unfamiliar with the internet may be more likely to discontinue our services
after an initial trial period.
Rapid Technological Change in Software and Internet and the Evolving Industry
Standards on Software Development in the Interactive Gaming Industry may Make
Our Product Obsolete
Any failure on our part 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 permit our
competitors to gain an advantage if they are successful in their efforts. Our
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, we may have to develop new software or modify our
existing software. Our pursuit of these technological advances may require
substantial time and expense, and there can be no assurance that we will succeed
in adapting our internet access business to alternate access methods.
Our Potential Customers Require Access to Telecommunications Carriers and Other
Suppliers for Their Service Delivery
We are not sure that our customers will be able to obtain
telecommunications services on the scale and within the time frame required by
them to benefit from our products and services, on acceptable terms or at all.
Our 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, our customers have experienced difficulties and delays
in receiving telecommunications services.
Fast Growth May Cause Problems with Control and Production
We are not sure that we will be able to manage our growth effectively,
or that our facilities, systems, procedures or controls will be adequate to
support these operations. Our inability to manage growth effectively could have
a bad effect on us by limiting our ability to service our customers and to
market our products and services. We have experienced a substantial growth in
the number of our employees (5 to over 30) and our business operations. This
growth has placed,
8
<PAGE>
and may to continue to place, significant strain on our managerial, operational,
financial and other resources. We believe that our performance and success will
depend in part on our ability to manage growth effectively. This, in turn, will
require ongoing improvement of our operations. We have expanded our Board of
Directors to include additional business experienced people.
We will Depend on Key Personnel to Control Our Business and Our Business May
Suffer if They are Not Retained
We are not sure that we will be able to retain our employees or to
identify or rehire additional people. The need for people is particularly
important in light of the anticipated demands of future growth and the
competition of the interactive gaming industry. Our inability to attract, hire
or retain good people could have a bad effect on us. We are highly dependent on
our key employees, including technical, sales, marketing, information systems,
financial and executive personnel due to our new products and the new markets
and new sales people we have recently hired. Therefore, our success depends upon
our ability to train and retain these people and to identify, hire and retain
additional people as the need arises. Competition for these people, particularly
persons having technical expertise in the internet casino business is
substantial.
We also are highly dependent on the continued services of our senior
management team, which currently is composed of a small number of individuals.
While executive officers and key employees have employment agreements with us,
agreements are of limited time and are subject to ending under circumstances.
Government Regulation of Our Gaming Related Business May Limit or Make Our
Industry Illegal
The legality of gaming on the internet is uncertain at this time. We do not
operate virtual casinos or internet sports books. However, sales of our 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 we focus sales
and marketing efforts in places that allow private network and interactive
gaming which include Australian, Caribbean, African and American gaming markets,
we are not sure 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 hurt our business will not be expanded or
imposed.
Possible Lack of Protection of Our Proprietary Rights; Risk of Infringement on
Others' Rights May Mean We Cannot Sell Our Products
We believe that our success depends in part on our software and our
continuing right to sell software. We rely on a combination of copyright,
trademark and trade secret laws and contractual restrictions to establish and
protect our software. We do not know if these protections will be sufficient to
prevent misappropriation of our software and other proprietary property or that
our competitors will not independently develop software that is substantially
equivalent or superior to our software. Without substantial protection of our
software, we will have nothing of value to sell to licensed casino operators.
Also due to the fact that this is a new and rapidly changing business,
we can not assure that others will not assert that our services or its users'
content infringe their proprietary rights in similar casino software. We can not
assure that infringement claims will not be asserted against us in the
9
<PAGE>
future. Such claims could result in substantial costs and diversion of
resources, even if ultimately decided in favor of us, and could have a bad
effect on us, particularly if judgments on claims were against us. In the event
a claim is asserted alleging that we have infringed the intellectual property or
information of someone else, we may be required to seek licenses to continue to
use intellectual property. We are not sure, however, that 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 bad effect on
us.
Certain Anti-Takeover Provisions Prevent Changes in Management
Certain provisions of our Amended and Restated Certificate of
Incorporation and Bylaws and of the Delaware General Corporation Law could delay
or impede the removal of incumbent directors, make more difficult a merger,
tender offer or proxy contest involving our company, and could discourage you or
others from attempting to acquire control of our company, even if events would
be beneficial to the interests of some or all of our stockholders. We currently
have 100,000,000 shares of common stock authorized and only approximately
12,000,000 shares are currently outstanding. We 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 Board of
Directors is authorized to provide for the issuance of shares of Preferred stock
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 series, subject to the consent of the
existing holders of Preferred stock in instances. We have no current plans to
issue any Preferred stock. We are also subject to the provisions of Section 203
of the Delaware General 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
conditions are met.
We Have Volatility in Our Stock Price
Our operating results, cash flows and liquidity may fluctuate
significantly over time. Our revenues depend on our ability to attract and
retain customers. We generally offer our new customers a money-back guarantee
pro-rated over the unused duration of the service term and customers to our
services have the option of discontinuing their service for any reason. Our
expense levels are based in part on our expectations of future revenues. To the
extent that revenues are below expectations, we may be unable or unwilling to
reduce expenses proportionately, and operating results, cash flows and liquidity
therefore could be worse than expected. Due to the foregoing factors, it is
likely that, from time to time in the future, our 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
bad effect on the market price of the common stock.
Prior to this offering, there has been a limited public market for the
common stock trading on electronic bulletin board. We are not sure 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.
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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 as variations in our
interim financial results, comments by securities analysts, announcements of
technological innovations or new products by us or its competitors, changing
market conditions in the industry (including changing demand for internet
access) changing government regulations, developments concerning our proprietary
rights or litigation, many of which are beyond our control, may have a bad
effect on the market price of the common stock.
Shares Eligible for Future Sale Could Depress the Price of Our Shares
Sales of a substantial number of shares of common stock in the public
market following this offering, or the perception that sales could occur, could
make the market price of the common stock prevailing from time to time go down
and could impair our future ability to raise capital through a sale of our
stock. Upon completion of this registration, there will be 12,130,307 shares of
common stock outstanding, 5,512,641 of which will be freely tradable without
restriction.
We Will Not Pay a Cash Dividend in the Near Future
We have never declared or paid any cash dividends on its capital stock
and do not anticipate paying cash dividends in the foreseeable future.
Control by Officers, Directors and Existing Shareholders Prevents Changes in
Management
Currently, the directors as a group and specifically Mr. Iamunno and
Mr. Hoskin and two trusts have the right to vote a majority of the outstanding
shares of common stock. This small group will control the operations of our
company and make it very hard to elect other management for us. As a result, the
present officers, directors and shareholders will continue to control our
operations, 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 important matters.
We have Risks From Our International Operations From Currency Restrictions
We do a substantial amount of our business in countries other than the
United States. Although we require all payments in United States Dollars, due to
fluctuations in other countries' currency, our customers may be required to pay
additional amounts to us to adjust for currency fluctuations making the sales
price of our products much more expensive. Our competitors may accept payment in
the local currency and create an advantage in the sale of their products. 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 us to foreign
currency that may fluctuate in value in relation to the United States Dollar
keeping sales proceeds in the country of sale instead of in our bank account in
the United States. We currently have not experienced any difficulty and have no
plans to protect against risks.
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We Provide Indemnification of Officers and Directors and It May be Difficult to
Sue Them
The Delaware Statutes permit a corporation to indemnify 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 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. Our Bylaws provide that we shall indemnify our officers and
directors to the extent permitted by the Delaware law and thereby limit the
actions that may be taken by you against the officers and directors.
The Shaar Fund Has the Right to Acquire 500,000 Shares of Common Stock at a 78%
Discount Below Market Price and The Shaar Fund Could Sell its Stock at a Lower
Price Than Others
The Shaar Fund has the right to require us to issue $1,500,000 worth of
our Convertible Preferred Stock if The Shaar Fund pays us $1,500,000. After we
issue The Shaar Fund the Convertible Preferred Stock, The Shaar Fund would have
the right to convert the Convertible Preferred Stock into common stock at an
amount equal to 78% of the market price. Based on the market price of our stock
on March 31, 1999, The Shaar Fund could receive 500,000 shares of our common
stock at a price which is 78% below the market price. Since the conversion rate
is a floating rate, the Shaar Fund will always have the right to convert to
common stock at a 78% discount to the market price and as the market price
decreases, The Shaar Fund would receive more shares of common stock when it
converts. For example, if 78% of the market price were to decline to $2.00 per
share, then The Shaar Fund would receive 750,000 shares of common stock. Since
it is unknown if The Shaar Fund will advance any more funds to us or if it does
then it is impossible to predict at what market price it would convert to common
stock, we are unable to disclose the amount of common stock that The Shaar Fund
could eventually own.
Depending on the total number of shares that The Shaar Fund may
receive, if The Shaar Fund were to sell those shares, it could depress the price
for our stock. Since The Shaar Fund may receive its stock at a 78% discount to
the market price, The Shaar Fund may be more willing to sell its shares. In
addition, the more shares that the Shaar Fund sells, our stock price may go
lower and then the Shaar Fund could convert its Convertible Preferred Stock for
more shares of our common stock. This could lead to significant pressure to
depress the stock price and others may want to sell their common stock based on
their belief that The Shaar Fund will sell its stock.
The lower the market price at the time The Shaar Fund may convert any
Convertible Preferred Stock that it may acquire in the future, the more shares
of common stock The Shaar Fund would acquire and our other stockholders would
have their interest in us diluted. This could substantially reduce the value of
their ownership in us.
In the event The Shaar Fund would exercise its right to advance an
additional $1,500,000.00 and The Shaar Fund converted their interest at our
stock price on May 24, 1999 the following table shows the amount of our common
stock they would own from the conversion:
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Amount of Convertible Preferred Stock Price Number of Common Shares
$1,500,000 $3.00 500,000
We Make Estimates of Our Future In 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 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 our expectations with respect to the future operations, performance or
position. These forward-looking statements are predictions. We cannot assure you
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
our business, which, although considered reasonable by us, may not be realized.
Because of the number and range of the assumptions underlying our
forward-looking statements, many of which are subject to significant
uncertainties and contingencies beyond our reasonable control, 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
we assume no obligation to update. Therefore, our actual experience 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 us or
any other person that these estimates will be realized, and actual results may
vary materially. We can not assure 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
We will not receive any of the proceeds from the sale of shares by the selling
stockholders.
Price Range Of Common Stock
Since November, 1996, our common stock has traded on the electric
bulletin board under the trading symbol AIEE. The following table sets forth the
average range of bid and ask quotations for our common stock as reported by the
electronic bulletin board for each full quarterly period within the two most
recent fiscal years and subsequent interim periods.
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
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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 June 30,1998 $4.125 $3.625
3rd September 30, 1998 $4.375 $3.875
4th December 31, 1998 $1.968 $1.625
FISCAL YEAR ENDING DECEMBER 31, 1999
BY QUARTER COMMON STOCK
QUARTER DATE HIGH LOW
1st March 31, 1999 $3.00 $1.18
2nd through June 10, 1999 $3.00 $2.375
Trading transactions in our securities occur in the over-the-counter
electronic bulletin board market. All prices indicated herein are as reported to
us by broker-dealer(s) making a market in our securities. The quotes indicated
above reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
As of December 31, 1998, there were approximately 827 Holders of record
of our common stock, including brokerage firms, clearinghouses, and/or
depository firms holding our securities for their respective clients. The exact
number of beneficial owners of our securities is not known.
Dividend Policy
We have never declared or paid any cash dividends on our stock and do
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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
During 1998, we focused its business efforts in Interactive Gaming &
Wagering. 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
whereby we has entered into 18 license agreements. We expects to expand its
account base with its existing product line for the foreseeable future.
OUTLOOK
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
NET REVENUES. The Company's revenues decreased approximately 97% in
1999 over the same period in 1998. Revenues from operations in the first quarter
1999 were $ 29,000, as compared with $ 1,030,540 for the same period in 1998.
The decrease in revenues was the result of the enhancement and upgrading of its
product. The Company stopped promotion of the old version and did not allocate
large resources to sales and marketing. The Company intends to allocate large
resources to sales and marketing for its upgraded product in 1999 and expects
revenues to substantially increase.
COST OF REVENUES. Cost of revenues increased 47% in 1999 over the same
period in 1998. The increase resulted from the increase in amortization of
capitalized software development costs, which is reflected in cost of revenues.
The Company expects amortization of development costs to be consistent going
forward.
OPERATING EXPENSES. Operating expenses increased by 208% or $ 746,127
in the first quarter 1999 over the same period in 1998. The increase was largely
due to global expansion efforts, expenses related to product development and
increased support staffing.
PROVISION FOR DOUBTFUL ACCOUNTS. Provision for doubtful accounts in the
first quarter 1999 were $ 325,335 as compared with $ 99,153 for the same period
in 1998. The increase resulted from management taking a conservative approach in
recording its provision for doubtful accounts. The Company currently expects
that the provision for doubtful accounts will not increase at the same rate
going forward.
OTHER INCOME. Other income increased by approximately $1,400,000 in
1999 over the same period in 1998. A gain on sale of $1,256,743 resulted from a
percentage interest sold of the Company's wholly owned subsidiary. A $170,000
gain was recognized in a full and final settlement of a payable.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities, which consist
primarily of high risk, priced securities totaled $3,384,029 at March 31, 1999
compared to $8,100 at March 31, 1998. The increase in cash, cash equivalents and
marketable securities was due primarily to cash proceeds from the sale of Common
Stock ($4,000,000) pursuant to Registration Statement S-8, exchange of the
Company's shares to an Australian listed Company for shares of the Australian
company in a one for ten stock swap resulting in ($3,351,000) proceeds and
issuance of Common Stock of a public traded company (Purchaser) in lieu of
certain assets sold to the purchaser ($2,137,000).
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ATLANTIC INTERNATIONAL ENTERTAIMENT, LTD. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS RECENT DEVELOPMENTS
LIQUIDITY AND CAPITAL RESOURCES - Continued
The increase was offset by cash used for operations, a $2,000,000
debenture note issued by a foreign corporation and $1,200,000 for the purchase
of treasury stock relating to the company's stock buy back plan. Management
believes that existing cash, cash equivalents, marketable securities and
anticipated cash generated from operations will be sufficient to satisfy the
Company's currently anticipated cash requirements.
YEAR ENDED DECEMBER 31, 1998 AND 1997
RESULTS OF OPERATIONS
Our net loss for 1998 was ($1,332,400)compared to net income of
$1,067,793 for 1997. The substantial decrease was due to several factors. Net
revenues for us for 1998 compared to 1997 decreased by 39% or $1,564,811. The
decrease in revenues was the result of the development of the new product
version. We stopped promotion of the old version and did not allocate large
resources to sales and marketing. We intends to allocate large resources to
sales and marketing for 1999 and expects revenues to substantially increase.
Cost of sales and operating expenses increased by 69% or $1,343,928 in
1998 compared with 1997. The increase was largely due to global expansion
efforts, expenses related to product development, increased support staffing and
amortization of capitalized product development. Cost of revenues is not
directly related to revenues. Provision for doubtful accounts increased by 261%
or $1,037,936 in 1998 compared to 1997. The increase resulted from a major
customer forced to cease operations due to non-industry and software related
matters and management taking a conservative approach in recording its provision
for doubtful accounts. We currently expects that the provision for doubtful
accounts will not increase at the same rate going forward.
