AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 8, 1999
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
(Exact name of registrant as specified in its charter)
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<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)
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200 EAST PALMETTO PARK ROAD
SUITE 200
BOCA RATON, FLORIDA 33431
(561) 393-6685
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
HARRY WINDERMAN, ESQ.
GENERAL COUNSEL
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
200 EAST PALMETTO PARK ROAD
SUITE 200
BOCA RATON, FLORIDA 33431
(561) 393-6685
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At such time or
times as may be determined by the Selling Stockholders after this Registration
Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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
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Title of Each Class of Amount to be Proposed Proposed Amount of
Securities to be Registered registered Maximum Maximum Registration
Aggregate Aggregate Fee
Offering Price Offering Price
Per Share
- ---------------------------------------------------------------------------------------------------
Common Stock, $.001 par value 1,216,667(1) $2.436(1)(2) $2,963,801(1) $ 823.94
- ---------------------------------------------------------------------------------------------------
Total . . . . . $823.94
- ---------------------------------------------------------------------------------------------------
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(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. Upon completion of this registration, all of our issued
and outstanding Common Stock will be registered and therefore
"free-trading".
(2) Estimated solely for the purpose of calculating the registration fee
in accordance with Rule 457 under the Securities Exchange Act of
1933, as amended (the "Securities Act"), based on $2.436, the per
share average of high and low sales prices of the Common Stock on
the Nasdaq Over-the-Counter Market on February 3, 1999.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
1,216,667 SHARES
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
This Prospectus relates to the reoffer and resale by prior owners of
the shares of COMS21, Ltd., an Australian corporation who exchanged their shares
for the shares of Common Stock, $0.001 par value per share of Atlantic
International Entertainment, Ltd., a Delaware corporation. The amount of the
shares comprise an aggregate of 1,216,667 shares of Common Stock which have been
issued by us to these selling stockholders. The selling stockholders have
advised us that they propose to offer such Shares which they have acquired for
sale, from time to time, through brokers in brokerage transactions on the
National Association of Securities Dealers Automated Quotation System
(Over-the-Counter) ("NASDAQ"), to underwriters or dealers in negotiated
transactions or in a combination of such methods of sale, at fixed prices which
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Brokers,
dealers and underwriters that participate in the distribution of the Shares may
be deemed to be underwriters under the Securities Act of 1933 (as amended, and
together with the rules and regulations thereunder, the "Securities Act"), and
any discounts or commissions received by them from the Selling Stockholders and
any profit on the resale of Shares by them may be deemed to be underwriting
discounts and commissions under the Securities Act. The selling stockholders may
be deemed to be an underwriter under the Securities Act. See "Plan of
Distribution".
We will not receive any part of the proceeds from the sale of the
Shares by the selling stockholders. The selling stockholders will pay all
applicable stock transfer taxes, brokerage commissions, underwriting discounts
or commissions and the fees of their counsel, but we will bear all other
expenses in connection with the offering made hereunder. We have agreed to
indemnify the selling stockholders and underwriters of the selling stockholders
against certain liabilities, including certain liabilities under the Securities
Act, in connection with the registration and the offering and sale of their
shares of our stock.
Our shares are listed on the NASDAQ (OVER-THE-COUNTER) and our
symbol is "AIEE." The closing price per share of Common Stock on the NASDAQ
(OVER-THE-COUNTER) on February 3, 1999, was $2.436.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY 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 HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. IF ANYONE MAKES ANY OTHER
REPRESENTATION IT IS A CRIMINAL OFFENSE.
The date of this Prospectus is February __, 1999.
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TABLE OF CONTENTS
Prospectus Summary..................................................3
About Us............................................................3
Risk Factors........................................................5
Use of Proceeds.....................................................11
Price Range of Common Stock.........................................12
Dividend Policy.....................................................12
Selected Financial Data.............................................12
Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................................................13
Our Business........................................................17
Management..........................................................29
Transfer Agent......................................................37
Change of Accountants...............................................37
Selling Stockholders................................................37
Description of Capital Stock........................................34
Plan of Distribution................................................45
Legal Matters.......................................................46
Experts.............................................................46
Where You Can Find More Information.................................47
Index to Financial Statements.......................................F-1
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ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
1,216,667 Shares
of
Common Stock
PROSPECTUS
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.
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
WHICH STATEMENTS REFLECT OUR VIEWS OF FUTURE EVENTS AND FINANCIAL PERFORMANCE
AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS WHICH MEANS
ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE REFLECTED IN SUCH STATEMENTS,
INCLUDING THOSE DISCUSSED IN "RISK FACTORS" ON PAGES 7 THROUGH 13.
ABOUT US
Atlantic International Entertainment, Ltd., a Delaware corporation,
develops and markets Interactive products and services in the Entertainment and
Information Technology fields. We (formerly, Cine-Chrome Laboratories, Inc.,
Medco Health Care Services, Inc., Cine-Chrome Video Corp., Network 4, Inc. and
CEEE Group Corporation) 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. We conducted limited
mining activities until operations ceased. 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
concentrated our business operations primarily on the manufacturing, marketing
and development of Interactive products and services. These products and
services focus on two major industries which include Interactive gaming &
wagering and Information Technology products and services.
OUR BUSINESS
Prior to July 16, 1996, we had no operations other than searching
for a business combination. In July 1996, we completed a share exchange with
Atlantic International Capital Ltd., a Delaware corporation ("Atlantic Capital")
and the former stockholders of Atlantic Capital. As a result of the exchange of
stock, the business of Atlantic Capital became our business.
On November 22, 1996, we merged with and into its wholly-owned
Delaware subsidiary, Atlantic International Entertainment, Ltd., and we, among
other things, (i) changed our state of incorporation to Delaware; (ii) increased
our authorized capital stock to 110,000,000
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(100,000,000 shares of common stock, $.001 per share (the "Common Stock") and
10,000,000 shares of preferred stock, $.001 par value per share (the "Preferred
Stock")); and (iii) completed a 1 for 3 share exchange. All shares referred to
herein (unless specifically stated otherwise) refer to amounts after the 1 for 3
exchange.
We acquired the major assets of RAM Associates, Inc. ("RAM") by a
written agreement dated April 15, 1996. The RAM assets we acquired included
COMMUNITY CASINO and REALSPORTS(TM) that formed a part of the foundation of our
current gaming software products. Other products acquired from RAM included
HOTEL HOTLINKS(TM) and CLUB INTERACTIVE. We have significantly improved and
expanded this operational software and the software products we developed. 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 activities. In addition to
dial-up Internet business, EmiNet, offers web hosting and development services
to commercial markets. (See EmiNet Business, infra).
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.aieltd.com.
About The Offering
Common Stock Offered by the Selling Stockholders 1,216,667 shares
Common Stock Outstanding 12,130,307 shares
Common Stock to be Outstanding after the Offering 10,913,307 shares
Use of Proceeds - We will not receive any of the proceeds from the sale of
shares by the selling stockholders.
NASDAQ OTC Symbol AIEE
Risk Factors An investment in the shares involves a high degree of
risk. See "Risk Factors" beginning on page _ of this Prospectus.
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Summary Financial Data
(Dollar amounts and share data)
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NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30
----------- ------------------
1997 1996 1998 1997
Revenue 4,416,790 454,656 3,497,281 4,070,440
<S> <C> <C> <C> <C>
Income [Loss] From Operations 1,394,890 (427,975) (344,800) 2,258,146
Net Income [Loss] 1,047,317 (376,270) 392,174 2,220,442
Basic and Diluted N/I[Loss]
Per Common Share 0.11 (0.04) (0.04) 0.23
BALANCE SHEET DATA:
Working Capital 352,559 199,893 3,139,047 3,022,320
Total Assets 6,905,999 1,982,014 15,063,225 7,489,956
Total Liabilities 1,959,380 302,879 1,580,435 1,514,560
Stockholder's Equity 4,946,619 1,679,135 13,482,790 5,975,396
</TABLE>
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. This Prospectus contains forward-looking statements that
involve risks and uncertainties. These statements appear throughout this
Prospectus and include our statements and those of and our directors, officers
and management, with respect to the future operations, performance or position
and as to their intent, belief or current expectations. Such forward-looking
statements are not guarantees of future events and involve risks and
uncertainties. Actual events and results, including the results of our
operations, could differ materially from those anticipated by such
forward-looking statements, as a result of various factors, including those set
forth below and elsewhere in this Prospectus. See " --Forward-Looking
Statements."
Limited Operating History
We commenced operations in July 1996 and, accordingly, has a limited
operating history. As of September 30, 1998, we had retained earnings of
approximately $144,242. We can not be sure that we will sustain profitability or
positive cash flow in the future.
Need for Additional Working Capital
We believe that the net proceeds from its recent stock offerings,
together with other available cash, will be sufficient to meet its operating
expenses and capital requirements at least
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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
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 anticipated, we may require additional financing sooner
than anticipated. We have no commitments for additional financing, and we can
not be sure that any such 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. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Competition
The market for Internet gaming software is extremely competitive and
highly fragmented. Inasmuch as there are no significant barriers to entry, we
believe that competition in this market will intensify. 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.
We cannot be certain that we will have the financial resources, technical
expertise or marketing and support capabilities to compete successfully.
Dependence on the Internet; Uncertain Acceptance of the Internet as a Medium of
Commerce and Communication
Our business is dependent upon use of the Internet, primarily by
individuals and, to a lesser extent, by businesses. Our success will depend in
part upon the continuing development and expansion of the Internet and the
market for Internet access. Critical issues concerning business and personal use
of the Internet (including security, reliability, cost, ease of use, access and
quality of service) remain unresolved and may significantly affect the growth of
Internet use, and additional use-related issues may arise in the future. In
addition, the volume of Internet traffic is constrained by available bandwidth.
To the extent that bandwidth is insufficient to efficiently carry an expanding
volume of traffic, users may find the Internet an unacceptable
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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 such 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. A reduction in the growth of demand for
Internet services or an absolute decrease in such demand could have a bad effect
on us.
Rapid Technological Change; Evolving Industry Standards
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.
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 have a bad effect
on us.
Dependence on Telecommunications Carriers and Other Suppliers
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, and there can be no
assurance that our customers will be able to obtain such services on the scale
and within the time frame required by us, on acceptable terms or at all.
Management of Growth
We have experienced significant growth. This growth has placed, 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 are not sure that we will be
able to manage its 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.
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Dependence on Key Personnel
We are highly dependent on our key employees, including technical,
sales, marketing, information systems, financial and executive personnel.
Therefore, our success depends upon our ability to retain these people and to
identify, hire and retain additional people as the need arises. Competition for
these people, particularly persons having technical expertise is substantial.
There can be no assurance that we will be able to retain our employees or to
identify or hire additional people. The need for such people is particularly
important in light of the anticipated demands of future growth. Our inability to
attract, hire or retain good people could have a bad effect on us. See
"Management."
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 certain executive officers and key employees have employment agreements
with us, such agreements are of limited time and are subject to ending under
certain circumstances. See "Management--Employment Agreements and Related
Arrangements."
Government Regulation
The legality of gaming on the Internet is uncertain at this point.
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.
Proprietary Rights; Risk of Infringement
We believe that our success is dependent in part on our software and
our continuing right to sell such 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.
We can not assure that others will not assert that our services or
its users' content infringe their proprietary rights. We can not assure that
infringement claims will not be asserted against us in the 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 such 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 such
intellectual property. We can not assure, however, that such licenses would
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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
Certain provisions of our Amended and Restated Certificate of
Incorporation (the "Charter") and Bylaws and of the Delaware General Corporation
Law (the "Delaware Corporation Law") could delay or impede the removal of
incumbent directors, make more difficult a merger, tender offer or proxy contest
involving our company, and could discourage you or others from attempting to
acquire control of our company, even if such 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 Charter authorizes the
Board of Directors 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 such series, subject to the consent
of the existing holders of Preferred Stock in certain instances. We have no
current plans to issue any such Preferred Stock. We are also subject to the
provisions of Section 203 of the Delaware Corporation Law. In general, Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an "interested
stockholder," unless certain conditions are met. See "Description of Capital
Stock--Certain Provisions of our Charter and Bylaws and of Delaware Law."
Limited Public Market for Common Stock; Potential Volatility of Stock Price
Prior to this offering, there has been a limited public market for
the Common Stock trading on NASDAQ Over-the-Counter. 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.
The stock market has experienced price and volume fluctuations that
have particularly affected the stocks of technology companies, resulting in
changes in the market prices of stocks of many companies that may not have been
directly related to the operating performance of those companies. Such broad
market fluctuations may adversely affect the market price of the Common Stock
following this offering. In addition, the market price of the Common Stock
following this offering may be highly volatile. Factors such as variations in
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.
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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.
Shares Eligible for Future Sale
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. Sales of a substantial number of shares of Common Stock in the
public market following this offering, or the perception that such sales could
occur, could 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.
Absence of Cash Dividends
We have never declared or paid any cash dividends on its capital stock
and do not anticipate paying cash dividends in the foreseeable future. See
"Dividend Policy."
Control by Officers, Directors and Existing Shareholders
Currently, the officers, directors and existing shareholders have the
right to vote a majority of the outstanding shares of Common Stock. The
officers, directors and existing shareholders will control substantially all of
the outstanding Common Stock. 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.
Risks Inherent in International Operations
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. 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
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and thereby restrict the receipt of income to us to foreign currency that may
fluctuate in value in relation to the United States Dollar. We currently have
not experienced any such difficulty and have no plans to protect against such
risks.
Indemnification of Officers and Directors
The Delaware Statutes permit a corporation to indemnify certain
persons including officers and directors who are (or are threatened to be made)
parties to any threatened, pending or completed action, suit or proceeding,
against all expenses (including attorneys' fees) actually and reasonably
incurred by, or imposed upon, him in connection with the defense of such action,
suit or proceeding by reason of his being or having been a director or officer,
except where he has been adjudged by a court of competent jurisdiction (and
after exhaustion of all appeals) to be liable for gross negligence or willful
misconduct in the performance of duty. 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.
Forward-Looking Statements
The statements contained in this Prospectus that are not historical
fact are "forward-looking statements," which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates," the negatives thereof or other variations thereon or
comparable terminology, and include statements as to the intent, belief or
current 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.
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PRICE RANGE OF COMMON STOCK
Since November, 1996, our Common Stock, $.001 par value, has traded
on the National Association of Security Dealers, Inc.'s OTC Electric Bulletin
Board under the trading symbol AIEE. The following table sets forth the average
range of bid and ask quotations for our Common Stock as reported by the NASDAQ
Bulletin Board for each full quarterly period within the two most recent fiscal
years and subsequent interim periods.
FISCAL YEAR ENDED DECEMBER 31, 1997
By Quarter Common Stock
- ---------- ------------
Quarter Date High Low
------- ---- ---- ---
1st March 31, 1997 $10.25 $1.50
2nd June 30, 1997 $8.50 $1.469
3rd September 30,1997 $5.25 $3.25
4th December 30, 1997 $5.25 $2.75
FISCAL YEAR ENDING DECEMBER 31, 1998
By Quarter Common Stock
- ---------- ------------
Quarter Date High Low
------- ---- ---- ---
1st March 31, 1998 $4.80 $3.00
2nd 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 through February 2, 1999 $3.00 $2.406
(1)Trading transactions in our securities occur in the
over-the-counter market. All prices indicated herein are as reported to us by
broker-dealer(s) making a market in our securities. The over-the-counter market
quotes indicated above reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
As of 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.
SELECTED FINANCIAL DATA
(Dollar amounts and share data, except per share data)
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes thereto, which appear
elsewhere in this Prospectus. The Statement of Operations Data for the period
ended December 31, 1997, and the Balance Sheet Data as of December 31, 1996 and
1997, have been derived from financial statements audited by Moore Stephens,
P.C., independent auditors, whose report with respect thereto appears elsewhere
in this Prospectus. The Statement of Operations Data for the nine months ended
September 30, 1998 has been derived from our unaudited financial statements. In
the opinion of management, the unaudited financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results for the period presented. Operating results for
interim periods are not necessarily indicative of the results that might be
expected for the entire year.
