ASI ENTERTAINMENT INC, 10KSB, 1999-12-01

ASI ENTERTAINMENT INC
10KSB, 1999-12-01
AIRCRAFT PARTS & AUXILIARY EQUIPMENT, NEC

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB
(Mark One)

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the fiscal year ended June 30, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number 0-27881

ASI ENTERTAINMENT, INC.
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(Exact name of registrant as specified in its charter)

Delaware 52-2101695
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

Ronald J. Chapman, President
Suite 3, 1601 Main Road
Research, Victoria, 3095 Australia
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(Address of principal executive offices) (zip code)

613 9 437 1233
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Issuer's Telephone Number:

Securities registered under Section 12(g) of the Exchange Act: Common Stock

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the last 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

Check if there is no disclosure of delinquent files in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of 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. [ X ]

State issuer's revenues for its most recent fiscal year. $___________________.

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State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

Class Outstanding at June 30, 1999;

Common Stock, par value $.0001 per share _____________________________

Documents incorporated by reference: None

<PAGE>

10KSB
<TABLE>

<S> <C>
PART I.....................................................................................................2

ITEM 1. DESCRIPTION OF BUSINESS............................................................................2

ITEM 2. DESCRIPTION OF PROPERTY...........................................................................10

ITEM 3. LEGAL PROCEEDINGS.................................................................................10

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................10

PART II...................................................................................................10

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........................................10

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........................................11

ITEM 7. FINANCIAL STATEMENTS..............................................................................14

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..............15

PART III..................................................................................................15

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT.......................................................................................15

ITEM 10. EXECUTIVE COMPENSATION...........................................................................16

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................17

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................20

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.................................................................22
</TABLE>

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PART I

ITEM 1. DESCRIPTION OF BUSINESS.

THE COMPANY

ASI Entertainment Pty. Ltd. was incorporated in Australia in 1993 as a
subsidiary of ASIT Australia until 1996 when it became an independent
corporation through a corporate restructuring. ASI Entertainment, Inc. (the
"Company" was incorporated in the state of Delaware on April 29, 1998. In order
to change its situs of incorporation, in July, 1998, ASI Entertainment, Inc.
(Delaware) acquired all the outstanding stock of ASI Entertainment Pty. Ltd., in
exchange for 5,293,990 shares of its Common Stock. ASI Entertainment Pty. Ltd.
purchased the ASI-9000 Program from ASIT Australia and the Company will acquire
the ACAMS hardware from ASIT Australia. The Company subcontracts the production,
installation and maintenance of the ASI-9000. ASI Entertainment, Inc. (Delaware)
has three wholly-owned subsidiaries, ASI Entertainment Pty. Ltd., ASI Media Pty.
Ltd. (an Australian corporation), and ASI Technologies, Inc. (a Delaware
corporation). Certain of the officers, directors and shareholders of the Company
are the officers, directors and shareholders of ASIT Australia.

The Company has an authorized capitalization of 100,000,000 shares of Common
Stock, par value of $.0001 per share (the "Common Stock") and 20,000,000 shares
of preferred stock, par value $.0001 per share. The main offices of the Company
are located at Suite 3, 1601 Main Road, Research, Victoria, 3095 Australia and
its telephone number is 61-3-9437-1233 and its fax number is 61-3-9437-1299. The
United States offices of the Company are located at 15200 East Girard Avenue,
Suite 3000 Aurora, Colorado 80014.

BUSINESS

The Company provides in-flight entertainment and data communications systems for
airlines. The Company has purchased the ASI-9000 and all intellectual property
associated thereto from ASIT Australia. The ASI-9000 Program consists of and
integrates (i) the ACAMS, a cabin management and communication hardware system,
(ii) a computer video system and (iii) a marketing program for destination and
corporate advertising on-board commercial aircraft. The ASI-9000 Program is
designed to generate revenues from the sale of advertising space on the
in-flight video and audio programs as well as other possible forums to
destination sponsors and corporations. The Company subcontracts the production,
installation, and maintenance of the ASI-9000 Program. Until final certification
of the ACAMS, the Company is using the CMA-3200 computer platform for
installation of the ASI-9000 Program. The Company has entered into an agreement
with and has installed the ASI-9000 Program on nine aircraft owned by Air
Europa, a Spanish airline.

THE ASI-9000 PROGRAM

The Company has entered into an agreement with and has installed its ASI-9000
Program on nine aircraft owned by Air Europa, a Spanish airline. The ASI-9000
Program consists of hardware and software used for communications and in-flight
entertainment presentations in

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a digital video form. The ASI-9000 Program utilizes one of two hardware
platforms, the CMA-3200 Multi Media Computer or the ASI ACAMS Cabin Terminal
(the "ACAMS"). The CMA-3200 Multi Media Computer provides the display and
advertisements portion of the audio and video programs. The ACAMS provides both
the digital multi media capability of the CMA-3200 plus a PC-computer based
communications link.

The ASI-9000 Program is designed to procure advertising and entertainment
features from the tourism industry participants operating in cities or regions
to which its customer airlines fly. This software also allows the flight
attendants to send and receive messages via the world wide aeronautical radio
and satellite network. The system runs continuously from take-off until landing
and can be programmed to show customer's advertisements before and after airline
information, movies or other entertainment selected by the airline.

The Company assumes full responsibility for operation and administration of the
video and audio program, subject only to the airlines' right to ensure that the
content of the program is suitable. There is no assurance that the Company's
customer airline passengers will be satisfied with the Company's product or that
the Company's competitors will not develop similar or better technology in the
future.

The ASI-9000 Program is run on equipment which must be aviation certified.
Components of the system are currently certified for use on the Boeing 747-400,
757-200, and 737-300, McDonnell Douglas DC-9, and MD 82 and the Company
anticipates that the ASI-9000 Program will be certified for use on the Boeing
767 in the future. The original ACAMS system was flight tested on Qantas
Airways. The second version of the ACAMS system is in the process of the Federal
Aviation Administration ("FAA") required certification for use on commercial
aircraft.

ACAMS

The ACAMS hardware technology was developed by and is owned by ASIT Australia.
The Company will purchase the ACAMS terminals from ASIT Australia once the ACAMS
is flight certified by the FAA. The second generation ACAMS system combines the
communications capability of the original ACAMS system, which was tested on
Qantas Airlines, with the multi media capacity of the CMA-3200 in a single unit.
As a single unit, the ACAMS saves space and weight and can show advertising and
allows placement of orders from the aircraft for advertised goods and services,
and other items. The installation costs of the ACAMS are lower than those of the
CMA-3200 which saves the Company money. When the ASI-9000 is installed on the
ACAMS hardware platform, the ASI-9000 can provide system integration,
destination or other specific entertainment and advertising programming,
detailed flight information, crew and passenger data communications, passenger
information and ground communication, entertainment, electronic product
catalogues, electronic product ordering, additional multi media capabilities,
and a unique computer video software and communications interface which allows
the system to run with minimal operational input from flight attendants.

The software and compression technology offers reduced advertising production
cost by allowing the frequent addition of new advertisers or the video
alteration of existing

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advertisements. All of the Company's customers' promotional advertisements or
corporate advertisements can be stored digitally in the ACAMS cabin terminal's
memory for the entire route structure and the digital computer technology
produces a high quality display. The Company believes that the ACAMS system will
appeal to airlines because of its ease of use and expansive functionality. The
Company also believes that in contrast with the standard industry video tape
system, its product will decrease the necessity of cabin crew assistance, thus
decreasing the chance for human error associated with playing and rewinding
tapes. As the individual advertisements and promotional pieces are stored on a
computer, the ACAMS can be programmed to play at specific times according to the
precise destination of each flight. This will allow the Company's advertising
customer to be confident in their reaching a highly targeted audience.

The ACAMS also has a data communications device which allows the flight
attendants to communicate with land via the aircraft radio and satellite
communications systems. When connected to the satellite communication system on
the aircraft , the ACAMS can transmit and receive data when the aircraft is
flying over land or water worldwide. The ACAMS uses the international standard
communications protocol that allows the flight attendants to fax or e-mail data
for passengers.

