U.S SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from January 1, 1998 to December 31, 1998
Commission file number 0-27256
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
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DELAWARE 13-3858917
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State or Other Jurisdiction of (I.R.S. Employer Identification No.
Incorporation or Organization)
200 East Palmetto Park Road, Suite 200, Boca Raton, Florida 33432
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(Address of Principal Executive Offices) (Zip Code)
(561) 393-6685
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
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(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year: The
issuer's revenues for the fiscal year ended December 31, 1998 were $ 2,426,230.
The aggregate market value at March 31, 1999 of shares of the
registrant's Common Stock, $.001 par value per share (based upon the closing
price of $1.1875 per share of such stock on the Nasdaq OTC Bulletin Board on
such date), held by non-affiliates of the Registrant was approximately
$8,839,328. Solely for the purposes of this calculation, shares held by
directors and officers of the Registrant have been excluded. Such exclusion
should not be deemed a determination or an admission by the Registrant that such
individuals are, in fact, affiliates of the Registrant.
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: At March 31, 1999
there were outstanding 12,273,587 shares of the Registrant's Common Stock, $.001
par value.
Transitional Small Business Disclosure Format (check one):
Yes /X/ No / /
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
We are making this statement in order to satisfy the "safe harbor"
provisions contained in the Private Securities Litigation Reform Act of 1995.
This Annual Report, on Form 10-KSB, includes forward-looking statements relating
to the business of the Company. Forward-looking statements contained herein, or
in other statements made by the Company are made based on Management's
expectations and beliefs concerning future events impacting the Company and are
subject to uncertainties and factors relating to the Company's operations and
business environment, all of which are difficult to predict and many of which
are beyond the control of the Company, that could cause actual results of the
Company to differ materially from those matters expressed in or implied by
forward-looking statements. The Company believes that the following factors,
among others, could affect its future performance and cause actual results of
the Company to differ materially from those expressed in, or implied by,
forward-looking statements made by, or on behalf of the, Company; (a) general
economic, business and market conditions; (b) competition; (c) the success of
advertising and promotional efforts; (d) trends within the Internet Gaming; (e)
the existence or absence of adverse publicity; (f) changes in relationships with
the Company's major customers or in the financial condition of those customers;
and (g) the adequacy of the Company's financial resources and the availability
and terms of any additional capital. Such forward-looking statements are based
on assumptions that the Company will continue to design, market and provide
successful new services, that competitive conditions will not change materially,
that demand for the Company's services will continue to grow, that the Company
will retain and add qualified personnel, that the Company's forecasts will
accurately anticipate revenue growth and the costs of producing that growth, and
that there will be no material adverse change in the Company's business. In
light of the significant uncertainties inherent in the forward-looking
information included in this Form 10-KSB, actual results could differ materially
from the forward-looking information contained in this Annual Report on Form
10-KSB.
OVERVIEW
We develop and market interactive gaming products and services in
the entertainment and information technology fields. We were incorporated in the
state of Colorado in October 1939 under the name "Pacific Gold, Inc." to explore
and develop gold and silver ore prospects and to operate mining and milling
facilities. Pacific Gold, Inc. conducted limited mining activities until
operations ceased. After we changed our name to The CEEE Group, we then sought
new business opportunities as a development stage entity.
In 1973 we changed our name to Cine-Chrome Laboratories, Inc. and
operated a film-processing lab in California. From 1984 until June 1994, we did
not conduct any operations, transactions or business activities. In June 1994,
we began acting as a corporate advisory operation which included acting as a
"finder" with respect to U.S.
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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 gaming products and services. These products and services are
focused on two major industries; interactive gaming & wagering products, and
information technology services.
Prior to July 16, 1996, we had no operations other than searching
for a business combination. In July 1996, we consummated a share exchange
pursuant to an Exchange of Stock Agreement and Plan of Reorganization with
Atlantic International Capital Ltd., a Delaware corporation and the former
stockholders of Atlantic Capital. As a result, the business of Atlantic Capital
became our business.
On November 22, 1996, we merged with, and into, a wholly owned
Delaware subsidiary, Atlantic International Entertainment, Ltd. We, among other
things:
o changed our state of incorporation to Delaware
o increased our authorized capital stock to 110,000,000 (100,000,000
shares of common stock, $.001 per share (the "common stock") and
10,000,000 shares of preferred stock, $.001 par value per share (the
"Preferred stock"));
o Performed a 1 for 3-share exchange.
We acquired the major assets of RAM Associates, Inc. in 1996. The
RAM assets we acquired included
o COMMUNITY CASINO
o REALSPORTS(TM)
These products formed a part of the foundation of our current gaming software
products. Other products acquired from RAM included
o HOTEL HOTLINKS(TM)
o CLUB INTERACTIVE.
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 and wagering products and services. The EmiNet Domain,
Inc. offers dial-up Internet business and web hosting development services to
commercial markets. (See page 10 for sale of the Eminet Domain, Inc.)
The Company's executive offices are located at 200 East Palmetto
Park Road, Suite 200, Boca Raton, Florida 33432. The telephone number of the
Company is (561) 393-6685. The Company maintains a home page on the Internet at
http://www.aieltd.com.
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PRODUCTS AND SERVICES
INTERACTIVE GAMING, WAGERING, CHARITABLE AND FUND RAISING PRODUCTS
INTERACTIVE CASINO EXTENSION(TM)
The Company's flagship product is ICE (Interactive Casino
Extension). In September of 1998, AIE introduced Version 2.0 which is based on
industry standard Microsoft(R) and Macromedia(R) tools. This version included a
more robust database and accounting back office, the support for junketeers, and
four games which utilized the Microsoft crypto-API random number generator. In
December of 1998, Version 2.1 was shipped which included three new games: Sic-Bo
(a popular Asian game), Baccarat, and Video Keno. Additionally, the ability to
download the Casino graphics to the player's computer was introduced. In March
of 1999, Version 2.2 will be available and will include: Scratch-Off lottery
cards, increased voice, a new roulette wheel design, and the ability to download
a game at a time beside the earlier ability to download the entire Casino
graphics.
The pricing for ICE(TM) allows the operator to receive new games for
this product with no additional fee. The fee includes graphic customization of
the Lobby, Game Lobbies, card backs and coins. There is a monthly maintenance
fee, that entitles the operator to worldwide customer service twenty four (24)
hours per day, seven days per week. This includes maintenance updates and a 30
day warranty period. Potential purchasers have a buy-out, option. New games are
made available for a fee depending on the cost of developing the game and the
potential increased revenues to the operator. The maintenance fee is still
required for maintenance updates as long as the release is supported. A third
option was requested several times which consisted of the back office purchase
and games purchased individually. This option also requires a monthly
maintenance fee for support and maintenance updates for the games they
purchased. Hardware costs are excluded from the AIE fees.
WEBSPORTS(TM)
The Company licenses webSports to licensed bookmakers. In March
1998, AIE released Version 1.5 and Version 1.6 in the Fall. The release included
support for baseball and the introduction of Tax reporting, to support Australia
and South Africa, along with support for Australian Regulators. AIE is currently
developing Version 2.0 of webSports, which will be integrated into the ICE
accounting and database back office, taking advantage of the development
completed last year and running in the field since August of 1998. Version 2.0
will be introduced with a focus on International Sports Wagering, supporting
such sports as: Cricket, Rugby, Golf, Football and others. The taxation and
regulator items will be included. The product is targeted for July 1999, in time
to have all customers ready for the American Football season.
WebSports is priced allowing the operator to receive all new Sports and
enhancements to the product, including a customized Lobby. A monthly maintenance
fee is required which provides for twenty four (24) hours per day seven days a
week worldwide support, maintenance updates and a
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30-day warranty period. As an alternative, a purchase price is available and new
sports will be made available for a fee depending on the potential revenue for
the client. The monthly maintenance fee is required for support and maintenance
as long as the release is supported. Hardware costs are excluded from the AIE
fees.
BINGO BLAST(TM)
In the late fall of 1998, AIE entered into an agreement with
Cybergames Inc. (CYGA:OTC) where jointly they would provide a fund raising game
for the First Lady of Costa Rica. The site will be called "Bingo of the
Americas" and will provide the U.S Red Cross, and the American Cancer Society,
with revenues. This agreement prompted the development of Bingo Blast which will
be released and developed to the retail market in the second quarter of 1999.
Bingo Blast is a multi-player, pari-mutual progressive prize game. The design is
based on the ICE platform, lowering development time and cost. Game play is
intended to simulate the actual experience in a Bingo Hall. Each game has a
minimum prize that is increased based on the number of cards purchased and has a
progressive prize that increases until a player calls Bingo in a certain number
of balls called. There are thirty (30) different Bingo patterns, customizable
graphics and one of the first AIE products to introduce rules and customer
information in Spanish and English.
Bingo Blast is priced similar to the ICE(TM)product. A monthly
maintenance fee is required which provides for twenty four (24) hours per day
seven days a week worldwide support, maintenance updates and a 30-day warranty
period. Hardware is not included in the price.
LOTTO MAGIC(TM)
Lotto Magic was designed and started into development in January
1999. The product utilizes the ICE database, accounting back office and the
standard Microsoft tools and crypto-API. The product consists of Lotto whereby a
player selects six numbers from a field of 49 or can select Auto Pick. The dates
and times of drawings are posted on the site. Sales are divided into 4
configurable pools: those who match all 6 numbers, those who match 5 numbers,
those who match 4 numbers. The numbers can be entered after a live drawing, or
can be randomly generated. The product also includes three Instant Scratch
Games: Wheel of fortune (a key number game); High Card (a high score game); and
Match 3 (a three of six money match game). These instant Lottery scratch game
tickets are created from a configurable size pool. Lotto Magic will be available
in April and is already incurring a lot of interest. This product is the first
that AIE will introduce that provides help and rules in Spanish and English.
Lotto Magic is priced consistent with AIE's other products. Support
is required and is priced at $1500 per month for new games and enhancements, and
a 30-day warranty period. Hardware is not included in the price.
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For all AIE products, AIE provides support for credit card
processing through processing vendors such as: Secure Bank, E-Payment Solutions,
Cybersource(R)and Barclays. AIE also offers custom programming for a fee.
INDUSTRY OVERVIEW
The internet is a global network of computers connecting millions of
individual computers and more than 70,000 business, commercial, government and
academic networks. This interconnectivity allows any one of these computers to
transmit information to any other computer. Management believes that there is
tremendous growth potential for internet products as consumer and business
access becomes easier and more cost efficient. We estimate that there are
already over 50 million Internet users, and the number of users is growing at a
rate of 10% per month.
The commodity pricing of powerful computers and the wealth of
information available on the internet have all contributed to the creation of a
vast market of consumers and business buyers. During the last three years, the
number of internet service providers ("ISP's") in the United States alone has
grown from roughly zero to over 3,000. Management attributes the influx of ISP's
to several factors which include
o an increasing demand for connection to the internet
o the internet offers significant marketing opportunities for a
variety of products and services providing internet
o connections requires minimum expertise and start-up costs
The interactive gaming and wagering marketplace has become the next
step in the gaming industry. Revenues from the worldwide gaming market exceeds
$50,000,000,000. We estimate that gaming revenues derived from just internet
gaming revenues will exceed $8,000,000,000 by the year 2000. The integrated
interactive gaming and wagering (network gaming terminals, lotteries, internet,
telephone) revenues will far exceed that amount.
The existing customer base from the established gaming and wagering
marketplace will be where the vast majority of these new revenues are derived.
Building upon the gaming industry's high customer loyalty level, the existing
gaming operators will be able to launch a new generation of gaming and wagering
products to it's player base.
GROWTH STRATEGY
Our current plan of operations is to expand its current worldwide
account base by offering a complete interactive gaming & wagering product line.
We will also seek to expand upon current information technology products and
services in the form of international acquisition or mergers into existing
operations. Achieving market acceptance for our services and products will
require substantial marketing efforts and the expenditure of significant funds
to create awareness and demand.
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MARKETING
Our marketing department has grown to seven employees in the last
year. The focus is to market to established casino operators, licensed
sportsbook and the cruise line industry. We initially sold in the Caribbean
basin 1998; at present we have expanded the focus to South America, Australia,
Europe and the Asian-African markets.
A Director of Lotteries was hired in the fourth quarter of 1998 to
focus on the lottery, charity and fund raising sectors. Effective March 31, 1999
a Vice President of Marketing and Sales will be added to the management team.
TRADEMARKS AND PATENTS
We currently provide the market place with four products, all under
names that are trade marked: Bingo Blast(TM), Interactive Casino Extensions
(TM), Lotto Magic(TM) and webSports (TM). All software contains copyright
notices identifying the year and confidentiality. We are in the process of
submitting 10 disclosures for patents covering the game engines, money
management and back office architectures and functions.
COMPETITION
All of the major companies operate as service bureaus installing and
running the gaming products on their own servers and charging substantial
service bureau fees of upwards to 40%.
We sell our product to owners and expect them to own and run their
business. We take a minimal royalty and provide all new games and enhancements
at no additional fee. We also focus our marketing efforts on established gaming
entities such as cruise ships, licensed book makers, respected charitable
organizations and land based casinos. We sell the ability to expand and retain a
current customer base.
Service is provided twenty four hours per day, seven days per week
along with the ability to remotely diagnose and fix all problems and provide
upgrades. A standard business practice is on-site installation and a full week
of training of all personell at no additional fee.
EMPLOYEES
As of March 31, 1999, we had thirty one (31) full-time employees in
the Boca Raton, Florida office. We may also employ full-time and part-time
consultants on an as-needed basis. We consider our relationship with our
employees to be satisfactory.
