UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 ( d ) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________.
Commission File Number: 0-27256
-------
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
(Exact name of small business issuer as specified in its charter)
DELAWARE 65-0512785
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
200 East Palmetto Park Road, Suite 200, Boca Raton, Florida 33432
(Address of principal executive offices)
Registrant's telephone no., including area code: (561) 393-6685
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES /X/ NO / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding as of August 13, 1999
- ------------------------------- ----------------------------------
Common Stock, $.001 par value 13,375,455
<PAGE>
TABLE OF CONTENTS
Heading Page
PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements .............................................2
Consolidated Balance Sheet - June 30, 1999 (Unaudited)............3-4
Consolidated Statement of Income and Comprehensive
Income (Unaudited) ...............................................5
Consolidated Statement of Cash Flows - Three Months ended
June 30, 1999 (Unaudited) ......................................6-7
Consolidated Statement of Cash Flows - Six Months ended
June 30, 1999 (Unaudited) ......................................8-9
Notes to Consolidated Financial Statements (Unaudited) .........10-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................14-15
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings ................................................16
Item 2. Changes In Securities .............................................16
Item 3. Defaults Upon Senior Securities....................................16
Item 4. Submission of Matters to a Vote of Securities Holders .............16
Item 5. Other Information .................................................16
Item 6. Exhibits and Reports on Form 8-K...................................16
Signatures ........................................................17
<PAGE>
PART 1
Item 1. Financial Statements
The following unaudited financial Statements for the period ended
June 30, 1999, have been prepared by Atlantic International
Entertainment, Ltd. (the "Company") and Subsidiaries.
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
Financial Statements
June 30, 1999
2
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
<S> <C>
Assets:
Current Assets:
Investments $2,613,294
Notes Receivable 161,000
Deferred Tax Asset 123,691
Prepaid Expenses 10,007
Due from Related Parties 56,068
Other Current Assets 27,715
----------
Total Current Assets 2,991,775
----------
Property and Equipment - Net 384,261
----------
Equipment under Capitalized Lease - Net 143,817
----------
Software [Net of Accumulated Amortization of $1,137,469] 1,514,937
----------
Other Assets:
Other Assets 119,515
Notes Receivable 2,400,000
Investments 497,490
----------
Total Other Assets 3,017,005
----------
Total Assets $8,051,795
==========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
3
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Cash Overdraft $ 37,357
Accounts Payable and Accrued Expenses 968,617
Notes Payable - Officers 283,750
Current Portion of Capital Lease Obligations 51,933
Current Portion of Long Term Debt 110,000
------------
Total Current Liabilities 1,451,657
Capital Lease Obligations 104,461
------------
Total Liabilities 1,556,118
------------
Stockholders' Equity:
Convertible Preferred Stock - Par Value $.001 Per Share;
Authorized 10,000,000 Shares, Issued and Outstanding,
5,700 shares [Liquidation Preference $570,000] 57
Common Stock - Par Value $.001 Per Share;
Authorized 100,000,000 Shares, Issued - 13,246,634 Shares 13,246
Additional Paid-in Capital 12,791,301
Treasury Stock, 540,675 Common Shares - At Cost (1,253,990)
Accumulated Comprehensive Loss (43,689)
Accumulated [Deficit] (3,166,248)
Deferred Acquisition Costs (400,000)
------------
Total 7,940,677
Less: Subscriptions Receivable (1,445,000)
------------
Total Stockholders' Equity 6,495,677
------------
Total Liabilities and Stockholders' Equity $ 8,051,795
============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
4
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
------------------ ----------------
June 30, June 30,
-------- --------
1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue $ 469,500 $ 1,425,908 $ 498,500 $ 2,457,908
Cost of Sales 222,327 156,126 549,688 269,439
------------ ------------ ------------ ------------
Gross [Loss] Profit 247,173 1,269,782 (51,188) 2,188,469
------------ ------------ ------------ ------------
Operating Expenses:
General and Administrative 1,520,377 660,189 2,624,251 1,035,953
Provision for Doubtful Accounts and Notes 896,820 70,963 1,222,155 177,447
Depreciation and Amortization 43,988 107,286 75,427 208,001
------------ ------------ ------------ ------------