If the ACAMS does not obtain the FAA required certification, the Company will
continue to use the CMA-3200 or alternate equipment until necessary
modifications are made on the ACAMS to allow for its certification.

CERTIFICATION PROCESS AND GOVERNMENT REGULATION

The installation and use of cabin management systems requires prior
certification and approval by the FAA and regulatory authorities of foreign
governments on each aircraft type and for each airline. The certification
process begins with the installation of the system on an aircraft after which it
is certified by an FAA accredited engineer. The certification is then applicable
to similar aircraft types and modified for other aircraft type. In countries
other than the United States, the equivalent aviation authority procedures will
apply to the certification of the system, but the United States FAA sets the
standards that are primarily used throughout the world. Certification process
can take up to 120 days.

Prior to certification and approval, the manufacturer must demonstrate that the
system has been designed and manufactured and complies with the appropriate
aviation standards, namely DO160C for hardware and DO178 for software. Following
this step, the ASI-9000 Program must be installed on an aircraft and tested,
including an in-flight test. The Company has received certification for the
ASI-9000 Program on Air Europa aircraft utilizing the CMA-3200 Multi Media
Computer platform. The ACAMS has been flight tested and installed on Boeing
747-400 and Boeing 767-300 aircraft. The CMA-3200 has been flight tested and
installed on the Boeing 737-300, 757-200 and the McDonnell-Douglas DC-9-30 and
MD-82. A second version of the ACAMS is currently undergoing certification
process to achieve the FAA approval for use on commercial aircraft. The Company
anticipates certification approval for the ACAMS and is prepared to make
whatever modifications are required to obtain such approval.

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PRODUCT DEVELOPMENT

Since 1993, ASIT Australia has spent over A$5,000,000 developing the ASI
program. The technology behind the Company's ASI-9000 Program evolved from a
data link aviation communications system, designated the Airline Communications
and Management System ("ACAMS") developed by ASIT Australia in conjunction with
Qantas Airways and Swissair. The technology was sponsored by Qantas Airways with
the objective of using Qantas Airways as a platform to create a product with
export potential. The requirements of this project mandated that ASIT Australia
develop both an interface which would allow the crew to communicate through the
aircraft's satellite and radio communications data link and an interface between
the ACAMS datalink and the aircraft's video systems. This interface evolved into
the ASI-9000 computer video.

ASIT Australia established a relationship with the Canadian Marconi Company
("CMC") which arranged for the ASI-9000 to be tested on Hawaiian Airlines. The
initial test program was carried out on Hawaiian Airlines in conjunction with
CMC and Hollingsead International, Inc., a manufacturer of after market video
systems. ASIT Australia mounted its software on CMC's CMA-3200 multi media
computer equipment which was installed together with Hollingsead's video
equipment on three aircraft operated by Hawaiian Airlines.

OPERATIONS TO DATE

Hawaiian Airline Project. ASIT Australia equipped three aircraft operated by
Hawaiian Airlines at a cost of $180,000 per aircraft but was unable to equip the
remaining ten aircraft originally anticipated to be equipped as ASIT Australia
was unable to finance the purchase and installation price of the video equipment
of $50,000 per aircraft charged by Hollingsead International, Inc. ASIT
Australia had secured 14 advertisers for the video program based on total air
time on all 13 aircraft but was not able to receive any funds from such
advertisers for air time as only three aircraft were equipped with the
equipment. ASIT Australia had intended the Hawaiian Airlines project to be a
test program of its "infotainment" program, to prove its feasibility and to
showcase its potential to advertisers. The Company is not currently involved in
the installation of any of its equipment on Hawaiian Airlines.

Air Europa Project. The Company acquired the CMA-3200 from ASIT Australia for an
aggregate of A$527,980 and installed nine CMA-3200 units on aircraft operated by
Air Europa. From July 1, 1997 to June 30, 1999, the Company has received
approximately $81,076 in revenues generated from the equipment on the Air Europa
aircraft. The company has obtained five major advertisers on the Air Europa
aircraft systems.

While the Company intends to provide the ASI-9000 Program utilizing the ACAMS
for its future contracts, the Company's present contracts have been filled by
mounting the software on the CMA-3200 manufactured by CMC. The Company does not
currently have any additional contracts for the installation of the ASI-9000.

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SALES AND PRICING

The Company's Supply and License Agreement to be used with potential airline
customers is based on allocating five minutes of advertising space per flight
per hour with additional sponsorship times available during the safety briefing
presented prior to take off. The Company anticipates that it will work with the
airline in developing an advertising program that suits the airline's image
profile. The price and number of times the advertisement will run may vary
depending on available space and the flight profile. Currently, the Company
anticipates charging US$2 per advertisement to as high as US$10 per
advertisement on a large aircraft where the communications capability is
available. Initially, the Company intends to target major advertisers in order
to enhance the image of the presentation and secure a revenue stream and, as a
result, may be offered substantial discounts. Passengers will be able to make
bookings, reservations or purchases of in-flight advertisers' products while on
board the aircraft with such orders being transmitted via the ASI-9000 Program.
From the transmission records of such bookings, reservations or purchases, the
Company will be able to bill the advertiser for an agreed commission for each
booking, reservation or purchase. The Company believes that a target revenue for
each ASI-9000 Program in operation of US$100,000 per annum per aircraft is
achievable with maximum advertising revenues and the addition of services which
will generate in-flight booking commissions.

In order to provide an additional incentive for the media agents to procure
advertising, the Company plans on paying its media agents commission on sales of
up to 32% of revenue, two fold the industry standard. The Company concluded that
its target airlines, which generate most of their revenues from tourism,
generate smaller profits from ticket sales by offering discounted fares and then
attempt to increase their profits by charging for additional on board services.
These airlines may be interested in the communications features of the ASI-9000
Program where the passengers can order goods and services from the cabin crew
and the crew can place the order through the ACAMS.

The Company purchases from ASIT Australia either the CMA-3200 hardware at
$25,000 per unit or the ACAMS hardware at $30,000 per unit. The Company
subcontracts for the production of the ASI-9000 integration technology. The cost
to the Company for installation of the ASI-9000 excluding the hardware is
approximately $5,000 per aircraft for installation of units like those installed
on the Air Europa aircraft and up to $10,000 for units in which the
communications link is involved.

OPERATIONS AND SUPPLIERS

The Company has two offices: an office in Melbourne, Australia and one in
Denver, Colorado. The Company's core component of the ASI-9000, the ACAMS Cabin
Terminal, has been manufactured to date by ASIT Australia and Philips Defence
Systems Group. While the Company anticipates that it will install the ASI-9000
Program with the ACAMS in the future, its current contracts employ the CMA-3200
manufactured by Canadian Marconi Company.

The Company has out-sourced all of its operations to companies and individuals
specializing in either the manufacture and installation of avionics or the
procurement of advertisement

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sponsors. The Company believes that it currently has sufficient systems to fill
an order for its product by a new customer airline. The Company will contract
with an installation company to install its product on the customer airline.
Once installed, the Company out-sources all of the engineering and technical
support services to ASIT Australia and other suitably certified organizations.
The acquisition of the media, software development, video compressions and
programming of the ASI-9000 Program is provided by ASIT Australia and sales
functions will be handled by media agents in destination cities.

MARKETING

After considering the competitive environment of the airline entertainment
industry, the Company has decided on a marketing strategy to provide the
ASI-9000 program at little or no cost to a customer airline in consideration for
the Company receiving sole and exclusive rights over the revenue stream created
from the sale of air time to advertisers including destination specific tourist
operators, local, national and foreign corporate advertisers and from other
services provided by the equipment.