12
<PAGE>
SUMMARY FINANCIAL INFORMATION
-----------------------------
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1997 1996 1998 1997
----------- ----------- ----------- -----------
NET SALES:
<S> <C> <C> <C> <C>
Investment Advisory Services -- 366,204 -- --
Internet Software / Services 4,002,894 87,000 3,174,000 3,780,272
Medical Products -- 1,452 -- --
Internet Access & Services 413,896 -- 323,281 290,168
----------- ----------- ----------- -----------
4,416,790 454,656 3,497,281 4,070,440
OPERATING INCOME/(LOSS):
Investment Advisory Services -- 231,081 --
Internet Software / Services 1,564,666 (659,056) (247,956) 250,853
Medical Products -- -- -- --
Internet Access & Services (169,776) -- (96,844) 100,898
----------- ----------- ----------- -----------
1,394,890 (427,975) 344,800 2,310,630
TOTAL ASSETS:
Investment Advisory Services -- 1,423 -- --
Internet Software / Services 5,181,740 1,980,591 13,462,884 7,489,956
Medical Products -- -- -- --
Internet Access & Services 1,724,259 -- 1,600,341 --
----------- ----------- ----------- -----------
6,905,999 1,982,014 15,063,225 7,489,956
DEPRECIATION/ AMORTIZATION:
Investment Advisory Services -- 285 -- --
Internet Software / Services 323,959 67,091 325,307 316,228
Medical Products -- -- -- --
Internet Access & Services 98,579 -- 107,913 --
----------- ----------- ----------- -----------
422,538 67,376 433,220 316,228
CAPITAL EXPENDITURES:
Investment Advisory Services -- 1,423 -- --
Internet Software / Services 490,594 1,490,395 916,661 322,870
Medical Products -- -- -- --
Internet Access & Services 122,558 -- 12,318 --
----------- ----------- ----------- -----------
613,152 1,491,818 928,979 322,870
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, OUR EXPANSION INTO NEW MARKETS, COMPETITION,
TECHNOLOGICAL ADVANCES AND AVAILABILITY OF MANAGERIAL PERSONNEL.
13
<PAGE>
OVERVIEW
During 1997, we focused our business efforts in two areas,
Interactive Gaming & Wagering and Information Technologies. Gaming and Wagering
continues to grow in terms of customer base and product line. A market for the
gaming and wagering products has been established in that we have entered into
various license agreements. We expect to expand our account base with our
existing product line for the foreseeable future.
At this time efforts in the Information Technologies area mainly
consists of the operations of The EmiNet Domain, an Internet service provider
and developer. We acquired the assets of another Internet Service Provider in
November, 1998 in exchange for an amount of our stock not to exceed 200,000
shares. The amount of the shares will be adjusted downward based on
representations contained in the acquisition agreement.
RESULTS OF OPERATIONS
The following is a summary of our consolidated financial and operating data:
Our net revenues for the nine months ended September 30, 1998 were
$3,497,281 which represented a 14 percent decrease from the same period of the
year. 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 currently intend to conduct
aggressive sales and marketing campaign for our new products and expect revenues
to increase modestly.
No income was generated from the investment advisory services for
the year ended December 31, 1997. Internet software and related activities
generated net income from operations of $1,047,317 due to the growth in the
industry and our product recognition. In the first quarter of 1997, AIE(TM) NV
and its operations were sold as an operating Internet sports book. The operating
loss from this discontinued business segment totaled ($69,531) pre tax benefit.
In 1997, we continued our focus on Internet related products and
services while continuing to identify new markets and strategic alliances. In
1997, expenditures were made for both software and hardware in an aggregate
amount of $613,152. Additional employees were hired in both the technical and
sales areas. With the further development of the Internet related software
products and the change of business focus, revenues increased by 912%, or
$3,962,134 to a total of $4,416,790 for 1997. Depreciation expense and software
amortization for 1997 totaled $442,538 or 10.02% of gross revenues.
14
<PAGE>
In the first half of the year ended December 31, 1996, the focus of
Company's business activity shifted from investment advisory services to
supplying Internet related products upon the acquisition of various computer
software products from RAM. During this period, investment advisory services
were phased out and currently remain an inactive profit center. In 1996,
expenditures were made for both software and hardware in an aggregate amount of
$1,490,395. Additional employees were hired in both the technical and sales
areas. With the further development of the Internet related software products
and the change of business focus, revenues dropped by 35.26%, or $247,651 to a
total of $454,656 for 1996. Investment advisory service income for 1996 was
$366,204 representing 80.55% to total revenues. Internet related sales totaled
$88,452 or 19.45% of total revenues. Depreciation expense and software
amortization for 1996 totaled $68,332 or 15.03% of gross revenues.
The operating income from the investment advisory services for the
year ended December 31, 1996 totaled $231,081. Internet related activities
generated a net loss from operations of ($659,056) due to the costs associated
with the start up of the new business segment. In the fourth quarter of 1996,
our wholly owned subsidiary, AIE(TM), NV, opened a demonstration site for it's
Internet gaming software in Curacao. In the first quarter of 1997, AIE(TM) NV
and its operations were sold as an opening Internet casino and sports book. The
net operating loss from this discontinued business segment totaled ($29,244).
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL: At September 30, 1998 we had a working capital of $3,139,047.
At September 30, 1997, we had working capital of $3,022,320.
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES: During the nine months ended
September 30, 1998 and 1997, net cash used by operating activities was
$(1,266,291) and $731,225, respectively. Cash flows from continuing operating
activities decreased by $535,066 for the nine months ended September 30, 1998
compared to the same period in 1997 primarily due to decrease in net sales and
increase in operational expenses related to global expansion efforts and
expenses related to the development of the new product version.
CASH FLOWS FROM INVESTING ACTIVITIES: During the nine months ended September 30,
1998 and 1997, we made net expenditures of $281,934 and $2,016,616,
respectively, primarily for purchases of property and equipment, sale of our
accounts receivable for stock (September 1998) and the purchase of subsidiary
(1997).
CASH FLOWS FROM FINANCING ACTIVITIES: During the nine months ended September 30,
1998 and 1997, cash flows from financing activities were $8,897,401 and
$2,207,326, respectively. Cash flows from financing activities are primarily
from the issuance of Common Stock in connection with private placements of our
Common Stock and the sale of preferred stock. We believe that cash from
operating activities and sale of its investments will be sufficient to fund
proposed operations for at least through December 1999.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. At December 31, 1997 we had a working capital of
$352,559. At December 31, 1996, we had working capital of $199,893.
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES. During the years
ended December 31, 1997 and 1996, net cash provided (used) by operating
activities was ($811,628) and ($193,975) respectively. Cash flows from
continuing operating activities decreased by $617,653 for the year ended
December 31, 1997 compared to the same period in 1996 primarily due to the
transition from start up activities of a new segment of business to the sales
and marketing phase with continued product enhancements.
CASH FLOWS FROM INVESTING ACTIVITIES. During the years ended
December 31, 1997 and 1996, we made net capital expenditures of $425,862 and
$281,934, respectively, primarily for purchases of property and equipment. The
amounts expended in 1997 represent expenditures necessary for the Internet and
private network development and implementation as well as the acquisition and
upgrade of the Internet Service Provider. [EmiNet Domain].
CASH FLOWS FROM FINANCING ACTIVITIES. During the years ended
December 31, 1997 and 1996, cash flows from financing activities were $852,012
and 723,425 respectively. For the year ended December 31, 1997, cash flows from
financing activities are primarily from the issuance of Common Stock in
connection with private placements of our Common Stock which raised proceeds of
approximately $350,000.
OUTLOOK
The Interactive Gaming & Wagering industry, is expected to continue
to grow for the foreseeable future. Worldwide interest in the ICE(TM) and
webSports(TM) software systems is high with particular attention coming from
Australia & South Africa where the government is supportive of private network
and Interactive gaming. Management expects continued sales growth from these
products. We will continue to focus its efforts on marketing these software
systems as well as the Hotel Hotlinks(TM) and Networked touch screen kiosk
products. Management believes that interest in all of the Interactive gaming &
wagering products is very high especially in Australia, South Africa and
surrounding regions. We expect to continue sales of these products for the
foreseeable future. We will also continue its development of add-on products for
both ICE(TM) and webSports(TM) including the adaptations for Overseas gaming
markets.
Management expects continued growth in the Information Technologies
areas. It is expected that through On-line, private network, Web and networking
services through Eminet or newly acquired or merged entities to contribute
significantly to profits in 1998 due to new contracts and expanding
opportunities in the IT markets. The Company is considering expanding its
portfolio of Information Technology companies and is looking for Internationally
based companies to bring into the United States marketplace.
16
<PAGE>
INFLATION
In our opinion, inflation has not had an effect on our results of
operations.
OUR BUSINESS
Overview
Atlantic International Entertainment, Ltd. ("we" or "us" ), is a
Delaware corporation, develops and markets Interactive products and services in
the Entertainment and Information Technology fields. We (formerly, Cine-Chrome
Laboratories, Inc., Medco Health Care Services, Inc., Cine-Chrome Video Corp.,
Network 4, Inc. and CEEE Group Corporation) 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. The CEEE Group 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 ("Atlantic Capital")
and the former stockholders of Atlantic Capital (the "Stock Exchange
Agreement"). As a result of the Stock Exchange Agreement, the business of
Atlantic Capital became our business.
On November 22, 1996, we merged with and into its wholly-owned
Delaware subsidiary, Atlantic International Entertainment, Ltd., whereby we,
among other things, (i) changed our state of incorporation to Delaware; (ii)
increased its authorized capital stock to 110,000,000 (100,000,000 shares of
common stock, $.001 per share (the "Common Stock") and 10,000,000 shares of
preferred stock, $.001 par value per share (the "Preferred Stock"); and (iii)
performed a 1 for 3 share exchange. All shares referred to herein (unless
specifically stated otherwise) refer to post split amounts.
We acquired the major assets of RAM Associates, Inc. ("RAM")
pursuant to a Purchase and Sale Agreement dated April 15, 1996. The RAM assets
we acquired included
17
<PAGE>
COMMUNITY CASINO and REALSPORTS(TM) that formed a part of the foundation of our
current gaming software products. Other products acquired from RAM included
HOTEL HOTLINKS(TM) and CLUB INTERACTIVE. We has significantly improved and
expanded our operational software and the software products developed by the
Company. The Company continues to perform substantial development efforts to
adapt to current technological advances.
In March 1997, 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. In addition to dial-up
Internet business, EmiNet, offers web hosting and development services to
commercial markets. (See EmiNet Business, infra).
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
maintain a home page HTTP://WWW.AIELTD.COM.
PRODUCTS AND SERVICES
INTERACTIVE GAMING AND WAGERING PRODUCTS
INTERNET CASINO EXTENSION(TM)
- -------------------------
We are a developer and worldwide marketer of private network and
Interactive gaming and wagering products including our proprietary flagship
product, Internet Casino ExtensionTM or "ICETM." We license these products to
licensed casino, gaming operators and sports wagering businesses. Trial
operations, under the name ARUBA PALMS CASINO and SPORTSBOOK, began in October,
1996. Upon conclusion of its successful trial in the first quarter of 1997 the
casino site reverted back to its generic name, ICETM and is now available for
demonstration for potential new clients. We have added other variations to ICETM
aimed at a specific market including the Indian Casino ExtensionTM, Interactive
Club Extension & Internet Charity Extension.
We have entered into eleven (11) license agreements for the ICETM
product. The ICETM product is offered for license in either of two (2) ways. The
base License Agreement calls for a fully customized package of four (4) casino
games, hardware, a complete back-office accounting and marketing program for
$150,000 plus 10% of net wagering. Additional games and customizations are at
additional cost to the customer. Financing is currently available over a
three-year period with an 8.5% interest rate. All of the $150,000 is now
required at contract signing. Additionally, we will receive a fee of $2,000 per
month for technical support and product upgrades.
WEBSPORTS(TM)
- ---------
We license the webSportsTM sportsbook software system to casino
operators and sports book businesses. The system can be accessed via the
telephone, Internet, private network,
18
<PAGE>
touch screen kiosk and walk-up sports book. The system allows for automated
position keeping as well as manual input into the managing of the sports book
operations. The system has American and International sports and allows both
fixed price and fractional wagering. As with all of our products, there is a
back-end database, accounting and auditing features.
The Company has entered into seven (7) license agreements for the
webSportsTM product. There is financial option presently available. The complete
system integrating both Internet and phone wagering for the U.S. sports markets
is offered for $175,000, not including hardware. In addition, we offer an
international version that offers U.S., European, Australian and South African
style wagering for $225,000. A minimum deposit of fifty five thousands dollars
($55,000) is required prior to installation. Additionally, we will receive a
monthly maintenance and support agreement in the amount of $1,000.
NETWORK GAMING
- --------------
We offer stand-alone Bingo, Keno and lottery systems that utilize
the ICETM and webSportsTM gaming platforms.
INTERACTIVE CLUB EXTENSION
- --------------------------
We offer a system that integrates on-site networked touch screen kiosks
giving players the ability to games, both at the venue and at home.
HOTEL HOTLINKSTM
- --------------
We also market the Hotel HotLinksTM system which is a variation and
expansion of ICETM and webSportsTM which has features specific to hotel guests
such as in-room services, Internet access and in-room advertising of local goods
and services. The product uses set top boxes and infrared remote controls to
allow hotel guests to access gaming and the additional services mentioned above.
As of the date hereof, we have not consummated any sales of the Hotel HotLinksTM
system.
The television set top boxes used in the Hotel HotlinksTM product
permit the use of smart cards for identification and other purposes. This same
hardware/smart card technology will be employed in other products that we intend
to develop throughout the year ending December 31, 1998.
INDUSTRY OVERVIEW
- -----------------
The Internet is a global network of computers connecting millions of
individual computers and more than 70,000 business, commercial, government and
academic networks. This interconnectivity allows any one of these computers to
transmit information to any other computer. Management believes that there is
tremendous growth potential for Internet products as consumer and business
access becomes easier and more cost efficient. It is
19
<PAGE>
estimated that there are already over 50 million Internet users, and the number
of users is growing at a rate of 10% per month.
The commodity pricing of powerful computers and the wealth of
information available on the Internet have all contributed to the creation of a
vast market of consumers and business buyers. During the last three years, the
number of Internet service providers ("ISP's") in the United States has grown
from roughly zero to over 3,000. Management attributes the influx of ISP's to
several factors which include: (i) an increasing demand for connection to the
Internet; (ii) the Internet offers significant marketing opportunities for a
variety of products and services; and (iii) providing Internet connections
requires minimum expertise and start-up costs.
The Interactive Gaming & Wagering marketplace has become the next step
in the gaming industry. Revenues from the worldwide gaming market exceeds Fifty
Billion Dollars ($50,000,000,000). Expert's estimate that gaming revenues
derived from just Internet gaming revenues will exceed Eight Billion Dollars by
the year 2000. The integrated Interactive gaming & wagering (Network gaming
terminals, lotteries, Internet, telephone) revenues will far exceed that amount.
The existing customer base from the established gaming and wagering
marketplace will be where the vast majority of these new revenues are derived.
Building upon the gaming industry's high customer loyalty level, the existing
gaming operators will be able to launch a new generation of gaming & wagering
products to it's player base.
GROWTH STRATEGY
- ---------------
The Company's current plan of operations is to expand its current
worldwide account base by offering a complete Interactive gaming & wagering
product line. We will also seek to expand upon its current Information
Technology products and services in the form of international acquisition with
or merger into existing operations. Achieving market acceptance for our services
and products will require substantial marketing efforts and the expenditure of
significant funds to create awareness and demand.
MARKETING
- ---------
Our President and Chief Executive Officer runs the marketing effort. We
currently employ a direct sales team directed primarily to casino operators and
duly licensed sports books throughout the Caribbean, Central & South America and
Europe. We want to expand direct sale coverage to the Australian-Asian and
African markets by having locally based operations in each region.
TRADEMARKS
- ----------
We market our services utilizing various names. We are currently in the
process of
20
<PAGE>
registering the following trademarks recognizable in the United States: AIE(TM),
Internet Casino Extension(TM), ICE(TM), webSports(TM), realSports(TM), Indian
Casino Extension(TM), Internet Charity Extension(TM) and Hotel Hotlinks(TM). We
have no patents but we claim copyrights on our software products.
REGULATORY MATTERS
- ------------------
The legality of gaming through the use of the Internet is uncertain at
this point. Since the sale of a foreign subsidiary which ran a sports book (see
Recent Developments), 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 our sales and marketing efforts in jurisdictions
that allow private network and Interactive gaming which include Australian,
Caribbean, African and American gaming markets, we can not be 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 be bad for our business, financial condition, results of operations
or prospects will not be expanded or imposed.