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RECENT DEVELOPMENTS
On April 3, 1998, we entered into a Securities Purchase Agreement
with The Shaar Fund, an Israeli venture fund, for the sale of 5,000 shares of
the Convertible Preferred stock for $500,000. The Agreement also grants the
purchaser the right to purchase up to an additional $2,500,000.00 in Convertible
Preferred stock, at the same price as the initial 5,000 shares, of Convertible
Preferred stock by April 2, 2000. The Convertible Preferred stock is convertible
into our common stock at The Shaar Fund's option. When the Securities Purchase
Agreement was signed, we entered into an agreement with The Shaar Fund to
register all of the shares of the purchased securities and the common stock that
may be issued upon the exercise of the The Shaar Fund's conversion rights. We
filed a registration statement with the Securities and Exchange Commission for
the registration of the shares of the Convertible Preferred stock and the shares
of common stock issuable upon exercise of The Shaar Fund's conversion rights.
The registration statement became effective and we will maintain the
effectiveness of registration statement for the term of the above Agreement.
On April 30, 1998, Hosken Consolidated Investments, Ltd., a South
African corporation, purchased 1,250,000 shares of our common stock at $3.20 per
share. We issued the shares to Hosken Consolidated Industries to fund operations
in South Africa and to obtain additional working capital.
On June 2, 1998 The Shaar Fund advanced $500,000 of the additional
$2,500,000 and received an additional 5,000 shares of Convertible Preferred
stock pursuant to the above agreement. The parties also amended the above
agreement to eliminate the floor amount of $1.50 for the conversion price.
On August 24, 1998, our wholly-owned subsidiary, AIE, Australia,
Ltd. submitted an offer for the acquisition of the stock of an Australian listed
company, Coms21. We offered Coms21 shareholders the equivalent of $.70 AUD per
share in the form of our U.S. shares. We eventually accepted approximately
12,000,000 shares of Coms21, or approximately 10% of Coms21, in exchange for
approximately 1,200,000 shares of our common stock and thereafter withdrew our
offer for the rest of the Coms21 stock.
On February 18, 1999 - the Company announced its intention to make
an application to the Australian Stock Exchange ("ASX"). AIE wishes to provide a
market in Australia for AIE Shares, particularly for the convenience of its
approximately 500 Australian resident shareholders. AIE has had preliminary
discussions with representatives from ASX and believes it satisfies the ASX
requirements regarding net tangible assets and spread of shareholders. Prior to
listing on ASX, AIE will need to ensure, among other things, that:
o Its constituent documents are consistent with the listing rules of ASX
and, as far as possible, with the Law;
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o Its financial information is in accordance with standards acceptable to
ASX;
o Its clearing and settlement procedures are appropriate.
To help facilitate a timely listing, AIE has engaged the Brisbane
based law firm, McCullough Robertson and the Brisbane offices of Macquarie
Nevitts Stock Brokers.
On March 11, 1999 the Company entered into an agreement to sell its
wholly owned subsidiary, The Eminet Domain, Inc. to Centerline Associates, Inc.
The agreement called for the sale of 81% of its interest in Eminet Domain, Inc.
for $2,500,000, payable $100,000 in cash and $2,400,000 promissory note payable
two years from closing. The closing date of the transaction was March 31, 1999.
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, academic
institutions and governmental agencies for remote access to host computers and
electronic mail communications used the infrastructure. Accordingly, the U.S.
government historically provided the majority of funding for the infrastructure.
However, as the modern internet developed and became commercial, funding shifted
to the private sector. The number of worldwide internet users continues to
increase significantly. In a recent government study, it was stated that traffic
on the internet doubles every 100 days. Business use is growing faster and as
many as 62 million Americans now have Internet access.
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, as a
K56 Flex, allowing connections to be made even more easily.
Expansion of Local Area Networks and Wide Area Networks - Corporate,
government, and educational local area networks, and wide area networks used by
businesses, 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 networks greatly exceeds
the number of connection points.
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Extranet - Businesses can set up a proprietary network or Virtual
Private network using the Internet. A Virtual Private network 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.
ITEM 2. DESCRIPTION OF PROPERTY.
We lease approximately 5,150 square feet of office space in Boca
Raton, Florida expiring on September 30, 2002 with a monthly rent of
approximately $9,100. We believe that our existing facilities are adequate for
our current needs and that additional facilities in its service area are
available to meet future needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to pending or threatened litigation, both as
plaintiff and defendant. However, the Company believes that said litigation will
not materially affect the Company's operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On November 6, 1998, the Company held its Annual Meeting of
Shareholders to, among other things, vote on a board of directors. There were
16,228,641 shares voted for the proposal with 690 shares abstaining from the
vote.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since November, 1996, our common stock has traded on the electronic
bulletin board under the trading symbol AIEE. The following table sets forth the
average range of bid and ask quotations for our common stock as reported by the
electronic bulletin board for each full quarterly period within the two most
recent fiscal years and subsequent interim periods.
FISCAL YEAR ENDED DECEMBER 31, 1997
BY QUARTER COMMON STOCK
- ---------- ------------
QUARTER DATE HIGH LOW
------- ---- ---- ---
1st March 31, 1997 $10.25 $1.50
2nd June 30, 1997 $ 8.50 $1.469
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 $2.990
4th December 31, 1998 $3.00 $1.313
FISCAL YEAR ENDING DECEMBER 31, 1999
BY QUARTER COMMON STOCK
- ---------- ------------
QUARTER DATE HIGH LOW
------- ---- ---- ---
1st March 31, 1999 $3.00 $1.1875
Trading transactions in our securities occur in the over-the-counter
electronic bulletin board market. All prices indicated herein are as reported to
us by broker-dealer(s) making a market in our securities. The quotes indicated
above reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
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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.
The Company has not paid any cash dividends on the Common Stock in
the past and the Board of Directors does not anticipate declaring any cash
dividends on the Common Stock in the foreseeable future. The Company currently
intends to utilize any earnings it may achieve for the development of its
business and working capital purposes.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED TO, THE COMPANY'S EXPANSION INTO NEW MARKETS, COMPETITION,
TECHNOLOGICAL ADVANCES AND AVAILABILITY OF MANAGERIAL PERSONNEL.
OVERVIEW
During 1998, the Company focused its business efforts in Interactive
Gaming & Wagering. Gaming and Wagering continues to grow in terms of customer
base and product line. A market for the gaming and wagering products has been
established whereby the Company has entered into 18 license agreements. The
Company expects to expand its account base with its existing product line for
the foreseeable future.
RESULTS OF OPERATIONS
The following is a summary of the Company's financial and operating
data:
YEAR ENDED DECEMBER 31,
STATEMENTS OF CONTINUING
OPERATIONS DATA: 1998 1997
- ------------------------------ ---- ----
Revenue $ 2,426,230 $ 3,991,041
[Loss] Income from Operations (2,401,793) 1,546,929
Net [Loss] Income (1,332,400) 1,067,796
Basic and Diluted Net
[Loss] Income Per Common Share $ (0.15) $ 0.11
BALANCE SHEET DATA
- - CONTINUING OPERATIONS: DECEMBER 31, 1998 DECEMBER 31, 1997
- ------------------- ----------------- -----------------
Working Capital $ 4,667,465 $ 447,813
Total Assets 10,406,587 5,181,740
Total Liabilities 1,427,969 1,685,345
Stockholders' Equity 8,978,618 3,496,395
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STATEMENTS OF DISCONTINUED
OPERATIONS DATA: DECEMBER 31, 1998 DECEMBER 31, 1997
- ------------------- ----------------- -----------------
Revenue $ 544,057 $ 413,896
[Loss] Income from Operations (371,448) (165,458)
Net [Loss] Income (371,448) (165,458)
Basic and Diluted Net [Loss]
Income per Common Share $ (0.04) $ --
BALANCE SHEET DATA -
DISCONTINUED OPERATIONS: DECEMBER 31, 1998 DECEMBER 31, 1997
- ------------------- ----------------- -----------------
Working Capital $ (65,845) $ (95,254)
Total Assets 1,546,350 1,724,259
Total Liabilities 195,078 274,035
Stockholders' Equity 1,351,272 1,450,224
OUTLOOK
RESULTS OF OPERATIONS
The Company's net loss for 1998 was ($1,332,400)compared to net
income of $1,067,793 for 1997. The substantial decrease was due to several
factors. Net revenues for the Company for 1998 compared to 1997 decreased by 39%
or $1,564,811. The decrease in revenues was the result of the development of the
new product version. The Company stopped promotion of the old version and did
not allocate large resources to sales and marketing. The Company intends to
allocate large resources to sales and marketing for 1999 and expects revenues to
substantially increase.
Cost of sales and operating expenses increased by 69% or $1,343,928
in 1998 compared with 1997. The increase was largely due to global expansion
efforts, expenses related to product development, increased support staffing and
amortization of capitalized product development. Cost of revenues is not
directly related to revenues. Provision for doubtful accounts increased by 261%
or $1,037,936 in 1998 compared to 1997. The increase resulted from a major
customer forced to cease operations due to non-industry and software related
matters and management taking a conservative approach in recording its provision
for doubtful accounts. The Company currently expects that the provision for
doubtful accounts will not increase at the same rate going forward.
The Internet access and services segments net loss for 1998 was
$371,448 (1997 - $165,458). This discontinued operation will not have a material
impact on the results of operations for the future.
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LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998 the Company had working capital of $4,667,465
compared with $447,813 at December 31, 1997. The increase on working capital was
primarily due to cash proceeds from the sale of common stock for $2,300,000
pursuant to registration statement S-8, sale of common stock of a foreign public
traded company in a proposed takeover of the foreign company for $3,486,139 and
issuance of 10,000 shares of convertible preferred stock for approximately
$900,000. The increase was offset by negative cash flow from operating
activities of approximately $745,000 for 1998, capital expenditures of
$1,241,840 for property and equipment necessary for the Internet and private
network development and purchase of treasury stock for $278,697.
Management believes that existing cash, cash equivalents and
marketable securities will be sufficient to satisfy the Company's currently
anticipated cash requirements.
INFLATION
In the opinion of management, inflation has not had a material
adverse effect on its results of operations.
ITEM 7. FINANCIAL STATEMENTS.
[See page F-1.]
15
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On January 30, 1997, the Board of Directors of the Company dismissed
Buchbinder Tunick & Company LLP as independent accountants to the Company and on
March 5, 1997 appointed Moore Stephens, P.C. as the new independent accountants
to the Company. Buchbinder Tunick & Company LLP has not reported on any of the
Company's financial statements. Since, December 19, 1996 (the date on which
Buchbinder was engaged as the Company's independent accountants), there were no
disagreements between the Company and Buchbinder Tunick & Company LLP on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Buchbinder Tunick & Company LLP, would have caused Buchbinder
Tunick & Company LLP to make a reference to the subject matter of the
disagreements in connection with its reports.
16
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their
positions with the Company are set forth below.
NAME AGE POSITION
---- --- --------
Norman J. Hoskin 64 Chairman of the Board, Secretary
and Treasurer
Richard A. Iamunno 41 President, Chief Executive
Officer and Director
Martin V. McCarthy 43 Director
Marcel Golding 39 Director
Jeffrey L. Hurwitz 43 Director
Dr. Leonard Haimes 71 Director
Peter H. Lawson 51 Director
NORMAN J. HOSKIN has served as the Chairman of the Board, Secretary
and Treasurer since July 16, 1996 and served as Chairman of the Board, Secretary
and Treasurer of Atlantic since its inception in 1994. Mr. Hoskin served as
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, 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.
Currently, Mr. Iamunno is a Director of Atlantic International Capital Holdings,
Ltd., a Bermuda based Investment Company. Prior to starting the Company, Mr.
Iamunno was President of Ameristar International, an investment banking firm
which provided European-based companies with merger assistance into the U.S.
public marketplace. 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.
17
<PAGE>
MARTIN V. McCarthy was appointed a Director of the Company in March
of 1998. Mr. McCarthy was the President and CEO of IDD Enterprises, L.P. The
Company was recently sold to Dow Jones and Company. Mr. McCarthy has been a
pioneer in the online world for almost two decades. He has led organization of
scale that have created, commercialized and deployed leading edge technologies
in the areas of communications, information services and transactions. Prior to
joining IDD in 1988, Mr. McCarthy served as Vice President, Office Message and
Information Services at Western Union and was the youngest corporate officer in
the firm's 130 year history. Mr. McCarthy has an MBA from Harvard University.
JEFFREY L. HURWITZ was appointed a Director of the Company in March
of 1998. Mr. Hurwitz had been the Managing Director of South African based
Clinic Holdings since 1987. While at Clinic Holdings, the Company grew to 26
Hospitals with annual turnover of over $370,000,000. In November 1997 Mr.
Hurwitz left Clinic Holdings under the terms of Agreement of Sale of the
Company. Prior to Clinic Holdings, Mr. Hurwitz was employed as a Chartered
Accountant with Deloitte & Touche. Mr. Hurwitz graduated from the University of
Witwatersrand in South Africa with degrees in Commerce and Accounting.
DR. LEONARD HAIMES was appointed Director of the Company in October
of 1997. 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.
MARCEL GOLDING was appointed Director of the Company 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 (the other being the SACTWU investment Group linked to
the clothing and textile workers union). Mr. Golding holds a post graduate
degree from the University of Cape Town where he tutored and lectured for a
brief period, before joining the National Union of Mineworkers in the mid 80s.
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 organization. While a unionist he served on
various Cosatu executive and committee structures, and was also a member of both
the Miners International Federation and the Southern African Miners Federation
executive committees.
Lending up to the 1994 General elections in South Africa, he was
part of ANC's election strategy team, which coordinated the elections campaign.