The Company researches the market and targets selected airlines based on a
commercial and technical evaluation. The Company has formed relationships with
other avionics manufacturers who sell complimentary products to the Company's
ASI-9000 Program. The Company anticipates these strategic partners will
introduce the Company to airlines as such target airlines look for ways to
enhance the products and services they purchase from the alliance partner. The
Company anticipates that these airlines will be commercially aggressive in
competitive markets, will primarily cater to tourism markets, and will meet
specific technical criteria. The airlines which meet the Company's criteria
usually have fleets of 10 to 200 aircraft, operate on tight budgetary
constraints, and compete with the major airlines. Because the Company's
competitors' products are often expensive and require major capital outlays by
the airlines, the Company believes that the target airlines may be receptive to
a self-funding arrangement where the Company will provide and install the system
at nominal cost to the airline. In return, the Company maintains ownership of
the equipment during the term of the contract and also controls the total
revenue stream generated by the system over the term of the contract.

The Company believes that the ASI-9000 Program appeals to airlines because
airlines can upgrade their overall presentation and corporate image at little or
no cost to provide improved passenger service. The Company also believes that
with the current world wide pressure on airline yields, some airlines have
become more receptive to proposals to increase revenues.

The Company believes that this form of marketing differs from the prevalent
competition in the marketplace. The major distinction is that the Company's
competitors require that the airlines purchase the system whereas the Company
licences it to the airlines at nominal cost in exchange for advertising rights.
The Company conducts research and targets only those airlines that fit a
specifically designed profile and only then will the Company approve the
investment. This profile takes into account the manner in which advertising is
sold and how destination sponsors can be attracted.

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CUSTOMERS

The Company has entered into a Supply and License Agreement with Air Europa
whereby the Company licensed the hardware, software and the operating systems to
Air Europa and installed the ASI-9000 Program utilizing the CMA-3200 computer
platform on two B737-300 aircraft and seven B757-200 aircraft. The contract
includes an option to install the ACAMS Cabin Management and Communications
System on another twelve B737's and two B767's. The ACAMS system is a second
generation ACAMS not yet in production and the above referenced option will only
be viable if Air Europa installs a data communications link on its aircraft.

Pursuant to the current agreement with Air Europa, the Company, through its
subsidiary ASIE, receives a license fee of $3,625 per calendar month and a
maintenance fee of approximately $1,875 for each installed ASI-9000 Program from
the advertising revenues received from the systems. Should the Company not
receive sufficient funds to cover the license and maintenance fees, it will
absorbs the deficiency. Air Europe receives any amounts over the $3,625 license
fee and $1,875 maintenance fee (after deduction of any direct costs, including
payment of commissions, if any, to any media sales representatives).

The license for each ASI-9000 Program unit lasts five years. Upon expiration of
the licensing term, Air Europa will acquire rights to the hardware but not the
software or operating systems contemplated in the Supply and Licensing
Agreement.

The Company anticipates that agreements with future customers will not include a
set monthly licensing fee but will provide that the Company retain the revenues
generated from advertisers and sponsors from which it will pay sales commissions
and expenses. There can be no assurance that the Company will be able to reach
such agreements with any future customers.

COMPETITION

The Company competes for both advertising space and provision of equipment to
airlines. The Company believes that it operates in a market niche where there
are no other companies providing both the same product with a similar price
structure. The Company believes, however, that the market for technologically
advanced in-flight entertainment and communications systems is emerging and that
competition to provide such services to the airlines will be intense. The
Company is aware of several other companies that provide systems that compete
with the ASI-9000 Program , some of which have been installed on aircraft. Most
of these competitors have substantially greater financial and other resources
than the Company and, accordingly, may have a significant competitive advantage
over the Company. The Company's principal competitors include B/E Aerospace,
Inc., Hughes Avicom International, Inc. (recently purchased by Rockwell),
Matsushita Avionics Systems Corporation and Sony Trans Com. The Company is also
aware of several other companies that are developing in-flight entertainment
systems or seeking joint ventures in the field.

The Company believes that it will be able to compete with other companies based
on the company's marketing plan that requires only nominal capital expenditures
from the airline.

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The Company also believes that it will be able to compete by targeting specific
airlines that will be attracted to this structure which allows the airline to
provide more customer service at little cost to the airline. The Company
believes that although most of the Company's competitors are producing more
technologically advanced entertainment systems, those competing services are
offered at a far greater expense to the airlines both in the cost of the
entertainment system itself and in the operating cost due to the extra weight of
these in-flight systems.

The Company believes that because its marketing plan requires that the Company
purchase, produce and install the ASI-9000 at its own expense and not at the
expense of customer airlines, the initial costs to the Company will be
significantly greater than those incurred by the Company's competitors who
charge the airlines for the purchase and installation of similar equipment. The
Company also incurs the maintenance costs with the systems once installed and
operational. There is no assurance that the Company will have the funds
necessary to produce, purchase and install the equipment once customer airlines
are identified. The Company anticipates that in the event that it does not have
sufficient funds to meet the initial expenses of production and installation of
the ASI-9000, it will attempt to negotiate a revenue-sharing partnership with
vendors of the equipment or with the airlines.

There is no assurance that the Company's competitors will not offer services
similar to the Company's with a similar business plan. Nor is there an assurance
that passengers and airlines will not demand more technologically advanced
entertainment products or that the Company will be able to compete with other
more established sources for advertising.

EMPLOYEES

The Company is managed by Ronald Chapman in his capacity as President and Chief
Executive Officer and Philip Shiels in his capacity as Vice President and Chief
Financial Officer. The Company currently has no employees.

INDUSTRY OVERVIEW

The following information was derived from reports of the World Airlines
Entertainment Association Airlines at http://www.waea.com and the Airbus
Industries 1998 Global Market Forecast of April 1998.

Airlines spent 15% more in 1997 than in 1996 on in-flight entertainment. This
increase was due to a continuing increase in the number of wide-body aircraft
installation, a new trend in retrofitting narrow body aircraft with in-flight
entertainment systems, a continuing increase in demand for programming due to
more in-flight entertainment aircraft and more "multi-channel" video systems,
and a trend toward more telephone-equipped aircraft and more telephone units per
aircraft.

In 1998, it is predicted that there will be demand for over 16,700 jetliners of
more than 70 seats to satisfy an average traffic growth of 5 percent per annum
and replace some 8,500 aging aircraft. Passenger traffic growth has been
predicted at 4.9% annually over the next 20 years. To meet this growth, airlines
are expected to add over 17,500 aircraft worth more

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than $1.1 trillion to the existing fleets. Approximately half of new aircraft
deliveries are expected to be wide body, long-haul aircraft that the Company
believes may represent a market for the ASI-9000 Program.

Due to the high levels of capacity the airlines are experiencing, many airlines
opt to invest capital in purchasing new aircraft rather than upgrading existing
air planes. The current industry trend in allocating capital primarily to
acquiring new aircraft should not affect the Company because the installation of
the Company's product requires little or no capital outlay from the airline. The
Company installs its systems at nominal cost to the airline with the goal of
acquiring revenues from the sale of advertising space.

ITEM 2. DESCRIPTION OF PROPERTY.

The Company does not own any property other than its inventory of equipment. The
Company maintains its headquarters at the offices of Chapman International Pty.
Ltd. at which location it also stores its in-flight computer equipment. The
Company does not have any written lease with Chapman International which has
indicated that the Company may use such space as long as it requires.

ITEM 3. LEGAL PROCEEDINGS.

The Company is not a party to any litigation and management has no knowledge of
any threatened or pending litigation against the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company has authorized capital of 100,000,000 shares of Common Stock, $.0001
par value, and 20,000,000 shares of preferred stock, $.0001 par value. As of the
date hereof, the Company has 5,754,337 shares of Common Stock issued and
outstanding and no shares of Preferred Stock outstanding.

The Company is applying for quotation of its Common Stock on the NASD OTC
Bulletin Board.

The Company has appointed Corporate Stock Transfer, Inc. of 3200 Cherry Creek
Drive, Suite 430, Denver, Colorado, 80209 as its transfer agent.