COMPETITION
- -----------
We compete with other companies involved in the development and
marketing of gaming related entertainment and Information products and services.
We face intense competition in connection with our gaming operations. We believe
that our Internet casino and sports book products currently compete with four
(4) companies. We continue to face increasing competition from both established
and newly emerging operations in both the United States and elsewhere. There are
numerous casinos and sports books currently operating over the Internet, many of
which use software developed for their own purposes. We believe that some of
these operators may decide to offer to sell their software to other casino and
sports book operators in the future. Our gaming products also compete with other
forms of gaming activities, including state-sponsored lotteries and horse racing
and competes for discretionary spending with other leisure time activities and
alternate forms of entertainment. While competition for Interactive Gaming is
intense, our marketing approach is unique in that the major marketing & sales
focus is with the established gaming and wagering marketplace.
EMPLOYEES
- ---------
As of November 16, 1998, we had thirty (30) full-time employees (nine
(9) employed by EmiNet), of whom two (2) were software engineers. None of our
employees is covered by a collective bargaining agreement or is a member of a
union. 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.
21
<PAGE>
LEGAL PROCEEDINGS
- -----------------
The Company is a party to pending litigation, both as plaintiff and
defendant. However, we believe that said litigation will not hurt our operations
or financial condition.
RECENT DEVELOPMENTS
- -------------------
In December 1997, we sold Australian Advisers 100,000 shares of Common
Stock of the Company pursuant to the completion of its S-8 Registration
Statement for $3.00 per share, these shares were issued and held in escrow until
the closing in January 1998. Australian Advisors continues to render valuable
consulting services to us.
On April 3, 1998, the Company entered into a Securities Purchase
Agreement for the sale of $500,000.00 of a newly created 5% Convertible
Preferred Stock. The Agreement also grants the purchaser the right to purchase
up to an additional $2,500,000.00 in said class of securities at market prices.
The 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 such 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., ("HCI") a South African corporation for
the purchase of 1,000,000 shares of our Common Stock at $4.00 per share. HCI 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.
We have recently added three new directors to our Board of Directors.
In addition,
22
<PAGE>
we have recently begun discussions with various individuals regarding the
formation of an advisory board. The Company anticipates that the advisory board
will be formed in the near future. Among the employees hired during 1997, was
Karen Welch, as Senior Vice President for Operations and General Manager. Ms.
Welch was formerly with IBM. On April 14, 1998, in anticipation of increased
business activity, we engaged Harry Winderman as General Counsel. Mr. Winderman
has degrees in law, tax and business administration and has practiced law for
over twenty years. In addition, Mr. Winderman is an adjunct professor at Florida
Atlantic University.
INFORMATION PRODUCTS & SERVICES
THE EMINET DOMAIN
The Company's focus outside of Interactive gaming & wagering is in
Information Technologies ("IT"). In March, 1997, The EmiNet Domain, Inc. was
acquired as our first IT asset. All non-Interactive gaming projects and
activities were placed under the supervision and direction of The EmiNet Domain,
Inc. EmiNet seeks to expand its current product line and is exploring Internet
Telephony and Internet financial transaction products to offer the market in
1999.
REALSPORTSTM
- ----------
The Eminet Domain offers an information service on the Web called
"realSportsTM." This service provides real-time odds, scores and other sports
wagering information and is free of charge to users. We anticipate generating
revenues from this service by selling advertising space to companies wishing to
target their marketing to sports fans and individuals who wager on sporting
events. We use this service to promote visits to model sites established for its
ICETM, webSportsTM and Internet related products.
On January 31, 1997, we entered into an agreement to purchase all of
the shares of The EmiNet Domain, Inc. ("Eminet"). The purchase price for the
shares was $2,020,000 payable by the issuance and delivery to the shareholders
of Eminet or their designees of a minimum of 200,000 shares of fully-paid and
non-assessable shares of Common Stock at the market value as of January 31, 1997
and $20,000 cash payable at March 31, 1997. Eminet provides monthly Internet
service to approximately 1,000 subscribers. The current equipment and personnel
are capable of handling up to 2,500 subscribers without upgrades. As additional
profit centers, EmiNet hosts and programs web sites for businesses and
individuals, provides networking design and services and sells computer and
networking equipment.
The EmiNet Domain ("EmiNet") is a wholly owned subsidiary of Atlantic
International Entertainment, Ltd. with its offices in Boca Raton. On December
31, 1997 EmiNet had approximately 10 employees. At present, EmiNet is one of the
leading South Florida Internet Service Provider ("ISP") with a network
infrastructure comprised of a leased high speed fiber optic backbone, computer
hardware and software, and points of presence ("POPs") in 18
23
<PAGE>
South Florida cities providing access availability to thousands of customers
from Miami to Northern West Palm Beach cities. EmiNet was recently ranked number
three in South Florida by the South Florida Business Journal. EmiNet outranked
all of the Ft. Lauderdale (Broward County) ISP's. EmiNet currently offers a wide
range of Internet products as a full service Internet company. Those products
include dial-up access, dedicated high speed access, Integrated Services Digital
Network ("ISDN") service, fractional T1's (transmissions speed up to 1.54
megabits per second), Flex 56 (enhanced speed modem services), and other
Internet related services to businesses and individuals including World Wide Web
("Web") services, which includes Web design/development and a significant amount
of Web hosting, data services and network frame relay services. EmiNet attempts
offering exemplary customer service at competitive prices. EmiNet's high speed,
digital telecommunications network provides subscribers with direct access to
the full range of Internet applications and resources in E-Mail, World Wide Web
sites, USENET newsgroups and FTP software. EmiNet is one of only a handful of
ISP's that offer co-location services. EmiNet continues to experience growth in
various areas of its subscriber base.
MEDICAL PRODUCTS
In February 1998, we entered into an agreement with ELG Health
Management Services to market the Atlantic International Medical ("AIM")
products & services. Atlantic is currently focused on Interactive gaming &
wagering and Information Technology. The agreement with ELG will enable us to
benefit from earlier efforts while not allocating additional resources in a
non-core business. ELG will provide Atlantic 40% of the net profits from the
sale and distribution of medical products. ELG is developing a global
distribution network for medical testing devices (e.g., HIV, pregnancy, drug
abuse, hepatitis, etc.) and other medical products.
ELG, through AIM, markets distributorships for American manufacturers
of medical testing and diagnostic kits and other medical products throughout the
world. AIM acts as a broker between the manufacturer and distribution companies
located in foreign countries. AIM does not resell products but simply collects a
commission for taking an order from the distributor and placing the order with
the manufacturer. This approach limits the risks associated with inventory and
product liability and keeps overhead and direct costs to a minimum.
INTERNET INDUSTRY OVERVIEW
The Internet had its origins in 1969 as a project of the Advanced
Research Project Agency ("ARPA") of the U.S. Department of Defense. The network
established by ARPA was designed to provide efficient connections between
different types of computers separated by large geographic areas and to function
even if part of the network became inoperative. Historically, the infrastructure
was used by academic institutions and governmental agencies for remote access to
host computers and electronic mail communications. Accordingly, the U.S.
government historically provided the majority of funding for the infrastructure.
However, as the
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modern Internet developed and became commercial, funding shifted to the private
sector. The number of worldwide Internet users continues to increase
significantly. In a recent government study, it was stated that traffic on the
Internet doubles every 100 days. Business use is growing the faster and as many
as 62 million Americans now have Internet access. In addition, the number of
domains registered, which EmiNet believes is a forward-indicator of activity on
the Internet, has increased at a rapid pace. EmiNet believes that there are
several key drivers responsible for the rapid proliferation of Internet use:
SERVICE QUALITY: Quality is the differentiating aspect that sets EmiNet
apart from the other carriers.
IMPROVING PERFORMANCE - There have been significant bandwidth,
communications, and price/performance improvements in communications over the
Internet. These developments make the Internet an increasingly attractive medium
for conducting business, adding convenience, and attracting more users.
HIGH SPEED MODEMS - As the installed personal computer ("PC") base has
grown, it has become increasingly common for those PCs to have a modem
connection. Many new computers now have higher speed, pre-installed modems, such
as a K56 Flex, allowing connections to be made even more easily.
IMPROVED CONTENT - As the Internet grows new information and services
available on the Internet have attracted attention and created a more widespread
appeal.
EXPANSION OF LANS AND WANS - Corporate, government, and educational
local area networks ("LANs") and wide area networks ("WANs") are expanding and
these installed networks enable multiple users to be connected to the Internet
through a single point of contact. Therefore, the actual number of Internet
users connected through these LANs and WANs greatly exceeds the number of
connection points.
EXTRANET - Businesses can set up a proprietary Network or Virtual
Private Network ("VPN") using the Internet. A VPN is a secure and cost effective
means of data communication.
EXPECTATIONS FOR ELECTRONIC COMMERCE OVER THE INTERNET - With the
increased recognition of the Internet's potential as a medium for marketing and
purchasing, a growing number of companies are initiating or expanding their use
of the Internet for commercial purposes. The United States Department of
Commerce stated that 10 million North Americans made purchases over the Internet
by the end of 1997.
DRAMATIC INCREASE IN NAVIGATIONAL AND UTILITY TOOLS - The proliferation
and improvement of software tools and browsers, which facilitate Internet use,
have attracted more users. The World Wide Web browsers and other user-friendly
interfaces have made it easier for users to access desired information on the
Internet.
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A convergence is occurring in the Internet industry as more traditional Internet
providers become communications companies and communication companies become
Internet companies. These factors are creating an environment in which
individuals and businesses and other organizations perceive a compelling need to
establish Internet access and an Internet presence. EmiNet believes that its
Internet access, Web services and value-added service offerings are particularly
appealing to businesses for a number of reasons. For example, many businesses
are accustomed to working with a vendor with a local presence and may prefer to
contract with an Internet service provider such as EmiNet which has a local
presence and the experience and reputation of providing quality and dependable
service. Furthermore, many businesses have Internet requirements that go beyond
the simple access that most Internet service providers offer. These Internet
requirements include security, network consulting, high-bandwidth managed access
and data services.
EMINET STRATEGY
EmiNet is implementing a strategy to become a full service
telecommunications company providing a full complement of communication
services, a one-stop shop for the small and medium size business user and the
consuming public. As a full service Internet provider EmiNet will continue to
offer full Web services, including production of Web sites, the hosting of Web
sites and the marketing of Web sites. EmiNet believes the foundation for
business growth and Electronic Commerce ("E Commerce") will be through the
creation, hosting and marketing of Web sites. As more companies want to sell
their products and services over the Internet, the demand for Web services is
expected to increase rapidly. This will require an E Commerce solution for most
Web sites that will be developed for the business community. EmiNet has provided
this capability to its customers and expects to expand this through additional E
Commerce offerings such as ATM. Marketing will play a more important role for
Web Site owners, as more people will want to monitor the activity on their site.
As the demand for speed increases, EmiNet will meet the challenges of providing
greater bandwidth to its customers. EmiNet will seek to meet the challenge
through various types of dedicated connections at the local loop level and
greater bandwidth at the backbone level.
The cable industry faces considerable challenges to enter the Internet
access market. The high cost of cable modems and the cost to upgrade systems may
continue to slow that segment of the industry. Given the significant cost for
the cable companies to rapidly deploy Internet services over coaxial cable, the
traditional wire line carriers will remain the dominant providers of Internet
access in the near term.
IP Telephony is an anticipated source of potential revenue enhancement
for EmiNet. It will become more prevalent in its use for companies and people
who want a low cost solution to long distance telephone communication. EmiNet
has been evaluating the WebPhone product by a local company Netspeak.
EmiNet also recognizes the increased security requirements being
demanded by some of their medium to large customers. This coming year, they will
begin offering security services,
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which include: producing security documents, installing and configuring
firewalls, and for those who request it, EmiNet will remotely manage the
customer's firewall.
Additionally, vertical markets are becoming more and more important in
expanding the level of services. This coming year will see EmiNet enter the
world of documents on demand. This is extremely important as the revenues comes
from a per page fee per year. This leads to a reoccurring revenue stream, which
fits nicely with the many law offices, legal offices and small business which
currently are EmiNet customers.
EMINET SERVICES
EmiNet primarily provides two high quality services which it believes,
are competitively priced: Internet access service and Web services. Internet
access services can be divided into two basic categories: personal accounts for
individuals and small businesses that connect to the Internet via a modem
(referred to as "dial-up" accounts), and high speed dedicated accounts
(principally for medium to large business users) that connect to the Internet
via dedicated telecommunications lines. Dial-up subscribers can access the
Internet by calling EmiNet's local POPs. EmiNet's dedicated accounts consist of
subscribers that desire to connect internal computer networks to the Internet.
EmiNet offers a wide variety of service options, which vary in price
depending upon the features included and the data rate, the amount of space, or
bandwidth, of the connection. EmiNet bills its Internet access subscribers
monthly, quarterly or annually in advance. A significant percentage of
individual accounts are billed automatically through pre-authorized credit card
accounts. EmiNet also provides complete installation services, sales of turnkey
networking equipment, education and training services, through their technical
support and network monitoring support teams.
Web services can also be divided into three basic categories: Web
hosting services and Web production (or content) and Web Marketing. EmiNet
designs Web sites and performs additional programming for Web sites on behalf of
its business subscribers. Charges for Web site design and programming vary
widely with the size and complexity of the project. EmiNet's Web services
produce Web sites that make use of original graphic arts, interactive forms,
data base queries and search engines. EmiNet hosts a substantial number of Web
sites on behalf of its customers enabling them to have a continued presence on
the Internet. In addition, EmiNet offers its customers a marketing strategy to
insure that their Web sites are visited by potential customers.
ON-LINE NETWORK REPORTS
EmiNet operates a password-protected on-line network reporting service
and provides a report to all customers on the traffic and performance of both
EmiNet's network and the client's Web page hits.
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TRAINING
EmiNet provides on site training or one on one training in their
offices.
NETWORK INFRASTRUCTURE
EmiNet believes that its future success in the Internet access services
market depends in part on its ability to enhance its current service offerings
for individuals and businesses and to advance the capabilities and capacity of
its telecommunications network. EmiNet operates Ten (10) PRI circuits and Three
T-1 lines that simultaneously supports Frame Relay, Integrated Services Digital
Network ("ISDN"), and Asynchronous Transfer Mode ("ATM") on a single platform.
EmiNet installed these PRI's in various locations in the cities of Palm Beach,
Boca Raton, Ft. Lauderdale and Miami. These PRI's are interconnected via an ICI
network.
EmiNet is continuing to optimize and increase the capacity and
capabilities of its telecommunications network. EmiNet currently is working to
increase its speed, reliability, and network fault tolerance. EmiNet operates a
data center, which is located in their Boca Raton office. This facility not only
provides redundancies and stability to our network, but also allows EmiNet to
make this facility available to those clients that want the ability to collocate
their Web servers in the data center and pay EmiNet for use of the facility and
gain high bandwidth access to the Internet.
OPERATIONS AND CUSTOMER SUPPORT
EmiNet has approximately 3 employees dedicated to technical dial-up
support, commercial account support, network operations and customer service.
SALES & MARKETING
EmiNet's growth in its subscriber base is attributable to word-of-mouth
referrals primarily in the individual dial-up market. EmiNet has a direct sales
group in order to support a strong focus on business customers. EmiNet is
delivering high-speed Internet access solutions and Web services to business
customers in its regional markets and is differentiating itself through a
non-site consultative approach, high-quality services and exemplary customer
service.
EmiNet believes that its ability to differentiate itself from the
national Internet access providers, long distance providers and regional
telephone companies can best be achieved in the business market by becoming a
one stop shop and providing the highest quality of service at competitive
prices.
EmiNet intends to increase its advertising and to maximize the amount
of local newspaper, yellow pages support with press releases and interest
articles on EmiNet.