The Internet access and services segments net loss for 1998 was
$371,448 (1997 - $165,458). This discontinued operation will not have a material
impact on the results of operations for the future.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998 we had working capital of $4,667,465 compared with
$447,813 at December 31, 1997. The increase on working capital was primarily due
to cash proceeds from the sale of common stock for $2,300,000 pursuant to
registration statement S8, sale of common stock of a foreign public traded
company in a proposed takeover of the foreign company for $3,486,139 and
issuance of 10,000 shares of convertible preferred stock for approximately
$900,000. The increase was offset by negative cash flow from operating
activities of approximately $745,000 for 1998, capital expenditures of
$1,241,840 for property and equipment necessary for the Internet and private
network development and purchase of treasury stock for $278,697.
Management believes that existing cash, cash equivalents and marketable
securities will be sufficient to satisfy our currently anticipated cash
requirements.
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The Year 2000 Computer Problem May Cause a Disruption in Our Computers
We have fully investigated the application of any Year 2000 disruptions
or complications in the operation of our business or in the operation of any of
our services or products. Because we developed our products recently, we were
aware of the Year 2000 possible problems and designed our products to avoid
disruption. However, to the extent that our business and the business of our
customers depends on the use of electricity and telephone lines, we are unable
to measure the uncertainties with these resources and do not have the resources
to supply alternative supplies. In the event of a stoppage of either electrical
service or telephone service, our business would completely stop and we would be
forced to stop operating shortly after disruptions.
Inflation
In our opinion, inflation has not had an effect on our results of
operations.
Our Business
Overview
We develop and market interactive products and services in the
entertainment and information technology fields. We were 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. After we changed our name to The CEEE Group, we then sought
new business opportunities as a development stage entity.
In 1973 we changed our name to Cine-Chrome Laboratories, Inc. and
operated a film-processing lab in California. From 1984 until June 1994, we did
not conduct any operations, transactions or business activities. In June 1994,
we 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, we have
concentrated our 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, we had no operations other than searching for a
business combination. In July 1996, we consummated a share exchange pursuant to
an Exchange of Stock Agreement and Plan of Reorganization with Atlantic
International Capital Ltd., a Delaware corporation and the former stockholders
of Atlantic Capital. As a result, the business of Atlantic Capital became our
business.
On November 22, 1996, we merged with and into a wholly-owned Delaware
subsidiary, Atlantic International Entertainment, Ltd. We, among other things:
o changed our state of incorporation to Delaware
o increased our 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");
o performed a 1 for 3 share exchange.
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We acquired the major assets of RAM Associates, Inc. in 1996. The RAM
assets we acquired included
o COMMUNITY CASINO
o REALSPORTS(TM)
These products formed a part of the foundation of our current gaming software
products. Other products acquired from RAM included
o HOTEL HOTLINKS(TM)
o CLUB INTERACTIVE.
We have significantly improved and expanded this software and the software
products developed by AM. We continue to perform substantial development efforts
to adapt to current technological advances.
In March 1997, we acquired the internet service provider and developer The
EmiNet Domain, Inc. Through the EmiNet Domain, Inc. we based our interactive
non-gaming wagering products and services. The EmiNet Domain, Inc. offers:
o dial-up internet business
o web hosting
o development services to commercial markets.
PRODUCTS AND SERVICES
INTERACTIVE GAMING, WAGERING, CHARITABLE AND FUND RAISING PRODUCTS
INTERACTIVE CASINO EXTENSION(TM)
Our flagship product is ICE (Interactive Casino Extension). In
September of 1998, we introduced Version 2.0 which is based on industry standard
Microsoft(R) and Macromedia(R) tools. This version included a more robust
database and accounting back office, the support for junketeers, and four games
which utilized the Microsoft crypto-API random number generator. In December of
1998, Version 2.1 was shipped which included three new games: Sic-Bo (a popular
Asian game), Baccarat, and Video Keno. Additionally, the ability to download the
Casino graphics to the player's computer was introduced. In March of 1999,
Version 2.2 will be available and will include: Scratch-Off lottery cards,
increased voice, a new roulette wheel design, and the ability to download a game
at a time beside the earlier ability to download the entire Casino graphics.
The pricing for ICE(TM) allows the operator to receive new games for
this product with no additional fee. The fee includes graphic customization of
the Lobby, Game Lobbies, card backs and coins. There is a monthly maintenance
fee, that entitles the operator to worldwide customer service twenty four (24)
hours per day, seven days per week. This includes maintenance updates and a 30
day warranty period. Potential purchasers have a buy-out, option. New games are
made available for a fee depending on the cost of developing the game and the
potential increased revenues to the operator. The maintenance fee is still
required for maintenance updates as long as the release is supported. A third
option was requested several times which consisted of the back office purchase
and games purchased individually. This option also requires a monthly
maintenance fee for support and maintenance updates for the games they
purchased. Hardware costs are excluded from the our fees.
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WEBSPORTS(TM)
We license webSports to licensed bookmakers. In March 1998, we released
Version 1.5 and Version 1.6 in the Fall. The release included support for
baseball and the introduction of Tax reporting, to support Australia and South
Africa, along with support for Australian Regulators. We are currently
developing Version 2.0 of webSports, which will be integrated into the ICE
accounting and database back office, taking advantage of the development
completed last year and running in the field since August of 1998. Version 2.0
will be introduced with a focus on International Sports Wagering, supporting
such sports as: Cricket, Rugby, Golf, Football and others. The taxation and
regulator items will be included. The product is targeted for July 1999, in time
to have all customers ready for the American Football season.
WebSports is priced allowing the operator to receive all new Sports and
enhancements to the product, including a customized Lobby. A monthly maintenance
fee is required which provides for twenty four (24) hours per day seven days a
week worldwide support, maintenance updates and a 30-day warranty period. As an
alternative, a purchase price is available and new sports will be made available
for a fee depending on the potential revenue for the client. The monthly
maintenance fee is required for support and maintenance as long as the release
is supported. Hardware costs are excluded from the fees.
BINGO BLAST(TM)
In the late fall of 1998, we entered into an agreement with Cybergames
Inc. (CYGA:OTC) where jointly they would provide a fund raising game for the
First Lady of Costa Rica. The site will be called "Bingo of the Americas" and
will provide the U.S Red Cross, and the American Cancer Society, with revenues.
This agreement prompted the development of Bingo Blast which will be released
and developed to the retail market in the second quarter of 1999. Bingo Blast is
a multi-player, pari-mutuel progressive prize game. The design is based on the
ICE platform, lowering development time and cost. Game play is intended to
simulate the actual experience in a Bingo Hall. Each game has a minimum prize
that is increased based on the number of cards purchased and has a progressive
prize that increases until a player calls Bingo in a certain number of balls
called. There are thirty (30) different Bingo patterns, customizable graphics
and one of the first WE products to introduce rules and customer information in
Spanish and English.
Bingo Blast is priced similar to the ICE(TM)product. A monthly
maintenance fee is required which provides for twenty four (24) hours per day
seven days a week worldwide support, maintenance updates and a 30-day warranty
period. Hardware is not included in the price.
LOTTO MAGIC(TM)
Lotto Magic was designed and started into development in January 1999.
The product utilizes the ICE database, accounting back office and the standard
Microsoft tools and crypto-API. The product consists of Lotto whereby a player
selects six numbers from a field of 49 or can select Auto Pick. The dates and
times of drawings are posted on the site. Sales are divided into 4 configurable
pools: those who match all 6 numbers, those who match 5 numbers, those who match
4 numbers. The numbers can be entered after a live drawing, or can be randomly
generated. The
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product also includes three Instant Scratch Games: Wheel of fortune (a key
number game); High Card (a high score game); and Match 3 (a three of six money
match game). These instant Lottery scratch game tickets are created from a
configurable size pool. Lotto Magic will be available in April and is already
incurring a lot of interest. This product is the first that WE will introduce
that provides help and rules in Spanish and English.
Lotto Magic is priced consistent with our other products. Support is
required and is priced at $1500 per month for new games and enhancements, and a
30-day warranty period. Hardware is not included in the price.
For all our products, we provide support for credit card processing
through processing vendors such as: Secure Bank, E-Payment Solutions,
Cybersource(R)and Barclays. We also offer custom programming for a fee.
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. We estimate 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 alone has
grown from roughly zero to over 3,000. Management attributes the influx of ISP's
to several factors which include
o an increasing demand for connection to the internet
o the internet offers significant marketing opportunities for a
variety of products and services
o providing internet connections requires minimum expertise and
start-up costs
The interactive gaming and wagering marketplace has become the next
step in the gaming industry. Revenues from the worldwide gaming market exceeds
$50,000,000,000. We estimate that gaming revenues derived from just internet
gaming revenues will exceed $8,000,000,000 by the year 2000. The integrated
interactive gaming and 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 and wagering
products to it's player base.
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GROWTH STRATEGY
Our current plan of operations is to expand its current worldwide
account base by offering a complete interactive gaming & wagering product line.
We will also seek to expand upon current information technology products and
services in the form of international acquisition or mergers into existing
operations. Achieving market acceptance for our services and products will
require substantial marketing efforts and the expenditure of significant funds
to create awareness and demand.
MARKETING
Our marketing department has grown to seven employees in the last year.
The focus is to market to established casino operators, licensed sportsbook and
the cruise line industry. We initially sold in the Caribbean basin 1998; at
present we have expanded the focus to South America, Australia, Europe and the
Asian-African markets.
A Director of Lotteries was hired in the fourth quarter of 1998 to
focus on the lottery, charity and fund raising sectors. Effective March 31, 1999
a Vice President of Marketing and Sales will be added to the management team.
TRADEMARKS AND PATENTS
We currently provide the market place with four products, all under
names that are trade marked: Bingo Blast(TM), Interactive Casino Extensions
(TM), Lotto Magic(TM) and webSports (TM). All software contains copyright
notices identifying the year and confidentiality. We are in the process of
submitting 10 disclosures for patents covering the game engines, money
management and back office architectures and functions.
COMPETITION
All of the major companies operate as service bureaus installing and
running the gaming products on their own servers and charging substantial
service bureau fees of upwards to 40%.
We sell our product to owners and expect them to own and run their
business. We take a minimal royalty and provide all new games and enhancements
at no additional fee. We also focus our marketing efforts on established gaming
entities such as cruise ships, licensed book makers, respected charitable
organizations and land based casinos. We sell the ability to expand and retain a
current customer base.
Service is provided twenty four hours per day, seven days per week
along with the ability to remotely diagnose and fix all problems and provide
upgrades. A standard business practice is on-site installation and a full week
of training of all personnel at no additional fee.
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EMPLOYEES
As of May 24, 1999, we had thirty one (31) full-time employees in the
Boca Raton, Florida office. We may also employ full-time and part-time
consultants on an as-needed basis. We consider our relationship with our
employees to be satisfactory.
RECENT DEVELOPMENTS
On April 3, 1998, we entered into a Securities Purchase Agreement with
The Shaar Fund, an Israeli venture fund, for the sale of 5,000 shares of the
Convertible Preferred stock for $500,000. The Agreement also grants the
purchaser the right to purchase up to an additional $2,500,000.00 in Convertible
Preferred stock, at the same price as the initial 5,000 shares, of Convertible
Preferred stock by April 2, 2000. The Convertible Preferred stock is convertible
into our common stock at The Shaar Fund's option. When the Securities Purchase
Agreement was signed, we entered into an agreement with The Shaar Fund to
register all of the shares of the purchased securities and the common stock that
may be issued upon the exercise of the The Shaar Fund's conversion rights. We
filed a registration statement with the Securities and Exchange Commission for
the registration of the shares of the Convertible Preferred stock and the shares
of common stock issuable upon exercise of The Shaar Fund's conversion rights.
The registration statement became effective and we will maintain the
effectiveness of registration statement for the term of the above Agreement.
On April 30, 1998, Hosken Consolidated Investments, Ltd., a South
African corporation, purchased 1,250,000 shares of our common stock at $3.20 per
share. We issued the shares to Hosken Consolidated Industries to fund operations
in South Africa and to obtain additional working capital.
On June 2, 1998 The Shaar Fund advanced $500,000 of the additional
$2,500,000 and received an additional 5,000 shares of Convertible Preferred
stock pursuant to the above agreement. The parties also amended the above
agreement to eliminate the floor amount of $1.50 for the conversion price.
On August 24, 1998, our wholly-owned subsidiary, AIE, Australia, Ltd.
("AIE") submitted an offer for the acquisition of the stock of an Australian
listed company, Coms21. We offered Coms21 shareholders the equivalent of $.70
AUD per share in the form of our U.S. shares. We eventually accepted
approximately 12,000,000 shares of Coms21, or approximately 10% of Coms21, in
exchange for approximately 1,200,000 shares of our common stock and thereafter
withdrew our offer for the rest of the Coms21 stock.
On February 18, 1999 - we announced its intention to make an
application to the Australian Stock Exchange, ("ASX"). AIE wishes to provide a
market in Australia for AIE Shares, particularly for the convenience of its
approximately 500 Australian resident shareholders. AIE has had preliminary
discussions with representatives from ASX and believes it satisfies the ASX
requirements regarding net tangible assets and spread of shareholders. Prior to
listing on ASX, AIE will need to ensure, among other things, that:
o Its constituent documents are consistent with the listing rules of ASX
and, as far as possible, with the Law;
o Its financial information is in accordance with standards acceptable to
ASX;
o Its clearing and settlement procedures are appropriate.
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To help facilitate a timely listing, AIE has engaged the Brisbane based
law firm, McCullough Robertson and the Brisbane offices of Macquarie Nevitts
Stock Brokers.
On March 11, 1999 we entered into an agreement to sell our wholly owned
subsidiary, The Eminet Domain, Inc. to Centerline Associates, Inc. The agreement
called for the sale of 81% of its interest in the Eminet Domain, Inc. for
$2,500,000, payable $100,000 in cash and $2,400,000 promissory note payable two
years from closing. The closing date of the transaction was March 31, 1999.
MEDICAL PRODUCTS
In February 1998, we entered into an agreement with ELG Health
Management Services, an independent company based in South Florida to market the
Atlantic International Medical products & services. ELG Health Management
Services will be the sole marketer of the Atlantic International Medical
products. ELG will provide us with 40% of the net profits from the sale and
distribution of medical products. Currently, we have received no significant
revenue from ELG.
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
We lease approximately 5,150 square feet of office space in Boca Raton,
Florida expiring on September 30, 2002 with a monthly rent of approximately
$9,100. We believe that our existing facilities are adequate for our current
needs and that additional facilities in its service area are available to meet
future needs.
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Management
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their positions with us are
set forth below.
NAME AGE POSITION
---- --- --------
Norman J. Hoskin 64 Chairman of the Board,
Secretary and Treasurer
Richard A. Iamunno 41 President, Chief Executive
Officer, Principal Financial
Officer and Director
Martin V. McCarthy 42 Director
Jeffrey L. Hurwitz 42 Director
Marcel Golding 38 Director
Dr. Leonard Haimes 70 Director
Peter Lawson 51 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 our business, 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.
MARTIN V. MCCARTHY was appointed a Director in March of 1998. Mr.
McCarthy was the President and CEO of IDD Enterprises, L.P. We 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
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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 in March of 1998. Mr.