The Company currently intends to retain substantially all of its earnings, if
any, to support the development of its business and has no present intention of
paying any dividends on its Common Stock in the foreseeable future. Any future
determination as to the payment of dividends will be at the discretion of the
Board, and will depend on the Company's financial condition, results of
operations and capital requirements, and such other factors as the Board deems
relevant.

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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

OVERVIEW

The Company is a development stage company formed to offer to commercial
airlines its ASI-9000 Program which provides system integration, airline
efficiencies, crew and passenger communications, passenger information and
entertainment, and value-added services tailored to its respective airline
customers' requests.

The Company has a very low cost structure as it has no employees other than its
two officers which are paid a monthly retainer and does not maintain any
manufacturing or production operations. The Company utilizes office space,
without charge, from a company beneficially owned by its President, Ronald
Chapman. The Company pays commissions to media sales representatives only from
revenues received from the contracts which they place. Because of such low cost
structure, the Company anticipates that the proceeds from earlier stock
subscriptions, revenues from any exercise of the Options, anticipated revenues
from operations, and proceeds available from its suppliers will be sufficient to
meet the Company's contemplated operating and capital requirements for
approximately 12 months.

RESULTS AND PLAN OF OPERATIONS

The Company has suffered losses from operations. The Company had accumulated
losses from inception to June 30, 1999 of $809,394. Major components of the loss
includes depreciation and amortisation charges, offering costs, and foreign
currency translation losses. The Company may be required to make significant
additional expenditures in connection with the development of the ASI-9000 and
its marketing. The Company's ability to continue its operations is dependent
upon its receiving funds through its anticipated sources of financing including
exercise of the Options, revenues from operations, and proceeds available from
its suppliers. However, the Company may be required to raise additional capital
through debt or equity financing.

The Company's ASI-9000 Program evolved from seven years of development. The
CMA-3200 was originally installed by ASIT Australia and Canadian Marconi Company
("CMC") on Hawaiian Airlines as part of a start up plan with the goal of testing
the product's commercial viability. The test program was carried out in
conjunction with CMC and Hollingsead International, Inc., a manufacturer of
after market video systems. ASIT Australia mounted its software on CMC's
CMA-3200 multi media computer equipment which was installed together with
Hollingsead's video equipment on three Hawaiian aircraft.

ASIT Australia equipped three aircraft operated by Hawaiian Airlines at a cost
of $180,000 per aircraft but was unable to equip the remaining ten aircraft as
ASIT Australia was unable to finance the purchase and installation price of
$50,000 per aircraft of the video equipment charged by Hollingsead
International, Inc. ASIT Australia had secured 14 advertisers for the video
program based on air time on all 13 aircraft. Because the ASIT Australia was
unable

-11-
<PAGE>

to equip all 13 aircraft with the video system, it was unable to receive funds
from the advertisers for air time on just three aircraft. ASIT Australia had
intended the Hawaiian Airlines project to be a test program of its
"infotainment" program, to prove its feasibility and to showcase its potential
to advertisers. The Company is not currently involved in the installation of any
of its equipment on Hawaiian Airlines.

The Company acquired the CMA-3200 from ASIT Australia for an aggregate of
$418,424 and installed nine CMA-3200 units on aircraft operated by Air Europa.
From July 1, 1997 to June 30, 1998 (the first two years of operations), the
Company has received approximately $81,000 in revenues generated from the
equipment on the Air Europa aircraft. The Company has obtained five major
advertisers for air time on the Air Europa system.

The Company intends to use future revenues, if any, for the purchase of ASI-9000
Program units to be installed on its current and future customer airlines and
for capital expenditures and working capital for its proposed operations, and
certain fees, costs and expenses associated with this offering.

YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30, 1998

The Company had revenues of $36,119 for the year ending June 30, 1999, compared
to revenues of $44,957 for the year ended June 30, 1998. No sales were made for
the six month period ending June 30, 1999, pending reinstallation of the
Company's equipment in new Air Europa aircraft.

Net losses decreased from $473,779 in the twelve month period ending June 30,
1998, to $335,615 for the twelve month period ending June 30, 1999, primarily as
a result of a decrease in expenses and cost of sales. Expenses decreased from
$496,258 for the twelve month period ending June 30, 1998 to $353,241 for the
twelve month period ending June 30, 1999 due to a reduction in travel and
offering costs.

The Company had a foreign currency translation gain of $92,937 for the twelve
month period ending June 30, 1999, compared to a foreign currency translation
loss of $247,322 for the twelve month period ending June 30, 1998. As a result,
the Company recorded a comprehensive loss of $242,678 for the twelve months
ended June 30, 1999, compared to a comprehensive loss of $721,101 for the twelve
months ended June 30, 1998.

-12-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company has used the proceeds from the sale of the securities of ASI
Entertainment Pty. Ltd. (prior to becoming a subsidiary) for payment of
operating costs to date. The Company has received approximately $36,000 in
revenues from its Air Europa contract over the past fiscal year ended June 30,
1999. The Company has entered into a license fee arrangement with Air Europa
providing a fee of $3,625 per calendar month for each ASI-9000 Program installed
on its aircraft from the advertising revenues received from that system. If
insufficient advertising funds are received to cover the license fee the Company
absorbs the shortfall. Air Europe receives any amounts over the $3,625 license
fee (after deduction of any direct costs, including payment of commissions, if
any, to any media sales representatives). The Company anticipates such revenues
to increase as the Company expands the development of its available operations
including additional ground communication and other services. During the period
from January 1, 1999 to March 31, 1999, Air Europa was transferring the
Company's equipment to different aircraft and no revenues were received. The
Company anticipates revenues to recommence on completion of such reinstallation.

The Company's cash and cash equivalents were reduced from $65,322 at June 30,
1998 to $1,100 at June 30, 1999 primarily as a result of the operating losses.

The Company had a net loss of $335,615 from operating activities for the period
July 1, 1998 to June 30, 1999, primarily consisting of compensation to officers,
depreciation, amortization, marketing and accounting and auditing expenses. The
net loss from operating activities for such period was less than the net loss
from operating activities for the period July 1, 1997 to June 30, 1998 primarily
as a result of a reduction of offering costs, professional fees and travel. The
Company had no revenues for the six months ending June 30, 1999 as the revenue
generated from the Air Europa contract was suspended while the ASI-9000 Programs
were reinstalled on different Air Europa aircraft.

The cash flow of the Company from financing activities for the twelve months
ending June 30, 1999 was from the receipt of outstanding capital subscription,
an advance from an affiliate and a bank loan.

The cash flow of the Company from investing activities for the twelve month
ending June 30, 1999 resulted from cash acquired through reverse acquisition of
$15,453.

The Company's marketing plan anticipates that the Company will install and
maintain the ASI-9000 on commercial airlines with little or no cost to the
airline. The Company will receive revenues from the sale of the advertising
space available on the video and audio programs as well as other forms as
developed. This marketing plan requires significant initial capital from the
Company for the production, acquisition, installation and maintenance of the
ASI-9000 Program possibly before any revenues are received from the sale of the
advertising space. The Company may not have sufficient funds to purchase or
install the equipment in which case the Company will have to seek additional
capital. The Company may raise additional capital by the sale of its equity
securities, through an offering of debt securities, or from borrowing from a
financial institution. The Company does not have a

-13-
<PAGE>

policy on the amount of borrowing or debt that the Company can incur. The
Company may also attempt to negotiate with vendors or customer airlines revenue
sharing arrangements by which the Company will share the advertising revenue if
the vendor or customer airline provide capital for the equipment.

The Company purchases from ASIT Australia either the CMA-3200 hardware at
$25,000 per unit or the ACAMS hardware at $30,000 per unit. The Company
subcontracts for the production of the ASI-9000 integration technology. The cost
to the Company for installation of the ASI-9000 excluding the hardware is
approximately $5,000 per aircraft on for a installation unit like those
installed on the Air Europa aircraft per unit and up to $10,000 where the
communications link is involved.