Total Operating Expenses 2,461,185 838,438 3,921,833 1,421,401
------------ ------------ ------------ ------------
[Loss] Income from Operations (2,214,012) 431,344 (3,973,021) 767,068
------------ ------------ ------------ ------------
Other [Expenses] Income:
Interest Income 22,766 -- 30,876 6,443
Interest Expense (6,503) (6,360) (22,632) (14,225)
Other Income [Expense] (25,046) (4,100) 1,398,397 (4,100)
------------ ------------ ------------ ------------
Other [Expenses] Income - Net (8,783) (10,460) 1,406,641 (11,882)
------------ ------------ ------------ ------------
[Loss] Income from Continuing Operations Before
Income Tax [Benefit] Expense (2,222,795) 420,884 (2,566,380) 755,186
Income Tax [Benefit] Expense -- 119,057 (123,691) 146,469
------------ ------------ ------------ ------------
[Loss] Income from Continuing Operations (2,222,795) 301,827 (2,442,689) 608,717
Discontinued Operations:
[Loss] from Operations of Discontinued
Business Segment [Net of Income Tax
[Benefit] of ($30,521) and $(0), for the
six months ended June 30, 1999 and 1998,
Respectively] -- (37,547) (54,261) (65,751)
------------ ------------ ------------ ------------
Net [Loss] Income (2,222,795) 264,280 (2,496,950) 542,966
Comprehensive Gain:
Unrealized Holding Gain [Loss]
arising during period (692,074) (61,615) 52,169 (61,615)
------------ ------------ ------------ ------------
Total Comprehensive [Loss] Income (2,914,869) 202,665 (2,444,781) 481,351
============ ============ ------------ ------------
Net [Loss] Income (2,222,795) 264,280 (2,496,950) 542,966
Preferred Stock Dividend in Arrears 7,125 -- 19,625 --
------------ ------------ ------------ ------------
Net [Loss] Income Available to
Common Stockholders (2,229,920) 264,280 (2,516,575) 542,966
------------ ------------ ------------ ------------
[Loss] Income Per Common Share:
Continuing Operations (0.17) 0.03 (0.20) 0.05
Basic and Diluted Net [Loss] Income
Per Share of Common Stock (0.17) 0.03 (0.20) 0.05
Weighted Average Shares of Common
Stock Outstanding 12,984,561 10,460,921 12,784,845 9,992,219
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
5
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------
1 9 9 9 1 9 9 8
------- -------
<S> <C> <C>
Operating Activities:
[Loss] Income from Continuing Operations $(2,222,795) $ 264,280
Adjustments to Reconcile Net [Loss] Income to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 264,830 143,185
Provision for Doubtful Accounts 896,820 48,976
Regulated Loss on Carrying Value of Investments 324 51,289
Loss on Sale of Subsidiary 24,722 16,827
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 11,801 7,462
Prepaid Expenses 25,627 --
Notes Receivable (106,765) (1,278,187)
Restricted Cash (10,165) --
Other Assets -- 11,564
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 134,760 (62,978)
Income Taxes Payable -- 118,999
Other Current Liabilities -- (18,670)
Due to Customer -- (75,000)
----------- -----------
Net Cash - Continuing Operations (980,841) (772,253)
----------- -----------
Investing Activities - Continuing Operations:
Increase in Due from Related Parties -- (25,759)
Purchase of Investments (200,000) (600,000)
Purchase of Property, Equipment, and Capitalized Software (24,012) (264,226)
Sale of Investments 69,236 156,650
----------- -----------
Net Cash - Investing Activities - Forward $ (154,776) $ (733,335)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
6
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------
1 9 9 9 1 9 9 8
------- -------
<S> <C> <C>
Net Cash - Operating Activities - Forwarded $ (980,841) $ (772,253)
----------- -----------
Net Cash - Investing Activities - Continuing Operations -
Forwarded (154,776) (733,335)
----------- -----------
Financing Activities - Continuing Operations:
Purchase of Treasury Stock (9,250) --
Proceeds from Issuance of Common Stock 217,369 4,000,000
Proceeds from Issuance of Preferred Stock 569,943 906,850
Increase in Loan Payable to Shareholder 263,750 17,421
Proceeds from Long Term Debt 110,000 25,423
Payment from Notes Receivable -- 70,000
Payment of Notes Payable -- (41,733)
Payment of Lease Payable (13,130) (12,053)
Decrease in Loan Receivable (49,524) --
---------- -----------
Net Cash - Financing Activities 1,089,158 4,965,908
---------- -----------
[Decrease] Increase in Cash and Cash Equivalents (46,459) 3,460,320
Cash and Cash Equivalents - Beginning of Period 9,102 (2,486)
---------- -----------
Cash and Cash Equivalents - End of Period $ (37,357) $ 3,457,834
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the quarter for:
Interest $ 17,214 $ 782
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Purchase of Assets under Capital Lease Financing $ 67,778 $ --
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
7
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30,
--------
1 9 9 9 1 9 9 8
------- -------
<S> <C> <C>
Operating Activities:
[Loss] Income from Continuing Operations $(2,442,689) $ 608,717