In addition, he was one of 20 national candidates elected by the trade union
federation, Cosatu, to be a Member of Parliament.
18
<PAGE>
From 1994 to 1997 he served as a Member of Parliament, where he
chaired the Minerals and Energy Committee and the Audited Commission, the
overseeing committee of the office of the Auditor-General.
He resigned from parliament to head the only trade union controlled
listed company on the Johannesburg Stock Exchange in 1997, the culmination of
two years of work in the investment field for the trade union linked investment
companies of the miners and the clothing and textile unions.
PETER H. LAWSON is currently a Director of an Australian
Stockbroking House. Prior to this appointment he worked in the Banking and
Finance Industry for over 15 years. The last 10 years was spent with Barclays
Bank in Australia where he held various senior management positions. First as
Branch Manager in Townsville with a staff of 15 and then a state manager in
South Australia with a staff of 25. In 1994 he was elected to be Executive in
Resident in the commerce faculty at the University of Queensland in Australia,
where he lectured and held seminars for pre and post graduate students. His
expertise is in the area of Corporate Advice, mergers, acquisitions, initial
public offerings and equity raisings, especially in the small company sector. He
has worked with, and advised, many small companies from start up situations to
more the mature over the past 13 years. He has extensive experience in the
Australian Equity Markets, with connections within the brokerage community as
well as the institutional market. During that time he was also a director of two
publicly listed Australian companies. He is currently a director of the
Australian subsidiary of Atlantic and has advised the company for the past two
years. Mr. Lawson holds a degree in commerce from Queensland University in
Australia and is a Certified Practicing Accountant and holds postgraduate
qualified in finance from the Securities Institute in Australia.
MEETINGS AND COMMITTEES
The Board held four (4) meetings during the year ended December 31,
1998. In addition, from time to time during such year, the members of the Board
acted by unanimous written consent. The Company has elected a standing
compensation and audit committees. The entire Board of Directors performs the
typical functions of such committees.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the
Company's chief executive officer during the year ended December 31, 1997, 1996
and 1995. No other executive officer's salary and bonus exceeded $100,000 for
services rendered to the Company during such years.
SUMMARY COMPENSATION TABLE
NAME AND
PRINCIPAL POSITION YEAR SALARY($) BONUS($)
------------------ ---- --------- --------
Richard A. Iamunno 1998 $144,000 --
President and Chief 1997 $125,000 --
Executive Officer 1996 $ 63,000(2) --
Norman J. Hoskin 1998 $144,000 --
Chairman of the Board/
Seretary 1997 $125,000 --
(1) The columns for "Other Annual Compensation" and "Long-term
Compensation" have been omitted as there is no compensation required
to be reported in such columns. The aggregate amount of perquisites
and other personal benefits did not exceed the lesser of $50,000 or
10% of the total of salary and bonus. In addition, the Option Grants
in Last Year Table and Aggregated Option Exercises in Last Year and
Year End Option Values Table have been omitted as the above named
executive officer was not granted any options during the last year
and owns no options.
(2) Represents salary paid for services rendered as an executive of
Atlantic International Capital, Ltd., a wholly-owned subsidiary of
the Company.
BOARD OF DIRECTORS COMPENSATION
The Company does compensate directors who are also executive
officers of the Company for service on the Board of Directors.
19
<PAGE>
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
The Company does 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 a party adverse to the Company or has a material
interest adverse to the Company.
EMPLOYMENT AGREEMENTS
The Company currently has employment agreements with Messrs. Iamunno
& Hoskin pursuant to which they will continue to serve as the Company's
President and Chief Executive Officer, Chairman of the Board, Secretary and
Treasurer respectively. It is anticipated that as compensation for their
services, the Company will pay Messrs. Iamunno and Hoskin base salaries of
$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, the Company has not entered into
any other employment agreement with any of its officers, directors or any other
persons and no such agreements are anticipated in the immediate future.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "Commission"). Officers, directors and greater than ten percent
shareholders are required by the Commission's regulations to furnish the Company
with copies of all Section 16(a) forms they file.
20
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 31, 1999, information
regarding the beneficial ownership of the Company's Common Stock by each person
known by the Company 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 March 31, 1999, there were outstanding 12,273,587 shares of the
Common Stock of the Company.
Name and Address of Beneficial Owner(2) Amount of
Beneficial Percent of
Ownership Class
Norman J. Hoskin 1,111,935 8.68%
Richard A. Iamunno 1,133,270 8.85%
Martin V. McCarthy 125,000 0.98%
Marcel Golding 1,250,000 9.76%
Jeffrey L. Hurwitz N/A N/A
Dr. Leonard Haimes 8,333 0.06%
The AWIXA Trust 514,536 4.01%
C/o Mello, Hollis, Jones & Martin
31 Church Street
Hamilton, Bermuda
The Kunni Lemmel Trust 686,868 5.36%
C/o Mello, Hollis, Jones & Martin
31 Church Street
Hamilton, Bermuda
All Officers and Directors as a Group 4,829,942 37.70%
(8 persons)
(1) Beneficial ownership has been determined in accordance with Rule
13d-3 of the Securities Exchange Act of 1934. Generally, a person is
deemed to be the beneficial owner of a security if he has the right
to acquire voting or investment power within 60 days.
(2) Unless otherwise indicated, all addresses are at the Company's
office at 200 East Palmetto Park Rd., Suite 200, Boca Raton, Florida
33432.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has a receivable due from an affiliated company, whose
shareholders are also shareholders of the Company. The balance of the receivable
at December 31, 1998 is $55,240. During the year ended December 31, 1998, there
were no additional advances or repayments. The original advance accrued interest
at a rate of 6% per annum and is due on demand.
The company has notes payable to two officers in the aggregate
amount of $150,000 at December 31, 1998. The notes are demand notes and incur
interest at 8% per annum. Interest expense related to the shareholders notes
totaled $8,855 and $7,525 for the years ended December 31, 1998 and 1997,
respectively.
21
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 10KSB.
(a) Exhibits:
3.1 - Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 3.1 to the Company's Form 10-KSB
for the fiscal year ended December 31, 1996.
3.2 - Bylaws of the Company, incorporated by reference to
Exhibit 3.2 to the Company's Form 10-KSB for the fiscal
year ended December 31, 1996.
4.1 - Specimen Common Stock Certificate, incorporated by
reference to Exhibit 4.1 to the Company's Form 10-KSB for
the fiscal year ended December 31, 1996.
10.1 - Incentive Stock Option Plan for Employees, Directors,
Consultants and Advisers, incorporated by reference to
Exhibit 10.1 to the Company's Form 10-KSB for the fiscal
year ended December 31, 1996.
10.2 - Agreement for Purchase and Sale of Stock dated as of
January 31, 1997 by and between the Company and Eminet
Domain, Inc., incorporated by reference to the Company's
Form 8K dated March 7, 1997.
10.3 - Securities Purchase Agreement dated April 3, 1998 by and
between the Company and The Shaar Fund, which includes
(i) the Certificate of Designations of Convertible
Preferred Stock as Annex I, and (ii) the form of
Registration Rights Agreement as Annex IV. The Company
agrees to furnish the disclosure schedules and other
Annexes, which have been omitted from this filing, to the
Commission upon request.
10.4 - Employment Agreement dated as of May 1, 1997 between the
Company and Richard Iamunno.
10.5 - Employment Agreement dated as of May 1, 1997 between the
Company and Norman Hoskin.
10.6 - Stock Purchase Agreement dated March 10, 1999 by and
between Atlantic International Entertainment, Ltd. and
Centerline Associates, Inc.
10.7* - Stock Option and Incentive Plan adopted by Board of
Directors on March 25, 1999.
22
<PAGE>
11.1* - Statement of Computation of Per Share Earnings
21.1* - Subsidiaries of the Company
23.1 - Consent to the incorporation by reference in the
Company's Registration Statement on Form S-8 of the
report of Moore Stephens, P.C. included herein.
23.2* - Consent to the incorporation by reference of the report
of Moore Stephens, P.C. included herein.
27 - Financial Data Schedule.
- --------------------------
* Included herein.
(b) Reports on Form 8-K On February 6, 1997, the Company
filed two reports on Form 8-K dated December 19, 1996 and
January 30, 1997, respectively. Such reports disclosed
changes in the Company's independent accountants.
On April 14, 1997, the Company filed with the Commission
a Form 8-K dated March 7, 1997 disclosing the acquisition
of The EmiNet Domain, Inc.
On May 29, 1998 the Company filed with the Commission a
Form 8-K date May 27, 1998 disclosing the offer to
purchase Coms21 shares.
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ATLANTIC INTERNATIONAL
ENTERTAINMENT, LTD.
Dated: May 6, 1999 /S/ Norman Hoskin
-----------------------------------
Chairman of the Board
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Norman Hoskin Chairman of the Board, Secretary, May 6, 1999
- -------------------- and Treasurer
Norman J. Hoskin
/s/ Richard Iamunno President, Chief Executive Officer May 6, 1999
- -------------------- and Director
Richard A. Iamunno
/s/ Trevor A. Klein Chief Financial Officer May 6, 1999
- --------------------
Trevor A. Klein
/s/ Director May 6, 1999
- ----------------------
Martin V. McCarthy
/s/ Marcel Golding Director May 6, 1999
- ----------------------
Marcel Golding
/s/ Jeffrey Hurwitz Director May 6, 1999
- ----------------------
Jeffrey Hurwitz
/s/ Dr. Leonard Haimes Director May 6, 1999
- ----------------------
Dr. Leonard Haimes
/s/ Director May 6, 1999
- ----------------------
Peter H. Lawson
-24-
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
INDEX TO FINANCIAL STATEMENTS
================================================================================
PAGE
Independent Auditor's Report.........................................F-2....
Consolidated Balance Sheet as of December 31, 1998...................F-3....F-4
Consolidated Statements of Operations and Comprehensive
Income for the years ended December 31, 1998 and 1997................F-5....F-6
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1998 and 1997...............................F-7....
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997...........................................F-8....F-9
Notes to Consolidated Financial Statements ..........................F-10...F-24
. . . . . . . . . . . .
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, 1998, and the related consolidated statements of operations and
comprehensive income, changes in stockholders' equity, and cash flows for each
of the two years in the period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Atlantic International Entertainment, Ltd. and its subsidiaries as
of December 31, 1998, and the consolidated results of their operations and their
cash flows for each of the two years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
February 6, 1999
F-2
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998.
================================================================================
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 67,535
Investments 2,516,004
Due from Broker 2,497,298
Accounts Receivable [Net of Allowance for
Doubtful Accounts $19,600] 22,400
Notes Receivable 746,302
Refundable Income Taxes 77,215
Prepaid Expenses 11,257
Due from Related Parties 55,240
Other Current Assets 25,300
--------------
TOTAL CURRENT ASSETS 6,018,551
--------------
PROPERTY AND EQUIPMENT - NET 396,387
--------------
EQUIPMENT UNDER CAPITALIZED LEASE - NET 89,456
--------------
SOFTWARE [NET OF ACCUMULATED AMORTIZATION OF $696,679] 1,932,855
--------------
NET ASSETS OF DISCONTINUED OPERATIONS 1,351,272
--------------
OTHER ASSETS:
Other Assets 111,687
Notes Receivable 506,379
--------------
TOTAL OTHER ASSETS 618,066
--------------
TOTAL ASSETS $ 10,406,587
==============
The Accompanying Notes are an Integral Part of these Consolidated
Financial Statements.
F-3
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998.