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COMPETITION
The Internet connectivity business is highly competitive, and there are
no substantial barriers to entry. EmiNet believes that competition will
intensify in the future and its ability to successfully compete depends on a
number of factors including market presence, the capacity, reliability, and the
security of its network infrastructure, its pricing of services compared to its
competitors, the timing of new products and services by EmiNet and its
competitors, EmiNet's ability to react to changes in the market, and industry
and economic trends. EmiNet's competitors and positioning was recently published
in the March 13th, 1998 issue of the South Florida Business Journal. The number
one (Icanect) is located in Miami and has 17,000 subscribers primarily in the
Miami and Southern portion of Ft. Lauderdale. The number two (Florida Internet)
is in West Palm Beach and extends Northward and has 7,000 subscribers. EmiNet is
conveniently located in Boca Raton and address the northern Ft. Lauderdale and
Southern Palm Beach area with 4,000 potential subscribers. Numbers 4 through 10
in the survey are all located in Broward county with four in Ft. Lauderdale, one
in Hollywood and one in Plantation ranging from 1500 subscribers to 500.
We lease approximately 5,150 square feet of office space in Boca Raton,
Florida pursuant to a lease expiring on September 30, 2002 with a monthly rent
of approximately $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. Eminet leases separate facilities in Boca Raton
of approximately 4,000 square feet, with monthly rent of $7,700.
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 63 Chairman of the Board, Secretary
and Treasurer
Richard A. Iamunno 40 President, Chief Executive
Officer, Principal
Financial Officer and Director
Steven D. Brown 51 Director
Martin V. McCarthy 42 Director
Jeffrey L. Hurwitz 42 Director
Marcel Golding 38 Director
Dr. Leonard Haimes 70 Director
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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.
STEVEN D. BROWN was appointed a Director on July 16, 1996. Mr. Brown is
the Chairman of American Artists Film Corporation, A Georgia-based public
Company. Since 1989, Mr. Brown has been active in the development of feature
film projects, through Movie America Corporation, a Georgia corporation which
Mr. Brown helped organize and for which he served as President and Director
until leaving that Company in 1991 to found American Artists Film Corporation.
MARTIN V. MCCARTHY was appointed a Director 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 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 $370,00,000. 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.
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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.
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 $100,000 for services performed for us
during such years.
SUMMARY COMPENSATION TABLE
NAME AND
PRINCIPAL POSITION YEAR SALARY($) BONUS($)
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-
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The columns for "Other Annual Compensation" and "Long-term
Compensation" have been omitted as there is no compensation required
to be reported in such columns. The aggregate amount of perquisites
and other personal benefits did not exceed the lesser of $50,000 or
10% of the total of salary and bonus. In addition, the Option Grants
in Last Year Table and Aggregated Option Exercises in Last Year and
Year End Option Values Table have been omitted as the above named
executive officer was not granted any options during the last year
and owns no options.
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
pursuant to which 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.
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 such agreements are
anticipated in the immediate future.
Board Committees and Compensation
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
such provisions, any director or officer who, in such person's capacity as such,
is made or threatened to be made a party to any suit or proceeding, may be
indemnified if the Board determines such director or officer acted in good faith
and in a manner such director reasonably believed to be in or not opposed to our
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best interest. The Charter, Bylaws, and the Delaware Corporation Law further
provide that such indemnification is not exclusive of any other rights to which
such individuals may be entitled under the Charter, the Bylaws, any agreement,
any vote of stockholders or disinterested directors, or otherwise.
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 such person in any such capacity or
arising out of his status as such, whether or not we would have the power to
indemnify such person against such liability under Delaware law.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 12, 1998, 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 December 31, 1998,
there were outstanding 12,130,307 shares of our Common Stock.
Name and Address of Beneficial Owner(2) Amount of
Beneficial Percent of
Ownership Class
Norman J. Hoskin 1,115,935 11.53%
Richard A. Iamunno 1,133,270 11.71%
Steven D. Brown 50,000 0.52%
Martin V. McCarthy 10,000 0.10%
Jeffrey L. Hurwitz N/A
Dr. Leonard Haimes 8,333 0.09%
The AWIXA Trust 1,161,536 12.0%
C/o Mello, Hollis, Jones & Martin
31 Church Street
Hamilton, Bermuda
The Kunni Lemmel Trust 1,154,868 11.94%
C/o Mello, Hollis, Jones & Martin
31 Church Street
Hamilton, Bermuda
All Officers and Directors as a Group 2,317,538 23.95%
(7 persons)
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(1) Beneficial ownership has been determined in accordance with Rule 13d-3 of
the Securities Exchange Act of 1934. Generally, a person is deemed to be the
beneficial owner of a security if he has the right to acquire voting or
investment power within 60 days.
(2) Unless otherwise indicated, all addresses are at our office at 200 East
Palmetto Park Rd., Suite 200, Boca Raton, Florida 33432.
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 August 5, 1998, 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 such dividends as may be declared from time to time by the Board
from funds available for distribution to such holders. No holder of Common Stock
has any preemptive right to subscribe to any securities of 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 hereby will be, duly
authorized, validly issued, fully paid and nonassessable.
Convertible Preferred Stock
Shares of our Convertible Preferred Stock have been issued solely to
the Shaar Fund pursuant to a Securities Purchase Agreement filed with the
Securities Exchange Commission as part of our recent 10KSB. The Shaar Fund has
purchased a total of $1,000,000 of the Preferred Stock and has an option to
purchase another $1,500,000. 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.
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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 such series, subject to the
consent of the existing holders of Preferred Stock in certain instances. The
issuance of Preferred Stock could be used, under certain circumstances, as a
method of preventing 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. See "--Certain Provisions of our Charter and
Bylaws and of Delaware Law" and "Risk Factors--Certain Anti-Takeover
Provisions."
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 certain 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
certain 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 such proposals because, among
other things, negotiation of such proposals could result in an improvement of
their terms. See "Risk Factors--Certain Anti-Takeover Provisions."
Our Certificate of Incorporation and By-laws contain certain 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
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of our capital stock at the time. In addition, these provisions may have the
effect of assisting our current management in retaining its position and place
it in a better position to resist changes which some stockholders may want it to
make if dissatisfied with the conduct of our business. See "Risk Factors -
Certain Anti-Takeover Provisions."
Set forth below is a summary of certain provisions in the Charter and Bylaws.
Delaware General Corporation Law
We are subject to the provisions of Section 203 of the Delaware
Corporation Law. Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or affiliate or associate of such person who is an "interested
stockholder" for a period of three years from the date such person became an
interested stockholder unless (i) the transaction resulting in a person's
becoming an interested stockholder, or the business combination, is approved by
the board of directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquires 85% or more of
the outstanding voting stock of the corporation in the same transaction which
makes it an interested stockholder (excluding certain employee stock plans); or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
the holders of at least 66 2/3% of the corporation's outstanding voting stock at
an annual or special meeting, excluding shares owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (x)
the owner of 15% or more of the outstanding voting stock of the corporation or
(y) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three year-period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
Limitations on Directors' Liability
The Charter contains provisions to (i) eliminate the personal liability
of its directors for monetary damages resulting from breaches of their fiduciary
duty (other than breaches of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
violations under Section 174 of the Delaware Corporation Law or for any
transaction from which the director derived an improper personal benefit) and
(ii) indemnify its directors and officers to the fullest extent permitted by
Section 145 of the Delaware Corporation Law, including circumstances in which
indemnification is otherwise discretionary. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to our directors,
officers and controlling persons, we has been advised that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. 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 following table sets forth (i) the number of shares of Common Stock
beneficially owned by the Selling Stockholders as of December 31, 1998, (ii) the
number of Shares of Common Stock to be offered for resale by the Selling
Stockholders and (iii) 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
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
37
<PAGE>
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
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
38
<PAGE>
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
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
39
<PAGE>
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
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
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
40
<PAGE>
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
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
41
<PAGE>
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
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
42
<PAGE>
R J Pty Limited 10000
Mr Gregory Samuel Robson 13000
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
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 &
43
<PAGE>
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
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
- --------------------------------------------------------------------------------
(1) 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 hereby. To the extent required
o the specific shares of Common Stock beneficially owned by such
Selling Stockholders
o the public offering price of the Shares to be sold
o the names of any agent, dealer or underwriter employed by such
Selling Stockholders in connection with such sale
o any applicable commission or discount with respect to each offer
44
<PAGE>
will be set forth in an accompanying Prospectus Supplement.
THE SHARES COVERED BY THIS PROSPECTUS MAY BE SOLD FROM TIME TO TIME SO
LONG AS THIS PROSPECTUS REMAINS IN EFFECT; PROVIDED, HOWEVER, THAT THE SELLING
STOCKHOLDERS ARE FIRST REQUIRED TO CONTACT OUR CORPORATE SECRETARY TO CONFIRM
THAT THIS PROSPECTUS IS IN EFFECT. THE SELLING STOCKHOLDERS EXPECT TO SELL THE
SHARES AT PRICES THEN ATTAINABLE, LESS ORDINARY BROKERS' COMMISSIONS AND
DEALERS' DISCOUNTS AS APPLICABLE.
THE 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 WITH RESPECT TO THE COMMON STOCK OFFERED HEREBY, AND ANY
PROFITS REALIZED BY THE SELLING STOCKHOLDERS OR SUCH BROKERS OR DEALERS MAY BE
DEEMED TO BE UNDERWRITING COMMISSIONS. BROKERS' COMMISSIONS AND DEALERS'
DISCOUNTS, TAXES AND OTHER SELLING EXPENSES TO BE BORNE BY THE SELLING
STOCKHOLDERS ARE NOT EXPECTED TO EXCEED NORMAL SELLING EXPENSES FOR SALES
OVER-THE-COUNTER OR OTHERWISE, AS THE CASE MAY BE. THE REGISTRATION OF THE
SHARES UNDER THE SECURITIES ACT SHALL NOT BE DEEMED AN ADMISSION BY THE SELLING
STOCKHOLDERS OR USTHAT THE SELLING STOCKHOLDERS ARE UNDERWRITERS FOR PURPOSES OF
THE SECURITIES ACT OF ANY SHARES OFFERED UNDER THIS PROSPECTUS.
PLAN OF DISTRIBUTION
This Prospectus covers 1,216,667 of our Common Stock. All of the Shares
offered hereby 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 hereby from time to time in transactions on one or more
exchanges, in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices relating to prevailing
market prices or at negotiated prices. In addition, from time to time the
Selling 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
pursuant to the margin provisions to its customer agreements with its brokers.
Upon a default by the Selling Stockholders, the broker may offer and sell the
pledge Shares.
Such transactions may be effected by selling the Shares to or through
broker-dealers, and such broker-dealer may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation
45
<PAGE>
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 (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 certain states, if
applicable, the shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
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 hereby may sell such
securities either directly, in its normal market-making activities, through or
to other brokers on a principal or agency basis or to its customers. Any such
sales may be at prices then prevailing on Nasdaq, at prices related to such
prevailing market prices or at negotiated prices to its customers or a
combination of such methods. In addition and without limiting the foregoing, the
Selling Stockholders will be subject to applicable provisions of Regulation M,
which may limit the timing of the purchases and sales of shares of Common Stock
by the Selling Stockholders.
The Selling Stockholders is not restricted as to the price or prices at
which it may sell its Shares. Sales of such Shares may have an adverse effect on
market price of Common Stock. Moreover, the Selling 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 such shares.
LEGAL MATTERS
The validity of the Shares will be passed upon for us by our counsel,
Harry Winderman, Esq., Boca Raton, Florida.
EXPERTS
The financial statements of Atlantic International Entertainment, Ltd.
at December 31, 1997 and 1996, appearing in this Registration Statement have
been audited by Moore Stephens,
46
<PAGE>
P.C., independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN 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.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and , we file reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). These reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 as well as at the following regional offices: 7 World Trade Center,
Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60606-2511 upon payment of the fees prescribed by the
Commission. This material may also be viewed on the internet at
http//www.sec.gov.
We have also filed with the Commission a Form SB-2 Registration Statement
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the shares offered by the
selling stockholders listed in this Prospectus. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which are omitted to comply with the rules and regulations of the Commission.
For further information, please see the Registration Statement.
47
<PAGE>
XXXX
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report ...............................................F-2
Consolidated Balance Sheet as of December 31, 1997 .........................F-3
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996..................................................F-5
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1997 and 1996......................................F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996..................................................F-7
Notes to Consolidated Financial Statements .................................F-9
Unaudited Balance Sheets at September 30, 1998..............................F-25
Unaudited Consolidated Statement of operations for
the nine months ended September 30, 1998 and 1997........................F-27
Unaudited Consolidated Statement of Cash Flows for
the nine months ended September 30, 1998 and 1997........................F-28
Notes to Unaudited Financial Statements.....................................F-30
. . . . . . . . . . . .
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Atlantic International Entertainment, Ltd.
We have audited the accompanying consolidated balance sheet of Atlantic
International Entertainment, Ltd. and its subsidiaries as of December 31, 1997,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the two years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Atlantic International Entertainment, Ltd. and its subsidiaries as of December
31, 1997, and the consolidated results of their operations and their cash flows
for each of the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/S/ MOORE STEPHENS, P. C.