Adjustments to Reconcile Net [Loss] Income to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 516,217 208,001
Deferred Tax Asset (123,691) --
Provision for Doubtful Accounts 1,222,155 177,447
Loss on Sale of Assets 3,100 --
Realized Loss on Carrying Value of Investments 648 55,455
Gain on Sale of Subsidiary (1,231,750) --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 13,715 4,046
Prepaid Expenses 1,250 141
Notes Receivable (21,790) (1,972,705)
Other Assets 66,650 (4,087)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (106,364) (138,298)
Income Taxes Payable -- 149,627
Other Current Liabilities -- (2,429)
Due to Customer -- (20,721)
----------- -----------
Net Cash - Continuing Operations (2,102,549) (934,806)
----------- -----------
Discontinued Operations:
[Loss] from Discontinued Operations (54,261) (65,751)
Adjustments to Reconcile Net [Loss] to Net Cash Operations:
Depreciation and Amortization 38,220 71,936
Provision for Doubtful Accounts 18,915 --
Changes in Net Assets and Liabilities 238,577 71,998
----------- -----------
Net Cash - Discontinued Operations 241,451 78,183
----------- -----------
Net Cash - Operating Activities - Forward (1,861,098) (856,623)
----------- -----------
Investing Activities - Continuing Operations:
Increase in Due from Related Parties (828) (26,506)
Purchase of Investments (318,429) (818,278)
Purchase of Property, Equipment, and Capitalized Software (66,222) (390,864)
Sale of Investments 2,557,770 156,660
----------- -----------
Net Cash - Investing Activities - Continuing Operations -
Forward $ 2,172,291 $(1,078,988)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
8
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
1 9 9 9 1 9 9 8
------- -------
<S> <C> <C>
Net Cash - Operating Activities - Forwarded $(1,861,098) $ (856,623)
----------- -----------
Net Cash - Investing Activities - Continuing Operations -
Forwarded 2,172,291 (1,078,988)
----------- -----------
Investing Activities - Discontinued Operations:
Purchase of Property and Equipment (29,715) (9,231)
Disposition Gain on Sale of Discontinued Operations -- --
----------- -----------
Net Cash Investing Activities - Discontinued Operations (29,715) (9,231)
----------- -----------
Financing Activities - Continuing Operations:
Proceeds from Conversion of Debt to Equity -- --
Proceeds from Issuance of Common Stock 217,312 4,309,600
Proceeds from Issuance of Preferred Stock 570,000 906,850
Purchase of Treasury Stock (975,293) --
[Decrease] Increase in Loan Payable to Shareholder 133,750 105,930
Payment of Notes Payable (100,000) (10,061)
Payment of Lease Payable (20,584) --
Decrease in Loan Receivable (324,286) --
Proceeds from Long Term Debt 110,000 53,500
------------ -----------
Net Cash - Financing Activities - Continuing Operations (389,101) 5,365,819
------------ -----------
Financing Activities - Discontinued Operations:
Proceeds from Long-Term Debt 50,000 400
Payment of Note Payable (41,500) (23,652)
Payment of Lease Payable (5,769) --
----------- -----------
Net Cash Financing Activities Discontinued Operations 2,731 (23,252)
----------- -----------
Net Increase [Decrease] in Cash and Cash Equivalents (104,892) 3,397,725
Cash and Cash Equivalents - Beginning of Years 67,535 8,774
----------- -----------
Cash and Cash Equivalents - End of Years $ (37,357) $ 3,406,499
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 24,719 $ 1,098
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Conversion of Preferred Stock into Common Stock $ 649 $ --
Purchase of Assets under Capital Lease Financing $ 73,989 $ --
Sale of Subsidiary for Note Receivable $ 2,400,000 $ --
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
9
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
June 30, 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 six-month period ended
June 30, 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 $1,231,751 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 Six Months Ended
June 30 June 30
1999 1998 1999 1998
Customer A (Software System) 247,500 -- 247,500 --
Customer B (Software System) 60,000 -- 60,000 --
Customer C (Software System) 130,000 -- 130,000 --
Customer D (Software System) -- -- -- 250,000
Customer E (Software System) -- -- -- 220,000
Customer F (Software System) -- -- -- 350,000
Customer G (Software System) -- 675,000 -- 675,000
Customer H (Software System) -- 100,000 -- 100,000
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. 10 ATLANTIC
INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES Notes to
Consolidated Financial Statements (Unaudited) (Continued) June 30,
1999
10
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Continued)
June 30, 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 were 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 were delivered and are 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 were 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.