The Company has no commitments for capital expenditures in the near future. The
Company purchases or subcontracts (on an per item basis) for the ASI-9000 and
installation integration technology. The Company will need to pay the expenses
of the installation of the ASI-9000. When the Company enters into contracts for
the ASI-9000 it will contract with ASIT Australia for purchase of the equipment
and then contract for the integration technology.

GOING CONCERN QUESTION

The financial statements appearing elsewhere in this report have been prepared
assuming that the Company will continue as a going concern. As such, they do not
include adjustments relating to the recoverability of recorded asset amounts and
classification of recorded assets and liabilities. On July 1, 1998, the Company
acquired 100% of ASI Entertainment Pty Ltd., ("ASIE") an Australian corporation.
ASIE has accumulated losses of approximately $809,000 at June 30, 1999 and will
be required to make significant expenditures in connection with continuing
engineering and marketing efforts along with general and administrative
expenses. The Company's ability to continue its operations is dependent upon its
raising of capital through debt or equity financing in order to meet its working
needs.

These conditions raise substantial doubt about the Company's ability to continue
as a going concern subsequent to the acquisition, and if substantial additional
funding is not acquired or alternative sources developed, management will be
required to curtail its operations.

The Company may raise additional capital by the sale of its equity securities,
through an offering of debt securities, or from borrowing from a financial
institution. The Company does not have a policy on the amount of borrowing or
debt that the Company can incur. The Company may also attempt to negotiate with
vendors or customers, airline revenue sharing arrangements by which the Company
will share the advertising revenue if the vendor or customer airline provides
capital for the equipment. Management believes that actions presently being
taken to obtain additional funding provide the opportunity for the Company to
continue as a going concern.

ITEM 7. FINANCIAL STATEMENTS.

-14-
<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONTENTS

PAGE F-1 - INDEPENDENT AUDITORS' REPORT

PAGE F-2 - CONSOLIDATED BALANCE SHEET AS
OF JUNE 30, 1999

PAGE F-3 - CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999 AND
1998 AND FOR THE PERIOD FROM DECEMBER
15, 1993 (INCEPTION) TO JUNE 30, 1999

PAGES F-4 - F-5 - CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE PERIOD
FROM DECEMBER 15, 1993 (INCEPTION) TO
JUNE 30, 1999

PAGES F-6 - F-7 - CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE YEARS ENDED JUNE 30, 1999 AND
1998 AND FOR THE PERIOD FROM DECEMBER
15, 1993 (INCEPTION) TO JUNE 30, 1999

PAGES F-8 - F-22 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of:
ASI Entertainment Inc.

We have audited the accompanying consolidated balance sheet of ASI Entertainment
Inc. and Subsidiaries (a development stage company) as of June 30, 1999 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years ended June 30, 1999 and 1998 and for the period
from December 15, 1993 (Inception) to June 30, 1999. 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 audit.

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 statements 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 financial position of ASI Entertainment
Inc. and Subsidiaries (a development stage company) as of June 30, 1999 and the
results of its operations and cash flows for each of the two years ended June
30, 1999 and for the period from December 15, 1993 (Inception) to June 30, 1999
in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficiency that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 13. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

WEINBERG & COMPANY, P.A.

Boca Raton, Florida
October 8, 1999

F-1
<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
JUNE 30,1999

ASSETS

CURRENT ASSETS
Cash and cash equivalents $ 1,100
----------

Total Current Assets 1,100

Property and equipment, net 1,200,897
Investment in media rights, net 216,591
----------

TOTAL ASSETS $1,418,588
----------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Loans payable under bank line of credit $ 32,957
Accounts payable and accrued expenses 162
Due to related parties 61,291
----------

Total Liabilities 94,410
----------

Commitments and Contingencies

STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 par value, 20,000,000
shares authorized, none issued and outstanding -
Common stock, $0.0001 par value, 100,000,000
shares authorized, 5,754,337 shares issued and
outstanding 576
Additional paid-in capital 3,073,641
Additional paid-in capital - discount on shares (745,470)
Deficit accumulated during development stage (809,394)
Accumulated other comprehensive loss (178,325)
----------
1,341,028
Less subscriptions receivable (16,850)
----------

Total Stockholders' Equity 1,324,178
----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,418,588
==========

See accompanying notes to consolidated financial statements.

F-2
<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
AND THE PERIOD FROM DECEMBER 15,1993 (INCEPTION) TO JUNE 30, 1999

Cumulative From
December 15, 1993
(Inception) to
June 30, 1999 1999 1998
------------- ----------- -----------

REVENUES $ 81,076 $ 36,119 $ 44,957

Cost of sales 40,971 18,493 22,478
------------- ----------- ----------
Gross Profit 40,105 17,626 22,479
------------- ----------- ----------

EXPENSES
Officers' compensation 172,550 82,262 90,288
Other employee compensation 34,508 308 34,200
Accounting and auditing 50,719 35,495 15,224
Advertising 9,178 389 8,789
Amortization 111,793 62,320 49,473
Banking 1,665 1,134 531
Consulting expense 11,429 11,429 -
Convention expense 5,001 2,092 2,909
Depreciation 138,035 65,807 72,228
Directors' fees 25,191 11,511 13,680
Engineering 24,760 2,040 22,720
Marketing expense 39,887 24,730 15,157
Offering costs 107,l24 11,666 95,458
Professional fees 39,703 9,784 29,919
Office expenses,
rent and utilities 26,910 17,736 9,174
Travel 51,046 14,538 36,508
------------- ------------ -----------
TOTAL EXPENSES 849,499 353,241 496,258
------------- ------------ -----------

NET LOSS (809,394) (335,615) (473,779)

OTHER COMPREHENSIVE
INCOME (LOSS)

Foreign currency translation
gains (losses) (178,325) 92,937 (247,322)
------------- ----------- -----------

COMPREHENSIVE LOSS $ (987,719) $ (242,678) $ (721,101)
- ------------------ ============= =========== ===========

Weighted average number
of shares outstanding
during the period -
basic and diluted 2,219,749 5,754,337 3,985,870
============= =========== ===========

Net loss per common
share and equivalents -
basic and diluted $ (0.3646) $ (0.0583) $ (0.1189)
============= =========== ===========

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 15, 1993 (INCEPTION) TO JUNE 30, 1999
<TABLE>
<CAPTION>

ADDITIONAL DEFICIT
COMMON STOCK PAID-IN ACCUMULATED ACCUMULATED
------------------ ADDITIONAL CAPITAL DURING OTHER
NUMBER OF PAID-IN DISCOUNT DEVELOPMENT COMPREHENSIVE SUBSCRIPTIONS
SHARES AMOUNT CAPITAL ON SHARES STAGE INCOME (LOSS) RECEIVABLE TOTAL
------ ------ ------- --------- ----- ------------- ---------- -----

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock in
December 1993 to ASI
Technologies Pty. Ltd.
("ASIT"), founder 2 $ - $ 1 $ - $ - $ - $ - $ 1
---------- ---- ---------- --------- --------- --------- -------- ----------

Balance, June 30, 1994 2 - 1 - - - - 1
- ---------------------- ---------- ---- ---------- --------- --------- --------- -------- ----------

Balance, June 30, 1995 2 - 1 - - - - 1
- ----------------------

Net issuance of common
stock to ASIT 13 - 8 - - - - 8

Issuance of common stock to
ASIT in exchange for assets
purchased 1,500,000 150 894,450 (745,470) - - - 149,130

Issuance of common stock to
investor and employees 62,500 6 37,269 - - - (37,275) -

Foreign currency translation
gain - - - - - 8,302 - 8,302
---------- ---- ---------- --------- --------- --------- ------- ----------

Balance, June 30, 1996 1,562,515 156 931,728 (745,470) - 8,302 (37,275) 157,441
- ----------------------

Issuance of common stock to
ASIT inexchange for assets
purchased 659,975 66 418,358 - - - - 418,424

Foreign currency translation
loss - - - - - (32,243) - (32,243)
---------- ---- ---------- --------- --------- -------- ------- ----------

Balance, June 30, 1997 2,222,490 222 1,350,086 (745,470) - (23,941) (37,275) 543,622
- ----------------------

Issuance of common stock to
investors 821,500 82 433,263 - - - (43,735) 389,610

Issuance of common stock in
exchange for media rights 375,000 38 197,362 - - - - 197,400

Issuance of common stock
to ASIT in exchange for
assets purchased 1,875,000 188 1,081,462 - - - - 1,081,650

Write-off of subscriptions
receivable - - - - - - 37,275 37,275

Foreign currency translation
loss - - - - (247,321) - (247,321)

Net loss 1998 - - - - (473,779) - - (473,779)
---------- ---- ---------- --------- --------- --------- -------- ----------

Balance, June 30, 1998 5,293,990 $530 $3,062,173 $(745,470) $(473,779) $(271,262) $(43,735) $1,528,457
- ----------------------

</TABLE>

See accompanying notes to financial statement.