-------------------------
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
April 24, 1998
F-2
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
<TABLE>
<CAPTION>
ASSETS:
CURRENT ASSETS:
<S> <C>
Cash and Cash Equivalents $ 11,260
Accounts Receivable [Net of Allowance for Doubtful Accounts of $22,204] 43,228
Notes Receivable 1,927,899
Refundable Income Taxes 77,215
Deferred Tax Asset 176,812
Prepaid Expenses 6,564
Other Current Assets 10,000
----------
TOTAL CURRENT ASSETS 2,252,978
----------
FURNITURE, FIXTURES AND EQUIPMENT - NET 464,454
----------
SOFTWARE [NET OF ACCUMULATED AMORTIZATION OF $313,655] 1,285,574
----------
COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED -
[NET OF ACCUMULATED AMORTIZATION OF $78,132] 1,465,149
----------
OTHER ASSETS:
Due from Related Parties 49,855
Other Assets 18,781
Investments 10,125
Notes Receivable [Net of Discounts and Reserve] 1,359,083
----------
TOTAL OTHER ASSETS 1,437,844
----------
TOTAL ASSETS $6,905,999
==========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-3
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 951,592
Notes Payable - Officers 166,636
Due to Customers 20,721
Current Portion of Long-Term Debt 36,000
Current Portion of Capital Lease Obligations 41,427
Income Taxes Payable - Federal 605,213
Income Taxes Payable - State 29,123
Line of Credit 24,391
Other Current Liabilities 25,316
-----------
TOTAL CURRENT LIABILITIES 1,900,419
LONG-TERM DEBT 4,500
CAPITAL LEASE OBLIGATIONS 54,461
COMMITMENTS AND CONTINGENCIES --
-----------
TOTAL LIABILITIES 1,959,380
-----------
STOCKHOLDERS' EQUITY:
Preferred Stock - Par Value $.001 Per Share; Authorize
10,000,000 Shares, None Issued or Outstanding --
Common Stock - Par Value $.001 Per Share;
Authorized 100,000,000 Shares, Issued and
Outstanding 9,590,184 Shares 9,590
Additional Paid-in Capital 4,149,906
Unrealized Holding Loss on Marketable Securities (42,763)
Retained Earnings 829,886
-----------
TOTAL STOCKHOLDERS' EQUITY 4,946,619
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,905,999
===========
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-4
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
REVENUE $ 4,416,790 $ 454,656
COST OF SALES 527,344 48,894
----------- -----------
GROSS PROFIT 3,889,446 405,762
----------- -----------
GENERAL AND ADMINISTRATIVE 1,895,616 766,361
PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES 412,698 --
DEPRECIATION AND AMORTIZATION 186,242 67,376
----------- -----------
TOTAL OPERATING EXPENSES 2,494,556 833,737
----------- -----------
INCOME [LOSS] FROM OPERATIONS 1,394,890 (427,975)
----------- -----------
OTHER INCOME [EXPENSES]:
Interest Income 17,331 4,350
Interest Expense (10,477) (2,870)
Interest Expense - Related Party (7,525) (1,302)
Other Income [Expense] (34,669) 3,556
----------- -----------
OTHER [EXPENSES] INCOME - NET (35,340) 3,734
----------- -----------
INCOME [LOSS] FROM CONTINUING OPERATIONS BEFORE
INCOME TAX EXPENSE [BENEFIT] EXPENSE 1,359,550 (424,241)
INCOME TAX EXPENSE [BENEFIT] EXPENSE 411,325 (77,215)
----------- -----------
INCOME [LOSS] FROM CONTINUING OPERATIONS 948,225 (347,026)
DISCONTINUED OPERATIONS - [NET OF INCOME TAXES OF 51,047]:
[Loss] from Operations of Discontinued Foreign Subsidiary (45,890) (29,244)
Gain on the Disposal of Discontinued Foreign Subsidiary 144,982 --
----------- -----------
NET INCOME [LOSS] $ 1,047,317 $ (376,270)
=========== ===========
INCOME [LOSS] PER COMMON SHARE:
Continuing Operations .10 (.04)
Discontinued Operations .01 --
----------- -----------
BASIC AND DILUTED NET INCOME PER SHARE OF COMMON STOCK $ .11 $ (.04)
=========== ===========
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING 9,452,992 8,514,537
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-5
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
--------------------- ADDITIONAL LOSS ON RETAINED TOTAL
PREFERRED NUMBER OF PAID-IN MARKETABLE EARNINGS STOCKHOLDERS'
--------- --------- ------- ---------- -------- -------------
STOCK SHARES AMOUNT CAPITAL SECURITIES (DEFICIT) EQUITY
----- ------ ------ ------- ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1995 $ -- 6,803,451 $ 6,803 $ (6,713) $ -- $ 158,839 $ 158,929
Equity of CEEE [1] -- 1,500,033 1,500 (6,794) -- -- (5,294)
Sale of Common Stock -- 13 13 35,749 -- -- 35,762
Recapitalization
Adjustment [1] -- (13) (13) 13 -- -- --
Private Placement [1] -- 886,700 887 825,994 -- -- 826,881
Asset Acquisition [4] -- 200,000 -- 1,200,000 -- -- 1,200,000
Recapitalization
Adjustment [1] -- (200,000) -- -- -- -- --
Recapitalization Costs [1] -- -- -- (160,873) -- -- (160,873)
[Loss] from Continuing
Operations -- -- -- -- -- (347,026) (347,026)
[Loss] from Discontinued
Foreign Subsidiary -- -- -- -- -- (29,244) (29,244)
------- ------------- --------- ------------- ---------- ----------- -----------
BALANCE - DECEMBER 31, 1996 -- 9,190,184 9,190 1,887,376 -- (217,431) 1,679,135
Sale of Common Stock -- 75,000 75 350,175 -- -- 350,250
Sale of Common Stock -- 25,000 25 -- -- -- 25
Asset Acquisition [Note 8] -- 200,000 200 1,598,880 -- -- 1,599,080
Conversion of Debt to Equity -- -- -- 313,475 -- -- 313,475
Issuance of Shares in Escrow -- 100,000 100 -- -- -- 100
Unrealized Holding Loss on
Marketable Securities -- -- -- -- (42,763) -- (42,763)
Income from Continuing
Operations -- -- -- -- -- 948,225 948,225
Income from Discontinued
Operations -- -- -- -- -- 99,092 99,092
------- ------------- --------- ------------- ---------- ----------- -----------
BALANCE-DECEMBER 31, 1997 $ -- 9,590,184 $ 9,590 $ 4,149,906 $ (42,763) $ 829,886 $ 4,946,619
======= ============= ========= ============= ========== =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-6
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 7 1 9 9 6
------- -------
OPERATING ACTIVITIES:
<S> <C> <C>
Income [Loss] from Continuing Operations $ 948,225 $ (347,026)
Adjustments to Reconcile Net Income [Loss] to
Net Cash Provided by [Used for] Operating Activities:
Depreciation and Amortization 422,538 67,376
Provision for Doubtful Accounts 412,698 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (65,432) (63,965)
Prepaid Expenses (2,195) 20,723
Notes Receivable (3,677,476) --
Deferred Taxes (176,812) --
Restricted Cash (10,000)
Other Assets (13,915) (6,900)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 698,647 225,686
Income Taxes Payable 634,336 (90,500)
Other Current Liabilities 25,316 631
Due to Customers (7,558) --
----------- -----------
NET CASH - CONTINUING OPERATIONS (811,628) (193,975)
----------- -----------
DISCONTINUED OPERATIONS:
[Loss] from Discontinued Operations (45,890) (29,244)
Adjustments to Reconcile Net [Loss] to Net Cash Operations:
Depreciation 1,366 1,278
Changes in Net Assets and Liabilities (44,411) 41,641
----------- -----------
NET CASH - DISCONTINUED OPERATIONS (88,935) 13,675
----------- -----------
NET CASH - OPERATING ACTIVITIES - FORWARD (900,563) (180,300)
----------- -----------
INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Increase in Due from Related Parties (1,582) (37,177)
Purchase of Investments (109,418)
Sale of Investments 35,671 10,252
Purchase of EmiNet - Net of Cash Acquired (18,268) --
Purchase of Property and Equipment (425,862) (281,934)
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARD (519,459) (308,859)
----------- -----------
INVESTING ACTIVITIES - DISCONTINUED OPERATIONS:
Purchase of Property and Equipment -- (13,755)
Gain on the Disposal of Discontinued Foreign Subsidiary
[Net of Tax] 144,982 --
Sale of AIE NV - Net of Cash 13,100 --
----------- ------------
NET CASH INVESTING ACTIVITIES - DISCONTINUED OPERATIONS -
FORWARD $ 158,082 $ (13,755)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-7
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES - FORWARDED $ (900,563) $ (180,300)
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARDED (361,377) (322,614)
----------- -----------
NET CASH INVESTING ACTIVITIES - DISCONTINUED OPERATIONS -
FORWARDED 158,082 (13,755)
----------- -----------
FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Proceeds from the Conversion of Debt to Equity 313,475 --
Proceeds from Issuance of Common Stock 350,250 701,770
Increase in Loan Payable to Shareholder 144,981 21,655
Proceeds from Long-Term Debt 45,000 --
Payment of Notes Payable (4,500) --
Proceeds from Line of Credit 24,391 --
Payment of Lease Payable (21,585) --
----------- -----------
NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS 852,012 723,425
----------- -----------
[DECREASE] INCREASE IN CASH AND CASH EQUIVALENTS (409,928) 220,511
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 421,188 200,677
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 11,260 $ 421,188
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 5,903 $ 4,172
Income Taxes $ -- $ 77,215
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On April 15, 1996, the Company entered into an asset acquisition
agreement. The non-cash portion of the transaction included the issuance of
200,000 shares of common stock with a fair value of $1,200,000 [See Note 1 for
details of recapitalization].
On March 26, 1997, the Company issued 200,000 shares of the Company's
common stock as part of the acquisition of its subsidiary, The EmiNet Domain
[See Note 7].
As part of the acquisition of EmiNet Domain, Inc. [See Note 7], capital
lease obligations of approximately $106,000 were incurred for the purchase of
equipment [See Note 10].
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-8
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] ORGANIZATION AND STOCK ACQUISITION
CORPORATE STRUCTURE - CEEE Group, Inc. ["CEEE"] was incorporated under the laws
of the State of Colorado in October of 1939 as Pacific Gold, Inc. CEEE was
organized to explore, develop, mine and mill gold and silver deposits of ore.
The Company conducted limited mining activities until operations ceased. CEEE
was seeking new business opportunities as a development stage entity.
On July 16, 1996, CEEE entered into an exchange of stock and plan of
organization with Atlantic International Capital, Ltd. ["AIC"] pursuant to which
CEEE acquired all of the common shares of AIC in exchange for an aggregate of
6,803,451 common shares of CEEE. Following the share exchange and the issuance
of all shares, the shareholders of AIC own approximately 94% of CEEE.
For accounting purposes, the acquisition was recorded as a recapitalization of
AIC, with AIC as the acquirer. The shares issued were treated as issued by AIC
for cash and are shown as outstanding for all periods presented in the same
manner as for a stock split. Recapitalization costs totaling $160,873 were
charged to additional paid-in capital. The consolidated financial statements of
the Company reflect the results of operations of CEEE and AIE from July 1, 1996
through December 31, 1996. The consolidated financial statements prior to July
1, 1996 reflect the results of operations and financial position of AIC. Pro
forma information on this transaction is not presented as, at the date of this
transaction, CEEE is considered a public shell and, accordingly, the transaction
will not be considered a business combination. CEEE changed its name to Atlantic
International Entertainment, Ltd. ["AIE or the "Company"]. AIE was incorporated
under the laws of the State of Delaware on August 22, 1996.
Upon consummation of the merger, the Company's authorized capital was increased
to 100,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of
preferred stock, $.001 par value. The combined entity operates under the name of
Atlantic International Entertainment, Ltd.
In March 1997, the Company concluded its acquisition of the EmiNet Domain, Inc.,
an Internet service provider and developer of Internet related software products
as well as hosting commercial web sites [See Note 8].
In October 1997, the Company formed two subsidiaries, Atlantic International
Entertainment, Australia, Ltd. ["AIE, Australia"] and Atlantic International
Entertainment, South Africa, Ltd. ["AIE, SA"]. The Company advanced $10,000 to
AIE, SA to assist in the incorporation process [see restricted cash]. Both AIE,
Australia and AIE, SA were inactive for the year ended December 31, 1997.
NATURE OF BUSINESS - The Company is located in Southern Florida and develops and
markets interactive products and services which are offered and operated via the
Internet and World Wide Web. The operations are focused on two segments which
include Internet software licensing and Internet service providers and developer
of Internet related software products.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its subsidiaries. All material intercompany accounts
and transactions have been eliminated.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments,
with a maturity of three months or less when purchased, to be cash equivalents.
At December 31, 1997, the Company did not have any cash equivalents.
F-9
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
PROPERTY AND EQUIPMENT AND DEPRECIATION - Property and equipment are stated at
cost. Depreciation is computed primarily using the straight-line method over the
estimated useful lives of the assets, which range from 5 to 7 years. Leasehold
improvements are amortized using the straight-line method over the lesser of the
term of the related lease or the estimated useful lives of the improvements.
Routine maintenance and repair costs are charged to expense as incurred and
renewals and improvements that extend the useful life of the assets are
capitalized. Upon sale or retirement, the cost and related accumulated
depreciation are eliminated from the respective accounts and any resulting gain
or loss is reported as income or expense.
ORGANIZATION COSTS - Costs incurred with the organization of the Company have
been capitalized and are being amortized over a period of five-years on the
straight-line method. As of December 31, 1997, organization costs net of
accumulated amortization totaled $2,096. Net organization costs are included in
other assets as of December 31, 1997.
COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED - The cost in excess of net
assets of business acquired is being amortized on a straight-line basis over 15
years. Amortization expense amounted to $77,099 and $-0- for the years ended
December 31, 1997 and 1996, respectively.
REVENUE RECOGNITION - Revenue from computer software licensing agreements is
accounted for under the completed contract method, income of all revenue and
related expenses are recognized at completion of installation or acceptance by
the user. Revenue from providing Internet service and web hosting and
development services is recognized when services are rendered.
INVESTMENTS - The Company accounts for investments in accordance with Statement
of Financial Accounting Standards ["SFAS"] No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Management determines the
appropriate classification of its investments in debt and equity securities at
the time of purchase and reevaluates such determination at each balance sheet
date. Equity securities, and debt securities which the Company does not have the
intent to hold to maturity, are classified as trading or available for sale.
Securities available for sale are carried at fair value, with any unrealized
holding gains and losses, net of tax, reported in a separate component of
shareholders' equity until realized. Trading securities are carried at fair
value with any unrealized gains or losses included in earnings. Held to maturity
securities are carried at amortized cost. Marketable debt and equity securities
available for current operations are classified in the balance sheet as current
assets while securities held for non-current uses are classified as long-term
assets. Realized gains and losses are calculated utilizing the specific
identification method [See Note 6].
INCOME TAXES - Pursuant to SFAS No. 109, "Accounting for Income Taxes," income
tax expense [or benefit] for the year is the sum of deferred tax expense [or
benefit] and income taxes currently payable [or refundable]. Deferred tax
expense [or benefit] is the change during the year in a company's deferred tax
liabilities and assets. Deferred tax liabilities and assets are determined based
on differences between financial reporting and tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
ADVERTISING EXPENSES - The Company expenses advertising costs as incurred. Total
advertising costs charged to expenses for the years ended December 31, 1997 and
1996 amounted to approximately $122,000 and $51,500, respectively.
NET INCOME PER SHARE - The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards ["SFAS"] No. 128, Earnings per
Share, which is effective for financial statements issued for periods ending
after December 15, 1997. Accordingly, earnings per share data in the financial
statements for the year ended December 31, 1997, have been calculated in
accordance with SFAS No. 128. Prior periods loss per share data did not require
restatement. Potential common shares are included if dilutive.
F-10
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
NET INCOME PER SHARE [CONTINUED] - SFAS No. 128 supersedes Accounting Principles
Board Opinion No. 15, Earnings per Share, and replaces its primary earnings per
share with a new basic earnings per share representing the amount of earnings
for the period available to each share of common stock outstanding during the
reporting period. Basic earnings [loss] per share is computed by dividing income
[loss] available to common stockholders by the weighted average number of common
shares outstanding during the period. SFAS No. 128 also requires a dual
presentation of basic and diluted earnings per share on the face of the
statement of operations for all companies with complex capital structures.
Diluted earnings per share reflects the amount of earnings for the period
available to each share of common stock outstanding during the reporting period,
while giving effect to all dilutive potential common shares that were
outstanding during the period, such as common shares that could result from the
potential exercise or conversion of securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise, or contingent issuance of securities that would have an antidilutive
effect on per share amounts (i.e., increasing earnings per share or reducing
loss per share). The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants.
STOCK-BASED COMPENSATION - The Company follows Accounting Principles Board
Opinion No. 25. "Accounting for Stock Issued to Employees" ["APB No. 25"] with
regard to the accounting for its employee stock options. Under APB No. 25,
compensation expense is recognized only when the exercise price of options is
below the market price of the underlying stock on the date of grant.
Accordingly, no compensation expense has been recognized for the Company's
stock-based compensation plan for fiscal year 1997. The Company applies the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" to
non-employee stock-based compensation and the pro forma disclosure provisions of
SFAS No. 123 to employee stock-based compensation.
SOFTWARE AND AMORTIZATION - Costs related to the conceptual formulation and
design of licensed programs are expensed as research and development. Costs
incurred subsequent to establishment of technological feasibility to produce the
finished product are capitalized. The annual amortization of the capitalized
amounts is the greater of the ratio that current gross revenues for a product
bear to the total of current and anticipated future gross revenues for that
product or the straight-line method over the remaining estimated economic life
of the product including the period being reported on. Amortization begins when
the product is available for general release to customers. Periodic reviews are
performed to ensure that unamortized program costs remain recoverable from
future revenues. Costs to support or service licensed programs are charged
against income as incurred, or when related revenue is recognized, whichever
occurs first. Amortization expense related to software amounted to $236,296 and
$48,894 for the years ended December 31, 1997 and 1996, respectively. The
amortization expense is included in cost of sales.
IMPAIRMENT - Certain long-term assets of the Company are reviewed when changes
in circumstances require as to whether their carrying value has become impaired,
pursuant to guidance established in Statement of Financial Accounting Standards
["SFAS"] No. 121, "Accounting for the Impairment of Long-Lived Assets and for
F-11
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #3
Long-Lived Assets to be Disposed Of." Management considers assets to be impaired
if the carrying value exceeds the future projected cash flows from related
operations [undiscounted and without interest charges]. If impairment is deemed
to exist, the assets will be written down to fair value. Management also
reevaluates the periods of amortization to determine whether subsequent events
and circumstances warrant revised estimates of useful lives. As of December 31,
1997, management expects these assets to be fully recoverable.
RECLASSIFICATION - Certain prior year amounts have been reclassified to conform
to current year's financial statement presentation.
[3] SIGNIFICANT RISKS AND UNCERTAINTIES
[A] CONCENTRATIONS OF CREDIT RISK - CASH - Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents and trade accounts and notes
receivable.
The Company places its cash and cash equivalents with high credit quality
institutions to limit its credit exposure. The Company believes no significant
concentration of credit risk exists with respect to these investments. The
Company routinely assesses the credit worthiness of its customers before a sale
takes place and believes its credit risk exposure on notes receivable is
limited. Five major customers accounted for approximately 67% of the Company's
notes receivable portfolio. The Company performs ongoing credit evaluations of
its customers but does not require collateral. The Company maintains allowances
for potential credit losses.
[B] OTHER CONCENTRATIONS - All of the Company's sales from Internet software
licensing is from outside the United States. These sales however, are not
subject to currency fluctuations as payment is made in U.S. dollars. The Company
had a portion of its revenues from five customers in 1997, totaling
approximately 66% of total revenues. The customers account for approximately
$2,935,000 of revenues for the year ended December 31, 1997. For the year ended
December 31, 1996, two customers accounted for 46% of revenues which accounted
for $125,500 [Investment Advisory Services] and $87,000 [Internet Software] of
revenues.