During the second quarter of 1999, 2260 shares of convertible
preferred stock valued at $226,000 were converted into 253,933 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.
In the second quarter of 1999, 5,700 shares of 5% Convertible
Preferred Stock, $.001 par value, were issued to the Shaar Fund for
$570,000.00 Each share is convertible into common stock by virtue of
a formula contained in the Purchase Agreement which is 78%
11
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Continued)
June 30, 1999
Note 4 - Capital Stock - Continued
-------------------------
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 $3,027. 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.
On April 6, 1999 certain individual employees were issues 110,000
shares of common stock of the company as a signing bonus pertaining
to employment agreements between the company and the individuals.
In the second quarter of 1999, 75,000 shares of the company's common
stock were issued to a consultant for services performed.
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.
Note 6 - Business Agreements
-------------------
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).
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.
12
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Continued)
June 30, 1999
Note 7 - Subsequent Events
-----------------
On July 1, 1999, the Company's largest institutional stockholder,
Hosken Consolidated Industries, a South African corporation (the
investment company for the Mine Workers Union and South African
Clothing Workers Union), consummated its purchase of approximately
1,100,000 shares of the Company's common stock from Norman J. Hoskin,
the Company's Chairman of the Board of Directors, which represents
substantially all of Mr. Hoskin's holdings in the Company. Mr. Hoskin
has resigned his positions as Chairman and Secretary/Treasurer and
will limit his activities as a consultant to the Company due to his
health. With its purchase, HCI share holdings increases to 2,361,935
shares or approximately 19% of total shares outstanding.
13
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAIMENT, LTD. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
-----------------------------------------------------------
Result of Operations
Three Months Ended June 30, 1999 and 1998
-----------------------------------------
Net Revenues. The Company's revenues decreased approximately 67% in
1999 over the same period in 1998. Revenues from operations in the
first quarter 1999 were $ 469,500, as compared with $ 1,425,908 for the
same period in 1998. The decrease in revenues was the result of the
company's implementation of its new product line. The investment in
sales and marketing resources have also not yet fully impacted revenues
as anticipated. The Company expects sales and market efforts to
substantially increase revenues going forward.
Cost of Revenues. Cost of revenues increased 42% 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 103% or $ 796,890
in the second 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
second quarter 1999 were $ 896,820 as compared with $ 70,963 for the
same period in 1998. The increase resulted from management taking a
conservative approach in recording its provision for doubtful accounts
and a customer going out of business. The Company does not anticipate
any additional provisions for doubtful accounts going forward as
revenue is now recorded on cash basis.
Six Months Ended June 30, 1999 and 1998
---------------------------------------
Net Revenues. The Company's revenues decreased approximately 80% in
1999 over the same period in 1998. Revenues from operations for the six
months ended June 30, 1999 were $ 498,500, as compared with $ 2,457,908
for the same period in 1998. The decrease in revenues was the result of
the company's implementation of its new product line. The investment in
sales and marketing resources have also not yet fully impacted revenues
as anticipated. The Company expects sales and market efforts to
substantially increase revenues going forward
Cost of Revenues. Cost of revenues increased 104% for the six months
ended June 30, 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.
14
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAIMENT, LTD. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
------------------------------------------------------------
Result of Operations - Continued
--------------------------------
Six Months Ended June 30, 1999 and 1998
---------------------------------------
Operating Expenses. Operating expenses increased by 117% or $ 1,455,724
for the six months ended June 30, 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 for
the six months ended June 30, 1999 were $ 1,222,155 as compared with $
177,447 for the same period in 1998. The increase resulted from
management taking a conservative approach in recording its provision
for doubtful accounts and a customer going out of business. The Company
does not anticipate any additional provisions for doubtful accounts
going forward as revenue is now recorded on cash basis.