Hurwitz had been the Managing Director of South African based Clinic Holdings
since 1987. While at Clinic Holdings, it grew to 26 Hospitals with annual
turnover of over $370,000,000. In November 1997 Mr. Hurwitz left Clinic Holdings
under the terms of Agreement of Sale. 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.
MARCEL GOLDING was appointed a Director in August of 1998. Mr. Golding
is Chairman of Hosken Consolidated Investments (HCI) and Softline Holdings, as
well as being a Director of JCI and Global Capital, which are all listed
companies on the Johannesburg stock Exchange. In addition, he was the founding
chairman of the Mineworkers Investment Company (linked to the National Union of
Mineworkers), one of the two pioneering trade union investment companies in
South Africa. He was elected the first Deputy General Secretary of the union in
1987 at the age of 26, and was re-elected on three additional occasions to this
post of the Country's largest trade union. From 1994 to 1997 he served as a
Member of Parliament, where he chaired the Minerals and Energy Committee and the
Audited Commission, the oversight committee of the office of the
Auditor-General. Mr. Golding holds a post graduate degree from the University of
Cape Town.
DR. LEONARD HAIMES was appointed Director in October of 1997. Since
1985, 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.
PETER H. LAWSON is currently a Director of an Australian Stockbroking
House. Prior to this appointment he worked in the Banking and Finance Industry
for over 15 years. The last 10 years was spent with Barclays Bank in Australia
where he held various senior management positions. First as Branch Manager in
Townsville with a staff of 15 and then a state manager in South Australia with a
staff of 25. In 1994 he was elected to be Executive in Resident in the commerce
faculty at the University of Queensland in Australia, where he lectured and held
seminars for pre and post graduate students. His expertise is in the area of
Corporate Advice, mergers, acquisitions, initial public offerings and equity
raisings, especially in the small company sector. He has worked with, and
advised, many small companies from start up situations to more the mature over
the past 13 years. He has extensive experience in the Australian Equity Markets,
with connections within the brokerage community as well as the institutional
market. During that time he was also a director of two publicly listed
Australian companies. He is currently a director of the Australian subsidiary of
Atlantic and has advised us for the past two years. Mr. Lawson holds a degree in
commerce from Queensland University in Australia and is a Certified Practicing
Accountant and holds postgraduate qualified in finance from the Securities
Institute in Australia.
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EXECUTIVE COMPENSATION
The following table sets forth the total compensation for our executive officers
during the year ended December 31, 1998, 1997 and 1996. No other executive
officer's salary and bonus exceeded $100,000 for services performed for us
during years.
SUMMARY COMPENSATION TABLE
NAME AND YEAR SALARY($) BONUS($)
PRINCIPAL POSITION
Richard A. Iamunno 1998 $ 144,000 -0-
President and Chief 1997 $ 91,000 -0-
Executive Officer -0-
Norman J. Hoskin 1998 $ 144,000 -0-
Chairman of the Board 1997 $ 91,000 -0-
The columns for "Other Annual Compensation" and "Long-term
Compensation" have been omitted as there is no compensation required to
be reported in 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.
BOARD OF DIRECTORS COMPENSATION
We do pay directors who are also executive officers for service on the
Board of Directors. Directors receive $1,500 per meeting and are reimbursed for
their expenses incurred in attending meetings of the Board of Directors.
LONG-TERM INCENTIVE AND PENSION PLANS
We do not have any long-term incentive or defined benefit pension
plans.
OTHER
No director or executive officer is involved in any material legal
proceeding in which he is suing us or he will receive a benefit from the legal
proceedings.
EMPLOYMENT AGREEMENTS
We currently have employment agreements with Messrs. Iamunno & Hoskin.
They will continue to serve as our President and Chief Executive Officer,
Chairman of the Board, Secretary and Treasurer respectively. It is anticipated
that as compensation for their services, we will pay Messrs.
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Iamunno and Hoskin base salaries of $144,000 each per annum, respectively which
shall be subject to annual increases of 10%. The agreements will continue for
three years and will expire in the year 2000. Other than the aforementioned
agreements, we have not entered into any other employment agreement with any of
its officers, directors or any other persons and no agreements are anticipated
in the immediate future.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Charter and Bylaws provide that we shall indemnify all directors
and officers to the full extent permitted by the Delaware Corporation Law. Under
provisions, any director or officer who, in person's capacity as , is made or
threatened to be made a party to any suit or proceeding, may be indemnified if
the Board determines director or officer acted in good faith and in a manner
director reasonably believed to be in or not opposed to our best interest. The
Charter, Bylaws, and the Delaware Corporation Law further provide that
indemnification is not exclusive of any other rights to which individuals may be
entitled under the Charter, the Bylaws, any agreement, any vote of stockholders
or disinterested directors, or otherwise.
We have power to purchase and maintain insurance on behalf of any
person who is or was our director, officer, employee, or agent, or is or was
serving at our request 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 person in any capacity or arising out of
his status as , whether or not we would have the power to indemnify person
against liability under Delaware law.
Security Ownership Of Certain Beneficial Owners And Management
The following table sets forth, as of May 24, 1999, information
regarding the beneficial ownership of our common stock by each person we know to
own five 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 May 24, 1999,
there were outstanding 12,273,587 shares of our common stock.
o 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.
o Unless otherwise indicated, all addresses are at our office at 200 East
Palmetto Park Rd., Suite 200, Boca Raton, Florida 33432.
Name and Address of Beneficial Owner Amount of
Beneficial Percent of
Ownership Class
Norman J. Hoskin 1,111,935 8.68%
Richard A. Iamunno 1,133,270 8.85%
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Marcel Golding 1,250,000 9.76%
Martin V. McCarthy 125,000 0.98%
Jeffrey L. Hurwitz N/A
Dr. Leonard Haimes 8,333 0.06%
The AWIXA Trust 514,536 4.01.0%
C/o Mello, Hollis, Jones & Martin
31 Church Street
Hamilton, Bermuda
The Kunni Lemmel Trust 686,868 5.36%
C/o Mello, Hollis, Jones & Martin
31 Church Street
Hamilton, Bermuda
All Officers and Directors as a Group 4,829,942 37.70%
(5 persons)
Description Of Capital Stock
We have 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 May 24, 1999, 12,130,307 shares of common stock were
outstanding, held of record by 827 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 our Preferred stock, the holders of common stock are
entitled to dividends as may be declared from time to time by the Board from
funds available for distribution to holders. No holder of common stock has any
preemptive right to subscribe to any securities of ours 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 will be, duly authorized,
validly issued, fully paid and nonassessable.
Convertible Preferred Stock
The Shaar Fund was the sole holder of shares of our Convertible
Preferred stock. The Shaar Fund had purchased a total of $1,000,000 of the
Preferred stock and has an option to
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purchase another $1,500,000. There are no shares of Convertible Preferred stock
currently outstanding since The Shaar Fund has converted all of its shares of
the Convertible Preferred stock. The Shaar Fund has the right to convert the
Convertible Preferred stock for the common stock based on a formula which
roughly equates to 78% of the trading price for our common stock on an average
of several business days. The holder of the Convertible Preferred stock has the
right to require registration of the common stock into which the Convertible
Preferred stock may be converted.
Other Preferred stock
We 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 series, subject to the
consent of the existing holders of Preferred stock in instances. The issuance of
Preferred stock could be used, under circumstances, as a method of preventing
our takeover 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 bad
effect on the rights of holders of the common stock, including loss of voting
control.
Registration Rights
Following this offering, no shareholders of our 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 our Charter and Bylaws and of Delaware Law
General
Our Charter and Bylaws contain provisions that could make difficult the
acquisition of control of us by means of a tender offer, open market purchases,
proxy fight or otherwise. These provisions may discourage types of coercive
takeover practices and inadequate takeover bids and encourage persons seeking to
acquire control of us first to negotiate with us. We believe that the benefits
of its potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to take over or restructure us outweigh the disadvantages
of discouraging proposals because, among other things, negotiation of proposals
could result in an improvement of their terms.
Our Certificate of Incorporation and By-laws contain provisions which
may deter, discourage, or make more difficult the assumption of control of us 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 our capital stock at the time. In
addition, these provisions may have the effect of assisting our current
management in retaining its
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<PAGE>
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 our
business.
Set forth below is a summary of provisions in the Charter and Bylaws.
Delaware General Corporation Law
We are subject to the provisions of Section 203 of the Delaware
Corporation Law. Section 203 provides, with 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 person who is an "interested stockholder"
for a period of three years from the date person became an interested
stockholder unless
o 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
o 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 employee stock plans) or
o on or after the date the 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 person is an interested stockholder.
Limitations on Directors' Liability
The Charter contains provisions to
o 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)
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 our directors,
officers and controlling persons, we has been advised that, in the opinion of
the Commission, indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. We believe that these
provisions are necessary to attract and retain qualified persons as directors
and officers.
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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 dismissed Buchbinder Tunick
& Company LLP as our independent accountants and on March 5, 1997 appointed
Moore Stephens, P.C. as our new independent accountants. Buchbinder Tunick &
Company LLP has not reported on any of our financial statements. Since, December
19, 1996 (the date on which Buchbinder was engaged as our independent
accountants), there were no disagreements between us 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.
Selling Stockholders
The selling stockholders either received their stock as part of the
exchange offer made by us to COMS21, Ltd. or as consideration for services
performed for us in introducing us to institutional investors.
The following table contains
o the number of shares of common stock beneficially owned by the selling
stockholders as of December 31, 1998
o the number of shares of common stock to be offered for resale by the
selling stockholders
o the number and percentage of shares of common stock to be beneficially
owned by the selling stockholders after completion of the offering.
The selling stockholders have not had a material relationship with us during the
past three years.
No. of Shares
of Common Stock
Beneficially Owned Percentage of Shares
Name and Offered beneficially owned
- --------------------------- ------------------- --------------------
Larry John Adler 5000 *
Mr Darren Wayne Allen 1820
Allied Ifs Pty Limited 6000
Allied Systems Pty Limited 6000
Amellen Pty Limited 10000
Mr Mario Amoroso 20000
Mr Ronald S Anderson 6000
Mr Phillip John Annett 2000
Anz Nominees Limited 27500
Mr David John Arney 6000
Ashdot Pty Limited 17000
Mr Michael Aurisch 10000
Austen Gains Consolidated
Pty Limited 11111
Austrust Limited 66364
Aviva Pty Ltd 5000
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Aymjay Pty Limited 29000
Bagden Pty Ltd 41000
Mrs Helen Bailey 4000
Mr Joe Bandiziol 4000
Mr Brian Joseph Barker 2000
Mr Trevor James Barker 3000
Mr Raymond Vincent Barlow 5000
Ms Jeanette B Barnes 30000
Barrington International Pty Ltd 8000
Mr Timothy Oliver Bayley &
Mrs Anita Mary Bayley 30000
Mr Hans Helmut Beier &
Mrs Kay Kakabok Beier 15000
Benefit Farm Pty Ltd 20000
Ms Carol Glen Bennetto 9000
Mrs Valerie Louise Bennetto 18000
Mr George Berry 5000
Mrs Diana Bienkiewicz 1200
Miss Christine Patricia Biggs 8300
Miss Jennifer Ann Biggs 26500
Miss Margot Jane Biggs 11500
Birapoint Pty Ltd 15000
Mr William Nicholas Blandford 1000
Mr Willi Boehm 90909
Dr Graham Ross Bonnette 1000
Mr Andrew Boorer 9000
Mr Christopher Booth 1500
Bow Lane Nominees Pty Ltd 837000