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 1,074,981
Notes Payable - Officers 150,000
Current Portion of Long-Term Debt 100,000
Current Portion of Capital Lease Obligations 26,105
------------
TOTAL CURRENT LIABILITIES 1,351,086
CAPITAL LEASE OBLIGATIONS 76,883
------------
TOTAL LIABILITIES 1,427,969
------------
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock - Par Value $.001 Per Share;
Authorized 10,000,000 Shares, Issued and Outstanding,
7,260 shares [Liquidation Preference $726,000] 7
Common Stock - Par Value $.001 Per Share;
Authorized 100,000,000 Shares, Issued - 12,410,939 Shares 12,410
Additional Paid-in Capital 12,329,161
Treasury Stock, 145,500 Common Shares - At Cost (278,697)
Accumulated Other Comprehensive [Loss] (95,858)
Accumulated [Deficit] (1,143,405)
Deferred Acquisition Costs (400,000)
------------
Total 10,423,618
Less: Subscriptions Receivable (1,445,000)
------------
TOTAL STOCKHOLDERS' EQUITY 8,978,618
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,406,587
============
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-4
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
REVENUE $ 2,426,230 $ 3,991,041
COST OF SALES 792,789 519,844
----------- -----------
GROSS PROFIT 1,633,441 3,471,197
----------- -----------
OPERATING EXPENSES:
General and Administrative 2,510,484 1,439,501
Provision for Doubtful Accounts and Notes 1,435,040 397,104
Depreciation and Amortization 89,710 87,663
----------- -----------
TOTAL OPERATING EXPENSES 4,035,234 1,924,268
----------- -----------
[LOSS] INCOME FROM OPERATIONS (2,401,793) 1,546,929
----------- -----------
OTHER [EXPENSES] INCOME:
Interest Income 81,390 17,331
Interest Expense (2,211) (10,477)
Interest Expense - Related Party (8,855) (7,525)
Other Income [Expense] 538,387 (15,897)
----------- -----------
OTHER [EXPENSES] INCOME - NET 608,711 (16,568)
----------- -----------
[LOSS] INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAX [BENEFIT] EXPENSE (1,793,082) 1,530,361
INCOME TAX [BENEFIT] EXPENSE (460,682) 462,568
----------- -----------
[LOSS] INCOME FROM CONTINUING OPERATIONS (1,332,400) 1,067,793
DISCONTINUED OPERATIONS:
[Loss] from Operations of Discontinued Foreign
Subsidiary [Net of Income Tax [Benefit] of $(23,641)] -- (45,890)
Gain on the Disposal of Discontinued Foreign
Subsidiary [Net of Income Taxes of $74,688] -- 144,982
[Loss] from Operations of Discontinued Business
Segment [Net of Income Tax [Benefit] of $-0- and $(51,243),
for the years ended December 31, 1998 and 1997, Respectively] (321,448) (119,568)
[Loss] on Disposal of Business Segment, including
Provision of $50,000 for Operating Loss During
Phase Out Period [Net of Income Tax [Benefit] of $-0-] (50,000) --
----------- -----------
NET [LOSS] INCOME (1,703,848) 1,047,317
----------- -----------
OTHER COMPREHENSIVE LOSS:
Unrealized Holding Loss arising during period (104,611) (42,763)
Less: Reclassification Adjustment for Loss Included in Net Income 51,516 --
----------- -----------
(53,095) (42,763)
----------- -----------
TOTAL OTHER COMPREHENSIVE [LOSS] INCOME $(1,756,943) $ 1,004,554
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-5
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Net [Loss] Income $ (1,703,848) $ 1,047,317
Deduct: Imputed Non-cash Preferred Stock Dividend 269,443 --
Preferred Stock Dividend in Arrears 33,333 --
------------ ------------
NET [LOSS] INCOME AVAILABLE TO COMMON STOCKHOLDERS $ (2,006,624) $ 1,047,317
============ ============
[LOSS] INCOME PER COMMON SHARE:
Continuing Operations $ (.15) $ 0.11
Discontinued Operations (.04) --
Disposal of Discontinued Subsidiary -- --
------------ ------------
BASIC AND DILUTED NET [LOSS] INCOME PER SHARE OF COMMON STOCK $ (.19) $ 0.11
============ ============
WEIGHED AVERAGE SHARES OF COMMON STOCK OUTSTANDING 10,771,563 9,452,992
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-6
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PREFERRED STOCK COMMON STOCK PAID-IN TREASURY STOCKCOMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT [LOSS]
------ ------ ------ ------ ------- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 -- $ -- 9,190,184 $ 9,190 $ 1,887,376 -- $ -- --
Sale of Common Stock -- -- 75,000 75 350,175 -- -- --
Sale of Common Stock -- -- 25,000 25 -- -- -- --
Asset Acquisition -- -- 200,000 200 1,598,880 -- -- --
Conversion of Debt to Equity -- -- -- -- 313,475 -- -- --
Issuance of Shares in Escrow -- -- 100,000 100 -- -- -- --
Unrealized Holding Loss on
Marketable Securities -- -- -- -- -- -- -- (42,763)
Income from Continuing
Operations -- -- --- -- -- -- -- --
Loss from Discontinued
Operations -- -- -- -- -- -- -- --
------- -------- ------------ --------- ------------ -------- --------- ---------
BALANCE - DECEMBER 31, 1997 -- -- 9,590,184 9,590 4,149,906 -- -- (42,763)
Sale of Escrow Common Stock -- -- -- -- 299,900 -- -- --
Unrealized Holding [Loss]
on Marketable Securities -- -- -- -- -- -- -- (53,095)
Sale of Common Stock -- -- 1,250,000 1,250 3,998,750 -- -- --
Issuance of Common Stock -- -- 9,700,000 9,700 -- -- -- --
Cancellation of Common Stock -- -- (9,700,000) (9,700) -- -- -- --
Sale of Common Stock -- -- 1,217,647 1,217 2,285,921 -- -- --
Purchase of Treasury Stock -- -- -- -- -- (145,500) (278,697) --
Sale of Preferred Stock 10,000 10 -- -- 906,840 -- -- --
Cancellation of Common Stock -- -- (25,000) (25) 25 -- -- --
Issuance of Common Stock -- -- 31,106 31 18,720 -- -- --
Conversion of Preferred Stock (2,740) (3) 147,002 147 (144) -- -- --
Contingent Acquisition -- -- 200,000 200 399,800 -- -- --
Imputed non-cash Series A
Convertible Preferred Stock
Dividend -- -- -- -- 269,443 -- -- --
[Loss] From Continuing
Operations -- -- -- -- -- -- -- --
[Loss] From Discontinued
Operations -- -- -- -- -- -- -- --
------- -------- ------------ --------- ------------ -------- --------- ---------
BALANCE - DECEMBER 31, 1998 7,260 $ 7 12,410,939 $ 12,410 $ 12,329,161 (145,500) $(278,697) (95,858)
======= ======== ============ ========= ============ ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
DEFERRED TOTAL
ACCUMULATED ACQUISITION SUBSCRIPTION SHAREHOLDERS'
[DEFICIT] COSTS RECEIVABLE EQUITY
--------- ----- ---------- ------
<S> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 $ (217,431) $ -- $ -- $ 1,679,135
Sale of Common Stock -- -- -- 350,250
Sale of Common Stock -- -- -- 25
Asset Acquisition -- -- -- 1,599,080
Conversion of Debt to Equity -- -- -- 313,475
Issuance of Shares in Escrow -- -- -- 100
Unrealized Holding Loss on
Marketable Securities -- -- -- (42,763)
Income from Continuing
Operations 1,067,793 -- -- 948,225
Loss from Discontinued
Operations (20,476) -- -- 99,092
------------ ----------- ------------- ---------------
BALANCE - DECEMBER 31, 1997 829,886 -- -- 4,946,619
Sale of Escrow Common Stock -- -- -- 299,900
Unrealized Holding [Loss]
on Marketable Securities -- -- -- (53,095)
Sale of Common Stock -- -- (1,445,000) 2,555,000
Issuance of Common Stock -- -- -- 9,700
Cancellation of Common Stock -- -- -- (9,700)
Sale of Common Stock -- -- -- 2,287,138
Purchase of Treasury Stock -- -- -- (278,697)
Sale of Preferred Stock -- -- -- 906,850
Cancellation of Common Stock -- -- -- --
Issuance of Common Stock -- -- -- 18,751
Conversion of Preferred Stock -- -- -- --
Contingent Acquisition -- (400,000) -- --
Imputed non-cash Series A
Convertible Preferred Stock
Dividend (269,443) -- -- --
[Loss] From Continuing
Operations (1,332,400) -- -- (1,332,400)
[Loss] From Discontinued
Operations (371,448) -- -- (371,448)
------------ ----------- ------------- ---------------
BALANCE - DECEMBER 31, 1998 $ (1,143,405) $ (400,000) $ (1,445,000) $ 8,978,618
============ =========== ============= ===============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-7
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
[Loss] Income from Continuing Operations $(1,332,400) $ 1,104,668
Adjustments to Reconcile Net [Loss] Income to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 473,209 323,959
Deferred Tax Asset 176,812 (176,812)
Provision for Doubtful Accounts 1,435,040 397,104
Loss on Sale of Assets 950 --
Realized Loss on Carrying Value of Investments 51,516 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (93,938) (24,278)
Prepaid Expenses (494) 2,184
Notes Receivable (747,062) (3,677,476)
Other Assets (103,199) (17,271)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 391,033 627,278
Income Taxes Payable (634,336) 634,336
Other Current Liabilities (24,917) 25,316
Due to Customer (20,721) (7,558)
----------- -----------
NET CASH - CONTINUING OPERATIONS (428,507) (788,550)
----------- -----------
DISCONTINUED OPERATIONS:
[Loss] from Discontinued Operations (371,448) (124,040)
Adjustments to Reconcile Net [Loss] to Net Cash Operations:
Depreciation and Amortization 144,748 99,945
Provision for Doubtful Accounts 27,424 15,594
Loss on Sale of Assets 50 --
Gain on Disposal of Foreign Subsidiary -- (144,982)
Changes in Net Assets and Liabilities (117,751) 41,470
----------- -----------
NET CASH - DISCONTINUED OPERATIONS (316,977) (112,013)
----------- -----------
NET CASH - OPERATING ACTIVITIES - FORWARD (745,484) (900,563)
----------- -----------
INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Increase in Due from Related Parties (5,385) (1,582)
Purchase of Investments (6,451,459) (109,418)
Purchase of Property, Equipment, and Capitalized Software (1,241,840) (368,197)
Purchase of EmiNet - Net of Cash Acquired -- (18,268)
Sale of Investments 1,245,728 35,671
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARD $(6,452,956) $ (461,794)
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-8
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES - FORWARDED $ (745,484) $ (900,563)
----------- -----------
NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
FORWARDED (6,452,956) (461,794)
----------- -----------
INVESTING ACTIVITIES - DISCONTINUED OPERATIONS:
Purchase of Property and Equipment (6,419) (57,665)
Disposition Gain on Sale of Discontinued Operations -- 158,082
----------- -----------
NET CASH INVESTING ACTIVITIES - DISCONTINUED OPERATIONS (6,419) 100,417
----------- -----------
FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Proceeds from Conversion of Debt to Equity -- 313,475
Proceeds from Issuance of Common Stock 6,597,047 350,250
Proceeds from Issuance of Preferred Stock 906,850 --
Purchase of Treasury Stock (278,697) --
[Decrease] Increase in Loan Payable to Shareholder (16,636) 144,981
Proceeds from Long-Term Debt 153,100 45,000
Payment from Notes Receivable -- --
Payment of Notes Payable (84,660) --
Payment of Lease Payable (11,286) (9,926)
----------- -----------
NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS 7,265,718 843,780
----------- -----------
FINANCING ACTIVITIES - DISCONTINUED OPERATIONS:
Proceeds from Long-Term Debt 40,400 24,391
Payment of Note Payable (6,000) (4,500)
Payment of Lease Payable (38,984) (11,659)
----------- -----------
NET CASH B FINANCING ACTIVITIES B DISCONTINUED OPERATIONS (4,584) 8,232
----------- -----------
NET INCREASE [DECREASE] IN CASH AND CASH EQUIVALENTS 56,275 (409,928)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 11,260 421,188
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 67,535 $ 11,260
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 16,694 $ 5,903
Income Taxes $ -- $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Preferred Stock into Common Stock $ 147 $ --
Stock Issued in Exchange for Contingent Acquisition $ 400,000 $ --
Purchase of Assets under Capital Lease Financing $ 91,401 $ --
</TABLE>
On March 26, 1997 the Company issued 200,000 shares of the Company's
common stock as part of the acquisition of its subsidiary, The EmiNet Domain. As
part of the acquisition of EmiNet Domain, Inc, capital lease obligations of
approximately $106,000 were incurred for the purchase of equipment.
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-9
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[1] ORGANIZATION
NATURE OF BUSINESS - The Company is located in Southern Florida and develops,
sells and services interactive products which are offered and operated via the
Internet and World Wide Web.
In March 1997, the Company concluded its acquisition of the EmiNet Domain, Inc.,
an Internet service provider and developer of Internet related software products
as well as hosting commercial web sites [See Notes 12 and 13]
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The Consolidated financial statements include the
accounts of the Company and its subsidiaries. All material intercompany accounts
and transactions have been eliminated.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments,
with a maturity of three months or less when purchased, to be cash equivalents.
At December 31, 1998, the Company did not have any cash equivalents.
PROPERTY AND EQUIPMENT AND DEPRECIATION - Property and equipment are stated at
cost. Depreciation is computed primarily using the straight-line method over the
estimated useful lives of the assets, which range from 5 to 7 years. Leasehold
improvements are amortized using the straight-line method over the lesser of the
term of the related lease or the estimated useful lives of the improvements.
Routine maintenance and repair costs are charged to expense as incurred and
renewals and improvements that extend the useful life of the assets are
capitalized. Upon sale or retirement, the cost and related accumulated
depreciation are eliminated from the respective accounts and any resulting gain
or loss is reported as income or expense.
REVENUE RECOGNITION - Revenue from computer software licensing agreements is
recognized when products are delivered and accepted by the customer and the fee
is fixed or determinable, and collectibility is probable. If the fee is not
fixed or determinable revenue is accounted for as payments from customers become
due. Revenue from software maintenance contracts are recognized ratably over the
life of the contract.
INVESTMENTS - The Company accounts for investments in accordance with Statement
of Financial Accounting Standards ["SFAS"] No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Management determines the
appropriate classification of its investments in debt and equity securities at
the time of purchase and reevaluates such determination at each balance sheet
date. Equity securities, and debt securities, which the Company does not have
the intent to hold to maturity, are classified as trading or available for sale.
Securities available for sale are carried at fair value, with any unrealized
holding gains and losses, net of tax, reported in a separate component of
shareholders' equity until realized. Trading securities are carried at fair
value with any unrealized gains or losses included in earnings.
Held to maturity securities are carried at amortized cost. Marketable debt and
equity securities available for current operations are classified in the balance
sheet as current assets while securities held for non- current uses are
classified as long-term assets. Realized gains and losses are calculated
utilizing the specific identification method [See Note 5].
F-10
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
INCOME TAXES - Pursuant to SFAS No. 109, "Accounting for Income Taxes," income
tax expense [or benefit] for the year is the sum of deferred tax expense [or
benefit] and income taxes currently payable [or refundable]. Deferred tax
expense [or benefit] is the change during the year in a company's deferred tax
liabilities and assets. Deferred tax liabilities and assets are determined based
on differences between financial reporting and tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
ADVERTISING EXPENSES - The Company expenses advertising costs as incurred. Total
advertising costs charged to expense for the years ended December 31, 1998 and
1997 amounted to approximately $29,000 and $122,000, respectively.