The Company purchases software from two vendors. Management believes that there
is no business vulnerability regarding this concentration of purchases from the
vendor as the software is available from other sources.
[4] NOTES RECEIVABLE
Notes receivable at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Australian Advisors, Ltd., minimum monthly principal and interest payments of
$3,000 or 40% of net win before expenses until June 1999 and $6,222
thereafter, interest at 8%, remaining balance due in full by June 2007. $ 826,000
Casinos of the South Pacific, monthly principal payments of $10,000
through August 2000; non-interest bearing. 310,000
BTN, Inc., monthly principal payments of $11,111 through June 2000,
non-interest bearing. 400,000
Carib Sportsbook, Inc., varying monthly payments, through June 1999,
non-interest bearing. 129,137
Intercoin AVV, monthly principal payment of $9,722, through
November 2000, non-interest bearing. 350,000
Tropical Reef Resorts, monthly principal payment of $2,542, through
November 2001, non-interest bearing. 122,000
Tropical Reef Resorts, monthly principal payment of $9,833 through
February 2001, non-interest bearing. 354,000
----------
Total - Forward $2,491,137
</TABLE>
F-12
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #4
[4] NOTES RECEIVABLE [CONTINUED]
<TABLE>
<CAPTION>
<S> <C>
Total - Forwarded $2,491,137
Permanent Mutual Investment Limited, monthly principal payment of
$11,388 through August 200, non-interest bearing. 410,000
Tradewinds Virtual Gaming, Inc., monthly principal and interest payments of
$10,725 through May 2001, interest at prime rate
plus 2% [10.5% at December 31, 1997]. 385,000
Tradewinds Virtual Gaming, Inc., monthly principal and interest payments of
$1,950, through May 2001, interest at prime
rate plus 2% [10.5% at December 31, 1997]. 70,000
Cyber Gold Casino, Corp., monthly principal and interest payments of $10,575,
through July 2001, interest at prime rate plus 2%
[10.5% at December 31, 1997]. 400,000
-----------
Total Notes Receivable 3,756,137
Less: Reserve for Uncollectible Notes (385,052)
Discounts for Non-Interest Bearing Notes (84,103)
-----------
Total 3,286,982
Less: Amounts Shown as Current (1,927,899)
-----------
NOTES RECEIVABLE - NON-CURRENT PORTION $ 1,359,083
-------------------------------------- ===========
</TABLE>
The Collateral for notes receivable are the activation codes supplied by AIE to
its customers in order for them to commence uninterrupted use of the software.
If payment is withheld from AIE, for any reason, AIE can in effect shut down the
Internet operation and make the program inoperable until a new activation code
is supplied by Atlantic. To this date, the Company has not shut down any service
to any of its customers.
[5] ASSET ACQUISITION
On April 15, 1996, the pre-merger Company [See Note 1] purchased certain assets
consisting principally of computer software for Internet products and hardware.
The purchase price was $1,230,000 payable as $30,000 in cash and issued 200,000
shares of common stock with a fair value of $1,200,000.
F-13
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #5
[6] INVESTMENTS IN EQUITY SECURITIES
At December 31, 1997, the Company's available for sale securities consisted of
equity securities. A summary of the Company's investments in equity securities
is as follows:
DECEMBER 31, 1997
-----------------
FINANCIAL STATEMENT CAPTION CARRYING VALUE FAIR VALUE
- --------------------------- -------------- ----------
Available for Sale:
Common Stock $ 10,125 $10,125
======== =======
Gross proceeds from sale of available for sale securities was $35,671 and net
realized loss on sales was $20,859 for the year ended December 31, 1997. The net
unrealized holding loss on securities available for sale securities was $42,763
and is included as a separate component of stockholder's equity for the year
ended December 31, 1997.
[7] BUSINESS ACQUISITION
On January 31, 1997, the Company entered into an agreement to purchase all of
the shares of EmiNet Domain, Inc. ["EmiNet"]. The purchase price for the shares
was $2,020,000 payable by the issuance and delivery to the shareholders of
EmiNet or their designees of a minimum of 200,000 shares of fully-paid and
non-assessable common stock of the Company at the market value as of January 31,
1997 and $20,000 cash payable at March 31, 1997. In addition, the shareholders
of EmiNet or their designees will receive additional shares at market equal to
one time EmiNet's net profit before taxes for the years ending 1997 and 1998 up
to $750,000 per annum, one and one-half times over $750,000 to $1,000,000 and
two times over $1,000,000. No additional shares were issued in 1997 due to the
net loss of EmiNet. The transaction, effective April 1, 1997 was accounted for
as a purchase and the results of EmiNet's operations are included in the
statement of operations from that date. As a result of the acquisition, cost in
excess of net assets of approximately $1,563,000 was recorded. The cost in
excess of net assets is being amortized using the straight-line method over 15
years.
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1997 and 1996 are presented as if the EmiNet
acquisition has been made at the beginning of each period presented. EmiNet
operated as an S corporation in 1996. Included in the expenses to arrive at Net
Income are reclassifications of Shareholders' Draw to Officers Salaries and
Income Tax Expense in the amounts of approximately $86,000 and $132,000 for 1997
and 1996, respectively. The unaudited pro forma information is not necessarily
indicative of either the results of operations that would have occurred had the
purchase been made during the periods presented or the future results of the
combined operations.
YEARS ENDED
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Net Sales $4,593,078 $ 878,097
Net Income [Loss] $1,096,976 $(347,072)
Basic Net Income [Loss] Per Share of Common Stock $ .12 $ (.04)
Diluted Net Income [Loss] Per Share of Common Stock $ .12 $ (.04)
F-14
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #6
[8] CAPITAL STOCK
On September 18, 1996 and October 31, 1996, the Company issued 521,500 and
365,200 shares, respectively of common stock in a private placement of its
securities. The Company received net proceeds of $826,881.
On January 16, 1997, the Company entered into a stock purchase agreement with
Brindenberg Securities, A/S under Regulation S of the Securities and Exchange
Commission. A total of 75,000 shares were issued under the agreement for
$525,000 net of offering costs and expenses of approximately $175,000.
In February 1997, the Company issued 25,000 shares of its common stock to an
outside consultant for services to be rendered. The consultant never performed
the required services and therefore, the common shares issued will be returned
in 1998.
In March 1997, the Company issued 200,000 shares of the Company's common stock
as part of the acquisition of EmiNet Domain, Inc. [See Note 7].
In December of 1997, the Company sold 100,000 shares of the Company's common
stock to Australian Advisors for a total of $300,000 pursuant to the
Registration Statement S-8.
Also in December 1997, the Company converted debt totaling $313,475 to equity.
The shares related to the conversion were unissued at December 31, 1997 and the
conversion ratio has yet to be determined.
[9] PROPERTY AND EQUIPMENT
The following details the composition of property and equipment:
ACCUMULATED
COST DEPRECIATION NET
---- ------------ ---
Computer Hardware $485,031 $88,867 $396,164
Equipment, Office Fixtures and Furnishings 56,296 6,803 49,493
Leasehold Improvements 19,352 555 18,797
-------- ------- --------
TOTALS $560,679 $96,225 $464,454
------ ======== ======= ========
Depreciation expense for the years ended December 31, 1997 and 1996 was $97,976
and $19,438, respectively.
[10] LEASES
CAPITAL LEASES - The Company is the lessee of office equipment under capital
leases expiring in various years through December 2001. The various leases are
collateralized by the related assets. The assets and liabilities under capital
leases are recorded at the present value of the net future minimum lease
payments. The assets are amortized over their estimated productive lives.
Amortization of assets under capital leases is included in depreciation expense.
Following is a summary of property held under capital leases:
Office Equipment $105,750
Less: Accumulated Amortization 8,860
--------
TOTAL $ 96,890
========
F-15
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #7
[10] LEASES [CONTINUED]
CAPITAL LEASES [CONTINUED] - Minimum future lease payments under capital leases
for each of the next five years and in the aggregate are:
1998 $ 48,732
1999 31,930
2000 20,984
2001 7,227
2002 --
Thereafter --
---------
Net Minimum Lease Payments 108,873
Less: Amount Representing Interest 12,985
---------
Present Value of Net Minimum Lease Payments 95,888
Less: Current Portion 41,427
---------
LONG-TERM PORTION $ 54,461
----------------- =========
OPERATING LEASES - The Company leases office space and equipment under operating
leases expiring through September 2002, and has a $10,236 security deposit with
its landlord. The lease grants an option for renewal for an additional 5 years.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1997.
YEAR ENDING OPERATING
DECEMBER 31, LEASES
- ------------ ------
1998 $ 114,266
1999 116,988
2000 119,344
2001 119,347
2002 92,121
Thereafter --
---------
TOTAL $ 562,066
----- =========
Rent expense for the years ended December 31, 1997 and 1996 was $91,525 and
$53,427, respectively.
[11] FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ["SFAS'] No. 107, "Disclosure About
Fair Value of Financial Instruments" requires disclosing fair value to the
extent practicable for financial instruments which are recognized or
unrecognized in the balance sheet. The fair value of the financial instruments
disclosed herein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement. The following table summarizes
financial instruments by individual balance sheet classifications as of December
31, 1997:
CARRYING FAIR
AMOUNT VALUE
Due from Related Parties $49,855 $41,275
F-16
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #8
[11] FAIR VALUE OF FINANCIAL INSTRUMENTS [CONTINUED]
In assessing the fair value of financial instruments, the Company used a variety
of methods and assumptions, which were based on estimates of market conditions
and risks existing at that time. For certain instruments, including cash and
cash equivalents, short term notes receivable, related party and trade and notes
payables, it was assumed that the carrying amount approximated fair value for
the majority of these instruments because of their short maturities.
The long-term notes receivable approximate fair value as all non-interest
bearing notes have been discounted to their present value.
[12] LINE OF CREDIT - BANK
The Company has a credit facility with a bank consisting of a revolving line of
credit under which the Company can borrow up to a maximum of $25,000. The
Company has borrowings of approximately $24,400 under the line of credit
outstanding at December 31, 1997. The revolving line of credit bears interest at
2.25% above the prime rate [8.5% at December 31, 1997] and is payable on
demand. The line of credit is guaranteed by the former shareholders of EmiNet
[See Note 7] and collateralized by certain assets. At December 31, 1997, the
Company had approximately $600 available under the line of credit.
[13] LONG-TERM DEBT
At December 31, 1997, long-term debt consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable bank, payable in thirty-six monthly installments of $500 plus
interest of 2.8% above a variable interest rate [prime rate] per annum,
[8.5% at December 31, 1997] through August 1999, collateralized by all
borrower's deposits and accounts on deposit with the lending institution. $ 10,500
Note payable - consultant, demand notes due September 5, 1998.
The notes accrue interest at 6% per annum. 30,000
----------
Total 40,500
Less: Current Portion (36,000)
----------
TOTAL $ 4,500
----- ==========
</TABLE>
Long-term debt at December 31, 1997, matures as follows:
1998 $ 36,000
1999 4,500
2000 --
----------
TOTAL $ 40,500
----- ==========
The Company is subject to restrictive covenants including maintaining primary
banking depositary relations with the lender and no additional debt to be
incurred unless it is in the normal and ordinary course of business.
Management believes the Company was in compliance with all debt covenants at
December 31, 1997.
The weighted average interest rate on short-term borrowings as of December 31,
1997 was 10%.
F-17
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #9
[14] RELATED PARTY TRANSACTIONS
The Company made advances to an affiliated company, whose shareholders are also
shareholders of the Company during the year ended December 1997, increasing the
balance receivable to $49,855. The advances accrue interest at a rate of 6% per
annum, and are due on demand.
The Company has notes payable to two officers in the aggregate amount of
$166,636 at December 31, 1997. The notes are demand notes and incur interest at
8% per annum. Interest expense related to the shareholders notes totaled $7,525
and $1,302 for the years ended December 31, 1997 and 1996, respectively.
[15] PROVISION FOR INCOME TAXES
Income tax [benefit] expense consists of the following
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Current:
Federal $610,061 $(77,215)
State 29,123 --
-------- --------
Total Current 639,184 (77,215)
-------- --------
Deferred:
Federal 167,062 --
State 9,750 --
-------- --------
Total Deferred 176,812 --
-------- --------
TAX EXPENSE BENEFIT $462,372 $(77,215)
------------------- ======== =========
Income tax at the federal statutory rate reconciled to the Company's effective
rate is as follows:
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Federal Statutory Rate 34.0% (34.0)%
Non-Deductible Expenses -- (13.3)
Benefit of Net Operating Loss (3.6) 52.8
State Income Taxes 3.6 (5.5)
-------- ------
EFFECTIVE RATE 34.0% --%
-------------- ======== ======
In 1996, the Company recognized the benefit of $77,215 from the utilization of
an operating loss carryback which was filed in 1997.
F-18
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #10
[15] PROVISION FOR INCOME TAXES [CONTINUED]
The major components of deferred income tax assets and liabilities are as
follows:
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Deferred Tax Liabilities
Accelerated Depreciation $ -- $ (85,620)
Deferred Tax Assets:
Net Operating Loss -- 138,700
Allowance for Doubtful Accounts 176,812 --
--------- ------------
Net Deferred Tax Asset:
Before Valuation Allowance 176,812 53,080
Valuation Allowance -- 53,080
--------- ------------
NET DEFERRED INCOME TAX ASSET $ 176,812 $ --
----------------------------- ========= ============
The Company did not record a valuation allowance for the year ended December 31,
1997, because in managements judgement, the related deferred tax asset will be
realized within the next year. Accordingly, the valuation allowance decreased
$53,080 from December 31, 1996.
[16] BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into four business segments:
investment advisory services Internet software licensing, and medical products
and equipment and Internet access and services.
1 9 9 7 1 9 9 6
------- -------
Revenue:
Investment Advisory Services $ -- $ 366,204
Internet Software Licensing 4,002,894 87,000
Medical Products and Equipment -- 1,452
Internet Access and Services 413,896 --
----------- ----------
$ 4,416,790 $ 454,656
=========== ==========
Income [Loss] From Operations:
Investment Advisory Services $ -- $ 231,081
Internet Software Licensing 1,564,666 (659,056)
Medical Products and Equipment -- --
Internet Access and Services (169,776) --
----------- ----------
$ 1,394,890 $ (427,975)
=========== ==========
Total Assets:
Investment Advisory Services $ -- $ 1,423
Internet Software Licensing 5,181,740 1,980,591
Medical Products and Equipment -- --
Internet Access and Services 1,724,259 --
----------- ----------
$ 6,905,999 $1,982,014
=========== ==========
F-19
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #11
[16] BUSINESS SEGMENT INFORMATION [CONTINUED]
1 9 9 7 1 9 9 6
------- -------
Depreciation and Amortization:
Investment Advisory Services $ -- $ 285
Internet Software Licensing 323,959 67,091
Medical Products and Equipment -- --
Internet Access and Services 98,579 --
--------- -------------
$ 422,538 $ 67,376
========= =============
Capital Expenditures:
Investment Advisory Services $ -- $ 1,423
Internet Software Licensing 490,594 1,490,395
Medical Products and Equipment -- --
Internet Access and Services 122,558 --
--------- -------------
$ 613,152 $ 1,491,818
========= =============
[17] COMMITMENTS AND CONTINGENCIES
[A] EMPLOYMENT AGREEMENTS - The Company has employment agreements with certain
of its executives which commenced January 1, 1997 and expire on December 31,
2000. The aggregate annual commitment for future salaries at December 31, 1997
was $289,000. Also, included in the agreements are incentive bonus based upon
net income and net cash flows. Bonuses totaling approximately $151,000 have been
accrued at December 31, 1997.
[B] On June 17, 1996, the Company entered into a three year consulting agreement
with a well known personality to act as the Company's spokesman. The agreement
calls for the issuance of 5,000 shares of common stock during each year of the
three year term of the agreement. The shares are to be issued in quarterly
installments commencing September 30, 1996. No shares have yet been issued but
the Company has recorded a liability of $35,700 which represents the fair market
value of the quarterly installments of shares to be issued through December 31,
1997.