Mr Darryl Bowling 10000
Mrs Judith Dianne Bowling 10000
Mrs Wendy Leak Bradford 3300
Mr Nicholas Brinkley 1000
Mr Adam Brown 50000
Ms Bernice Olive Brown 4000
Mr Derek Brown 1000
Mr Gavin Buchanan 1000
Miss Gloria Carolyn Dawn Burn 5000
Mr Mervyn Leighton Harold 7000
Busmack Pty Limited 10000
Mrs Doris Butler 2000
Mr Troy Steve Butler 2000
Mr Terence Peter Buxton 550
Mr Desmond Andrew Byrne
& Mrs Gloria Blanche Byrne 11100
Mrs Dorothy Cairns 3500
Mr Sean Douglas Cairns 7270
Mr Edmund J N Callanan 3000
Mr Celeste Camillo 1000
Mr Per Ejner Carlsen 10000
Mrs Fay Dawn Carrick 30000
S J Casher 4400
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Mr Tony Raymond Castleman 89200
Mr Albert Cavallo &
Mrs Giulia Cavallo 3000
Celere Pty Limited 20000
Cglw Nominees Pty Ltd 5000
Chase Manhattan Nominees Limited 20000
Mr Ming Fat Chen 12000
Mrs Edna Chien 25000
Mr Barry James Christie 8000
Mrs Sok Ngy Chung 66000
Citicorp Nominees Pty Limited 112200
Mr John Cleave Clemow &
Mrs Lynn Roberta Clemow 4300
Mr Frank Coker & 1000
Mrs Annette Coleman 8000
Mr George Austin Colman 4000
Mr Nicholas Antony John Connor 10527
Mr Timothy Connor 10356
Mr Mauro Consalvi 10000
Mrs Jeanette Patricia Cooper 1950
Mrs Jennifer Cooper 1000
Ms Nadina Cooper 200
Coppertech Pty Ltd 72000
Mr Michael Wayne Cottier 2000
Mr Alan John Couch 2250
Mr Ian Crabb 2000
Mr Ian Maxwell Crabb 12500
Mr Thomas Macdonald Crabb 10000
Mr Noel Gregory Craske &
Ms Margaret Irene 10000
Cush Timbers Pty Ltd 85000
Mr Ian Cuthbertson 5000
Mr Ian Robert Cutmore 1052
Mr Brett Lionel Dale 4500
Data Channel Pty Limited 20000
Mr Neil Alan Davidson 2000
Mr Martin Davies 2000
Mr Allan George Davis 800
Mr Christopher Day 10000
Ms Pauline Ann Day 10000
Ms Hazel Claire Deane &
Mr Daine Deane & Ms Nicky Deane 11372
Mrs Annette Cecilia Debenham 8000
Mr Barry Allan De Crummere 4000
Moira Charlotte De Steiger 5000
Mr Mark Dixon 4000
Mr Raymond Doak &
Mrs Alysum Doak 6000
Mr Robert Irvin Doig 8000
Mr Ronald Munro Don 5000
Mr Kenneth Edward Dorrell 12000
Double Green Pty Ltd 40000
Drilling Investments Pty Ltd 29000
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<PAGE>
Drilling Investments Pty Ltd 160000
Mr Arthur Kent Duffield &
Mrs Marjorie Duffield 6000
Mr Warren Dunbar 5000
Mr Ronald Stanley Dupen
& Mrs Rondalyn Dupen 15000
Duskdell Pty Limited 20000
E & A Frino Pty Limited 10000
Mr Neville Frank East &
Mrs Pamela East 8000
Edenlee Pty Ltd 20000
Ms Christine Egan 5000
Mrs Sandra Joan Emery 10000
Fabemu No 2 Pty Limited 285000
Mr Tony Farrugia 4000
Ms Lauren Favretto 4000
Ms Nicole Favretto 4000
Mr Peter Favretto 4000
Mrs Elizabeth Anne Fielding 14700
Mr Melvin Legh Fisher 10000
Mrs Shirley Fladun 2108
Mr Richard Alan Florence 8300
Mr Michael Daniel Flynn &
Mrs Jann Maree Flynn 1000
Dr Geoffrey Hunter Ford 10000
Mr Dario Forner 4000
Fos Nominees Pty Limited 10900
Mr Russell France &
Mrs Julie Halsall France 2000
Mr Noel Wayne Franks &
Mrs Marian Joan Franks 40000
Ms Stella Rose Freund 9600
Mr Raymond Albert Fricker 1000
Mr Andrew Fryer 12500
F W Mitchell Pty Ltd 18000
Sir William Gage &
Lady Penelope Gage 30000
G C Black Nominees Pty Ltd 10000
G D Braybrook Pty Ltd 10000
Mr Lennard Edward Genoni 2000
Geoff Ward & Associates Pty Limited 10000
Mr Anthony Humphrey Germain &
Mrs Moya Soong Germain 60000
Mr Anthony Humphrey Germain &
Mrs Moya Soong Germain 70000
Mr Richard Mark Germain 300000
Giant Nominees Pty Ltd 25000
Mr Howard William Giles 1000
Gladewest Pty Limited 643891
Gladstone River Pty Ltd 40000
Miss Samantha Jane Glencross 12000
Golsan Pty Ltd 10000
Golsan Pty Ltd 10000
Mr Olly Goodwin 40000
Mr Olly Goodwin 60000
Ms Katherine Marion Gould 20000
Ms Belinda Jennifer Grant 8000
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Mr Peter George Gray &
Mrs Anna Patricia Gray 30000
Mr Peter George Gray &
Mrs Anne Patricia Gray 10000
Mr Paul Ellis Green 6000
Dr Kathleen Griffiths 6000
Mr Ronald Ivor Griffiths 22150
Mr Geoffrey Allen Groth &
Mrs Kathleen Mary Groth 3000
Mr Mark Stephen Groves &
Mrs Karen Patricia Groves 2500
Ms Elina Gunawan 1000
Mrs Dorothy Anne Gurevitch 10000
Mr Mark Andrew Haigh 82000
The Hale Agency Pty Limited 265585
The Hale Agency Pty Ltd 355673
Mr Michael Bernard Hale 19500
Mr Raymond George Halford 2043
Mr Colin James Hall 19320
Sydney Keith Hall 10000
Mr Alan Ross Hamilton 5563
Mrs Gloria Juliet Hammond 10000
Dr Anthony John Hanks &
Mrs Vicki Joyce Hanks 25000
Mrs Sandra Anne Harding 10000
Ms Robin Haswell 20000
Ms Ronda Rosamond Hatch 20000
Mr Rodney James Hatchett 15000
Mr Keith Ernest Hawton &
Mrs Lorraine Susan Hawton 56000
Mr Keith Ernest Hawton &
Mrs Lorraine Sue Hawton 54000
Ms Marlene Hay 10000
Mr Paul Anthony Heath &
Mrs Genevieve Maria Heath 3900
Mr John Lewis Henden 3000
Mrs Gisella Henry 2750
Mrs Mary Heron 10000
Mr Christopher James Hing 20000
Mr Ian Harold Hobbs 12000
Mr Rodney Mark Hobbs 2000
Dr Trevor Ian Hobbs 10000
Dr Trevor Ian Hobbs 10000
Mrs Marlene Holmes 5000
Ms Dianne Mary Hudson 8000
Mr Carl Hulton &
M/S Ann Viney 4000
Mr Brian Ross Humphries 10000
Mrs Kerin Louise Hurrell 10000
Mr Jerry Ianno 1000
Invia Custodian Pty Limited 46000
Mr Andrew Rhys Jackson 10000
Mr Graham Norman Jackson 4000
Jadana Pty Limited 4000
Maj Gen William Brian James 1000
Janase Investments Pty Limited 200019
Mr Scott Jenkins 15000
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John T Jennings Pty Ltd 4000
Ms Jill Johnstone 5500
Mr Graham Mitchell Jones 12000
Mr Robert James Judd 4000
Juletta Pty Limited 20000
K Biggs Enterprises Pty Limited 150000
K Biggs Enterprises Pty Ltd 818182
K Biggs Enterprises Pty Ltd 200000
K Biggs Enterprises Pty Ltd 80000
Kalina Holdings Pty Ltd 20000
Mr Stanley Karantoni 5000
Mrs Erna Kathriner 2000
Mr Robert Charles Keyes 9300
Mrs Patricia Rose King 10000
Mr Robert John King 10000
Ms Susan Rosalie King 4000
Mr Richard Allen Kirby 4400
Kirkby Investments Pty Limited 370182
Mr Andrew Peter Henry Kiss 5000
Ms Anita Catherine Kuffner 8000
Ms Anita Catherine Kuffner 5221
Mr John Lak 4000
Miss Kim Elizabeth Lakatos 2000
Mr Benjamin Lancsar 2500
Mrs Hui Yun Lao 4000
Larkdell Pty Limited 20000
Mr Jeremy Lasek 2500
Mr Yuk Wing Leung &
Mrs Yim Ling Ho Leung 5000
Mrs Robyn Lucy Lewis 2000
Lewnor Pty Ltd 5000
Mr Jonathan Liew 40000
Mr Craig Lilienthal 8000
Ms Shirley May Lilienthal 18000
Lisdoon Management Pty Ltd 45000
Lotta Nominees Pty Ltd 18000
Mrs Cathy Lozier 55513
Miss Lesley Ludkin 1000
Mrs Sharren Leanne Ludlow 1000
Luton Park Pty Ltd 12000
Mr Blake Lynn 10000
Mr Andrew Grant Macdonald &
Mrs Lisa Janet Macdonald 5000
Mrs Joanne Mary Macdonald 2000
Mr Anthony Magnus 30000
Mango Nominees Pty Ltd 30000
Mr Robert Marr 90000
Mr Gary Martin 1800
Mr Yutaka Maruta &
Ms Mie Urayama 20000
Mr Donald Mazlin 10000
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<PAGE>
Mr John Fitzgerald Mccarthy 3000
Miss Inda Marie Mccauley 5000
Mr Perry Mcgill &
Ms Charlene Beale 3250
Mr Bruce Ian Mcintyre 1000
Mrs Gayle Magaret Mckew &
Mr Wayne Kenneth Mckew 2000
Mr Michael Mclagan &
Mrs Pat Mclagan 20000
Mr Michael Mclagan &
Mrs Pat Mclagan 20000
Mr Barry Robert Mclean &
Mrs Louise Mclean 5000
Mrs Lois Mcnamara 6000
Mr Mark Mcnamara &
Mrs Maybron Mcnamara 17365
Mr Ewen John Mcpherson 20000
Mr Trevor Mcpherson 177273
Mr John William Meads &
Mrs Wendy Edna Meads 40000
Mr John William Meads &
Mrs Wendy Edna Meads 15000
Mentoran Pty Limited 20000
Mentoran Pty Limited 10000
Mr David Wheeler Mercer &
Mrs Dianne Esther Mercer 10000
Mibran Services Pty Limited 12000
Miss Betty Lorraine Miller 10000
Mr Geoffrey John Mitchell 2000
Mr Maxwell Mitchell 2000
Mr Gerald Chan Yin Mok &
Miss Alza Tsui-Yan Wong 5000
Mulbridge Pty Limited 10000
Mr Enoch Muriti 2000
Ms Derryth Nash 7500
Mrs Wendy Nash 5300
Nasir Dean Pty Limited 40000
Nasir Dean Pty Ltd 30000
National Nominees Limited 110000
Mr Atul Chandra Nayak &
Mr Kurt Francis 5000
Irena Nebenzahl 25000
Mr John Edward Neilsen 4000
Mr Richard Jones Neves 2000
Miss Elisha Gay Newman 1000
Miss Erin Clare Newman 2000
Mr Grant Peter Newman 3000
Mr James Patrick Newman 10000
Niab Holdings Pty Limited 65455
Mr Brian Gregory Nicholls &
Mrs Mary Nicholls 9400
Mr Herbert Nixon &
Mrs Joy Nixon 2000
Noray Investments Pty Ltd 10000
Noray Investments Pty Ltd 20000
Noray Investments Pty Ltd 10000
Noray Investments Pty Ltd 10000
Noray Investments Pty Ltd 10000
Noray Investments Pty Ltd 10000
Noray Investments Pty Ltd 10000
Noray Investments Pty Ltd 10000
36
<PAGE>
Noray Investments Pty Ltd 8000
Noray Investments Pty Ltd 4000
Noray Investments Pty Ltd 20000
Noray Investments Pty Ltd 12000
Noray Investments Pty Ltd 10000
Noray Investments Pty Limited 10000
Nordsvan Pty Ltd 10000
Mr John Frederick Nunn 6000
Mr Peter O'brien 10000
Mrs Traci Leanne O'brien 17500
Mr Richard Charles Ochojski 8000
Mrs Nicola Jane O'neill 45454
Overshire Pty Ltd 10000
Mr Bruce Paige &
Mr Sean Lawson 2000
Pal Nominees Pty Ltd 10000
Ms Fiona Heather Patten 4000
Mr Robert Penfold &
Mrs Susan Penfold 2272
Mr Anthony Desmond Percival 1000
Mrs Shirley-Ann Percival 5000
Perpetual Custodians Limited 10000
Mrs Narelle Joan Peters 4000
Miss Margerita Pietilainen 6000
Mr Hugo Pikse 4000
Mr Beno Pipersberg &
Mrs Evelyne Pipersberg 7000
Mr Shaun Polovin 6000
Taryn Polovin 6000
Mr Joseph Pongrac 4000
Mr Selvam Ponnuthurai 3500
Ponton Investments Pty Ltd 40000
Mr Stephen John Powell 11111
Mr John Peter Price 3000
Primerate Investments Pty Ltd 4000
Mr Mark Provost 500
Mr Ian Pynt 10000
Pyrotherm Pty Ltd 10000
Quest Traders Pty Ltd 10000
Mrs Jennifer Michelle Radford 27273
Ms Rosemary Louise Radford 6000
Radio & Television
Academy Pty Limited 5000
Ms Leanna Patricia Ralph &
Mr Spyros Sideratos 10000
Ms Annette Joy Randall 4000
Mr Emilio Rao &
Mrs Carmen Rao 5000
Raptai Holdings Pty Ltd 6000
Ms Patricia Anne Reibelt 4000
Mr Anton Renkema 10000
Mrs Llayana Valetta Richards 147000
R J Pty Limited 10000
Mr Gregory Samuel Robson 13000
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Mr Gregory Samuel Robson 2633
Mr John Leonard Maxfield Rogers
& Mrs Sylvia Mary Rogers 5000
Ms Sandra Rose 4300
Mrs Debora Kay Rossiter 1897
R W Wilkins & Associates Pty Ltd 4000
Ryan Consultancy Group Pty Ltd 18000
Saltbush Nominees Pty Ltd 200000
Sardon Investments Pty Ltd 10000
Mr Martin Satterthwaite 2000
Mr Geoffrey Saxton &
Mrs Norma Saxton 2000
Mr Claude George Scarfidi &
Mrs Leonie Elizabeth Scarfidi 8000
Mr Olav Schappacher 1000
Mr Alan Rodney Schwab &
Mrs Lolita Acabodillo Schwab 5000
Mrs Katrina Louise Scott 20000
Mr Edgar Sediey & Mrs Mabel Impieri 100000
Mr Karl Seidler 8772
Mr Greg Seymour 1650
Mr George Francis Shanton &
Mrs Lesley Anne Shanton 16000
Mr Robert Shaw 2000
Mr David Wayne Shields &
Mrs Browyn Clara Shields 2500
Ms Susan Shing 2000
Silmar Pty Limited 30000
Sinomer Pty Ltd 10000
Skyglen Pty Ltd 8000
Mr Graeme Ian Smail &
Mrs Helen Elizabeth Smail 1000
Mr Samer Smair 20000
Mr Shaun Anthony Smith 1220
Mr Steven Smith 4400
Mr Michael Joel Solomon &
Mrs Rosemary Solomon 18000
Ms Nina Solomons 11500
Mr Tack Kuang Soon 30000
Spicer Management Pty Limited 20000
Stephens Enterprises Pty Ltd 32000
Stevac Pty Ltd 62905
Mrs Kathleen Stevens 8000
Mr Alan James Stewart 40000
Mrs Sandra Marion Still 5000
Mr Mario Anthony Stivala 5000
Mr John Michael Stott &
Mrs Priscilla Frances Stott 10000
Mrs Lesley Edna Strange 18000
Mr William Edward Strange 19000
Mr Chiung Yu Su 3000
Mrs Kalaichelvi Sundararaju 5000
Surostyle Pty Ltd 10000
Mrs June Marie Swan 4000
Mr Maxwell Owen Sweetman 6000
Sydney Allen Holdings Pty Ltd 10000
Mr Peter Frank Sydney 10000
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Mr Mark John Sykes 5800
Systemlink Pty Limited 35000
Mr Nabih Taleb 22000
Ms Kim Lai Tan 36000
Mr Kim Seong Tan 10000
Tasa Nominees Pty Ltd 303000
Teakhold Pty Limited 177000
Terelba Pty Limited 20000
Dr Deo Tewari 25000
Theunar Pty Limited 1325
Mrs Carol Ann Thompson 4000
Mr Glen Thorpe &
Mrs Lorna Thorpe 6000
Mr Glen Campbell Thorpe 2500
Mr Fan Him Tjan 10000
Mr Thomas Alexander Tonkin 10000
Mr Vince Torcasio 4000
Trapdoor Pty Ltd 10000
Mr Nicolas Tsotsos &
Mrs Angela Tsotsos 18000
Mr Michael Turano &
Mrs Antoinette Turano 10000
Mr Phillip Tustin 40000
Mrs Leigh Robyn Van Haalen 4000
Mr Troy Van Heemst 1000
Ms Mary Therese Vaughan 10000
Ms Veronik Verkest 6000
Mr Ben Mark Vigilante 1520
Viper Investments (Australia)
Pty Ltd 10000
Viper Investments Pty Limited 20000
Mrs Sara Elizabeth Wakeling 8000
Mrs Judith Anne Walding 2000
Miss Carol Ann Wallbank 1600
Mrs Helen Margaret Wallbrink &
Mr Robert John Wallbrink 2000
Mr David Charles Wallis 5800
Wei Jian Wan & Jing Jing Wang 8000
Wangi Man Pty Ltd 20000
Mr Robert Murdoch Wardlaw 255
Mr John Watson & Mr Robert Harrod 1000
Mrs Margeret Irene Weiss 7000
Mr Geoffrey Brian Wells 5000
Mr John Charles Wells 10000
Mrs Wendy Whatson 5000
Mr Anthony John Wheeler 1000
Mrs Edith Wheeler 500
Mr Geoffrey Whitaker &
Mrs Margaret Ellen Whitaker 35000
Mr David Floyd White 8300
Wica Investments Pty Limited 70000
Wilf Barker Australia Pty Ltd 10000
Mr Larry Robert Williams &
Mrs Diana Margaret Williams 5000
Mr Peter Richard Williams 25000
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Mr Alexander Richard Wilson &
Mrs Grace Margaret Wilson 20000
Mr Alexander Richard Wilson 10000
Mr John Walby Wilson 20000
Mr Graeme Joseph Wiseman 4000
Mr Ming Wong 2500
Mrs Siew Yun Wong 12000
Mr Simon Shing Tak Wong 10000
Woodhouse Nominees Pty Ltd 16559
Mr Alistair Gordon Worrall 20000
Mr Bruce Wyatt & Mrs Nancy Wyatt 20000
Mr Brant William Yench 1000
Mr Norman John Yench &
Mrs Lynda Gaye Yench 3000
Mr Donald Charles Young 16000
Mr Hubert Zochling 1000
Mrs Livia Zsido 15000
Mr Steven Andrew Zuckerman 19000
Mr Alexander James Zylberberg 4000
Monness, Crespi, Hardt & Co., Inc. 150000
- --------------------------------------------------------------------------------
As to all of the selling stockholders, they each have less than 1% of our stock
before this Offering and each selling stockholder will have 0% after this
Offering assuming they sell the stock listed above. We assume that all common
stock offered by the selling stockholders will be sold.