NET INCOME PER SHARE - The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards ["SFAS"] No. 128, "Earnings per
Share," which is effective for financial statements issued for periods ending
after December 15, 1997. Accordingly, earnings per share data in the financial
statements for the year ended December 31, 1998 and 1997, have been calculated
in accordance with SFAS No. 128. Potential common shares are included if
dilutive.
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, "Earnings
per Share," and replaces its primary earnings per share with a new basic
earnings per share representing the amount of earnings for the period available
to each share of common stock outstanding during the reporting period. Basic
earnings [loss] per share is computed by dividing income [loss] available to
common stockholders by the weighted average number of common shares outstanding
during the period. SFAS No. 128 also requires a dual presentation of basic and
diluted earnings per share on the face of the statement of operations for all
companies with complex capital structures.
Diluted earnings per share reflects the amount of earnings for the period
available to each share of common stock outstanding during the reporting period,
while giving effect to all dilutive potential common shares that were
outstanding during the period, such as common shares that could result from the
potential exercise or conversion of securities into common stock
The computation of diluted earnings per share does not assume conversion,
exercise, or contingent issuance of securities that would have an antidilutive
effect on per share amounts, [i.e. increasing earnings per share or reducing
loss per share]. The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds should be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants. Securities that could potentially dilute earnings per share in the
future are disclosed in Notes 12 and 17.
F-11
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
NET INCOME PER SHARE [CONTINUED] - Earnings per share amounts for 1997 have been
restated for the Company's discontinued operations whose plan of disposal was
adopted by the Company in March 1999. The effect of the restatement on earnings
per share from continuing operations was an increase of $.01 per share for 1997.
STOCK-BASED COMPENSATION - The Company follows Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ["APB No. 25"] with
regard to the accounting for its employee stock options. Under APB No. 25,
compensation expense is recognized only when the exercise price of options is
below the market price of the underlying stock on the date of grant.
Accordingly, no compensation expense has been recognized for the Company's
stock-based compensation plan for fiscal year 1998. The Company applies the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" to any
non-employee stock-based compensation and the pro forma disclosure provisions of
SFAS No. 123 to employee stock-based compensation.
SOFTWARE AND AMORTIZATION - Costs related to the conceptual formulation and
design of licensed programs are expensed as research and development. Costs
incurred subsequent to establishment of technological feasibility to produce the
finished product are capitalized. The annual amortization of the capitalized
amounts is the greater of the ratio that current gross revenues for a product
bear to the total of current and anticipated future gross revenues for that
product or the straight-line method over the remaining estimated economic life
of the product including the period being reported on. Amortization begins when
the product is available for general release to customers. Periodic reviews are
performed to ensure that unamortized program costs remain recoverable from
future revenues. Costs to support or service licensed programs are charged
against income as incurred, or when related revenue is recognized, whichever
occurs first. Amortization expense related to software amounted to $384,144 and
$236,296 for the years ended December 31, 1998 and 1997, respectively. The
amortization expense is included in cost of sales.
IMPAIRMENT - Certain long-term assets of the Company are reviewed when changes
in circumstances require as to whether their carrying value has become impaired,
pursuant to guidance established in Statement of Financial Accounting Standards
["SFAS"] No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long Lived Assets to be Disposed Of." Management considers assets to be impaired
if the carrying value exceeds the future projected cash flows from related
operations [undiscounted and without interest charges]. If impairment is deemed
to exist, the assets will be written down to fair value discounted cash flows
from related operations. Management also reevaluates the periods of amortization
to determine whether subsequent events and circumstances warrant revised
estimates of useful lives. As of December 31, 1998, management expects these
assets to be fully recoverable.
BENEFICIAL CONVERSION FEATURES - The Company has issued convertible preferred
stock with a beneficial conversion feature. The beneficial conversion feature is
analogous to a dividend and is recognized as a return to the preferred
shareholders over the minimum period in which the preferred shareholders can
realize that return. The resulting discount is allocated from the date of
issuance through the date the security was first convertible.
RECLASSIFICATION - Certain prior year amounts have been reclassified to conform
to current year's financial statement presentation.
F-12
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[3] SIGNIFICANT RISKS AND UNCERTAINTIES
[A] CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
and cash equivalents and trade accounts and notes receivable occurring from its
normal business activities. The Company places its cash and cash equivalents
with high credit quality institutions to limit its credit exposure. At December
31, 1998, the Company did not have any amounts in a financial institution that
is subject to normal credit risk beyond insured amounts. The Company routinely
assesses the credit worthiness of its customers before a sale takes place and
believes its credit risk exposure on accounts and notes receivable is limited.
The Company performs ongoing credit evaluations of its customers but does not
require collateral on accounts and notes receivable or other financial
instruments. The Company maintains allowances for potential credit losses.
[B] OTHER CONCENTRATION - All of the Company's sales from Internet software
licensing is from outside the United States. These sales however are not subject
to currency fluctuations as payment is made in U.S. dollars. The Company had a
portion of its revenues from five customers in 1998 totaling $2,145,000 which is
approximately 88% of total revenues. In 1997 the Company had a portion of its
revenues from six customers totaling $3,095,000 which is approximately 78% of
total revenues. Sales derived from major customers are tabulated.
REVENUES
YEAR ENDED
DECEMBER 31,
CUSTOMERS 1 9 9 8 1 9 9 7
- --------- ------- -------
Customer A (Software Sales) $ 675,000 $ --
Customer B (Software Sales) 220,000 --
Customer C (Software Sales) 350,000 --
Customer D (Software Sales) 450,000 --
Customer E (Software Sales) 450,000 --
Customer F (Software Sales) -- 600,000
Customer G (Software Sales) -- 450,000
Customer H (Software Sales) -- 600,000
Customer I (Software Sales) -- 410,000
Customer J (Software Sales) -- 450,000
Customer K (Software Sales) -- 585,000
---------- ----------
TOTALS $2,145,000 $3,095,000
- -------------------------------------------- ========== ==========
GEOGRAPHIC INFORMATION
Canada $ 450,000 $ --
Caribbean 1,695,000 1,500,000
Bahamas -- 600,000
Vanuatu -- 410,000
South Africa -- 585,000
---------- ----------
TOTALS $2,145,000 $3,095,000
========== ==========
The Company purchases software from two vendors. Management believes that there
is no business vulnerability regarding this concentration of purchases from the
vendor as the software is available from other sources.
F-13
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[4] NOTES RECEIVABLE
<TABLE>
<CAPTION>
<S> <C>
Notes receivable at December 31, 1998 consist of the following:
Australian Advisors, Ltd., varying monthly payments based on a percentage of
the net win of the system or a minimum of $3,000 per month $ 150,000
Casinos of the South Pacific, monthly principal payments of $10,000
through August 2000; non-interest bearing 225,600
Intercoin AVV, monthly principal payment of $9,722, through
November 2000, non-interest bearing 345,000
Luck's Casino, Inc., varying monthly payments based on a percentage
of the net win of the system 430,000
Carib Design, Inc., monthly equal payments of $4,791 through
September 2000, non-interest bearing 115,000
Cyber Gold Casino, Corp., monthly principal and interest payments
of $10,575, through July 2001, interest at prime rate plus 2%
[10.5% at December 31, 1998] 357,400
-----------
Total Notes Receivable 1,623,000
Less: Reserve for Uncollectible Notes (303,549)
Discounts for Non-Interest Bearing Notes [8%] (66,770)
-----------
Total 1,252,681
Less: Amounts Shown as Current (746,302)
-----------
NOTES RECEIVABLE - NON-CURRENT PORTION $ 506,379
-------------------------------------- ===========
</TABLE>
At December 31, 1998, scheduled maturities of notes receivable approximated the
following:
YEAR ENDING
DECEMBER 31,
1999 $ 577,056
2000 562,672
2001 371,272
2002 106,000
2003 6,000
Thereafter --
------------
TOTAL $ 1,623,000
----- ============
The Company supplies the activation codes to its customers in order for them to
commence uninterrupted use of the software. If payment is withheld from AIE, for
any reason, AIE can in effect shut down the Internet operation and make the
program inoperable until a new activation code is supplied by Atlantic. To this
date, the Company has not shut down any service to any of its customers.
F-14
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[5] INVESTMENTS IN EQUITY SECURITIES
The Company has investment securities available for sale with of a cost of
$2,873,562 and a fair value at December 31, 1998 of $2,516,005.
Gross proceeds from the sale of available for sale securities was $853,856, and
$35,671 and gross realized loss was $51,516 and $20,859 for the years ended
December 31, 1998 and 1997, respectively. For the year ended December 31, 1998
unrealized holding gains and losses for available for the securities were
$115,498 and $(211,356), respectively. For the year ended December 31, 1997,
unrealized gains and losses were $-0- and $(42,763), respectively.
The Company sold stock with a cost of $2,287,138 for $3,486,139, of which
$2,497,298 remains outstanding and is classified as due from broker.
[6] OTHER COMPREHENSIVE LOSS
Unrealized holding loss on investments net of income tax benefit of $-0- is as
follows:
1 9 9 8
-------
Beginning Balance $ (42,763)
Current Year - Other Comprehensive Loss (53,095)
------------
TOTAL $ (95,858)
----- ============
[7] PROPERTY AND EQUIPMENT
The following details the composition of property and equipment:
ACCUMULATED
COST DEPRECIATION NET
Computer Hardware $451,130 $141,879 $309,251
Equipment, Office Fixtures and Furnishings 85,850 18,644 67,206
Leasehold Improvements 23,374 3,444 19,930
-------- -------- --------
TOTALS $560,354 $163,967 $396,387
------ ======== ======== ========
Depreciation expense for the years ended December 31, 1998 and 1997 was $ 87,069
and $77,529, respectively.
OTHER ASSETS - Included in other assets is an investment at cost in a Limited
Liability Corporation for $100,000. The Company produces films and is currently
in the process of preparing the negative print of the film for theatrical
release. As at December 31, 1998, there is no income to date.
[8] DEFERRED ACQUISITION COSTS
In October of 1998, the Company entered into a Stock Purchase Agreement with
Axxsys International, Inc., [Seller] to purchase the assets of Axxsys for
$400,000.00. Under the agreement 200,000 shares of the Company's common stock
was delivered and is held in an escrow account for a period of 12 months.
The purchase price is contingent upon the current customers of the seller
continuing to provide average monthly revenues to the purchaser during the said
12 months of an amount agreed between the parties. In the event this average
monthly revenue is less than the agreed amount then the shares delivered to the
seller shall be reduced by a ratio of the actual monthly average revenues and
the agreed amounts. As the 200,000 shares are released, the cost of the
Company's acquisition will be the fair value of the shares on the date the
contingency is met. Since the Company acquired is a part of discontinued
operations, the cost of the acquisitions will be charged to discontinued
operations.
F-15
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[9] LEASES
CAPITAL LEASES - The Company is the lessee of office equipment under capital
leases expiring in various years through December 2002. The various leases are
collateralized by the related assets. The assets and liabilities under capital
leases are recorded at the present value of the net future minimum lease
payments. The assets are amortized over their estimated productive lives.
Amortization of assets under capital leases, totaling $1,996, is included in
depreciation expense.
Following is a summary of property held under capital leases:
Office Equipment $ 91,452
Less: Accumulated Amortization 1,996
-----------
TOTAL $ 89,456
----- ===========
Minimum future lease payments under capital leases for each of the next five
years and in the aggregate are:
1999 $ 46,511
2000 46,511
2001 42,480
2002 10,063
Thereafter --
-----------
Net Minimum Lease Payments 145,565
Less: Amount Representing Interest 42,577
-----------
Present Value of Net Minimum Lease Payments 102,988
Less: Current Portion 26,105
-----------
LONG-TERM PORTION $ 76,883
----------------- ===========
OPERATING LEASES - The Company leases office space and equipment under operating
leases expiring through September 2002, and has a $10,236 security deposit with
its landlord. The lease grants an option for renewal for an additional 5 years.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1998.
YEAR ENDING OPERATING
DECEMBER 31, LEASES
1999 $ 115,593
2000 120,142
2001 123,384
2002 81,885
2003 --
Thereafter --
-----------
TOTAL $ 441,004
----- ===========
Rent expense for the years ended December 31, 1998 and 1997 was $91,690 and
$91,525, respectively.
F-16
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[10] FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted statement of Financial Accounting Standards ["SFAS'] No.
107, "Disclosure About Fair Value of Financial Instruments" which requires
disclosing fair value to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed herein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement.
In assessing the fair value of financial instruments, the Company used a variety
of methods and assumptions, which were based on estimates of market conditions
and risks existing at that time. For certain instruments, including cash and
cash equivalents, short-term notes receivable, related party and trade and notes
payables, it was assumed that the carrying amount approximated fair value for
the majority of these instruments because of their short maturities.
The long-term notes receivable approximate fair value as all non-interest
bearing notes have been discounted to their present value.
[11] LONG-TERM DEBT
At December 31, 1998, long-term debt consisted of the following:
Note payable - consultant, non-secured demand notes due January 5, 1999.
The notes accrue interest at 6% per annum. $ 100,000
Less: Current Portion (100,000)
-------------
TOTAL $ --
----- =============
[12] CAPITAL STOCK
On January 16, 1997, the Company entered into a stock purchase agreement with
Brindenberg Securities, A/S under Regulation S of the Securities and Exchange
Commission. A total of 75,000 shares were issued under the agreement for
$525,000 net of offering costs and expenses of approximately $175,000.
In February 1997, the Company issued 25,000 shares of its common stock to an
outside consultant for services to be rendered. The consultant never performed
the required services and therefore, the common shares issued were returned in
1998.
In March 1997, the Company issued 200,000 shares of the Company's common stock
as part of the acquisition of EmiNet Domain, Inc. [See Note 13].