[C] On August 7, 1996, the Company's medical division signed an exclusive
distribution agreement for world wide sales of medical testing devices for HIV,
hepatitis, pregnancy, ovulation and other tests using the Internet as its means
of sales and distribution.
[D] On November 25, 1996, the Company signed and agreement with
Telecommunication Information Services Systems, NV ["TISS"], a Curacao based
company to provide international sports and entertainment information services.
As of December 31, 1996, $11,625 was received as revenues.
The agreement was terminated in February 1997 in contemplation of the
consummation of the Company's sale of its foreign subsidiary [See Note 19].
[E] In August 1997, the Company entered into a joint effort agreement with
OzEmail Limited ["OzEmail"]. The Company and OzEmail are jointly marketing and
selling the Company's software and business applications to customers and
prospective customers in Australia and Asia. The Agreement is for a term of one
year and will continue until terminated by either party.
[F] LITIGATION - The Company is party to litigation arising from the normal
course of business. In managements' opinion, this litigation will not materially
affect the Company's financial position, results of operations or cash flows.
F-20
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #12
[18] INCENTIVE STOCK OPTION PLAN
On January 1, 1997, the Company adopted an Incentive Stock Option Plan for
Employees, Directors, Consultants and Advisors [the "Plan"]. The Plan will
expire December 31, 2006 unless further extended by appropriate action of the
Board of Directors. Employees, directors, consultants and advisors of the
Company, or any of its subsidiary corporations, are eligible for participation
in the Plan. The Plan provides for stock to be issued pursuant to options
granted and shall be limited to 250,000 shares of Common Stock, $.001 par value.
The shares have been reserved for issuance in accordance with the terms of the
Plan. The exercise of these options may be for all or any portion of the option
and any portion not exercised will remain with the holder until the expiration
of the option period. The options expire on December 23, 2002.
A summary of the changes in outstanding Common Stock options for all outstanding
plans is as follows:
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
OUTSTANDING AT DECEMBER 31, 1995 -- --
Granted -- --
Exercised -- --
------- --------
Canceled
OUTSTANDING AT DECEMBER 31, 1996 -- --
Granted 175,000 3.25
Exercised -- --
Canceled -- --
------- -------
OUTSTANDING AT DECEMBER 31, 1997 175,000 3.25
======== =======
EXERCISABLE AT DECEMBER 31, 1997 175,000 3.25
======== =======
The following table summarizes information about stock options at December 31,
1997:
<TABLE>
<CAPTION>
EXERCISABLE
OUTSTANDING STOCK OPTIONS STOCK OPTIONS
------------------------- -------------
WEIGHTED-AVERAGE
RANGE OF REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- --------------- ------ ---------------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$3.25 175,000 5.0 $3.25 175,000 $ 3.25
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, for stock options issued
to employees in accounting for its stock option plans. The exercise price of
certain options issued during 1997 was the market price at the date of grant.
Accordingly, no compensation expense has been recognized for the Company's
stock-based compensation plans for fiscal year 1997.
F-21
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #13
[18] INCENTIVE STOCK OPTION PLAN [CONTINUED]
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. The
weighted average fair value of stock options granted to employees used in
determining pro forma amounts is estimated at $2.63, and $-0- during 1997 and
1996, respectively.
Pro forma information regarding net loss and net loss per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method prescribed under SFAS No. 123, Accounting for Stock Based
Compensation. The fair value of these options was estimated at the date of grant
using the Black-Scholes option-pricing model for the pro forma amounts with the
following weighted average assumptions:
DECEMBER 31,
------------
1 9 9 7 1 9 9 6
------- -------
Risk-Free Interest Rate 5.7% --%
Expected Life 2.0% --%
Expected Volatility 181.0% --%
Expected Dividends --% --%
The pro forma amounts are indicated below [in thousands, except per share
amounts]:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 7 1 9 9 6
------- -------
Net Income [Loss]:
<S> <C> <C>
As Reported $1,047,317 $ --
Pro Forma $ 586,367 $ --
Basic Net Income [Loss] Per Share of Common Stock:
As Reported $ .11 $ --
Pro Forma $ .06 $ --
Diluted Net Income [Loss] Per Share of Common Stock:
As Reported $ .11 $ --
Pro Forma $ .06 $ --
</TABLE>
[19] DISCONTINUED OPERATIONS
On December 15, 1996, the Company adopted a plan to discontinue and sell its
foreign subsidiary, known as Atlantic International, N.V. ["AIE, NV"], which
operated a Sportsbook operation. The sales price was $850,000, $2,000 payable at
closing and beginning 60 days after closing, 40% of net win before expenses on a
minimum of $3,000 monthly, until the balance is paid. Interest on the unpaid
balance shall be accrued at 8% per annum. The effective date of this transaction
is January 1, 1997. The foreign subsidiary was reported as a discontinued
operation for the year ended December 31, 1996.
The closing date of the sale was March 26, 1997. Revenues for the discontinued
operation totaled approximately $14,000. For the year ended December 31, 1997,
the gain on disposal of "AIE, NV" was approximately $220,000 [$144,982 net of
tax] and the loss from operations was approximately $70,000 [$45,890 net of tax
benefit].
F-22
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #14
[20] SUBSEQUENT EVENTS
In February 1998, the Company entered into an agreement with ELG Health
Management Services ["ELG"] to market the Atlantic International Medical ["AIM"]
products and services. ELG will provide the Company 40% of the net profits from
the sale and distribution of medical products.
In February 1998, the Company entered into a Development Service Agreement with
International Transaction Systems Corp. ["ITS"]. The Company's responsibilities
under the agreement include engaging in the development activity required to
host ITS on the Company's software and selling debt card processing ["DCP"].
ITS' responsibilities include development activity required to develop the DCP,
test methodology and/or test cases so that the Company may validate correct
operation of the DCP and provide service support.
Under the Agreement, the Company paid $20,000 to acquire access to DCP through
ITS for the purpose and exclusive application in the Company's software.
Transaction fees earned by customers will be distributed 75% and 25% to the
Company and ITS, respectively. The initial term of the agreement is 10 years,
and automatically renews in 5 year consecutive periods, unless terminated by
either party.
On April 3, 1998, the Company entered into a Securities Purchase Agreement for
the sale of $500,000 of a newly created 5% Convertible Preferred Stock. The
Agreement also grants the purchaser the right to purchase up to an additional
$2,500,000 in said class of securities at market prices. The preferred stock is
convertible into the Company's common stock at the purchaser's option based upon
a formula included in the Securities Purchase Agreement.
[21] SUBSEQUENT EVENTS [Unaudited]
On April 30, 1998, the Company entered into a Securities Purchase Agreement with
Hosken Consolidated Investments, Ltd. ["HCI"], where HCI purchased one million
shares of the Company's common stock for $4,000,000 pursuant to Regulation D.
In a simultaneous transaction, HCI has subscribed for 25% of the Company's South
African subsidiary, Atlantic International Entertainment, Ltd. South Africa. HCI
received its equity in consideration for its services to be rendered related to
introducing the Company to the South African gaming and wagering community.
In May 1998, the Company's wholly-owned subsidiary, AIE, Australia, Ltd. intends
to submit an acquisition bid for an Australian listed company, Coms21. The
Company will offer Coms21 shareholders the equivalent of $.70 Australian dollars
[$.44 US dollars] per share in the form of the Company's U.S. shares.
[22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ["FASB"] issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company is in the process of
determining its preferred format. The adoption of SFAS No. 130 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows.
F-23
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #15
[22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS [CONTINUED]
In June 1997, the FASB has issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. Financial
statement disclosures for prior periods are required to be restated. The Company
is in the process of evaluating the disclosure requirements. The adoption of
SFAS No. 131 will have no impact on the Company's consolidated results of
operations; financial position or cash flows.
In October 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, after clearance by the FASB, issued
Statement of Position (SOP) 97-2, Software Revenue Recognition. This SOP
supersedes SOP 91-1 of the same name and provides the most recent guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. SOP 97-2 is effective for transactions entered into in
fiscal years beginning after December 15, 1997.
SOP 97-2 requires that in arrangements to deliver software or a software system
that does not require significant production, modification, or customization,
revenue should be recognized when there is persuasive evidence that an
arrangement does in fact exist; delivery has occurred; the fee is fixed or
determinable; and collectibility is probable. If the software or software system
selling contract arrangement, either alone or together with other products or
services, requires significant production, modification or customization
construction type/production type contract accounting should be used for the
entire arrangement. Such accounting would recognize revenues and costs on a
contract arrangement as it progresses toward completion, rather than deferred
recognition of these items until persuasive evidence of delivery has occurred.
In software or software system selling arrangements that consist of multiple
elements (that is, additional software products, upgrades/enhancements, rights
to exchange or return software, postcontract customer support, or services), and
contract accounting does not apply, the fee must be allocated to the various
elements based on vendor-specific objective evidence of fair values. In general,
if sufficient vendor-specific objective evidence of fair values does not exist,
all revenue from the arrangement should be deferred until such sufficient
evidence exists, or until all elements have been delivered. The principle
difference between SOP 97-2 and its predecessor SOP 91-1 is in the accounting
for multiple-element arrangements based on vendor-specific objective evidence of
fair values. Management does not believe that SOP 97-2 will materially affect
the way the Company recognizes revenue.
. . . . . . . . . . .
F-24
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
(Unaudited)
ASSETS
CURRENT ASSETS
<S> <C>
Cash and Cash Equivalents $ 96,024
Accounts Receivable [Net of Allowance for Doubtful Accounts of $ 37,180] 52,720
Notes Receivable 534,763
Refundable Income Tax 77,215
Deferred Tax Asset 51,000
Prepaid Expenses 12,940
Investment 3,770,000
Other Current Assets 96,570
---------------
TOTAL CURRENT ASSETS: 4,691,232
---------------
Furniture, Fixtures and Equipment - (Net of Accumulated Depreciation of $ 184,830) 545,158
Software (Net of Accumulated Amortization of $ 579,422) 1,773,569
Cost in Excess of Net Assets of Business Acquired
(Net of Accumulated Amortization of $ 155,296) 1,387,985
OTHER ASSETS
Due From Related Parties 77,879
Other Assets 17,756
Investments 4,777,892
Notes Receivable (Net of Discounts and Reserve) 1,791,754
---------------
TOTAL OTHER ASSETS 6,665,281
---------------
TOTAL ASSETS $ 15,063,225
===============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
F-25
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED) (Continued)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
September 30,
1998
-------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS'EQUITY:
CURRENT LIABILITIES
<S> <C>
Accounts Payable and Accrued Expenses $ 775,509
Notes Payable - Officers 49,795
Current Portion of Long-Term Debt 100,828
Current Portion of Capital Lease Obligations 30,905
Income Taxes Payable - Federal 535,884
Income Taxes Payable - State 20,014
Other Current Liabilities 39,250
-------------
TOTAL CURRENT LIABILITIES 1,552,185
Long-Term Debt -
Capital Lease Obligations 28,250
-------------
TOTAL LIABILITIES 1,580,435
-------------
STOCKHOLDERS' EQUITY:
Preferred Stock - Par Value $.001 Per Share, Authorized
10,000 Shares, Issued and Outstanding 9
Common Stock - Par Value $.001 Per Share;
Authorized 100,000,000 Shares, Issued and
Outstanding 12,039,149 Shares 12,039
Additional Paid - in - Capital 13,365,359
Unrealized Holding Loss on Marketable Securities (38,859)
Retained Earnings 144,242
-------------
Total Stockholders' Equity 13,482,790
-------------
Total Liabilities and Stockholders' Equity $ 15,063,225
=============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-26
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------------------
1998 1997
------------------------------------------------
<S> <C> <C>
REVENUE $ 3,497,281 $ 4,070,440
Cost of Sales 489,817 288,306
General and Administrative 1,783,615 1,155,276
Provision for Doubtful Accounts 1,213,349
Depreciation and Amortization 433,220 316,228
Other Losses and (Gains) (77,920) 22,484
-------------- ------------
Income (Loss) from Continuing Operations
Before Income Tax Expense (344,800) 2,288,146
Income Tax Benefit (Expense) (47,374) (119,068)
------------ ------------
Income (Loss) From Continuing Operations (392,174) 2,169,078
Discontinued Operations
Loss from Discontinued Operations - (69,531)
Gain on Sale of Discontinued Operations - 120,895
------------ ------------
NET INCOME (LOSS) (392,174) 2,220,442
Unrealized Holding Loss Arising During Period (52,309) -
------------ ------------
Comprehensive Income (Loss) $ (444,483) $ 2,220,442
------------ ------------
Income (Loss) Per Common Share
Continuing Operations $ (0.04) $ 0.23
Discontinued Operations - -
------------ ------------
Basic Net Income Per Share of
Common Stock $ (0.04) $ 0.23
------------ ------------
Fully Diluted Net Income Per Share of
Common Stock $ (0.04) $ 0.23
-------------- ------------
Weighted Average Shares of Common
Stock Outstanding 10,312,479 9,429,434
-------------- ------------
Weighted Average Fully Diluted Shares Of
Common Stock Outstanding 10,312,479 9,429,434
-------------- ------------
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
F-27
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Income [Loss] Income from Continuing Operations $ (444,483) $ 2,169,078
Adjustments to Reconcile Net Income [Loss] to
Net Cash Provided by [Used for] Operating Activities:
Depreciation and Amortization 433,220 316,228
Deferred Taxes 125,812 --
Provision for Doubtful Accounts 1,213,349 --
Gain on Sale of Assets (48,726) --
Gain (Loss) on Sale of Investments -- (20,784)
Regulated Loss on Carrying Value of Investments 47,385 --
Unregulated Loss on Carrying Value of Investments (3,904) --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (88,546) (3,726,296)
Prepaid Expenses (6,376) 70,323
Security Deposits -- (23,831)
Investments -- (52,962)
Refundable Income Tax -- 77,215
Notes Receivable (110,982) --
Deferred Income Taxes -- (548,400)
Other Assets (2,097,341) (552)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (176,083) 292,280
Income Taxes Payable (78,438) --
Other Current Liabilities (10,457) 76,754
Due to Customer (20,721) 64,026
Loans payable - stockholders -- (9,709)
Deferred Income Taxes -- 585,405
----------- -----------
NET CASH - CONTINUING OPERATIONS (1,266,291) (731,225)
----------- -----------
DISCONTINUED OPERATIONS:
[Loss] from Discontinued Operations (69,531)
Gain on disposal of Discontinued Operations -- 120,895
Adjustments to Reconcile Net [loss] to Net Cash Operations:
Depreciation -- 1,366
----------- -----------
-- 52,730
CHANGES IN ASSETS AND LIABILITIES:
(Increase) Decrease in Other Assets -- 815
Increase (Decrease in Accounts Payable -- (14,808)
Customer Deposits -- (27,648)
----------- -----------
TOTAL ADJUSTMENTS -- (41,641)
----------- -----------
NET CASH - DISCONTINUED OPERATIONS -- 11,089
----------- -----------
NET CASH - OPERATING ACTIVITIES - FORWARD (1,266,291) (720,136)
----------- -----------
INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Increase in Due from Related Parties (28,024) --
Purchase of Investments (6,766,623) (73,746)
Purchase of Property and Equipment (929,070) (322,870)
Sale of Investments 177,371 --
Sale (Purchase) of Subsidiary -- (1,620,000)
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS - $(7,546,346) $(2,016,616)
FORWARD
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
F-28
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS: - $(7,546,346) $(2,016,616)
FORWARD
INVESTING ACTIVITIES - DISCONTINUING OPERATIONS
Disposition of Property and Equipment -- 11,110
----------- -----------
NET CASH INVESTING ACTIVITIES (7,546,346) (2,005,506)
NET CASH - OPERATING ACTIVITIES - FORWARDED (1,266,291) (720,136)
----------- -----------
FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Proceeds from the Conversion of Debt to Equity -- --
Proceeds from Issuance of Common Stock 12,110 1,949,330
Proceeds from Issuance of Preferred Stock 10
Decrease in Loan Payable to Shareholder (116,841) (9,709)
Proceeds from Long-Term Debt 123,500 155,000
Line of Credit -- --
Payment of Notes Payable (89,160) --
Payment of Lease Payable (6,548) --
Additional Paid In Capital 8,974,330 27,713
Increase in equipment loans -- 95,557
Principal payments on capitalized lease and not borrowing -- (10,565)
----------- -----------
NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS 8,897,401 2,207,326
Financing - Activities - Discontinued Operations
Additions to Paid In Capital -- 98,775
----------- -----------
NET CASH - FINANCING ACTIVITIES 8,897,401 2,306,101
----------- -----------
NET INCREASE DECREASE IN CASH AND CASH EQUIVALENTS 84,764 (419,541)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 11,260 421,188
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 96,024 $ 1,647
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 14,616 $ 5,441
Income Taxes $ -- $ 77,215
Income Tax Refund (Applied) $ -- $ 119,068
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCIAL ACTIVITIES:
During the third quarter of 1998, $105,000 worth of convertible preferred
stock was converted into 38,965 shares of common stock.