F-4
<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 15, 1993 (INCEPTION) TO JUNE 30, 1999

<TABLE>
<CAPTION>
ADDITIONAL DEFICIT
COMMON STOCK PAID-IN ACCUMULATED ACCUMULATED
----------------- ADDITIONAL CAPITAL DURING OTHER
NUMBER OF PAID-IN DISCOUNT DEVELOPMENT COMPREHENSIVE SUBSCRIPTIONS
SHARES AMOUNT CAPITAL ON SHARES STAGE INCOME (LOSS) RECEIVABLE TOTAL
------ ------ ------- --------- ----- ------------- ---------- -----

Recapitalization, July 1, 1998 417,189 $ 42 $ 100 $ - $ - $ - $ - $ 142

Issuance of common stock
in exchange for consulting
services 43,158 4 11,368 - - - - 11,372

Receipt of subscriptions
receivable - - - - - 26,885 26,885

Foreign currency translation
gain - - - - 92,937 - 92,937

Net loss 1999 - - - (335,615) - - (335,615)
--------- ---- --------- --------- --------- --------- --------- -----------

BALANCE, JUNE 30, 1999 5,754,337 $576 $3,073,641 $(745,470) $(809,394) $(178,325) $ (16,850) $ 1,324,178
- ---------------------- ========= ==== ========== ========= ========= ========= ========= ===========
</TABLE>

See accompanying notes to financial statement.

F-5
<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
AND THE PERIOD FROM DECEMBER 15, 1993 (INCEPTION)
TO JUNE 30, 1999

<TABLE>
<CAPTION>
Cumulative From
December 15, 1993
(Inception) to
June 30, 1999 1999 1998
------------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(809,394) $(335,615) $(473,779)
--------- --------- ---------
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 138,035 65,807 72,228
Amortization 111,793 62,320 49,473
Consulting expense incurred
in exchange for common stock 11,429 11,429 -
Changes in operating assets
and liabilities:
(Increase) decrease in:
Trade accounts receivable (651) 6,670 (7,321)
Other receivables (300) 3,086 (3,386)
Increase (decrease) in:
Accounts payable and accrued expenses 929 (8,222) 9,151
--------- --------- ---------
Total adjustments to reconcile
net loss to net cash used in
operating activities: 261,235 141,090 120,145
--------- --------- ---------

Net cash used in
operating activities (548,159) (194,525) (353,634)
--------- --------- ---------

Cash flows from investing activities:
Advances to affiliate (17,015) - (17,015)
Cash acquired through recapitalization 15,453 15,453 -
--------- --------- ---------

Net cash provided by (used in)
investing activities (1,562) 15,453 (17,015)
--------- --------- ---------

Cash flows from financing activities:
Increase in loans payable - bank 31,072 31,072 -
Increase in due to related parties 57,786 57,786 -
Proceeds from issuance of
common stock, net 468,178 24,928 443,166
--------- --------- ---------

Net cash provided by
financing activities 557,036 113,786 443,166
--------- --------- ---------
Effect of exchange rate
changes on cash (6,215) 1,064 (7,279)
--------- --------- ---------

Net increase (decrease) in cash 1,100 (64,222) 65,238
</TABLE>

See accompanying notes to consolidated financial statements.

F-6

<PAGE>

Cumulative From
December 15, 1993
(Inception) to
June 30, 1999 1999 1998
------------- ---------- ----------
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR - 65,322 84
------------- ---------- ---------

CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 1,100 $ 1,100 $ 65,322
-------------- ============= ========== =========

Supplemental disclosure of non-cash financing activities:

In June 1998, the Company's board of directors approved the
write-off of certain subscriptions receivable from former
employees of the ASIT. The amount of $34,200 was included in
the statement of operations as other employee compensation for
the year ended June 30, 1998.

Effective October 9, 1997, 375,000 shares of the Company's
common stock were exchanged for all rights, title and interest
in the Media Agreement which was recorded on the acquisition
date at $224,010 (See Note 4).

On September 30, 1997, the Company issued 1,875,000 shares of
common stock and 1,875,000 options to purchase shares of the
Company's common stock in exchange for certain ACAMS Systems
and other equipment which was recorded on the acquisition date
at $923,250 (See Note 6).

On December 16, 1996 the Company issued 659,975 shares of
common stock to ASIT in exchange for nine ACAMS systems (See
Note 3), making ASIT a 29.7% shareholder of the Company as of
that date.

On January 30, 1996, the Company issued 40,625 shares of
common stock to a company listed on the Australian stock
exchange and 21,875 shares to various employees of the
Company.

On January 9, 1996, the Company issued 1,500,000 shares of
common stock to ASIT, its parent at that time, (See Note 9) in
exchange for a 40% interest in ASI Media, a 40% beneficiary
interest in the Unit Trust, a value added reseller agreement
for ACAMS, and intellectual property of the ASI-9000 Program
(See Note 7).

See accompanying notes to consolidated financial statements.

F-7

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) Organization

ASI Entertainment, Inc., is a development stage company incorporated on
April 29, 1998 under the corporation laws of Delaware for the purpose
of acquiring ASI Entertainment Pty., Ltd.

On July 1, 1998 ASI Entertainment, Inc. acquired one hundred percent of
the issued and outstanding common stock of ASI Entertainment Pty., Ltd.
in a transaction accounted for as a recapitalization of ASI
Entertainment Pty., Ltd. (see Notes 6 and 12). ASI Entertainment Pty.,
Ltd. is considered a predecessor pursuant to the acquisition.

ASI Entertainment Pty., Ltd. ("ASIE") is a development stage company,
incorporated in December 1993 under the corporation laws of Victoria,
Australia. ASIE provides in-flight video and audio entertainment and
data communications to the commercial airline industry and sells
advertising time on its ASI-9000 Programs installed on commercial
aircraft (see Note 2).

ASIE's wholly owned subsidiary, ASI Media Pty., Ltd. ("ASI Media") is
an inactive corporation whose sole purpose is to act as trustee to the
ASI Media Unit Trust (the "Unit Trust") (See Note 4).

The Company's wholly owned subsidiary, ASI Technologies, Inc. ("ASI
Technologies") is an inactive corporation, incorporated on April 1,
1998 under the laws of Delaware.

ASI Entertainment, Inc. and its subsidiaries are hereinafter referred
to as the "Company".

(B) Principles of Consolidation

The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned active subsidiary ASIE and its
wholly owned inactive subsidiaries, ASI Technologies and ASI Media. All
significant intercompany transactions and balances have been eliminated
in consolidation.

The financial statements are prepared in accordance with Generally
Accepted Accounting Principles in the United States of America. The
basis of accounting differs from that used in the Australian statutory
financial statements of ASIE. Adjustments are made to translate the
statutory financial statements of ASIE to United States Generally
Accepted Accounting Principles. The financial statements are expressed
in United States dollars. The functional

F-8

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONT'D

currency of ASIE is the Australian dollar. The financial statements as
of June 30, 1998 include the accounts of ASIE, the predecessor company.

(D) Use of Estimates

The accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles. The
preparation of financial statements in accordance 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.