In December of 1997, the Company sold 100,000 shares of the Company's common
stock to Australian Advisors for a total of $300,000 pursuant to the
Registration Statement S8.
Also in December 1997, the Company converted debt totaling $313,475 to equity.
The shares related to the conversion were unissued at December 31, 1997 and the
conversion ratio has yet to be determined.
In the second quarter of 1998, the Company sold 1,250,000 shares for a total of
$4,000,000 pursuant to Regulation D. The Company received $2,000,000 and a note
receivable in foreign currency for the balance. The note receivable is shown in
the equity section classified as a subscription receivable. Subsequently, the
note has devalued due to foreign currency exchange. A foreign currency loss of
$600,000 is included in other income [expense] [See Note 18].
F-17
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[12] CAPITAL STOCK [CONTINUED]
Also in the second quarter of 1998, 9,700,000 shares of common stock were issued
to Atlantic International Entertainment Australia, a wholly owned subsidiary for
use in a proposed takeover of the Australian Company, Coms21. As the proposed
takeover did not happen, the 9,700,000 shares issued were cancelled.
In the second quarter of 1998, 10,000 shares of 5% Convertible Preferred Stock,
$.001 par value, were issued for cash. Each share is convertible into common
stock by virtue of a formula contained in the Purchase Agreement which is 78% of
the three day average closing bid price for the corporations common stock for
the twenty five (25) trading days prior to the delivery of the notice of
redemption. The amount of such non-cash discounts which is analogous to a
dividend is $269,443. Holders of the Series A preferred stock are entitled to;
(i) quarterly cumulative dividends at the rate of 5% per annum of the original
issue price of the Series A preferred stock, (ii) a liquidation preference equal
to the sum of $100 for each outstanding share of Series A preferred stock.
In August 1998, 5,000 shares of the Company's common stock were issued to a
consultant for services performed.
The aggregate amount of arrearages in cumulative preferred dividends is $33,333
and is less than $.01 per share.
In the third quarter of 1998, 1,217,647 shares were exchanged to an Australian
listed company for 12,176,470 shares of the Australian company in a one for ten
stock swap.
In September 1998, 26,098 shares of the Company's common stock were issued to
adjust the issuance of shares to certain individuals at the time of the
Company's reverse merger in 1996.
During the third and fourth quarter of 1998, 2,740 shares of convertible
preferred stock valued at $274,000 was converted into 147,002 shares of common
stock by virtue of a formula contained in the Purchase Agreement which relates
to the average price per share of common stock within the conversion period.
[13] DISCONTINUED OPERATIONS
On December 15, 1996, the Company adopted a plan to discontinue and sell its
foreign subsidiary, known as Atlantic International Entertainment, N.V. ["AIE,
NV"], which operated a Sportsbook operation. The sales price was $850,000,
$2,000 payable at closing and beginning 60 days after closing, 40% of net win
before expenses on a minimum of $3,000 monthly, until the balance is paid.
Interest on the unpaid balance shall be accrued at 8% per annum. The foreign
subsidiary is reported as a discontinued operation for the year ended December
31, 1997.
The closing date of the sale was March 26, 1997. Revenues for the discontinued
operation totaled approximately $14,000. For the year ended December 31, 1997,
the gain on disposal of "AIE, NV" was approximately $220,000 [$144,982 net of
tax] and the loss from operations was approximately $70,000 [$45,890 net of tax
benefit].
On January 31, 1997, the Company entered into an agreement to purchase all of
the shares of EmiNet Domain, Inc. ["EmiNet"]. The purchase price for the shares
was $2,020,000 payable by the issuance and delivery to the shareholders of
EmiNet or their designees of a minimum of 200,000 shares of fully-paid and
non-assessable common stock of the Company at the market value as of January 31,
1997 and $20,000 cash payable at March 31, 1997. The transaction, effective
April 1, 1997 was accounted for as a purchase. As a result of the acquisition,
cost in excess of net assets of approximately $1,440,000 was recorded. On March
11, 1999, the Company adopted a plan to discontinue EmiNet [See Note 21].
Operating results of EmiNet Domain including net sales of approximately $544,000
and $414,000 are included in discontinued operations in the statement of
operations for the year ended December 31, 1998 and 1997, respectively.
F-18
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[13] DISCONTINUED OPERATIONS [CONTINUED]
Assets and liabilities to be disposed of consisted of the following at December
31, 1998.
Cash $ 20,640
Accounts Receivable - Net 5,272
Property Plant and Equipment - Net 155,917
Intangible Assets - Net 1,362,264
Other Assets 2,257
---------
Total Assets 1,546,350
---------
Accounts Payable and Accrued Expenses 91,757
Notes Payable and Lines of Credit 103,321
---------
Total Liabilities 195,078
---------
NET ASSETS TO BE DISPOSED OF $1,351,272
---------------------------- ==========
Assets are shown at their expected net realizable values and liabilities are
shown at their face amounts. Net assets to be disposed of at their expected net
realizable values, have been separately classified in the accompanying balance
sheet at December 31, 1998.
[14] RELATED PARTY TRANSACTIONS
The Company has a receivable due from an affiliated company, whose shareholders
are also shareholders of the Company. The balance of the receivable at December
31, 1998 is $55,240. During the year ended December 31, 1998, there were no
additional advances or repayments. The original advance accrued interest at a
rate of 6% per annum and is due on demand.
The Company has notes payable to two officers in the aggregate amounts of
$150,000 at December 31, 1998. The notes are demand notes and incur interest at
8% per annum. Interest expense related to the shareholders notes totaled $8,855
and $7,525 for the years ended December 31, 1998 and 1997, respectively.
[15] PROVISION FOR INCOME TAXES
Income tax [benefit] expense from continuing operations consists of the
following:
DECEMBER 31,
------------
1 9 9 8 1 9 9 7
------- -------
Current:
Federal $(443,371) $ 615,723
State (17,311) 23,657
--------- ---------
Total Current (460,682) 639,380
--------- ---------
Deferred:
Federal -- 167,062
State -- 9,750
--------- ---------
Total Deferred -- 176,812
--------- ---------
TAX EXPENSE [BENEFIT] - CONTINUING OPERATIONS $(460,682) $ 462,568
--------------------------------------------- ========= =========
F-19
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[15] PROVISION FOR INCOME TAXES [CONTINUED]
Income tax from continuing operations at the federal statutory rate reconciled
to the Company's effective rate is as follows:
DECEMBER 31,
------------
1 9 9 8 1 9 9 7
------- -------
Federal Statutory Rate 34.0% 34.0%
Non-Deductible Expenses -- --
Benefit of Net Operating Loss -- (3.6)
State Income Taxes 2.0 3.6
Other -- (4.0)
------ ------
EFFECTIVE RATE 36.0% 30.0%
-------------- ====== ======
In 1996, the Company recognized the benefit of $77,215 from the utilization of
an operating loss carryback which was filed in 1997.
The major components of deferred income tax assets and liabilities at December
31, 1998 is as follows:
Deferred Tax Assets [Liability] - Current:
Accrual to Cash Adjustments $ (76,089)
Foreign Currency Transaction Loss 216,000
Discontinued Operations 18,000
Valuation Allowance (157,911)
-------------
CURRENT DEFERRED TAX ASSET $ --
-------------------------- =============
Deferred Tax Assets [Liability] - Long-Term:
Net Operating Loss Carryforward $ 279,642
Depreciation (95,040)
Valuation Allowance (184,602)
-------------
LONG-TERM DEFERRED TAX LIABILITY $ --
-------------------------------- =============
At December 31, 1998, the Company had approximately $777,000 of operating tax
loss carryforwards expiring in 2012.
The Company's valuation allowance increased by approximately $343,000 for the
year ended December 31, 1998.
[16] COMMITMENTS AND CONTINGENCIES
[A] EMPLOYMENT AGREEMENTS - The Company has employment agreements with certain
of its executives, which commenced January 1, 1997 and expire on December 31,
2000. The aggregate annual commitment for future salaries at December 31, 1998
was $289,000. Also, included in the agreements are incentive bonuses based upon
net income and net cash flows. No bonuses have been accrued at December 31,
1998, due to net losses and negative cash flow.
[B] LITIGATION - The Company is party to litigation arising from the normal
course of business. In managements' opinion, this litigation will not materially
affect the Company's financial position, results of operations or cash flows.
F-20
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[17] INCENTIVE STOCK OPTION PLAN
On January 1, 1997, the Company adopted an Incentive Stock Option Plan for
Employees, Directors, Consultants and Advisors [the "Plan"]. The Plan will
expire December 31, 2006 unless further extended by appropriate action of the
Board of Directors. Employees, directors, consultants and advisors of the
Company, or any of its subsidiary corporations, are eligible for participation
in the Plan. The Plan provides for stock to be issued pursuant to options
granted and shall be limited to 250,000 shares of Common Stock, $.001 par value.
The shares have been reserved for issuance in accordance with the terms of the
Plan. The exercise of these options may be for all or any portion of the option
and any portion not exercised will remain with the holder until the expiration
of the option period. The options expire on December 23, 2002. In addition, the
Board of Directors approved a motion that officers and board members receive
100,000 stock options each, resulting in 700,000 shares of the Company's common
stock being granted. An additional 263,000 stock options were also approved and
granted to employees of the Company pursuant to the terms of individual offer
letters.
The following is a summary of transactions, including the options issued to
employees of the Company.
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
OUTSTANDING AT DECEMBER 31, 1996 -- $--
Granted 175,000 3.25
Exercised -- --
Canceled -- --
------- --------
OUTSTANDING AT DECEMBER 31, 1997 175,000 3.25
------- --------
EXERCISABLE AT DECEMBER 31, 1997 175,000 3.25
------- --------
Granted 788,000 3.94
Exercised -- --
Canceled -- --
------- --------
OUTSTANDING AT DECEMBER 31, 1998 963,000 3.83
------- --------
EXERCISABLE AT DECEMBER 31, 1998 963,000 $ 3.83
------- --------
The following table summarizes information about stock options at December 31,
1998:
<TABLE>
<CAPTION>
Exercisable
Outstanding Stock Options Stock Options
Remaining Weighted-average Weighted-average
Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
- --------------- ------ ---------------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$3.25 175,000 4.00 $3.25 175,000 $3.25
$4.13 700,000 4.25 $4.13 700,000 $4.13
$2.50 88,000 4.75 $2.50 88,000 $2.50
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations, for stock options
issued to employees in accounting for its stock option plans.
The exercise price of certain options issued was the market price at the date of
grant. Accordingly, no compensation expense has been recognized for the
Company's stock-based compensation plans for fiscal year 1998 and 1997.
F-21
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[17] INCENTIVE STOCK OPTION PLAN [CONTINUED]
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vested restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. The
weighted average fair value of stock options granted to employees used in
determining pro forma amounts is estimated at $3.70 and $2.63, during 1998 and
1997, respectively.
Pro forma information regarding net loss and net loss per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method prescribed under SFAS No. 123, "Accounting for Stock Based
Compensation." The fair value of these options was estimated at the date of
grant using the Black-Scholes option-pricing model for the pro forma amounts
with the following weighted average assumptions:
DECEMBER 31,
------------
1 9 9 8 1 9 9 7
------- -------
Risk-Free Interest Rate 5.6 % 5.7 %
Expected Life 5 years 2 years
Expected Volatility 153.0 % 181.0 %
Expected Dividends -- % -- %
The pro forma amounts are indicated below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1 9 9 8 1 9 9 7
------- -------
<S> <C> <C>
Net [Loss] Income - Continuing Operations:
As Reported $ (1,332,400) $1,190,036
Pro Forma $ (4,246,891) $ 729,086
Basic Net Income [Loss] Per Share of Common Stock - Continuing Operations:
As Reported $ (.15) $ .13
Pro Forma $ (.39) $ .08
Diluted Net Income [Loss] Per Share of Common Stock - Continuing Operations:
As Reported $ (.15) $ .11
Pro Forma $ (.39) $ .08
</TABLE>
[18] OTHER INCOME [EXPENSE]
Included in other income [expense] is a gain on the sale of an investment of
$1,199,001 and a foreign currency loss for $600,000 arising from a note
receivable issued by the foreign entity for sale of the Company's capital stock.
[19] FOURTH QUARTER YEAR ENDED ADJUSTMENTS
The aggregate effect of year-end adjustments which are material to the fourth
quarter results, total approximately $1,635,000 and consist principally of write
offs of receivables of ($330,000). Reversal of revenues of ($705,000) and
foreign currency loss of ($600,000).
[20] SUBSEQUENT EVENTS
On January 20, 1999, the Company paid $250,000 to Pencom, a software development
company in full and final settlement of a $420,000 payable. This resulted in a
$170,000 extraordinary gain.
F-22
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[21] SUBSEQUENT EVENTS [UNAUDITED]
On March 11, 1999 the Company announced that it has entered into an agreement
with a shareholder to sell a majority interest in its wholly owned subsidiary,
EmiNet Domain Inc., ["EmiNet"] for $2,500,000. The agreement calls for the sale
of 81% of its interest in the EmiNet. The purchase price is to be paid as
follows: (i) $10,000 payable upon execution of the agreement, (ii) $90,000 in
cash payable at the rate of $14,000 per month commencing on April 15, 1999 and
$2,400,000 by the delivery of a promissory note collateralized by shares of the
Company's common stock with interest at the annual rate of six (6%) percent and
payable two years from the closing date. Any gain realized on the transaction
will be reflected in paid-in capital. The closing date of the transaction was
March 31, 1999.
[22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ["FASB"] issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and how it is designated, for example, gains or losses related to changes in the
fair value of a derivative not designated as a hedging instrument is recognized
in earnings in the period of the change, while certain types of hedges may be
initially reported as a component of other comprehensive income [outside
earnings] until the consummation of the underlying transaction.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company does not currently have any derivative instruments and is not currently
engaged in any hedging activities.