We can not be sure that the selling stockholders will opt to sell any of the
shares of common stock offered. To the extent required
o the specific shares of common stock beneficially owned by sellingselling
stockholders
o the public offering price of the shares to be sold
o the names of any agent, dealer or underwriter employed by sellingselling
stockholders in connection with any sale
o any applicable commission or discount with respect to each 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
SELLINGSELLING STOCKHOLDERS ARE FIRST REQUIRED TO CONTACT OUR CORPORATE
SECRETARY TO CONFIRM THAT THIS PROSPECTUS IS IN EFFECT. THE SELLINGSELLING
STOCKHOLDERS EXPECT TO SELL THE SHARES AT PRICES THEN ATTAINABLE, LESS ORDINARY
BROKERS' COMMISSIONS AND DEALERS' DISCOUNTS AS APPLICABLE.
40
<PAGE>
SELLING STOCKHOLDERS 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 OF 1933 WITH RESPECT TO THE COMMON STOCK OFFERED AND ANY
PROFITS REALIZED BY THE SELLING STOCKHOLDERS OR 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 OF 1933 SHALL NOT BE DEEMED AN ADMISSION BY THE SELLING
STOCKHOLDERS OR US THAT THE SELLING STOCKHOLDERS ARE UNDERWRITERS FOR PURPOSES
OF THE SECURITIES ACT OF 1933 OF ANY SHARES OFFERED UNDER THIS PROSPECTUS.
Plan Of Distribution
This prospectus covers 1,366,667 of our common stock. All of the
shares offered are being sold by the selling stockholders. The Securities
covered by this prospectus may be sold under Rule 144 instead of under this
prospectus. We will realize no proceeds from the sale of the shares by the
selling stockholders.
The distribution of the shares by the selling stockholders is not
subject to any underwriting agreement. The selling stockholders may sell the
shares offered from time to time in transactions on one or more exchanges, in
the over-the-counter market, in negotiated transactions, or a combination of
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 stockholders
may engage in short sales, short sales against the box, puts and calls and other
transactions in our securities or derivatives thereof, and may sell and deliver
the shares in connection therewith.
From time to time the selling stockholders may pledge their shares
with their brokers. Upon a default by the selling stockholders, the broker may
offer and sell the pledge shares.
The selling stockholders' sales may be effected by selling the
shares to or through broker-dealers, and broker-dealer may receive compensation
in the form of discounts, concessions or commissions from the selling
stockholders and/or the purchasers of the shares for whom 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 stockholders and any broker-dealers that participate with the selling
stockholders in the distribution of the shares may be deemed to be underwriters
within the meaning of Section 2(a) (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 stockholders will pay any transaction costs associated with effecting
any sales that occur.
In order to comply with the securities laws of states, if
applicable, the shares will be sold in jurisdictions only through registered or
licensed brokers or dealers. In addition, in states the shares may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirement is available
and is complied with by usand the selling stockholders.
Any broker-dealer acquiring common stock offered may sell securities
either directly, in its normal market-making activities, through or to other
brokers on a principal or agency basis or to
41
<PAGE>
its customers. Any sales may be at prices then prevailing on Nasdaq, at prices
related to prevailing market prices or at negotiated prices to its customers or
a combination of 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 stockholders.
The selling stockholders is not restricted as to the price or prices
at which it may sell its shares. Sales of these shares may have an adverse
effect on market price of common stock. Moreover, the selling stockholders 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 our common stock.
We have 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
stockholders.
This prospectus also may be used, with our consent, by donees or
other transferees of the selling of the selling stockholders, 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 shares.
Legal Matters
The validity of the shares will be passed upon for us by its
counsel, Harry Winderman, Esq., Boca Raton, Florida.
Experts
The financial statements of Atlantic International Entertainment,
Ltd. at December 31, 1998 and 1997, appearing in this registration statement
have been audited by Moore Stephens, P.C., our independent auditors.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN GIVEN ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THE INFORMATION 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 US, 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 OUR AFFAIRS 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.
42
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended and , we file reports, proxy statements and other
information with the Securities and Exchange Commission. These reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Securities Exchange 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 Securities Exchange
Commission. This material may also be viewed on the internet at
http//www.sec.gov.
We have also filed with the Securities Exchange Commission a Form SB-2
registration statement under the Securities Act of 1934 with respect to the
shares offered by the selling stockholders listed in this prospectus. This
prospectus does not contain all of the information set forth in the registration
statement, parts of which are omitted to comply with the rules and regulations
of the Securities Exchange Commission. For further information, please see the
registration statement.
43
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
INDEX TO FINANCIAL STATEMENTS
================================================================================
PAGE
Consolidated Balance Sheet (Unaudited) as of March 31, 1999..........F-2....F-3
Consolidated Statements of Operations (Unaudited)
for the three months ended March 31, 1999 and March 31, 1998.........F-4....F-5
Consolidated Statements of Cash Flow (Unaudited)
for the three months ended March 31, 1999 and March 31, 1998.........F-6....F-7
Notes to the Consolidated Financial Statements (Unaudited)...........F-8....F-10
Independent Auditor's Report.........................................F-11
Consolidated Balance Sheet as of December 31, 1998...................F-12...F-13
Consolidated Statements of Operations and Comprehensive
Income for the years ended December 31, 1998 and 1997................F-14...F-15
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1998 and 1997...............................F-16
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997...........................................F-17...F-18
Notes to Consolidated Financial Statements ..........................F-19...F-33
. . . . . . . . . . . .
F-1
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
ASSETS:
CURRENT ASSETS:
<S> <C>
Cash and Cash Equivalents $ 9,102
Investments 3,374,927
Accounts Receivable [Net of Allowance for Doubtful Accounts $4,600] 17,486
Notes Receivable 927,403
Deferred Tax Asset 154,212
Prepaid Expenses 35,634
Due from Related Parties 56,068
Other Current Assets 25,700
----------
TOTAL CURRENT ASSETS 4,600,532
----------
PROPERTY AND EQUIPMENT - NET 395,463
----------
EQUIPMENT UNDER CAPITALIZED LEASE - NET 91,468
----------
SOFTWARE [NET OF ACCUMULATED AMORTIZATION OF $916,627] 1,728,963
----------
OTHER ASSETS:
Other Assets 111,526
Notes Receivable 2,417,968
Investments 291,691
----------
TOTAL OTHER ASSETS 2,821,185
----------
TOTAL ASSETS $9,637,611
==========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-2
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MARCH 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 833,857
Notes Payable - Officers 20,000
Current Portion of Capital Lease Obligations 29,816
------------
TOTAL CURRENT LIABILITIES 883,673
CAPITAL LEASE OBLIGATIONS 71,929
------------
TOTAL LIABILITIES 955,602
------------
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock - Par Value $.001 Per Share;
Authorized 10,000,000 Shares, Issued and Outstanding,
2,260 shares [Liquidation Preference $226,000] 2
Common Stock - Par Value $.001 Per Share;
Authorized 100,000,000 Shares, Issued - 12,806,762 Shares 12,806
Additional Paid-in Capital 12,054,008
Treasury Stock, 533,175 Common Shares - At Cost (1,244,740)
Accumulated Comprehensive Gain 648,385
Accumulated [Deficit] (943,452)
Deferred Acquisition Costs (400,000)
------------
Total 10,127,009
Less: Subscriptions Receivable (1,445,000)
------------
TOTAL STOCKHOLDERS' EQUITY 8,682,009
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,637,611
============
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-3
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1 9 9 9 1 9 9 8
------- -------
<S> <C> <C>
REVENUE $ 29,000 $ 1,030,540
COST OF SALES 268,848 183,379
----------- -----------
GROSS [LOSS] PROFIT (239,848) 847,161
----------- -----------
OPERATING EXPENSES:
Research and Development 58,513 --
General and Administrative 1,103,874 357,747
Provision for Doubtful Accounts and Notes 325,335 99,153
Depreciation and Amortization 31,439 57,170
----------- -----------
TOTAL OPERATING EXPENSES 1,519,161 514,070
----------- -----------
[LOSS] INCOME FROM OPERATIONS (1,759,009) 333,091
----------- -----------
OTHER [EXPENSES] INCOME:
Interest Income 8,110 3,371
Interest Expense (16,129) (6,758)
Interest Expense - Related Party -- (3,508)
Other Income [Expense] 1,423,443 --
----------- -----------
OTHER [EXPENSES] INCOME - NET 1,415,424 (6,895)
----------- -----------
[LOSS] INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAX [BENEFIT] EXPENSE (343,585) 326,196
INCOME TAX [BENEFIT] EXPENSE (123,691) (27,412)
----------- -----------
[LOSS] INCOME FROM CONTINUING OPERATIONS (219,894) 298,784
DISCONTINUED OPERATIONS:
[Loss] from Operations of Discontinued Business
Segment [Net of Income Tax [Benefit] of ($30,521) and $(0),
for the three months ended March 31, 1999 and 1998, Respectively] (54,261) (20,097)
----------- -----------
NET [LOSS] INCOME (274,155) 278,687
COMPREHENSIVE GAIN:
Unrealized Holding Gain arising during period 744,243 --
----------- -----------
TOTAL COMPREHENSIVE INCOME $ 470,088 $ 278,687
=========== ===========
</TABLE>
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 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1 9 9 9 1 9 9 8
------- -------
<S> <C> <C>
Net [Loss] Income $ (274,155) $ 278,687
Preferred Stock Dividend in Arrears 12,500 --
------------ ------------
NET [LOSS] INCOME AVAILABLE TO COMMON STOCKHOLDERS $ (286,655) $ 278,687
============ ============
[LOSS] INCOME PER COMMON SHARE:
Continuing Operations $ (0.02) $ 0.03
------------ ------------
BASIC AND DILUTED NET [LOSS] INCOME PER SHARE OF COMMON STOCK $ (0.02) $ 0.03
============ ============
WEIGHED AVERAGE SHARES OF COMMON STOCK OUTSTANDING 12,559,208 9,590,184
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-5
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1 9 9 9 1 9 9 8
------- -------
OPERATING ACTIVITIES:
<S> <C> <C>
[Loss] Income from Continuing Operations $ (219,894) $ 298,784
Adjustments to Reconcile Net [Loss] Income to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 251,387 126,437
Deferred Tax Asset (154,212) --
Provision for Doubtful Accounts 325,335 99,153
Loss on Sale of Assets 3,100 --
Realized Loss on Carrying Value of Investments 324 --
Gain on Sale of Subsidiary (1,256,473) --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 1,914 (7,871)
Prepaid Expenses (24,377) --
Notes Receivable 84,975 (731,359)
Other Assets 76,815 (16,354)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (241,124) (88,189)
Income Taxes Payable -- 30,628
Other Current Liabilities -- 28,583
Due to Customer -- 54,279
----------- -----------
NET CASH - CONTINUING OPERATIONS (1,152,230) (205,909)
----------- -----------
DISCONTINUED OPERATIONS:
[Loss] from Discontinued Operations (54,261) (20,097)
Adjustments to Reconcile Net [Loss] to Net Cash Operations:
Depreciation and Amortization 38,220 10,315
Provision for Doubtful Accounts 18,915 1,423
Changes in Net Assets and Liabilities 260,011 (37,121)
----------- -----------
NET CASH - DISCONTINUED OPERATIONS 262,885 (45,480)
----------- -----------
NET CASH - OPERATING ACTIVITIES - FORWARD (889,345) (251,389)
----------- -----------
INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Increase in Due from Related Parties (828) (747)
Purchase of Investments (187,664) --
Purchase of Property, Equipment, and Capitalized Software (42,212) (127,115)
Sale of Investments 2,566,858 --
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARD $ 2,336,154 $ (127,862)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-6
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
1 9 9 9 1 9 9 8
------- -------
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES - FORWARDED $ (889,345) $ (251,389)
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARDED 2,336,154 (127,862)
----------- -----------
INVESTING ACTIVITIES - DISCONTINUED OPERATIONS:
Purchase of Property and Equipment (29,715) (8,754)
Disposition Gain on Sale of Discontinued Operations -- --
----------- -----------
NET CASH INVESTING ACTIVITIES - DISCONTINUED OPERATIONS (29,715) (8,754)
----------- -----------
FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Proceeds from Conversion of Debt to Equity -- --
Proceeds from Issuance of Common Stock -- 299,900
Proceeds from Issuance of Preferred Stock -- --
Purchase of Treasury Stock (966,043) --
[Decrease] Increase in Loan Payable to Shareholder (130,000) 88,609
Payment of Notes Payable (100,000) --
Payment of Lease Payable (7,453) (5,826)
Decrease in Loan Receivable (274,762) --
----------- -----------
NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS (1,478,258) 382,683
----------- -----------
FINANCING ACTIVITIES - DISCONTINUED OPERATIONS:
Proceeds from Long-Term Debt 50,000 --
Payment of Note Payable (41,500) (1,900)
Payment of Lease Payable (5,769) (10,326)
----------- -----------
NET CASH FINANCING ACTIVITIES DISCONTINUED OPERATIONS 2,731 (12,226)
----------- -----------
NET INCREASE [DECREASE] IN CASH AND CASH EQUIVALENTS (58,433) (17,548)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 67,535 11,260
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 9,102 $ (6,288)
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 16,128 $ 6,758
Income Taxes $ -- $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Preferred Stock into Common Stock $ 396 $ --
Purchase of Assets under Capital Lease Financing $ 6,210 $ --
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
F-7
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Uunaudited)
March 31, 1999
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 for the three-month period ended
March 31, 1999, are not necessarily indicative of the results of
operations to be reported for the full year ending December 31,
1999.
Note 2 - SALE OF SUBSIDIARY
On March 31, 1999 the Company sold 81% of its interest in its wholly
owned subsidiary, the Eminet Domain, Inc. to Centerline Associates,
Inc., a shareholder of the Company. The sale price was $2,500,000
paid as follows: (i) $10,000 at sale date, (ii) $90,000 in cash
payable at the rate of $14,000 per month commencing on April 15,
1999 and (iii) $2,400,000 by the delivery of a promissory note
collateralized by shares of the Company's stock with interest at the
annual rate of six percent (6%) and payable two years from the
closing date.
The sale resulted in a gain of $1,256,743 which is reflected in
other income. The transaction resulted in the Eminet Domain, Inc
being treated as a discontinued operation
Note 3 - MAJOR CUSTOMERS
Income fees derived from major customers are tabulated as follow:
THREE MONTHS ENDED
MARCH 31,
1999 1998
(UNAUDITED)
Customer A (Software System) -- 250,000
Customer B (Software System) -- 220,000
Customer C (Software System) -- 350,000
Note 4 - CAPITAL STOCK
In the second quarter of 1998, the Company sold 1,250,000 shares for
a total of $4,000,000 pursuant to Regulation D to Hosken
Consolidated Industries
Also in the second quarter of 1998, 9,700,000 shares of common stock
were issued to Atlantic International Entertainment Australia, a
wholly owned subsidiary for use in a proposed takeover of the
Australian Company, Coms21. As the proposed takeover did not take
place, the 9,700,000 shares issued were cancelled. However, in the
third quarter of 1998, 1,217,647 shares were exchanged for
12,176,470 shares of Coms21 in a one for ten stock swap.