(E) Revenue Recognition

Revenue during 1999 and 1998 is derived from media sales relating to
equipment installed under one contract with a commercial airline (See
Note 9). Revenue from this contract is recognized on an accrual basis
as earned under the contract terms.

(F) Cash and Cash Equivalents

The Company considers all highly liquid investments with original
maturities of three months or less at time of purchase to be cash
equivalents.

(G) Property and Equipment

Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated economic useful lives of 5
years. Expenditures for maintenance and repairs are charged to expense
as incurred. Major improvements are capitalized.

(H) Investment in Media Rights

The investment in media rights is accounted for at cost, less
accumulated amortization (See Note 4).

(I) Foreign Currency Translation

The functional currency of ASIE and its subsidiary, ASI Media, is the
Australian dollar. Financial statements for these entities are

F-9

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONT'D

(I) Foreign Currency Translation - (CONT'D)

translated into United States dollars at year-end exchange rates as to
assets and liabilities and weighted average exchange rates as to
revenues and expenses. Capital accounts are translated at their
historical exchange rates when the capital transactions occurred. (See
Note 1 (J).)

(J) Comprehensive Income (Loss)

The Company accounts for Comprehensive Income (Loss) under the
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("Statement No.
130"). Statement No. 130 establishes standards for reporting and
display of comprehensive income and its components, and is effective
for fiscal years beginning after December 15, 1997.

The foreign currency translation gains (losses) (see Note 1 (I))
resulting from the translation of the financial statements of ASIE and
its subsidiary, ASI Media, expressed in Australian dollars, to United
states dollars are reported as Other Comprehensive Income (Loss) in the
Statement of Operations and as Accumulated Other Comprehensive Income
(Loss) in Stockholders' Equity and in the Statement of Stockholders'
Equity.

(K) Income Taxes

The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109.
"Accounting for Income Taxes" ("Statement No. 109"). Under Statement
No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.

At June 30, 1999 and June 30, 1998, the Company had net operating loss
carryforwards of approximately $798,000 and $474,000, respectively
which expire under Australian tax law at various dates through the year
2006. The deferred tax asset created by this net operating loss has
been fully offset by a valuation allowance.

F-10

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONT'D

(L) Earnings Per Share Data

Net loss per common share for the year ended June 30, 1999 and 1998 is
required to be computed based on the weighted average common shares and
dilutive common stock equivalents outstanding during the year as
defined by Statement of Financial Accounting Standards, No. 128,
"Earnings Per Share". For 1999, the shares used in the weighted average
computation are the actual shares outstanding for that period. For
1998, the weighted average shares have been retroactively restated to
reflect the quantity of shares of ASI Entertainment, Inc., issued to
the Company's shareholders at the date of the recapitalization (see
Notes 6 and 12). The assumed exercise of common stock equivalents was
not utilized since the effect was antidilutive.

(M) Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires disclosures of
information about the fair value of certain financial instruments for
which it is practicable to estimate that value. For purposes of this
disclosure, the fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or liquidation.

The carrying amounts of the Company's financial instruments, including
loans payable, accounts payable and accrued liabilities, and due to
related parties, approximates fair value due to the relatively short
period to maturity for these instruments.

(N) New Accounting Pronouncements

The Financial Accounting Standards Board has recently issued several
new accounting pronouncements. Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" establishes
standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products
and services, geographic areas, and major customers, and is effective
for financial statements for periods beginning after December 15, 1997.
The Company's adoption of this statement did not have a material effect
on the Company's financial position or results of operations.

F-11

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 2 - OPERATIONS

The Company was dormant from December 1993 (inception) until January
1996, at which time it began to acquire assets and issue stock. The
Company commenced operations on July 1, 1997 and did not have operating
revenues or expenses prior to that date.

NOTE 3 - PROPERTY AND EQUIPMENT

On December 16, 1996, the Company purchased from ASI Technologies Pty.,
Ltd. ("ASIT"), a related party, but not a shareholder at that time (See
Notes 6 and 9), nine CMA-3200 Hardware Platforms (developed and
produced by a third party), a component of the ASI-9000 Program, for a
price of $418,424 ($348,995 as translated at June 30, 1999) through the
issuance of 659,975 shares of common stock of the Company. On September
30, 1997, the Company purchased Airline Cabin Management and
Communication Systems ("ACAMS"), which are the next generation hardware
platforms developed by ASIT, and other equipment from ASIT for a price
of $1,081,650 ($991,500 as translated at June 30, 1999) through the
issuance of 1,875,000 common stock and 1,875,000 options to purchase
the Company's common stock. The price of both purchases represents
ASIT's original cost basis in such systems.

The following is a summary of property and equipment at June 30, 1999:

CMA-3200 and ACAMS $ 1,340,495
Less: Accumulated depreciation (139,598)
-----------
$ 1,200,897
===========

The Company began depreciating the CMA-3200 equipment on July 1, 1997
over a period of 5 years. Depreciation expense for the year ended June
30, 1999 and 1998 was $65,807 and $72,228, respectively.

As of June 30, 1999 the ACAMS equipment purchased on September 30, 1997
has not yet been depreciated since it was not yet placed in service.
Placement of this equipment is contingent upon future contracts or
orders from commercial airlines.

NOTE 4 - INVESTMENTS

As discussed in Notes 6 and 7, on January 9, 1996, the Company acquired
from ASIT a 40% shareholder interest in ASI Media at a cost of $30 and
a 40% beneficiary interest in the Unit Trust, which was in substance,
an intangible asset, (see below) at a cost of $149,340. On February 14,
1996, the Company acquired the remaining 60% of ASI Media for $45
thereby making it a wholly owned subsidiary of the Company. The total
investment of $75 in ASI Media is eliminated in consolidation.

F-12

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 4 - INVESTMENT - (CONT'D)

As of June 30, 1997, ASI Media, under a February 21, 1996 Media
Agreement with the Company, held sole rights to market, sell and
receive revenues from the sale of advertising and sponsorship related
to the ASI-9000 Program installed on commercial aircraft. Under the
Deed of the Unit Trust all revenues generated from ASI Media, the
trustee, is distributed to the Unit Trust for distribution to the
beneficiaries. Effective October 9, 1997, 375,000 shares of the
Company's common stock were exchanged for all rights, title and
interest in the Media Agreement. The substance of this transaction is
to allow the Company to receive 100% of all future revenues generated
from advertising and sponsorship sales. On the transaction date of
October 9, 1997 the Company recorded as an intangible asset an
Investment in Media Rights of $224,010, and transferred the $149,340
investment in the Unit Trust to Investment in media rights. As of June
30, 1999, the recorded cost aggregated $216,591, net of accumulated
amortization of $113,909, cumulative differences relate to changes in
translation rates at the balance sheet date.

The Investment in media rights is amortized over a period of 5 years
beginning October 9, 1997 using the straight-line method. Amortization
expense for the years ended June 30, 1999 and 1998 was $62,320 and
$49,473, respectively.

NOTE 5 - LOANS PAYABLE - BANK

The Company currently maintains a line of credit with a bank for
$33,050, negotiated in May 1999. Outstanding balances under the line of
credit accrue interest at the ANZ Retail Index Rate, as published in
the Australian Financial Review, plus 2.95% due on a monthly basis. The
rate and outstanding principal balance at June 30, 1999 was 11.5% and
$32,957, respectively.

NOTE 6 - COMMON STOCK

Pursuant to the acquisition and recapitalization (see Note 12), all
capital stock quantities and amounts and per share data in the
accompanying consolidated financial statements have been retroactively
restated.

The Company was capitalized in December 1993 with 2 shares of common
stock issued to ASIT, and in January 1996 with 13 additional shares of
common stock issued to ASIT.

On January 9, 1996, the Company issued 1,500,000 shares of common stock
to ASIT, its parent at that time, (See Note 9) in exchange for a 40%
interest in ASI Media, 40% beneficiary interest in the Unit Trust, a
value added reseller agreement for ACAMS, and intellectual property of
the ASI-9000 Program (See Note 7).