On March 31, 1999, the FASB released a proposal for public comment that would
resolve certain practice issues raised when accounting for stock options. Since
the issuance of APB Opinion 25, "Accounting for Stock Issued to Employees,"
questions have surfaced about its application and differing practices have
developed. The FASB's broad reconsideration of the stock compensation issue
culminated in the issuance of SFAS No. 123, "Accounting for Stock-Based
Compensation," in 1995. SFAS No. 123 permits the continued application of APB
Opinion 25 for employees. However, questions remain about the proper application
of APB Opinion 25 in a number of circumstances. The FASB's proposed
Interpretation would clarify how to apply APB Opinion 25 in certain situations.
F-23
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
[22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS [CONTINUED]
The proposed Interpretation includes the following conclusions:
o Once an option is repriced, that option must be accounted for as a variable
plan from the time it is repriced to the time it is exercised. Consequently,
the final measurement of compensation expense would occur at the date of
exercise.
o Employees would be defined as they are under common law for purposes of
applying APB Opinion 25.
o APB Opinion 25 does not apply to outside directors because, by definition,
an outside director cannot be an employee. Accordingly, the cost of issuing
stock options to outside board members will have to be determined on a fair
value basis in accordance with SFAS No. 123, and recorded as an expense in
the period of the grant [the service period could be prospective, however].
o Since APB Opinion 25 was issued in 1972, the terms of many "section 423" tax
plans have changed from those in existence at the time. Many of those plans
now provide that employees can purchase an employer's stock at the lesser of
85 percent of the stock price at the date of grant or 85 percent of the
price at the date of exercise. This provision is referred to as a
"look-back" option. The FASB decided that plans with a look-back option do
not, in and of themselves, create a compensatory plan.
o A subsidiary may account for parent company stock issued to its employees
under APB Opinion 25 in their separately issued financial statements,
provided the subsidiary is part of the parent's consolidated financial
statements.
The FASB's proposed Interpretation would be effective upon issuance, which is
expected in September 1999, but generally would cover plan grants and
modifications that occur after December 15, 1998.
. . . . . . . . . .
F-24
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE OF THE PLAN. In January, 1997, Atlantic International
Entertainment, Ltd. ("AIE"), by and through its Board of Directors adopted an
Incentive Stock Option Plan that granted to the Board of Directors discretion in
the enactment of the plan. The Board, having determined the specific
requirements of the Plan has adopted this Stock Option and Incentive Plan. The
Plan shall be known as the Atlantic International Entertainment, Ltd. 1999 Stock
Option and Incentive Plan (the "Plan"). The purpose of the Plan is to attract
and retain the best available personnel as officers, directors and key employees
and to provide additional incentive to employees of AIE or any present or future
parent or subsidiary of AIE to promote the success of the business. The Plan is
intended to provide for the grant of "Incentive Stock Options", within the
meaning of Section 422 of the Internal Revenue Code of 1954, as amended (the
"Code") and Non-Incentive Stock Options. Each and every one of the provisions of
the Plan relating to Incentive Stock Options shall be interpreted to conform to
the requirements of Section 422 of the Code.
2. DEFINITIONS. As used herein, the following definitions shall apply.
(a) "AIE" shall mean Atlantic International Entertainment, Ltd.
(b) "Award" means the grant by the Committee of an Incentive Stock
Option or a Non-Incentive Stock Option or any combination thereof, as provided
in the Plan.
(c) "Board" shall mean the Board of Directors of AIE.
(d) "Common Stock" shall mean common stock, par value $0.001 per
share, of AIE.
(e) "Code" shall mean the Internal Revenue Code of 1954, as amended.
(f) "Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with paragraph 4(a) of the Plan.
(g) "Continuous Employment" or "Continuous Status as an Employee"
shall mean the absence of any interruption or termination of employment by AIE
or any present or future Parent or Subsidiary of AIE. Employment shall not be
considered interrupted in the case of sick leave, military leave or any other
leave of absence approved by AIE or in the case of transfers between payroll
locations of AIE or between AIE, its Parent, its Subsidiaries or a successor.
(h) "Effective Date" shall mean January 1, 1999.
(i) "Employee" shall mean any person employed on a full-time basis by
AIE or any present or future Parent or Subsidiary of AIE.
(j) "Incentive Stock Option" means an option to purchase Shares
granted by the Committee pursuant to Section 7 hereof which is subject to the
limitations and restrictions of Section 7 hereof and is intended to qualify
under Section 422 of the Code.
<PAGE>
(k) "Non-Incentive Stock Option" means an option to purchase Shares
granted by the Committee pursuant to Section 8, which option is not intended to
qualify under Section 422 of the Code.
(l) "Option" shall mean an Incentive Stock Option granted pursuant to
this Plan.
(m) "Optioned Stock" shall mean stock subject to an Option granted
pursuant to the Plan.
(n) "Optionee" shall mean any person who receives an Option.
(o) "Parent" shall mean any present or future corporation which would
be a "parent corporation" as defined in Subsections 425(e) and (g) of the Code.
(p) "Participant" means any director, officer or employee of AIE or
any Parent or Subsidiary of AIE or any other person providing a service to AIE
who is selected by the Committee.
(q) "Plan" shall mean this plan.
(r) "Share" shall mean one share of the Common Stock.
(s) "Subsidiary" shall mean any present or future corporation which
would be a "subsidiary corporation" as defined in Subsections 425(f) and (g) of
the Code.
3. SHARES SUBJECT TO THE PLAN. Except as otherwise required by the
provisions of Section 11 hereof, the aggregate number of Shares with respect to
which Awards may be made pursuant to the Plan shall not exceed 250,000 shares,
allocated in accordance with Exhibit "A" attached hereto and made a part hereof.
Such Shares may either be authorized but unissued or treasury shares.
4. ADMINISTRATION OF THE PLAN.
(a) Composition of the Committee. The Plan shall be administered by
the Committee, consisting of not less than three persons appointed by the Board.
The Board may from time to time appoint members of the committee in substitution
for members previously appointed and may fill vacancies. Officers, directors,
key employees and other persons who are designated by the Committee shall be
eligible to receive Awards under the Plan. All persons designated as members of
the Committee shall be "disinterested persons" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, and shall be ineligible to receive
Awards under the Plan.
(b) Powers of the Committee. The Committee is authorized (but only to
the extent not contrary to the express provisions of the Plan or to resolutions
adopted by the Board) to interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to the Plan, to determine the form and content of
Awards to be issued under the Plan and to make other determinations necessary or
advisable for the administration or the Plan, and shall have and may exercise
such other power and authority as may be delegated to it by the Board from time
to time. A majority of the entire Committee shall constitute a quorum and the
action of a majority of the members present at any meeting at which a quorum is
present shall be deemed the action of the Committee. In no
<PAGE>
event may the Committee revoke outstanding Awards without the consent of the
Participant. Any action permitted to be taken by the Committee at a meeting may
be taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all members of the Committee. The President of AIE and such
other officers as shall be designated by the Committee are hereby authorized to
execute instruments evidencing Awards on behalf of AIE and to cause them to be
delivered to the Participants.
(c) Effect of Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and conclusive on all persons
affected thereby.
5. ELIGIBILITY. Awards may be granted to officers, directors, key
employees and other persons. The Committee, shall from time to time determine
the officers, directors, key employees and other persons who shall be granted
Options or Awards under the Plan, the number to be granted to each such
officers, directors, key employees and other persons under the Plan, and whether
Options granted to each such Employee under the Plan shall be Incentive and/or
Non-Incentive Stock Options. In selecting Participants and in determining the
number of shares of Common Stock to be granted to each such Participant pursuant
to each Award granted under the Plan, the Committee may consider the nature of
the services rendered by each such Participant, each such Participant's current
and potential contribution to AIE, and such other factors as the Committee may,
in its sole discretion, deem relevant. Officers, directors, key employees or
other persons who have been granted an Award may, if otherwise eligible, be
granted additional Options or Awards.
The aggregate fair market value (determined as of the date the Option is
granted) of the Shares for which any Employee may be granted Options in any
calendar year (under all Incentive Stock Option plans, as defined in Section 422
of the Code, of the Corporation or any present or future Parent or Subsidiary of
AIE) shall not exceed $1,000,000, plus any unused limit carryover to such year,
as defined in Section 422(c) of the Code. Notwithstanding the prior provisions
of this Section 5, the Committee may grant Options in excess of the foregoing
limitations, provided said Options shall be clearly and specifically designated
as not being Incentive Stock Options, as defined in Section 422 of the Code.
6. TERM OF PLAN. The Plan shall continue in effect for a term of ten (10)
years from the Effective Date, unless sooner terminated pursuant to Section 16.
No Option shall be granted under the Plan after ten (10) years from the
Effective Date.
7. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS. Incentive Stock
Options may be granted only to Participants who are Employees. Each Incentive
Stock Option granted pursuant to the Plan shall be evidenced by an instrument in
such form as the Committee shall from time to time approve. Each and every
Incentive Stock Option granted pursuant to the Plan shall comply with, and be
subject to, the following terms and conditions:
(a) Option Price.
(i) The price per share at which each Incentive Stock Option
granted under the Plan may be exercised shall not, as to any particular
Incentive Stock Option, be less than the fair market value of the Common Stock
at the time such Incentive Stock Option is granted. For such purposes, if the
<PAGE>
Common Stock is traded otherwise than on a national securities exchange at the
time of the granting of an Option, then the price per share of the Optioned
Stock shall be not less than the mean between the bid and asked price on the
date the Incentive Stock Option is granted or, if there be no bid and asked
price on said date, then on the next prior business day on which there was a bid
and asked price. If no such bid and asked price is available, then the price per
share shall be determined by the Committee. If the Common Stock is listed on a
national securities exchange at the time of the granting an Incentive Stock
Option, then the price per share shall be not less than the average of the
highest and lowest selling price on such exchange on the date such Incentive
Stock Option is granted or, if there were no sales on said date, then the price
shall be not less than the mean between the bid and asked price on such date.
(ii) In the case of an Employee who owns Common Stock
representing more than ten percent (10%) of the outstanding Common Stock at the
time the Incentive Stock Option is granted, the Incentive Stock Option price
shall not be less than one hundred and ten percent (110%) of the fair market
value of the Common Stock at the time the Incentive Stock Option is granted.
(b) Payment.
Full payment for each share of Common Stock purchased upon the
exercise of any Incentive Stock Option granted under the Plan shall be made
within 15 days of the date of exercise of each such Incentive Stock Option and
shall be paid in cash (in United States Dollars), Common Stock or a combination
of cash and Common Stock. Common Stock utilized in full or partial payment of
the exercise price shall be valued at its fair market value at the date of
exercise. AIE shall accept full or partial payment in Common Stock only to the
extent permitted by applicable law. No shares of Common Stock shall be issued
until full payment therefor has been received by AIE, and no Optionee shall have
any of the rights of a shareholder or AIE until shares of Common Stock are
issued to him.
(c) Term of Incentive Stock Option.
The term of each Incentive Stock Option granted pursuant to the
Plan shall be five (5) years from the date each such Incentive Stock Option is
granted.
(d) Exercise Generally.
Except as otherwise provided in Section 9 hereof, no Incentive
Stock Option may be exercised unless the Optionee shall have been in the employ
of AIE at all times during the period beginning with the date of grant of any
such Incentive Stock Option and ending on the date One (1) year after said date
of grant of any such Incentive Stock Option. In the event the Optionee shall
have been in the employ of AIE for One (1) year from the date of the grant of
the Incentive Stock Option, then the Optionee shall be entitled to exercise no
more than 20% of the Incentive Stock Options then issued to the Optionee. In the
event the Optionee shall have been in the employ of AIE for Two (2) years from
the date of the grant of the Incentive Stock Options, then the Optionee shall be
entitled to exercise no more than 60% of the Incentive Stock Options then issued
to the Optionee. In the event the Optionee shall have been in the employ of AIE
for Three (3) years from the date of the grant of the Incentive Stock Options,
then the Optionee shall be entitled to exercise all of the Incentive Stock
<PAGE>
Options then issued to the Optionee. The Committee, may impose additional
conditions upon the right of an Optionee to exercise any Incentive Stock Option
granted hereunder which are not inconsistent with the terms of the Plan or the
requirements for qualification as an Incentive Stock Option under Section 422 of
the Code.
(e) Transferability.
Except as otherwise provided, any Incentive Stock Option granted
pursuant to the Plan shall be exercised during any Optionee's lifetime only by
the Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
8. TERMS AND CONDITIONS OF NON-INCENTIVE STOCK OPTIONS. Each
Non-Incentive Stock Option granted pursuant to the Plan shall be evidenced by an
instrument in such form as the Committee shall from time to time approve.
(a) Grant.
(1) Individual Performance. Each Participant that is an Employee
may be granted an Award in the event said employee's immediate supervisor
determines that said employee's annual performance is either exceeds standard
performance or is determined to be rated "excellent" in accordance with the
policies and procedures of AIE. The number of Options to be granted shall be
determined by dividing (a) the amount of gross salary of each Participant that
is an Employee by (b) the percentage set forth on Exhibit "A" (depending on the
supervisor's evaluation).
(2) Company Performance. Each Participant shall be granted
Options in the event AIE's net income before taxes, as defined by generally
accepted accounting principles (GAAP), exceeds $1,000,000 in any fiscal year.
However, in no event shall the total number of Options granted hereunder exceed
options on 60,000 Shares. The number of Options to be granted shall be
determined by multiplying (a) the amount of AIE net income in excess of
$1,000,000 by (b) 5%.