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements
F-29
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Uunaudited)
September 30, 1998
Note 1 - BASIS OF PREPARATION
The accompanying unaudited interim financial statements include all
adjustments (consisting only of those of a normal recurring nature)
necessary for a fair statement of the results for the interim
periods. The results of operations for the three-month period ended
September 30, 1998, are not necessarily indicative of the results of
operations to be reported for the full year ending December 31,
1998.
Note 2 - BUSINESS ACQUISITIONS
The business acquisition in the first quarter of 1997 has been
accounted for under the purchase method. The results of operations
of the acquired business are included in the consolidated financial
statements from the date of acquisition onward.
On March 26, 1997, the Company concluded its acquisition of 100% of
the outstanding stock of The EmiNet Domain, Inc., located in Boynton
Beach, Florida. EmiNet is an Internet Service Provider (ISP), and
developer of Internet related software products as well as hosting
commercial Web sites. The Company paid $20,000 in cash and issued
200,000 shares of the Company's common stock (approximate market
value on date of issue $2,000,000). The Stock Purchase Agreement
also contains additional payments contingent on the future earnings
performance of EmiNet. Any additional payments made, when the
contingency is resolved, will be accounted for as additional costs
of the acquired assets and amortized over the remaining life of the
assets.
The following unaudited pro forma consolidated results of operations
for the year ended December 31, 1997 is presented as if the EmiNet
acquisition has been made at the beginning of the period presented.
The EmiNet Domain, Inc. operated as an S Corporation prior to
acquisition. Included in the expenses to arrive at Net Earnings are
reclassifications of Shareholders' Draw to Officers Salaries and
Income Tax Expense in the amount of $86,000 for 1997. The unaudited
pro forma information is not necessarily indicative of either the
results of operations that would have occurred had the purchase been
made during the periods presented or the future results of the
combined operations.
Year ended December 31
1997
----
Net Sales $ 4,593,078
Net Earnings Income (Loss) $ 1,096,976
Basic Net Income (Loss) per common share $ .12
Diluted Net Income (Loss) per common share $ .12
F-30
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
September 30, 1998
Note 3 - MAJOR CUSTOMERS
Income fees derived from major customers are tabulated
as follow:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1998
(UNAUDITED)
-------------------------------
<S> <C> <C>
Customer A (Software System) 375,000 --
Customer B (Software System) 600,000 --
Customer C (Software System) 450,000 --
Customer D (Software System) 150,000 --
Customer E (Software System) 600,000 --
Customer F (Software System) 410,000 --
Customer G (Software System) 450,000 --
Customer H (Software System) 150,000 --
Customer I (Software System) 585,000 --
Customer J (Software System) -- --
Customer K (Software System) -- 450,000
Customer L (Software System) -- 220,000
Customer M (Software System) -- 350,000
Customer N (Software System) -- 615,000
Customer O (Software System) -- 675,000
Customer P (Software System) -- 450,000
Customer Q (Software System) -- 175,000
</TABLE>
Note 4 - CAPITAL STOCK
-------------
On September 18, 1996 and October 31, 1996, the Company issued
521,500 and 365,200 shares, respectively of common stock in a
private placement of its securities. The Company received net
proceeds of approximately $826,881.
On January 16, 1997, the Company entered into a stock purchase
agreement with Brindenberg Securities, A/S under Regulation S of the
Securities and Exchange Commission. A total of 75,000 shares were
issued under the agreement for $525,000 net of offering costs and
expenses of approximately $175,000.
In February 1997, the Company issued 25,000 shares of its common
stock to an outside consultant for services to be rendered. The
consultant never performed the required services and therefore, the
common shares issued will be returned in 1998.
In March 1997, the Company issued 200,000 shares of the Company's
common stock as part of the acquisition of EmiNet Domain, Inc. [See
Note 2].
F-31
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
September 30, 1998
Note 4 - CAPITAL STOCK - CONTINUED
-------------------------
In December of 1997, the Company sold 100,000 shares of the
Company's common stock to Australian Advisors for a total of
$300,000 pursuant to the Registration Statement S-8.
Also in December 1997, the Company converted debt totaling $313,475
to equity. The shares related to the conversion were unissued at
December 31, 1997 and the conversion ratio has been set at $4.00 per
share.
In the second quarter of 1998, the Company sold 1,000,000 shares for
a total of $4,000,000 pursuant to Regulation D.
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. In the third quarter of 1998, 1,160,000
shares of the above 9,700,000 shares were issued to the accepting
COMS21 stockholders pursuant to the company's offer for Coms21 stock
and the balance of 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 relates to the average price per share
of common stock within the conversion period.
During the third quarter of 1998, $105,000 worth of convertible
preferred stock was converted into 38,965 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.
Note 5 - PER SHARE DATA
Per share data are based on the weighted average number of common
shares outstanding during the respective periods, retroactively
adjusted to reflect the common shares issued in exchange for all
outstanding common shares of The EmiNet Domain, Inc., including the
additional shares sold pursuant to a "Reg S" offering in February,
1997. The diluted net income per share is based upon the options
issued and outstanding as well as the assumed conversion of the
Company's issued and outstanding preferred stock.
Note 6 - INCENTIVE STOCK OPTION PLAN
On January 1, 1997, the Company adopted an Incentive Stock Option
Plan for Employees, Directors, Consultants and Advisors [the
"Plan"]. The Plan will expire December 31, 2006 unless further
extended by appropriate action of the Board of Directors.
F-32
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
September 30, 1998
Note 6 - INCENTIVE STOCK OPTION PLAN (CONTINUED)
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, options were granted to the Board of Directors on April
2, 1998 for an aggregate amount of 700,000 options. A summary of the
changes in outstanding Common Stock options for all outstanding
plans is as follows:
Weighted-average
----------------
Shares Exercise Price
------ --------------
OUTSTANDING AT DECEMBER 31, 1995 -- --
Granted -- --
Exercised -- --
Canceled -- --
OUTSTANDING AT DECEMBER 31, 1996 -- --
Granted 175,000 3.25
Exercised -- --
Canceled -- --
------- -----
OUTSTANDING AT DECEMBER 31, 1997 175,000 3.25
------- -----
EXERCISABLE AT DECEMBER 31, 1997 175,000 3.25
------- -----
GRANTED AT APRIL 2, 1998 700,000 4.125
------- -----
GRANTED AT SEPTEMBER 30, 1998 88,000 2.50
------- -----
OUTSTANDING AT SEPTEMBER 30, 1998 963,000 3.83
------- -----
F-33
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
September 30, 1998
Note 6 - INCENTIVE STOCK OPTION PLAN (CONTINUED)
The following table summarizes information about stock options at September 30,
1998:
<TABLE>
<CAPTION>
Exercisable
Outstanding Stock Options Stock Options
Weighted-average
Range Of Remaining Weighted-average Weighted Average
- -------- ----------------------------------- ----------------
Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
- --------------- ------ --------------------------- ----- ------ --------------
<S> <C> <C> <C> <C> <C>
$ 3.25 175,000 4.50 $ 3.25 175,000 $ 3.25
$ 4.125 700,000 4.75 $ 4.75 700,000 $ 4.75
$ 2.50 88,000 5.00 $ 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 during 1997 and 1998 was the market price at the date of
grant. Accordingly, no compensation expense has been recognized for
the Company's stock-based compensation plans for fiscal year 1997
and 1998.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. The weighted average
fair value of stock options granted to employees used in determining
pro forma amounts is estimated at $4.13 and $2.50 during the nine
and three months ended September 30, 1998.
Pro forma information regarding net loss and net loss per share has
been determined as if the Company has 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:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------------- ------------------
Risk-Free Interest Rate 5.6% -- 5.6% --
Expected Life 5 years -- 5 years --
Expected Volatility 153.0% -- 153.0% --
Expected Dividends -- -- -- --
F-34
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
September 30, 1998
Note 6 - INCENTIVE STOCK OPTION PLAN (CONTINUED)
The pro forma amounts are indicated below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1998
---- ----
<S> <C> <C>
Net Income (Loss):
As Reported (935,140) (392,174)
Pro Forma (1,180,950) (3,306,665)
Basic Net Income (Loss) Per Share of Common Stock:
As Reported (.09) (.04)
Pro Forma (.11) (.32)
Diluted Net Income (Loss) Per Share of Common Stock:
As Reported (.09) (.04)
Pro Forma (.11) (.32)
</TABLE>
Note 7 - BUSINESS AGREEMENTS
In February 1998, the Company entered into an agreement with ELG
Health Management Services ["ELG"] to market the Atlantic
International Medical ["AIM"] products and services. ELG will
provide the Company 40% of the net profits from the sale and
distribution of medical products.
In February 1998, the Company entered into a Development Service
Agreement with International Transaction System Corp. ["ITS']. The
Company's responsibilities under the agreement include engaging in
the development activity required to host ITS on the Company's
software and selling debt card processing [`DCP']. ITS'
responsibilities include development activity required to develop
the DCP test methodology and/or test cases so that the Company may
validate correct operation of the DCP and provide service support.
Under the Agreement, the Company paid $20,000 to acquire access to
DCP through ITS for the purpose and exclusive application in the
Company's software. Transaction fees earned by customers will be
distributed 75% and 25% to the Company and ITS, respectively. The
initial term of the agreement is 10 years, and automatically renews
in 5 year consecutive periods, unless terminated by either party.
F-35
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Uunaudited) (Continued)
September 30, 1998
Note 7 - BUSINESS AGREEMENTS CONTINUED
On September 28, 1998, the Company entered into and closed on an
agreement of purchase and sale 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. (730,000 shares).
Note 8 - LEGAL PROCEEDING
On September 3, 1998, Graeme Allan Green, a former director of
COMS21 and Felscot PTY LTD., a company in which Mr. Green has a
substantial interest ("Green Group), filed an application against
the Company, COMS21 and the directors of COMS21 in the Australian
Federal Court. In addition, the Green Group has made its own offer
to purchase the COMS21 stock. The Company has accepted approximately
11,160,000 shares of COMS21 stock in exchange for 1,160,000 shares
of the Company stock. Counsel believes that the above action is
without merit and will not materially affect the Company's results
of operation and cash flow. The Company believes that it can still
complete the acquisition of the majority of the COMS21 stock.
Note 9 - INVESTMENT
In the third quarter of 1998, the Company invested $2,000,000 in a
5% convertible debenture note from a South African company, Atlantic
International Entertainment, Ltd. South Africa. The debenture is
convertible into common stock by December 31, 2000 or the listing of
the South African Company, whichever comes first.
F-36
<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
such statutory amendment specifically provides to the contrary) shall not
adversely affect any right or protection, existing immediately prior to the
effectiveness of such repeal or modification with respect to any acts or
omissions occurring either before or after such repeal or modification, of a
person serving as a director at the time of such repeal or modification.
Section 145 of the Delaware General Corporation Law, as amended, provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation), by reason of the fact that he
is or was a director, officer, employee or agent of the corporation or is or was
serving at its request in such capacity in another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be
II-1
<PAGE>
in or not opposed to the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The Registrant has provided for indemnification of
directors, officers, employees and agents in Article VII of its Charter, which
reads as follows:
The Corporation shall indemnify, and advance expenses to, its directors,
officers, employees and agents, and all persons who at any time served as
directors, officers, employees or agents of the Corporation, to the maximum
extent permitted, and in the manner provided by, Section 145 of the Delaware
General Corporation Law, as amended, or any successor provisions, and shall have
power to make any other or further indemnity permitted under the laws of the
State of Delaware. The indemnification provided for herein shall not be deemed
exclusive of any other right to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person. Any
repeal or modification of this Article VIII by (i) the stockholders of the
Corporation or (ii) amendment to the General Corporation Law of Delaware (unless
such statutory amendment specifically provides to the contrary) shall not
adversely affect any right or protection, existing immediately prior to the
effectiveness of such repeal or modification with respect to any acts or
omissions occurring either before or after such repeal or modification, of a
person serving as a director at the time of such repeal or modification.
In addition, Section 5 of Article VII of the Bylaws of the Registrant, as
amended, provides as follows:
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
Item 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:
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Registration Statement Filing Fee $ 823.94
Legal Fees and Expenses 5,000.00
Accounting fees and expenses 3,000.00
Miscellaneous 1,000.00
----------
Total $ 9,823.94
----------
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 such transactions
did not involve any public offering and the purchasers were sophisticated with
access to the kind of information registration would provide:
Shaar Fund 5000 shares of 5% Convertible Preferred Stock.
Hoskin Consolidated Industries 1,000,000 shares of Common Stock
COMS 21, Ltd. 1,216,667 shares of Common Stock
In December 1997, we sold Australian Advisers 100,000 shares of Common
Stock of the Company pursuant to the completion of its S-8 Registration
Statement for $3.00 per share, these shares were issued and held in escrow until
the closing in January 1998. Australian Advisors continues to render valuable
consulting services to us.
On April 3, 1998, the Company entered into a Securities Purchase
Agreement for the sale of $500,000.00 of a newly created 5% Convertible
Preferred Stock. The Agreement also grants the purchaser the right to purchase
up to an additional $2,500,000.00 in said class of securities at market prices.
The 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 such 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.
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<PAGE>
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.
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.
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<PAGE>
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
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 hereby 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;
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<PAGE>
(iii) Include any additional or changed material information
on the plan of distribution.
(4) For determining liability under the Securities Act of
1933, treat each post-effective amendment as a new
registration statement of the securities offered, and in the
offering of such securities at that time to be the initial
bona fide offering.
(5) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the
end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expense incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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<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 3rd day of February, 1999.
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
By: /s/ Richard Iamunno
--------------------------------
Richard Iamunno, President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Norman J. Hoskin and Richard
Iamunno and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, or any
related registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended (the "Securities Act"),
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<PAGE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ Norman J. Hoskin Chairman of the Board, February 3, 1999
- -------------------------- Secretary, and Treasurer
Norman J. Hoskin
/S/ Richard A. Iamunno President, Chief Executive February 3, 1999
- -------------------------- Officer, Chief Financial
Richard A. Iamunno Officer and Director
/S/ Trevor Klein Principal Accounting Officer February 3, 1999
- --------------------------
Trevor Klein
/S/ Steven D. Brown Director February 3, 1999
- --------------------------
Steven D. Brown
/S/ Director February 3, 1999
- --------------------------
Jeffrey Hurwitz
/S/ Martin McCarthy Director February 3, 1999
- --------------------------
Martin McCarthy
/S/ Director February 3, 1999
- --------------------------
Marcel Golding
/S/ Director February 3, 1999
- --------------------------
Dr. Leonard Haimes
Exhibit 23.1
Consent of Moore Stephens
Board Of Directors
Atlantic International Entertainment, Ltd.
We consent to the inclusion in this registration statement on Form SB-2
of our report dated April 24, 1998, on our audits of the consolidated balance
sheet of Atlantic International Entertainment, Ltd. and its subsidiaries as of
December 31, 1997, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for each of the two years in the
period ended December 31, 1997. We also consent to the reference to our firm
under the caption "Experts."
/s/Moore Stephens, P.C.
- ----------------------
MOORE STEPHENS
Cranford, New Jersey
February 3, 1999
Exhibit 23.2
Consent of Harry Winderman, Esq.
February 2, 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 1,216,667 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 such investigation as I deemed necessary, I am of the
opinion that:
(1) the Corporation has been duly incorporated and is validly existing
under the laws of the State of Delaware; and
(2) the Common Shares have been duly authorized and are validly issued,
fully paid and nonassessable.
I hereby consent to the use of my name under the heading "Validity of
Shares of Common Stock" in the Prospectus included in the Registration Statement
and to the filing of this opinion as an Exhibit to the Registration Statement.
Very truly yours,
/s/ Harry Winderman
-----------------------
HARRY WINDERMAN, ESQ.