F-8
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
March 31, 1999
Note 4 - CAPITAL STOCK - CONTINUED
In the second quarter of 1998, 10,000 shares of 5% Convertible
Preferred Stock, $.001 par value, were issued to the Shaar Fund for
$1,000,000.00. Each share is convertible into common stock by virtue
of a formula contained in the Purchase Agreement which is 78% of the
three day average closing bid price for the corporations common
stock for the twenty five (25) trading days prior to the delivery of
the notice of redemption. The amount of such non-cash discounts
which is analogous to a dividend is $269,443. Holders of the above
preferred stock are entitled to; (i) quarterly cumulative dividends
at the rate of 5% per annum of the original issue price of the
preferred stock, (ii) a liquidation preference equal to the sum of
$100 for each outstanding share of the preferred stock.
In August 1998, 5,000 shares of the Company's common stock were
issued to a consultant for services performed.
In September 1998, 26,098 shares of the Company's common stock were
issued to adjust the issuance of shares to certain individuals at
the time of the Company's reverse merger in 1996.
During the third and fourth quarter of 1998, 2,740 shares of
convertible preferred stock valued at $274,000 was converted into
147,002 shares of common stock by virtue of a formula contained in
the Purchase Agreement which relates to the average price per share
of common stock within the conversion period.
In October of 1998, the Company entered into a stock purchase
agreement with Axxsys International, [Seller] to purchase the assets
of Axxsys for $400,000. Under the agreement 200,000 shares of the
Company's common stock was delivered and is held in escrow for a
period of 12 months as the purchase price is contingent on average
monthly revenues being achieved.
During the first quarter of 1999, 5,000 shares of convertible
preferred stock valued at $500,000 was converted into 395,823 shares
of common stock by virtue of a formula contained in the purchase
agreement which results to the average price per share of common
stock within the conversion period.
Note 5 - PER SHARE DATA
Per share data are based on the weighted average number of common
shares outstanding during the respective periods. The diluted net
income per share is based upon the options issued and outstanding as
well as the assumed conversion of the Company's issued and
outstanding preferred stock.
F-9
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
March 31, 1999
Note 6 - BUSINESS AGREEMENTS
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.
On September 28, 1998, the Company entered into and closed on an
agreement with Cybergames, Inc. for the purchase of several of the
company's licensees and the exchange of the company's accounts
receivable from said licensees. The total purchase price was $
3,147,000 payable $ 227,000 in cash and $2,920,000 in stock of
Cybergames, Inc. (530,000 shares).
Note 7 - SUBSEQUENT EVENTS
On April 6, 1999 the Company signed an agreement to purchase the
patent rights, inventions and know-how of Excel Communications, Inc.
The major product expected to be produced is a multi-function
portable gaming device. In consideration the Company issued seventy
five thousand (75,000) shares of common stock of the Company. The
Company also entered into an agreement to compensate a third party
for termination of an exclusive manufacturing, licensing, marketing
and distribution of the invention with the seller. The third party
received two hundred thousand dollars ($200,000) plus a stock option
to purchase 50,000 shares of the common stock of the company. In
addition, the Company entered into employment agreements with three
of the key employees of Excel Communications, Inc. and granted those
individuals options to purchase Company stock.
In April 1999 HCI, Ltd. a South African public company exercised its
option to purchase 1.1 million shares at $2 per share from the
non-executive chairman, Norman J. Hoskin. HCI is the Company's
largest institutional shareholders. The agreement is subject to
appropriate approval from the South African Reserve Bank.
F-10
<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, 1998, and the related consolidated statements of operations and
comprehensive income, changes in stockholders' equity, and cash flows for each
of the two years in the period ended December 31, 1998. 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, 1998, and the consolidated results of their operations and their
cash flows for each of the two years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
February 6, 1999
F-11
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998.
================================================================================
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 67,535
Investments 2,516,004
Due from Broker 2,497,298
Accounts Receivable [Net of Allowance for
Doubtful Accounts $19,600] 22,400
Notes Receivable 746,302
Refundable Income Taxes 77,215
Prepaid Expenses 11,257
Due from Related Parties 55,240
Other Current Assets 25,300
--------------
TOTAL CURRENT ASSETS 6,018,551
--------------
PROPERTY AND EQUIPMENT - NET 396,387
--------------
EQUIPMENT UNDER CAPITALIZED LEASE - NET 89,456
--------------
SOFTWARE [NET OF ACCUMULATED AMORTIZATION OF $696,679] 1,932,855
--------------
NET ASSETS OF DISCONTINUED OPERATIONS 1,351,272
--------------
OTHER ASSETS:
Other Assets 111,687
Notes Receivable 506,379
--------------
TOTAL OTHER ASSETS 618,066
--------------
TOTAL ASSETS $ 10,406,587
==============
The Accompanying Notes are an Integral Part of these Consolidated
Financial Statements.
F-12
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998.
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 1,074,981
Notes Payable - Officers 150,000
Current Portion of Long-Term Debt 100,000
Current Portion of Capital Lease Obligations 26,105
------------
TOTAL CURRENT LIABILITIES 1,351,086
CAPITAL LEASE OBLIGATIONS 76,883
------------
TOTAL LIABILITIES 1,427,969
------------
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock - Par Value $.001 Per Share;
Authorized 10,000,000 Shares, Issued and Outstanding,
7,260 shares [Liquidation Preference $726,000] 7
Common Stock - Par Value $.001 Per Share;
Authorized 100,000,000 Shares, Issued - 12,410,939 Shares 12,410
Additional Paid-in Capital 12,329,161
Treasury Stock, 145,500 Common Shares - At Cost (278,697)
Accumulated Other Comprehensive [Loss] (95,858)
Accumulated [Deficit] (1,143,405)
Deferred Acquisition Costs (400,000)
------------
Total 10,423,618
Less: Subscriptions Receivable (1,445,000)
------------
TOTAL STOCKHOLDERS' EQUITY 8,978,618
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,406,587
============
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-13
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
REVENUE $ 2,426,230 $ 3,991,041
COST OF SALES 792,789 519,844
----------- -----------
GROSS PROFIT 1,633,441 3,471,197
----------- -----------
OPERATING EXPENSES:
General and Administrative 2,510,484 1,439,501
Provision for Doubtful Accounts and Notes 1,435,040 397,104
Depreciation and Amortization 89,710 87,663
----------- -----------
TOTAL OPERATING EXPENSES 4,035,234 1,924,268
----------- -----------
[LOSS] INCOME FROM OPERATIONS (2,401,793) 1,546,929
----------- -----------
OTHER [EXPENSES] INCOME:
Interest Income 81,390 17,331
Interest Expense (2,211) (10,477)
Interest Expense - Related Party (8,855) (7,525)
Other Income [Expense] 538,387 (15,897)
----------- -----------
OTHER [EXPENSES] INCOME - NET 608,711 (16,568)
----------- -----------
[LOSS] INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAX [BENEFIT] EXPENSE (1,793,082) 1,530,361
INCOME TAX [BENEFIT] EXPENSE (460,682) 462,568
----------- -----------
[LOSS] INCOME FROM CONTINUING OPERATIONS (1,332,400) 1,067,793
DISCONTINUED OPERATIONS:
[Loss] from Operations of Discontinued Foreign
Subsidiary [Net of Income Tax [Benefit] of $(23,641)] -- (45,890)
Gain on the Disposal of Discontinued Foreign
Subsidiary [Net of Income Taxes of $74,688] -- 144,982
[Loss] from Operations of Discontinued Business
Segment [Net of Income Tax [Benefit] of $-0- and $(51,243),
for the years ended December 31, 1998 and 1997, Respectively] (321,448) (119,568)
[Loss] on Disposal of Business Segment, including
Provision of $50,000 for Operating Loss During
Phase Out Period [Net of Income Tax [Benefit] of $-0-] (50,000) --
----------- -----------
NET [LOSS] INCOME (1,703,848) 1,047,317
----------- -----------
OTHER COMPREHENSIVE LOSS:
Unrealized Holding Loss arising during period (104,611) (42,763)
Less: Reclassification Adjustment for Loss Included in Net Income 51,516 --
----------- -----------
(53,095) (42,763)
----------- -----------
TOTAL OTHER COMPREHENSIVE [LOSS] INCOME $(1,756,943) $ 1,004,554
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-14
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Net [Loss] Income $ (1,703,848) $ 1,047,317
Deduct: Imputed Non-cash Preferred Stock Dividend 269,443 --
Preferred Stock Dividend in Arrears 33,333 --
------------ ------------
NET [LOSS] INCOME AVAILABLE TO COMMON STOCKHOLDERS $ (2,006,624) $ 1,047,317
============ ============
[LOSS] INCOME PER COMMON SHARE:
Continuing Operations $ (.15) $ 0.11
Discontinued Operations (.04) --
Disposal of Discontinued Subsidiary -- --
------------ ------------
BASIC AND DILUTED NET [LOSS] INCOME PER SHARE OF COMMON STOCK $ (.19) $ 0.11
============ ============
WEIGHED AVERAGE SHARES OF COMMON STOCK OUTSTANDING 10,771,563 9,452,992
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-15
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PREFERRED STOCK COMMON STOCK PAID-IN TREASURY STOCKCOMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT [LOSS]
------ ------ ------ ------ ------- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 -- $ -- 9,190,184 $ 9,190 $ 1,887,376 -- $ -- --
Sale of Common Stock -- -- 75,000 75 350,175 -- -- --
Sale of Common Stock -- -- 25,000 25 -- -- -- --
Asset Acquisition -- -- 200,000 200 1,598,880 -- -- --
Conversion of Debt to Equity -- -- -- -- 313,475 -- -- --
Issuance of Shares in Escrow -- -- 100,000 100 -- -- -- --
Unrealized Holding Loss on
Marketable Securities -- -- -- -- -- -- -- (42,763)
Income from Continuing
Operations -- -- --- -- -- -- -- --
Loss from Discontinued
Operations -- -- -- -- -- -- -- --
------- -------- ------------ --------- ------------ -------- --------- ---------
BALANCE - DECEMBER 31, 1997 -- -- 9,590,184 9,590 4,149,906 -- -- (42,763)
Sale of Escrow Common Stock -- -- -- -- 299,900 -- -- --
Unrealized Holding [Loss]
on Marketable Securities -- -- -- -- -- -- -- (53,095)
Sale of Common Stock -- -- 1,250,000 1,250 3,998,750 -- -- --
Issuance of Common Stock -- -- 9,700,000 9,700 -- -- -- --
Cancellation of Common Stock -- -- (9,700,000) (9,700) -- -- -- --
Sale of Common Stock -- -- 1,217,647 1,217 2,285,921 -- -- --
Purchase of Treasury Stock -- -- -- -- -- (145,500) (278,697) --
Sale of Preferred Stock 10,000 10 -- -- 906,840 -- -- --
Cancellation of Common Stock -- -- (25,000) (25) 25 -- -- --
Issuance of Common Stock -- -- 31,106 31 18,720 -- -- --
Conversion of Preferred Stock (2,740) (3) 147,002 147 (144) -- -- --
Contingent Acquisition -- -- 200,000 200 399,800 -- -- --
Imputed non-cash Series A
Convertible Preferred Stock
Dividend -- -- -- -- 269,443 -- -- --
[Loss] From Continuing
Operations -- -- -- -- -- -- -- --
[Loss] From Discontinued
Operations -- -- -- -- -- -- -- --
------- -------- ------------ --------- ------------ -------- --------- ---------
BALANCE - DECEMBER 31, 1998 7,260 $ 7 12,410,939 $ 12,410 $ 12,329,161 (145,500) $(278,697) (95,858)
======= ======== ============ ========= ============ ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
DEFERRED TOTAL
ACCUMULATED ACQUISITION SUBSCRIPTION SHAREHOLDERS'
[DEFICIT] COSTS RECEIVABLE EQUITY
--------- ----- ---------- ------
<S> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 $ (217,431) $ -- $ -- $ 1,679,135
Sale of Common Stock -- -- -- 350,250
Sale of Common Stock -- -- -- 25
Asset Acquisition -- -- -- 1,599,080
Conversion of Debt to Equity -- -- -- 313,475
Issuance of Shares in Escrow -- -- -- 100
Unrealized Holding Loss on
Marketable Securities -- -- -- (42,763)
Income from Continuing
Operations 1,067,793 -- -- 948,225
Loss from Discontinued
Operations (20,476) -- -- 99,092
------------ ----------- ------------- ---------------
BALANCE - DECEMBER 31, 1997 829,886 -- -- 4,946,619
Sale of Escrow Common Stock -- -- -- 299,900
Unrealized Holding [Loss]
on Marketable Securities -- -- -- (53,095)
Sale of Common Stock -- -- (1,445,000) 2,555,000
Issuance of Common Stock -- -- -- 9,700
Cancellation of Common Stock -- -- -- (9,700)
Sale of Common Stock -- -- -- 2,287,138
Purchase of Treasury Stock -- -- -- (278,697)
Sale of Preferred Stock -- -- -- 906,850
Cancellation of Common Stock -- -- -- --
Issuance of Common Stock -- -- -- 18,751
Conversion of Preferred Stock -- -- -- --
Contingent Acquisition -- (400,000) -- --
Imputed non-cash Series A
Convertible Preferred Stock
Dividend (269,443) -- -- --
[Loss] From Continuing
Operations (1,332,400) -- -- (1,332,400)
[Loss] From Discontinued
Operations (371,448) -- -- (371,448)
------------ ----------- ------------- ---------------
BALANCE - DECEMBER 31, 1998 $ (1,143,405) $ (400,000) $ (1,445,000) $ 8,978,618
============ =========== ============= ===============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-16
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
[Loss] Income from Continuing Operations $(1,332,400) $ 1,104,668
Adjustments to Reconcile Net [Loss] Income to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 473,209 323,959
Deferred Tax Asset 176,812 (176,812)
Provision for Doubtful Accounts 1,435,040 397,104
Loss on Sale of Assets 950 --
Realized Loss on Carrying Value of Investments 51,516 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (93,938) (24,278)
Prepaid Expenses (494) 2,184
Notes Receivable (747,062) (3,677,476)
Other Assets (103,199) (17,271)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 391,033 627,278
Income Taxes Payable (634,336) 634,336
Other Current Liabilities (24,917) 25,316
Due to Customer (20,721) (7,558)
----------- -----------
NET CASH - CONTINUING OPERATIONS (428,507) (788,550)
----------- -----------
DISCONTINUED OPERATIONS:
[Loss] from Discontinued Operations (371,448) (124,040)
Adjustments to Reconcile Net [Loss] to Net Cash Operations:
Depreciation and Amortization 144,748 99,945
Provision for Doubtful Accounts 27,424 15,594
Loss on Sale of Assets 50 --
Gain on Disposal of Foreign Subsidiary -- (144,982)
Changes in Net Assets and Liabilities (117,751) 41,470
----------- -----------
NET CASH - DISCONTINUED OPERATIONS (316,977) (112,013)
----------- -----------
NET CASH - OPERATING ACTIVITIES - FORWARD (745,484) (900,563)
----------- -----------
INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Increase in Due from Related Parties (5,385) (1,582)
Purchase of Investments (6,451,459) (109,418)
Purchase of Property, Equipment, and Capitalized Software (1,241,840) (368,197)
Purchase of EmiNet - Net of Cash Acquired -- (18,268)
Sale of Investments 1,245,728 35,671
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARD $(6,452,956) $ (461,794)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-17
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES - FORWARDED $ (745,484) $ (900,563)
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARDED (6,452,956) (461,794)
----------- -----------
INVESTING ACTIVITIES - DISCONTINUED OPERATIONS:
Purchase of Property and Equipment (6,419) (57,665)
Disposition Gain on Sale of Discontinued Operations -- 158,082
----------- -----------
NET CASH INVESTING ACTIVITIES - DISCONTINUED OPERATIONS (6,419) 100,417
----------- -----------
FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Proceeds from Conversion of Debt to Equity -- 313,475
Proceeds from Issuance of Common Stock 6,597,047 350,250
Proceeds from Issuance of Preferred Stock 906,850 --
Purchase of Treasury Stock (278,697) --
[Decrease] Increase in Loan Payable to Shareholder (16,636) 144,981
Proceeds from Long-Term Debt 153,100 45,000
Payment from Notes Receivable -- --
Payment of Notes Payable (84,660) --
Payment of Lease Payable (11,286) (9,926)
----------- -----------
NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS 7,265,718 843,780
----------- -----------
FINANCING ACTIVITIES - DISCONTINUED OPERATIONS:
Proceeds from Long-Term Debt 40,400 24,391
Payment of Note Payable (6,000) (4,500)
Payment of Lease Payable (38,984) (11,659)
----------- -----------
NET CASH B FINANCING ACTIVITIES B DISCONTINUED OPERATIONS (4,584) 8,232
----------- -----------
NET INCREASE [DECREASE] IN CASH AND CASH EQUIVALENTS 56,275 (409,928)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 11,260 421,188
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 67,535 $ 11,260
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 16,694 $ 5,903
Income Taxes $ -- $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Preferred Stock into Common Stock $ 147 $ --
Stock Issued in Exchange for Contingent Acquisition $ 400,000 $ --
Purchase of Assets under Capital Lease Financing $ 91,401 $ --
</TABLE>
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. As
part of the acquisition of EmiNet Domain, Inc, capital lease obligations of
approximately $106,000 were incurred for the purchase of equipment.