(b) Terms. Each and every Non-Incentive Stock Option granted pursuant
to the Plan shall comply with and be subject to the following terms and
conditions: (1) Option Price. The exercise price per share of Common Stock for
each Non-Incentive Stock Option granted pursuant to the Plan shall be 20% below
the bid price for the Shares at the close of trading in New York on December 31
of each year of the Plan.
(2) Payment.
Full payment for each share of Common Stock purchased upon the
exercise of any Non-Incentive Stock Option granted under the Plan shall be made
at the time of exercise of each such Non-Incentive Stock Option and shall be
paid in cash (in United States Dollars), Common Stock or a combination of cash
and Common Stock. Common Stock utilized in full or partial payment of the
exercise price shall be valued at its fair market value at the date of exercise.
The Corporation shall accept full or partial payment in Common Stock only to the
<PAGE>
extent permitted by applicable law. No shares of Common Stock shall be issued
until full payment therefor has been received by the Corporation, and no
Optionee shall have any of the rights of a shareholder of the Corporation until
the shares of Common Stock are issued to him.
(c) Term.
The term of each Non-Incentive Stock Option granted pursuant to
the Plan shall be not more than five (5) years from the date each such
Non-Incentive Stock Option is granted.
(d) Exercise Generally.
The Committee may impose additional conditions upon the right of
any Participant to exercise any Non-Incentive Stock Option granted hereunder
which are not inconsistent with the terms of the Plan.
(e) Transferability.
Any Non-Incentive Stock Option granted pursuant to the Plan shall
be exercised during any Optionee's lifetime only by the Optionee to whom it was
granted and shall not be assignable or transferable otherwise than by will or by
the laws of descent and distribution.
9. EFFECT OF TERMINATION OF EMPLOYMENT, DISABILITY OR DEATH ON INCENTIVE
STOCK OPTIONS.
(a) Termination of Employment.
In the event that any Optionee's employment by AIE shall
terminate for any reason, other than Permanent and Total Disability (as such
term is defined in Section 105(d)(4) of the Code), death or termination for
cause, all of any such Optionee's Awards, and all of any such Optionee's rights
to purchase or receive shares of Common Stock pursuant thereto, as the case may
be, shall automatically terminate on the date of such termination of employment.
However, no termination of an Optionee's Incentive Stock Options shall occur if,
and to the extent that such Incentive Stock Options are exercised at any time
prior to the earlier of (i) the respective expiration dates of any such
Incentive Stock Options or (ii) the expiration of not more than three (3) months
after the date of such termination of employment, but only if, and to the extent
that, the Optionee was entitled to exercise any such Incentive Stock Options at
the date of such termination of employment. In the event that a subsidiary
ceases to be a subsidiary of AIE, the employment of all of its employees who are
not immediately thereafter employees of AIE shall be deemed to terminate upon
the date such subsidiary so ceases to be a subsidiary of AIE.
(b) Disability.
In the event that any Optionee's employment by AIE shall
terminate as the result of the Permanent and Total disability of such Optionee,
such Optionee may exercise any Incentive Stock Options granted to him pursuant
to the Plan at any time prior to the earlier of (i) the respective expiration
dates of any such Incentive Stock Options or (ii) the date which is one (1) year
after the date of such termination of employment, but only if, and to the extent
<PAGE>
that, the Optionee was entitled to exercise any such Incentive Stock Options at
the date of such termination of employment.
(c) Death.
In the event of the death of any Optionee, any Awards granted to
any such Optionee may be exercised by the person or persons to whom the
Optionee's rights under any such Awards pass by will or by the laws of descent
and distribution (including the Optionee's estate during the period of
administration) at any time prior to the earlier of (i) the respective
expiration dates of any such Incentive Stock Options or (ii) the date which is
one (1) year after the date of death of such Optionee (or such later period not
exceeding one (1) year to which the Committee may, in its discretion, extend
such period), but only if, and to the extent that, the Optionee was entitled to
exercise any such Incentive Stock Options at the date of death. For purposes of
this Section 8(c), any Incentive Stock Option held by an Optionee shall be
considered exercisable at the date of his death if the only unsatisfied
condition precedent to the exercisability of such Incentive Stock Option at the
date of death is the passage of a specified period of time.
(d) Termination for Cause.
In the event any Optionee's employment by AIE is terminated for
"cause" which includes, but is not limited to, termination for personal
dishonesty, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than a law, rule or regulation relating to a
traffic violation or similar offense), termination under the provisions of any
employment agreement, or material breach of any provision of an employment
agreement, then Optionee's Awards shall terminate.
(e) Termination of Awards.
To the extent that any Award granted under the Plan to any
Optionee whose employment by AIE terminates shall not have been exercised within
the applicable period set forth in this Section, any such Award, and all rights
to purchase or receive shares of Common Stock pursuant thereto, as the case may
be, shall terminate on the last day of the applicable period.
10. RIGHT OF REPURCHASE AND RESTRICTIONS ON DISPOSITION AND RIGHT OF FIRST
REFUSAL. AIE, in its sole discretion, as a term of any Awards, shall have the
right (the "Repurchase Right"), but not the obligation, to repurchase all or any
amount of the Shares acquired by an Optionee pursuant to the exercise of any
such Options. The intent of the Repurchase Right is to encourage the continued
employment of the Optionee. The Repurchase Right shall provide for a duration of
the Repurchase Right for Five (5) years from the date of issuance of the Shares,
a price per Share at the closing bid price for the Shares on the date of the
exercise of AIE's rights hereunder, to be paid upon the exercise of the
Repurchase Right and a restriction on the disposition of the Shares by the
Optionee during the period of the Repurchase Right. The Repurchase Right may be
transferred or assigned by AIE to another party. AIE may exercise the Repurchase
Right only to the extent permitted by applicable law.
11. RECAPITALIZATION, MERGER, CONSOLIDATION, CHANGE IN CONTROL AND SIMILAR
TRANSACTIONS.
<PAGE>
(a) Adjustment.
Subject to any required action by the shareholders of AIE, the
aggregate number of shares of Common Stock for which stock options may be
granted hereunder, the number of shares of Common Stock covered by each
outstanding stock option, and the exercise price per share of Common Stock of
each such stock option, shall all be proportionately adjusted for any increase
or decrease in the number of issued and outstanding shares of Common Stock
resulting from a subdivision or consolidation of shares or the payment of a
stock dividend (but only on the Common Stock) or any other increase or decrease
in the number of such shares of common Stock effected without the receipt of
consideration by AIE.
(b) Change in Control.
All outstanding options shall become immediately exercisable in
the event of change in control or imminent change in control of AIE, as
determined by the Committee. For purposes of this Section, "change in control"
shall mean: (i) the execution of an agreement for the sale of all, or a material
portion, of the assets of AIE; (ii) the execution of an agreement for a merger
or recapitalization of AIE or any merger or recapitalization whereby AIE is not
the surviving entity; (iii) a change of control of AIE, as otherwise defined or
determined by the Securities Exchange Commission or regulations promulgated by
it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the
Securities Exchange Act of 1934 and the rules promulgated thereunder) of
twenty-five percent (25%) or more of the outstanding voting securities of AIE by
any person, trust, entity or group.
(c) Extraordinary Corporate Action.
Subject to any required action by the shareholders of AIE, in the
event of any Change in Control, recapitalization, merger, consolidation,
exchange of shares, spin-off, reorganization, tender offer, liquidation or other
extraordinary corporate action or event, the Committee, in its sole discretion,
shall have the power, prior or subsequent to such action or event to:
(i) appropriately adjust the number of shares of Common Stock
subject to each stock option, the exercise price per share of Common Stock, and
the consideration to be given or received by AIE upon the exercise of any
outstanding Option;
(ii) cancel any or all previously granted Options, provided that
appropriate consideration is paid to the Optionee in connection therewith;
and/or
(iii) make such other adjustments in connection with the Plan as
the Committee, in its sole discretion, deems necessary, desirable, appropriate
or advisable; provided, however, that no action shall be taken by the Committee
which would cause Incentive Stock Options granted pursuant to the Plan to fail
to meet the requirements of Section 422 of the Code.
<PAGE>
Except as expressly provided herein, no Optionee shall have any
rights by reason of the occurrence of any of the events described in this
Section.
(d) Acceleration.
The Committee shall at all times have the power to accelerate the
exercise date of Options previously granted under the Plan.
12. TIME OF GRANTING OPTIONS. The initial date of grant of the Options
under the Plan as set forth in Exhibit "A", shall, for all purposes, be January
1, 1999 and thereafter on each July 1 and January 1 thereafter for any employee
who at the time of the grant shall have been an employee for one year from the
initial grant or at least one year from each January and July or any other
person on which the Committee makes the determination of granting such Option.
Notice of the determination shall be given to each Employee to whom an Option is
so granted within a reasonable time after the date of such grant.
13. EFFECTIVE DATE. The Plan shall become effective on January 1, 1999.
Options may be granted prior to ratification of the Plan by the stockholders if
the exercise of such Options is subject to such stockholder ratification.
14. APPROVAL BY SHAREHOLDERS. The Plan shall be approved by stockholders
of AIE within twelve (12) months before or after the date it becomes effective.
15. MODIFICATION OF OPTIONS. At any time and from time to time, the Board
may authorize the Committee to direct the execution of an instrument providing
for the modification of any outstanding Option, provided no such modification,
extension or renewal shall confer on the holder of said Option any right or
benefit which could not be conferred on him by the grant of a new Option at such
time, or shall not materially decrease the Optionee's benefits under the Option
without the consent of the holder of the Option, except as otherwise permitted
under this Plan.
16. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Action by the Board.
The Board may alter, suspend or discontinue the Plan, except that
no action of the Board may increase (other than as provided in Section 11) the
maximum number of shares permitted to be optioned under the Plan, materially
increase the benefits accruing to participants under the Plan or materially
modify the requirements for eligibility for participation in the Plan unless
such action of the Board shall be subject to approval or ratification by the
shareholders of AIE.
(b) Change in Applicable Law.
Notwithstanding any other provision contained in the Plan, in the
event of a change in any federal or state law, rule or regulation which would
make the exercise of all or part of any previously granted Incentive Stock
Option unlawful or subject AIE to any penalty, the Committee may restrict any
such exercise without the consent of the Optionee or other holder thereof in
order to comply with any such law, rule or regulation or to avoid any such
penalty.
<PAGE>
17. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to any Option granted under the Plan unless the issuance and delivery of
such Shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities law and the requirements
of any stock exchange upon which the Shares may then be listed. The inability of
AIE to obtain permission from any regulatory body or authority deemed by AIE's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder
shall relieve AIE of any liability in respect of the non-issuance or sale of
such Shares. As a condition to the exercise of an Option, AIE may require the
person exercising the Option to make such representations and warranties as may
be necessary to assure the availability of an exemption from the registration
requirements of federal or state securities law.
18. RESERVATION OF SHARES. During the term of the Plan, AIE, will reserve
and keep available a number of Shares sufficient to satisfy the requirements of
the Plan.
19. UNSECURED OBLIGATION. No Participant under the Plan shall have any
interest in any fund or special asset of AIE by reason of the Plan or the grant
of any Award to him under the Plan. No trust fund shall be created in connection
with the Plan or any grant of any Award hereunder and there shall be no required
funding of amounts which may become payable to any participant.
20. WITHHOLDING TAX. AIE shall have the right to deduct from all amounts
paid in cash with respect to the exercise of any Award under the Plan any taxes
required by law to be withheld with respect thereto.
21. GOVERNING LAW. The Plan shall be governed by and construed in
accordance with the laws of the State of Delaware.
ATLANTIC INTERNATIONAL ENTERTAINMENT,LTD AND SUBSIDIARIES
STATEMENT OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS $ (2,006,624) $ 1,047,317
----------------
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING 10,771,563 9,452,992
----------------
BASIC AND DILUTED NET (LOSS) INCOME PER SHARE OF COMMON STOCK
Continuing Opeartions $ (0.15) $ 0.11
Discontinued Operations (0.04) -
---------------------------------
$ (0.19) $ 0.11
---------------------------------
</TABLE>
SUBSIDIARIES OF THE COMPANY
The Eminet Domain, Inc.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Atlantic International Entertainment, Ltd. on Form S-8 (File No.
033-21501) of our report dated February 6, 1999, on our audits of the
consolidated financial statements of Atlantic International Entertainment, Ltd.
as of December 31, 1998 and for the two years in the period ended December 31,
1998, which report it included in this Annual Report on Form 10-KSB.
/s/ Moore Stephens, P.C.
Moore Stephens, P.C.
Certified Public Accountants
Cranford, New Jersey
May 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ATLANTIC
INTERNATIONAL ENTERTAINMENT, LTD.'S FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 67,535
<SECURITIES> 0
<RECEIVABLES> 1,665,000
<ALLOWANCES> (389,919)
<INVENTORY> 0
<CURRENT-ASSETS> 6,018,551
<PP&E> 560,354
<DEPRECIATION> (163,967)
<TOTAL-ASSETS> 10,406,587
<CURRENT-LIABILITIES> 1,351,086
<BONDS> 0
<COMMON> 12,410
0
7
<OTHER-SE> 8,966,201
<TOTAL-LIABILITY-AND-EQUITY> 10,406,587
<SALES> 2,426,230
<TOTAL-REVENUES> 2,426,230
<CGS> 792,789
<TOTAL-COSTS> 4,035,234
<OTHER-EXPENSES> (538,387)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,066
<INCOME-PRETAX> (1,793,082)
<INCOME-TAX> (460,682)
<INCOME-CONTINUING> (1,332,400)
<DISCONTINUED> (371,448)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,703,848)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