Other Income. Other income increased by approximately $1,400,000 in
1999 over the same period in 1998. A gain on sale of $1,231,751
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 $2,575,937 at June
30, 1999 compared to $1,993,655 at June 30, 1998. The increase in cash,
cash equivalents and marketable securities was due primarily to cash
proceeds from the sale of Common Stock ($2,000,000) 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, issuance of
Common Stock of a public traded company (Purchaser) in lieu of certain
assets sold to the purchaser ($2,137,000) and issuance of preferred
stock for $570,000.
The increase was offset by cash used for operations, a $1,400,000
debenture note issued by a foreign corporation and $1,200,000 for the
purchase of treasury stock. Management believes that existing cash,
cash equivalents and marketable securities will be sufficient to
satisfy the Company's currently anticipated cash requirements.
15
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
PART II
Item 1. Legal Proceedings
Litigation - On June 9, 1999, the Company was determined to be liable
in a civil action by Kelley & Kelley Advertising, Inc., the Company's
advertising consultant during the Company's initial stage in 1996. The
jury trial, which extended over three days, involved an October 23,
1996 agreement drafted and executed by a former employee who was
subsequently fired by the Company. The trial concluded in the jury
verdict of approximately $26,000.00 in compensatory damages and
$350,000.00 in punitive damages. The jury verdict reflects the belief
that the Company's former employee never intended to provide additional
assignments to Kelley & Kelley. The evidence presented at trial did
show that Kelley & Kelley did receive all of the payments due under the
above agreement but only received one additional assignment. In
addition, the undisputed facts at trial showed that the Company
performed all of its future advertising in-house and did not engage a
firm to replace Kelley & Kelley. Counsel for the Company has filed
motions with the trial court for a directed verdict (overturning the
jury verdict) based on Florida's "Economic Loss Rule" which precludes
tort damages in a breach of contract case. In addition, counsel for the
Company has requested that the Court reduce the punitive damages in
accordance with Florida Statute 768.73 which considers any punitive
damages in excess of three times the compensatory damages as excessive.
The hearing on the above motions is set for August 20, 1999. Counsel
for the Company has advised the Company that the verdict is against the
manifest weight of the evidence and the law and if not reversed by the
trial judge, then the Company should be successful on appeal. The
Company will use any and all resources to reverse the above jury
decision and will, if necessary, vigorously prosecute its appeal
rights.
Item 2. Changes in Securities
This Item is not applicable to the Company.
Item 3. Defaults upon Senior Securities
This Item is no applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Form 8-K - filed July 6, 1999, relating to the purchase of the
Company's shares of common stock by Hosken Consolidated Industries from
Norman J. Hoskin, Mr. Hoskin's resignation from his positions as
Chairman and Secretary/Treasurer and the litigation with Kelley and
Kelley Advertising, Inc.
16
<PAGE>
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Atlantic International Entertainment, Ltd.
Date: August 16, 1999 By: /s/ Richard A. Iamunno
--------------------------------------
(Signature)
Richard A. Iamunno, President
And Chief Executive Officer
Date: August 16, 1999 By: /s/ Peter Lawson
--------------------------------------
(Signature)
Peter Lawson, Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Atlantic
International Entertainment, Ltd.'s financial statements as of June 30, 1999 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 37,357
<SECURITIES> 2,613,294
<RECEIVABLES> 4,155,076
<ALLOWANCES> (1,594,076)
<INVENTORY> 0
<CURRENT-ASSETS> 2,991,775
<PP&E> 603,709
<DEPRECIATION> (219,448)
<TOTAL-ASSETS> 8,051,795
<CURRENT-LIABILITIES> 1,451,657
<BONDS> 0
<COMMON> 13,246
0
57
<OTHER-SE> 6,482,374
<TOTAL-LIABILITY-AND-EQUITY> 8,051,795
<SALES> 498,500
<TOTAL-REVENUES> 498,500
<CGS> 549,688
<TOTAL-COSTS> 3,921,833
<OTHER-EXPENSES> (1,406,641)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,632
<INCOME-PRETAX> (2,566,380)
<INCOME-TAX> (123,691)
<INCOME-CONTINUING> (2,442,689)
<DISCONTINUED> (54,261)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,496,950)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