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-18
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[1] ORGANIZATION
NATURE OF BUSINESS - The Company is located in Southern Florida and develops,
sells and services interactive products which are offered and operated via the
Internet and World Wide Web.
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 Notes 12 and 13]
[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, 1998, the Company did not have any cash equivalents.
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.
REVENUE RECOGNITION - Revenue from computer software licensing agreements is
recognized when products are delivered and accepted by the customer and the fee
is fixed or determinable, and collectibility is probable. If the fee is not
fixed or determinable revenue is accounted for as payments from customers become
due. Revenue from software maintenance contracts are recognized ratably over the
life of the contract.
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 5].
F-19
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
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 expense for the years ended December 31, 1998 and
1997 amounted to approximately $29,000 and $122,000, 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, 1998 and 1997, have been calculated
in accordance with SFAS No. 128. Potential common shares are included if
dilutive.
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 should 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. Securities that could potentially dilute earnings per share in the
future are disclosed in Notes 12 and 17.
F-20
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
NET INCOME PER SHARE [CONTINUED] - Earnings per share amounts for 1997 have been
restated for the Company's discontinued operations whose plan of disposal was
adopted by the Company in March 1999. The effect of the restatement on earnings
per share from continuing operations was an increase of $.01 per share for 1997.
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 1998. The Company applies the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" to any
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 $384,144 and
$236,296 for the years ended December 31, 1998 and 1997, 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
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 discounted cash flows
from related operations. Management also reevaluates the periods of amortization
to determine whether subsequent events and circumstances warrant revised
estimates of useful lives. As of December 31, 1998, management expects these
assets to be fully recoverable.
BENEFICIAL CONVERSION FEATURES - The Company has issued convertible preferred
stock with a beneficial conversion feature. The beneficial conversion feature is
analogous to a dividend and is recognized as a return to the preferred
shareholders over the minimum period in which the preferred shareholders can
realize that return. The resulting discount is allocated from the date of
issuance through the date the security was first convertible.
RECLASSIFICATION - Certain prior year amounts have been reclassified to conform
to current year's financial statement presentation.
F-21
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[3] SIGNIFICANT RISKS AND UNCERTAINTIES
[A] CONCENTRATIONS OF CREDIT RISK - 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 occurring from its
normal business activities. The Company places its cash and cash equivalents
with high credit quality institutions to limit its credit exposure. At December
31, 1998, the Company did not have any amounts in a financial institution that
is subject to normal credit risk beyond insured amounts. The Company routinely
assesses the credit worthiness of its customers before a sale takes place and
believes its credit risk exposure on accounts and notes receivable is limited.
The Company performs ongoing credit evaluations of its customers but does not
require collateral on accounts and notes receivable or other financial
instruments. The Company maintains allowances for potential credit losses.
[B] OTHER CONCENTRATION - 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 1998 totaling $2,145,000 which is
approximately 88% of total revenues. In 1997 the Company had a portion of its
revenues from six customers totaling $3,095,000 which is approximately 78% of
total revenues. Sales derived from major customers are tabulated.
REVENUES
YEAR ENDED
DECEMBER 31,
CUSTOMERS 1 9 9 8 1 9 9 7
- --------- ------- -------
Customer A (Software Sales) $ 675,000 $ --
Customer B (Software Sales) 220,000 --
Customer C (Software Sales) 350,000 --
Customer D (Software Sales) 450,000 --
Customer E (Software Sales) 450,000 --
Customer F (Software Sales) -- 600,000
Customer G (Software Sales) -- 450,000
Customer H (Software Sales) -- 600,000
Customer I (Software Sales) -- 410,000
Customer J (Software Sales) -- 450,000
Customer K (Software Sales) -- 585,000
---------- ----------
TOTALS $2,145,000 $3,095,000
- -------------------------------------------- ========== ==========
GEOGRAPHIC INFORMATION
Canada $ 450,000 $ --
Caribbean 1,695,000 1,500,000
Bahamas -- 600,000
Vanuatu -- 410,000
South Africa -- 585,000
---------- ----------
TOTALS $2,145,000 $3,095,000
========== ==========
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.
F-22
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[4] NOTES RECEIVABLE
<TABLE>
<CAPTION>
<S> <C>
Notes receivable at December 31, 1998 consist of the following:
Australian Advisors, Ltd., varying monthly payments based on a percentage of
the net win of the system or a minimum of $3,000 per month $ 150,000
Casinos of the South Pacific, monthly principal payments of $10,000
through August 2000; non-interest bearing 225,600
Intercoin AVV, monthly principal payment of $9,722, through
November 2000, non-interest bearing 345,000
Luck's Casino, Inc., varying monthly payments based on a percentage
of the net win of the system 430,000
Carib Design, Inc., monthly equal payments of $4,791 through
September 2000, non-interest bearing 115,000
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, 1998] 357,400
-----------
Total Notes Receivable 1,623,000
Less: Reserve for Uncollectible Notes (303,549)
Discounts for Non-Interest Bearing Notes [8%] (66,770)
-----------
Total 1,252,681
Less: Amounts Shown as Current (746,302)
-----------
NOTES RECEIVABLE - NON-CURRENT PORTION $ 506,379
-------------------------------------- ===========
</TABLE>
At December 31, 1998, scheduled maturities of notes receivable approximated the
following:
YEAR ENDING
DECEMBER 31,
1999 $ 577,056
2000 562,672
2001 371,272
2002 106,000
2003 6,000
Thereafter --
------------
TOTAL $ 1,623,000
----- ============
The Company supplies the activation codes 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.
F-23
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[5] INVESTMENTS IN EQUITY SECURITIES
The Company has investment securities available for sale with of a cost of
$2,873,562 and a fair value at December 31, 1998 of $2,516,005.
Gross proceeds from the sale of available for sale securities was $853,856, and
$35,671 and gross realized loss was $51,516 and $20,859 for the years ended
December 31, 1998 and 1997, respectively. For the year ended December 31, 1998
unrealized holding gains and losses for available for the securities were
$115,498 and $(211,356), respectively. For the year ended December 31, 1997,
unrealized gains and losses were $-0- and $(42,763), respectively.
The Company sold stock with a cost of $2,287,138 for $3,486,139, of which
$2,497,298 remains outstanding and is classified as due from broker.
[6] OTHER COMPREHENSIVE LOSS
Unrealized holding loss on investments net of income tax benefit of $-0- is as
follows:
1 9 9 8
-------
Beginning Balance $ (42,763)
Current Year - Other Comprehensive Loss (53,095)
------------
TOTAL $ (95,858)
----- ============
[7] PROPERTY AND EQUIPMENT
The following details the composition of property and equipment:
ACCUMULATED
COST DEPRECIATION NET
Computer Hardware $451,130 $141,879 $309,251
Equipment, Office Fixtures and Furnishings 85,850 18,644 67,206
Leasehold Improvements 23,374 3,444 19,930
-------- -------- --------
TOTALS $560,354 $163,967 $396,387
------ ======== ======== ========
Depreciation expense for the years ended December 31, 1998 and 1997 was $ 87,069
and $77,529, respectively.
OTHER ASSETS - Included in other assets is an investment at cost in a Limited
Liability Corporation for $100,000. The Company produces films and is currently
in the process of preparing the negative print of the film for theatrical
release. As at December 31, 1998, there is no income to date.
[8] DEFERRED ACQUISITION COSTS
In October of 1998, the Company entered into a Stock Purchase Agreement with
Axxsys International, Inc., [Seller] to purchase the assets of Axxsys for
$400,000.00. Under the agreement 200,000 shares of the Company's common stock
was delivered and is held in an escrow account for a period of 12 months.
The purchase price is contingent upon the current customers of the seller
continuing to provide average monthly revenues to the purchaser during the said
12 months of an amount agreed between the parties. In the event this average
monthly revenue is less than the agreed amount then the shares delivered to the
seller shall be reduced by a ratio of the actual monthly average revenues and
the agreed amounts. As the 200,000 shares are released, the cost of the
Company's acquisition will be the fair value of the shares on the date the
contingency is met. Since the Company acquired is a part of discontinued
operations, the cost of the acquisitions will be charged to discontinued
operations.
F-24
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[9] LEASES
CAPITAL LEASES - The Company is the lessee of office equipment under capital
leases expiring in various years through December 2002. 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, totaling $1,996, is included in
depreciation expense.
Following is a summary of property held under capital leases:
Office Equipment $ 91,452
Less: Accumulated Amortization 1,996
-----------
TOTAL $ 89,456
----- ===========
Minimum future lease payments under capital leases for each of the next five
years and in the aggregate are:
1999 $ 46,511
2000 46,511
2001 42,480
2002 10,063
Thereafter --
-----------
Net Minimum Lease Payments 145,565
Less: Amount Representing Interest 42,577
-----------
Present Value of Net Minimum Lease Payments 102,988
Less: Current Portion 26,105
-----------
LONG-TERM PORTION $ 76,883
----------------- ===========
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, 1998.
YEAR ENDING OPERATING
DECEMBER 31, LEASES
1999 $ 115,593
2000 120,142
2001 123,384
2002 81,885
2003 --
Thereafter --
-----------
TOTAL $ 441,004
----- ===========
Rent expense for the years ended December 31, 1998 and 1997 was $91,690 and
$91,525, respectively.
F-25
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[10] FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted statement of Financial Accounting Standards ["SFAS'] No.
107, "Disclosure About Fair Value of Financial Instruments" which 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.
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.
[11] LONG-TERM DEBT
At December 31, 1998, long-term debt consisted of the following:
Note payable - consultant, non-secured demand notes due January 5, 1999.
The notes accrue interest at 6% per annum. $ 100,000
Less: Current Portion (100,000)
-------------
TOTAL $ --
----- =============
[12] CAPITAL STOCK
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 were 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 13].
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 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 yet to be determined.
In the second quarter of 1998, the Company sold 1,250,000 shares for a total of
$4,000,000 pursuant to Regulation D. The Company received $2,000,000 and a note
receivable in foreign currency for the balance. The note receivable is shown in
the equity section classified as a subscription receivable. Subsequently, the
note has devalued due to foreign currency exchange. A foreign currency loss of
$600,000 is included in other income [expense] [See Note 18].
F-26
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[12] CAPITAL STOCK [CONTINUED]
Also in the second quarter of 1998, 9,700,000 shares of common stock were issued
to Atlantic International Entertainment Australia, a wholly owned subsidiary for
use in a proposed takeover of the Australian Company, Coms21. As the proposed
takeover did not happen, the 9,700,000 shares issued were cancelled.
In the second quarter of 1998, 10,000 shares of 5% Convertible Preferred Stock,
$.001 par value, were issued for cash. Each share is convertible into common
stock by virtue of a formula contained in the Purchase Agreement which is 78% of
the three day average closing bid price for the corporations common stock for
the twenty five (25) trading days prior to the delivery of the notice of
redemption. The amount of such non-cash discounts which is analogous to a
dividend is $269,443. Holders of the Series A preferred stock are entitled to;
(i) quarterly cumulative dividends at the rate of 5% per annum of the original
issue price of the Series A preferred stock, (ii) a liquidation preference equal
to the sum of $100 for each outstanding share of Series A preferred stock.
In August 1998, 5,000 shares of the Company's common stock were issued to a
consultant for services performed.
The aggregate amount of arrearages in cumulative preferred dividends is $33,333
and is less than $.01 per share.
In the third quarter of 1998, 1,217,647 shares were exchanged to an Australian
listed company for 12,176,470 shares of the Australian company in a one for ten
stock swap.
In September 1998, 26,098 shares of the Company's common stock were issued to
adjust the issuance of shares to certain individuals at the time of the
Company's reverse merger in 1996.
During the third and fourth quarter of 1998, 2,740 shares of convertible
preferred stock valued at $274,000 was converted into 147,002 shares of common
stock by virtue of a formula contained in the Purchase Agreement which relates
to the average price per share of common stock within the conversion period.
[13] DISCONTINUED OPERATIONS
On December 15, 1996, the Company adopted a plan to discontinue and sell its
foreign subsidiary, known as Atlantic International Entertainment, 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 foreign
subsidiary is reported as a discontinued operation for the year ended December
31, 1997.
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].
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. The transaction, effective
April 1, 1997 was accounted for as a purchase. As a result of the acquisition,
cost in excess of net assets of approximately $1,440,000 was recorded. On March
11, 1999, the Company adopted a plan to discontinue EmiNet [See Note 21].
Operating results of EmiNet Domain including net sales of approximately $544,000
and $414,000 are included in discontinued operations in the statement of
operations for the year ended December 31, 1998 and 1997, respectively.
F-27
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[13] DISCONTINUED OPERATIONS [CONTINUED]
Assets and liabilities to be disposed of consisted of the following at December
31, 1998.
Cash $ 20,640
Accounts Receivable - Net 5,272
Property Plant and Equipment - Net 155,917
Intangible Assets - Net 1,362,264
Other Assets 2,257
---------
Total Assets 1,546,350
---------
Accounts Payable and Accrued Expenses 91,757
Notes Payable and Lines of Credit 103,321
---------
Total Liabilities 195,078
---------
NET ASSETS TO BE DISPOSED OF $1,351,272
---------------------------- ==========
Assets are shown at their expected net realizable values and liabilities are
shown at their face amounts. Net assets to be disposed of at their expected net
realizable values, have been separately classified in the accompanying balance
sheet at December 31, 1998.
[14] RELATED PARTY TRANSACTIONS
The Company has a receivable due from an affiliated company, whose shareholders
are also shareholders of the Company. The balance of the receivable at December
31, 1998 is $55,240. During the year ended December 31, 1998, there were no
additional advances or repayments. The original advance accrued interest at a
rate of 6% per annum and is due on demand.
The Company has notes payable to two officers in the aggregate amounts of
$150,000 at December 31, 1998. The notes are demand notes and incur interest at
8% per annum. Interest expense related to the shareholders notes totaled $8,855
and $7,525 for the years ended December 31, 1998 and 1997, respectively.
[15] PROVISION FOR INCOME TAXES
Income tax [benefit] expense from continuing operations consists of the
following:
DECEMBER 31,
------------
1 9 9 8 1 9 9 7
------- -------
Current:
Federal $(443,371) $ 615,723
State (17,311) 23,657
--------- ---------
Total Current (460,682) 639,380
--------- ---------
Deferred:
Federal -- 167,062
State -- 9,750
--------- ---------
Total Deferred -- 176,812
--------- ---------
TAX EXPENSE [BENEFIT] - CONTINUING OPERATIONS $(460,682) $ 462,568
--------------------------------------------- ========= =========
F-28
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[15] PROVISION FOR INCOME TAXES [CONTINUED]
Income tax from continuing operations at the federal statutory rate reconciled
to the Company's effective rate is as follows:
DECEMBER 31,
------------
1 9 9 8 1 9 9 7
------- -------
Federal Statutory Rate 34.0% 34.0%
Non-Deductible Expenses -- --
Benefit of Net Operating Loss -- (3.6)
State Income Taxes 2.0 3.6
Other -- (4.0)
------ ------
EFFECTIVE RATE 36.0% 30.0%
-------------- ====== ======
In 1996, the Company recognized the benefit of $77,215 from the utilization of
an operating loss carryback which was filed in 1997.
The major components of deferred income tax assets and liabilities at December
31, 1998 is as follows:
Deferred Tax Assets [Liability] - Current:
Accrual to Cash Adjustments $ (76,089)
Foreign Currency Transaction Loss 216,000
Discontinued Operations 18,000
Valuation Allowance (157,911)
-------------
CURRENT DEFERRED TAX ASSET $ --
-------------------------- =============
Deferred Tax Assets [Liability] - Long-Term:
Net Operating Loss Carryforward $ 279,642
Depreciation (95,040)
Valuation Allowance (184,602)
-------------
LONG-TERM DEFERRED TAX LIABILITY $ --
-------------------------------- =============
At December 31, 1998, the Company had approximately $777,000 of operating tax
loss carryforwards expiring in 2012.
The Company's valuation allowance increased by approximately $343,000 for the
year ended December 31, 1998.
[16] 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, 1998
was $289,000. Also, included in the agreements are incentive bonuses based upon
net income and net cash flows. No bonuses have been accrued at December 31,
1998, due to net losses and negative cash flow.
[B] 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-29
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[17] 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. In addition, the
Board of Directors approved a motion that officers and board members receive
100,000 stock options each, resulting in 700,000 shares of the Company's common
stock being granted. An additional 263,000 stock options were also approved and
granted to employees of the Company pursuant to the terms of individual offer
letters.
The following is a summary of transactions, including the options issued to
employees of the Company.
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
OUTSTANDING AT DECEMBER 31, 1996 -- $--
Granted 175,000 3.25
Exercised -- --
Canceled -- --
------- --------
OUTSTANDING AT DECEMBER 31, 1997 175,000 3.25
------- --------
EXERCISABLE AT DECEMBER 31, 1997 175,000 3.25
------- --------
Granted 788,000 3.94
Exercised -- --
Canceled -- --
------- --------
OUTSTANDING AT DECEMBER 31, 1998 963,000 3.83
------- --------
EXERCISABLE AT DECEMBER 31, 1998 963,000 $ 3.83
------- --------
The following table summarizes information about stock options at December 31,
1998:
<TABLE>
<CAPTION>
Exercisable
Outstanding Stock Options Stock Options
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 4.00 $3.25 175,000 $3.25
$4.13 700,000 4.25 $4.13 700,000 $4.13
$2.50 88,000 4.75 $2.50 88,000 $2.50
</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 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 1998 and 1997.
F-30
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[17] 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 vested 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 $3.70 and $2.63, during 1998 and
1997, 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 8 1 9 9 7
------- -------
Risk-Free Interest Rate 5.6 % 5.7 %
Expected Life 5 years 2 years
Expected Volatility 153.0 % 181.0 %
Expected Dividends -- % -- %
The pro forma amounts are indicated below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Net [Loss] Income - Continuing Operations:
As Reported $ (1,332,400) $1,190,036
Pro Forma $ (4,246,891) $ 729,086
Basic Net Income [Loss] Per Share of Common Stock - Continuing Operations:
As Reported $ (.15) $ .13
Pro Forma $ (.39) $ .08
Diluted Net Income [Loss] Per Share of Common Stock - Continuing Operations:
As Reported $ (.15) $ .11
Pro Forma $ (.39) $ .08
</TABLE>
[18] OTHER INCOME [EXPENSE]
Included in other income [expense] is a gain on the sale of an investment of
$1,199,001 and a foreign currency loss for $600,000 arising from a note
receivable issued by the foreign entity for sale of the Company's capital stock.
[19] FOURTH QUARTER YEAR ENDED ADJUSTMENTS
The aggregate effect of year-end adjustments which are material to the fourth
quarter results, total approximately $1,635,000 and consist principally of write
offs of receivables of ($330,000). Reversal of revenues of ($705,000) and
foreign currency loss of ($600,000).
[20] SUBSEQUENT EVENTS
On January 20, 1999, the Company paid $250,000 to Pencom, a software development
company in full and final settlement of a $420,000 payable. This resulted in a
$170,000 extraordinary gain.
F-31
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[21] SUBSEQUENT EVENTS [UNAUDITED]
On March 11, 1999 the Company announced that it has entered into an agreement
with a shareholder to sell a majority interest in its wholly owned subsidiary,
EmiNet Domain Inc., ["EmiNet"] for $2,500,000. The agreement calls for the sale
of 81% of its interest in the EmiNet. The purchase price is to be paid as
follows: (i) $10,000 payable upon execution of the agreement, (ii) $90,000 in
cash payable at the rate of $14,000 per month commencing on April 15, 1999 and
$2,400,000 by the delivery of a promissory note collateralized by shares of the
Company's common stock with interest at the annual rate of six (6%) percent and
payable two years from the closing date. Any gain realized on the transaction
will be reflected in paid-in capital. The closing date of the transaction was
March 31, 1999.
[22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ["FASB"] issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and how it is designated, for example, gains or losses related to changes in the
fair value of a derivative not designated as a hedging instrument is recognized
in earnings in the period of the change, while certain types of hedges may be
initially reported as a component of other comprehensive income [outside
earnings] until the consummation of the underlying transaction.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company does not currently have any derivative instruments and is not currently
engaged in any hedging activities.
On March 31, 1999, the FASB released a proposal for public comment that would
resolve certain practice issues raised when accounting for stock options. Since
the issuance of APB Opinion 25, "Accounting for Stock Issued to Employees,"
questions have surfaced about its application and differing practices have
developed. The FASB's broad reconsideration of the stock compensation issue
culminated in the issuance of SFAS No. 123, "Accounting for Stock-Based
Compensation," in 1995. SFAS No. 123 permits the continued application of APB
Opinion 25 for employees. However, questions remain about the proper application
of APB Opinion 25 in a number of circumstances. The FASB's proposed
Interpretation would clarify how to apply APB Opinion 25 in certain situations.
F-32
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS [CONTINUED]
The proposed Interpretation includes the following conclusions:
o Once an option is repriced, that option must be accounted for as a variable
plan from the time it is repriced to the time it is exercised. Consequently,
the final measurement of compensation expense would occur at the date of
exercise.
o Employees would be defined as they are under common law for purposes of
applying APB Opinion 25.
o APB Opinion 25 does not apply to outside directors because, by definition,
an outside director cannot be an employee. Accordingly, the cost of issuing
stock options to outside board members will have to be determined on a fair
value basis in accordance with SFAS No. 123, and recorded as an expense in
the period of the grant [the service period could be prospective, however].
o Since APB Opinion 25 was issued in 1972, the terms of many "section 423" tax
plans have changed from those in existence at the time. Many of those plans
now provide that employees can purchase an employer's stock at the lesser of
85 percent of the stock price at the date of grant or 85 percent of the
price at the date of exercise. This provision is referred to as a
"look-back" option. The FASB decided that plans with a look-back option do
not, in and of themselves, create a compensatory plan.
o A subsidiary may account for parent company stock issued to its employees
under APB Opinion 25 in their separately issued financial statements,
provided the subsidiary is part of the parent's consolidated financial
statements.
The FASB's proposed Interpretation would be effective upon issuance, which is
expected in September 1999, but generally would cover plan grants and
modifications that occur after December 15, 1998.
. . . . . . . . . .
F-33
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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 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 statutory amendment specifically provides to the contrary) shall not
adversely affect any right or protection, existing immediately prior to the
effectiveness of repeal or modification with respect to any acts or omissions
occurring either before or after repeal or modification, of a person serving as
a director at the time of 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 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 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:
44
<PAGE>
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 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 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 statutory
amendment specifically provides to the contrary) shall not adversely affect any
right or protection, existing immediately prior to the effectiveness of repeal
or modification with respect to any acts or omissions occurring either before or
after repeal or modification, of a person serving as a director at the time of
repeal or modification.
In addition, Section 5 of Article VII of the Bylaws of the Registrant, as
amended, provides as follows:
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
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against 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
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 indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of issue.
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 $ 9,724.21
Legal Fees and Expenses 5,000.00
Accounting fees and expenses 3,000.00
Miscellaneous 1,000.00
----------
Total $18,724.21
----------
45
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the following securities were sold by us
without registration under the Securities Act. Except as otherwise indicated,
the securities were sold by in reliance upon the exemption provided by Section 4
(2) of the Securities Act, among others, on the basis that transactions did not
involve any public offering and the purchasers were sophisticated with access to
the kind of information registration would provide:
Shaar Fund 10,000 shares of 5%
Convertible Preferred stock.
Hosken Consolidated Industries 1,000,000 shares of common stock
COMS 21, Ltd. 1,216,667 shares of common stock
Monness, Crespi, Hardt & Co., Inc. 150,000 shares of common stock
In December 1997, we sold Australian Advisers 100,000 shares of common
stock 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
us.
On April 3, 1998, we 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 Convertible
Preferred stock is convertible into our common stock at the purchaser's option.
When the Securities Purchase Agreement was signed, we 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. We agreed to and did 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 registration
statement for the term of the above Agreement. We believe that, during the
period of effectiveness of the above registration statement, the Purchaser may
convert the securities to common stock and sell all or any of the shares of
common stock without restriction.
On April 30, 1998, we entered into a Securities Purchase Agreement with
Hosken Consolidated Investments, Ltd., a South African corporation for the
purchase of 1,000,000 shares of our 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 our South
African subsidiary, Atlantic International Entertainment, Ltd. South Africa. HCI
received its equity in consideration for its services to be rendered related to
introducing us to the South African gaming and wagering community.
On August 24, 1998, our wholly-owned subsidiary, AIE, Australia, Ltd. submitted
an offer for the acquisition of an Australian listed company, Coms21. We will
offer Coms21 shareholders the equivalent of $.70 AUD per share in the form of
our U.S. shares. We eventually accepted approximately 12,000,000 shares of
Coms21 in exchange for approximately 1,200,000 shares of our common stock and
therafter withdrew our offer for the rest of the Coms21 stock.
46
<PAGE>
Item 27. Exhibits and Financial Statement Schedules.
(a) Exhibits:
3.1 -- Certificate of Incorporation of Atlantic International
Entertainment, Ltd.(including Certificate of Designation)
3.2 -- Bylaws of Atlantic International Entertainment, Ltd..
4.1 -- Specimen common stock Certificate.
10.1 -- Incentive stock Option Plan for Employees, Directors,
Consultants and Advisers.
10.2 -- Exchange of stock Agreement and Plan of Reorganization
dated July 16, 1996 by and between Atlantic International
Entertainment, Ltd. (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
Atlantic International Entertainment, Ltd. (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 we, RAM Associates and James A Dougherty.
10.6 -- Agreement for Purchase and Sale of stock dated as of
December 15, 1996 by and between we, 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 Atlantic International
Entertainment, Ltd. and Eminet Domain, Inc.
10.8 -- Securities Purchase Agreement dated April 3, 1998 by and
between Atlantic International Entertainment, Ltd. and
The Shaar Fund
47
<PAGE>
10.9 -- Addendum to Securities Purchase Agreement dated June 3,
1998 by and between Atlantic International Entertainment,
Ltd. and The Shaar Fund
10.10 -- Employment Agreements with Richard Iamunno and Norman
Hoskin
*23.1 -- Consent of Moore Stephens, P.C.
*23.2 -- Consent of Harry Winderman, Esq.
*25.0 -- Power of Attorney, included on the signature page to this
registration statement
__________________________
* Included herein.
ITEM 28. UNDERTAKINGS.
The undersigned registrant undertakes:
(1) File, during any period in which it offers or sales
securities, a post-effective amendment to this registration
statement to;
(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
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 indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against 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 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 indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of issue.
48
<PAGE>
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 10th day of June, 1999.
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
By:/s/ Richard Iamunno
---------------------------------
Richard Iamunno, President
POWER OF ATTORNEY
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
* Chairman of the Board, June 10, 1999
- ---------------------- Secretary, and Treasurer
Norman J. Hoskin
/s/ Richard Iamunno President, Chief Executive June 10, 1999
- ---------------------- Officer, Chief Financial
Richard A. Iamunno Officer and Director
* Principal Accounting Officer June 10, 1999
- ----------------------
Trevor Klein
Director June 10, 1999
- ----------------------
Peter Lawson
49
<PAGE>
Director June 10, 1999
- ----------------------
Jeffrey Hurwitz
* Director June 10, 1999
- ----------------------
Martin McCarthy
--------------------- Director June 10, 1999
Marcel Golding
/s/ Leonard Haimes
- ---------------------- Director June 10, 1999
Dr. Leonard Haimes
By:/s/ Richard Iamunno
-----------------------------
Richard Iamunno
Attorney-in-Fact
50
Exhibit 23.1
Consent of Moore Stephens
Board Of Directors
Atlantic International Entertainment, Ltd.
We consent to the inclusion in the registration statement on Form SB-2
of our report dated February 6, 1999 on our audits of the consolidated financial
statements of Atlantic International Entertainment, Ltd. 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 3, 1999
Exhibit 23.2
Consent of Harry Winderman, Esq.
June 10, 1999
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 1,366,667 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 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 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.