F-13

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 6 - COMMON STOCK - (CONT'D)

On January 23, 1996, ASIT, the Company's parent at that time, in lieu
of payment transferred its 1,500,015 shares of the Company's common
stock (representing 100% of the shares then held by it) to various
companies to whom ASIT was indebted that are controlled by certain
directors of the Company.

On January 30, 1996, the Company issued 40,625 shares of its common
stock to a company listed on the Australian Stock Exchange and 21,875
shares to various employees of the Company.

On December 16, 1996 the Company issued 659,975 shares of its common
stock to ASIT in exchange for nine ACAMS systems (See Note 3), making
ASIT a 29.7% shareholder of the Company as of that date.

On September 30, 1997, the Company issued 1,875,000 shares of its
common stock and 1,875,000 options to purchase shares of the Company's
common stock in exchange for certain ACAMS Systems and other equipment
purchased from ASIT. Concurrent with the agreement to acquire the
aforementioned equipment, ASIT assigned its ownership of the 1,875,000
shares and options to various entities to whom ASIT was indebted to.

Effective October 9, 1997, 375,000 shares of the Company's common stock
were exchanged for all rights, title and interest in the Media
Agreement which was recorded on the acquisition date at $224,010 (See
Note 4).

Between September 30, 1997 and June 30, 1998 the Company issued 821,500
to various investors for cash.

Pursuant to the recapitalization, the Company obtained 417,189 shares
of common stock previously issued to prior shareholders of ASI
Entertainment, Inc.

NOTE 7 - ADDITIONAL PAID-IN CAPITAL - DISCOUNT ON SHARES

On January 9, 1996, the Company acquired from ASIT, its parent at that
time (See Notes 6 and 9), a 40% beneficiary interest in the Unit Trust,
a 40% shareholder interest in ASI Media, an exclusive value added
reseller agreement with ASIT for ACAMS Cabin Management and
Communications Systems, a teaming agreement between ASIT and Canadian
Marconi Corporation dated February 14, 1995, and the intellectual
property of the ASI-9000 Program for a total purchase price of $894,600
as translated to United States Dollars on the transaction date. Payment
was made by issuing 1,500,000 shares of the Company's common stock to
ASIT. The teaming agreement was subsequently terminated and a portion
of the

F-14

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 7 - ADDITIONAL PAID-IN CAPITAL - DISCOUNT ON SHARES - (CONT'D)

purchase price at the transaction date in the amount of $149,100
($132,196 as translated at June 30, 1999) was allocated to the
investment in the Unit Trust and $30 to the investment in ASI Media. At
the purchase date of January 9, 1996, the technological feasibility of
the ASI-9000 Program had not yet been established and the technology
had no alternative future use. Consequently, all research and
development costs had been expensed by ASIT leaving a zero historical
cost basis as defined under Generally Accepted Accounting Principles.
The excess of the par value of the shares issued by the Company over
the original cost basis of ASIT represents the remaining $745,470 of
the purchase price. This amount is considered a distribution of equity
to ASIT since they had no cost basis in the intellectual property of
the ASI-9000 Program and the value added reseller agreement.
Accordingly, the $745,470 was recorded as Additional Paid-In
Capital-discount on shares.

NOTE 8 - STOCK OPTIONS

Pursuant to the acquisition and recapitalization (see Note 12), the
stock options quantities and terms in the accompanying notes to the
financial statements have been retroactively restated.

On July 1, 1998, the Company issued 500,000 options to acquire shares
of the Company's common stock at an exercise price of $0.50 to certain
officers and directors of the Company in exchange for their existing
outstanding options in ASIE, issued in January 1996. There were no
modifications to the terms of the options. According to the acquisition
agreement (see Note 12), the options vest immediately and expire at
June 30, 2000. All options remained unexercised at June 30, 1999.

The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock options. Accordingly, no compensation cost has
been recognized for options issued as of June 30, 1999 and 1998. Had
compensation cost for the Company's issued stock options been
determined based on the fair value at the grant date consistent with
SFAS No.123, "Accounting for Stock Based Compensation" (Statement No.
123), the Company's net loss for the years ended June 30, 1999 and 1998
would not have changed as indicated in the pro-forma amounts below.

1999 1998
----------- ----------
Net loss As reported $ (335,615) $(473,779)
Pro forma $ (335,615) (473,779)
Net loss per share As reported $ (0.0583) (0.1189)
Pro forma $ (0.0583) (0.1189)

F-15

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 8 - STOCK OPTIONS - (CONT'D)

The effect of applying SFAS No.123 is not likely to be representative
of the effects on reported net income (loss) for future years.

For financial statement disclosure purposes, the fair market value of
each stock option grant is estimated on the date of grant using the
minimum value method in accordance with Statement No. 123 using the
following weighted-average assumptions: expected dividend yield of 0%,
risk-free interest rate of 5.532%, and expected term of one year.

A summary of the Company's Employee Stock Options as of June 30, 1999
and changes during the year is presented below:

Weighted-
Number of Average
Shares Exercise Price
------ --------------
Stock Options
Balance at beginning of period 500,000 $ 0.50
Granted - -
Exercised - -
Forfeited - -
---------- ----------
Balance at end of period 500,000 $ 0.50
========== ==========

Options exercisable at end of period 500,000 $ 0.50
Weighted average fair value of
options granted during the period $ -
===========

The following table summarizes information about options outstanding at
June 30, 1999:

Options Outstanding Options Exercisable
------------------------------------ ----------------------
Weighted-
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at June 30, Contractual Exercise At June 30, Exercise
Price 1999 Life Price 30, 1999 Price
----- ---- ---- ----- -------- -----
$ 0.50 500,000 Years 1.00 $ 0.50 500,000 $ 0.50
======= =======

On July 1, 1998, the Company issued 43,158 stock options to consultants
at an exercise price of $0.50 in exchange for consulting services. For
financial statement disclosure purposes and for purposes of valuing
stock options issued to consultants, the fair market value of each
stock option granted during the year ended June 30, 1999 was estimated
on the date of grant using the Black-Scholes Option-Pricing Model in
accordance with SFAS 123 using the following weighted-average
assumptions: expected dividend yield 0%, risk-free interest rate of
5.475%, volatility 0% and expected term of two

F-16

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 8 - STOCK OPTIONS - (CONT'D)

years. As the fair value of the stock options equals zero as of the
grant date, no consulting expense was recorded for the year ended June
30, 1999. On July 1, 1998, the Company issued 4,384,014
non-compensatory options to acquire shares of the Company's common
stock at an exercise price of $0.50 in exchange for existing
outstanding options in ASIE, originally issued for consideration by the
option holders. There were no modifications to the terms of the
options. According to the acquisition agreement (see Note 12), the
options vest immediately and expire at June 30, 2000. All options
remained unexercised at June 30, 1999.

NOTE 9 - OPERATING AGREEMENTS

On December 13, 1995, the Company entered into a Supply and License
Agreement (the "Agreement") with an airline to supply, license and
install ASI-9000 Programs ("System") on the airline's commercial
aircraft. Under the terms of the Agreement, the license term for each
system will run for five years from November 1996, the date of
diagnostic test completion (after installation) with an option to
renew. The hardware component of the System will become the property of
the airline at the expiry of the initial license term. The Company will
receive a maximum monthly license fee derived from advertising revenues
of $3,625 for each System, and a monthly maintenance fee of $1,875 also
derived from advertising revenues under a separate maintenance support
agreement. All advertising and sponsor revenues, after deduction of the
license fee and direct costs, will be paid to the airline. The initial
order under the Agreement is for nine systems and additional fourteen
Systems, subject to the airline approval of the license fee. The first
nine systems were installed and approved by the airline during 1996.
The airline has the option to order additional systems under the
Agreement. The Company anticipates that agreements with future
customers will not include a set monthly licensing fee but will provide
that the Company retain the revenues generated from advertisers and
sponsors from which they will pay sales commissions and expenses.

On January 9, 1996, the Company entered into an agreement with ASIT,
its parent at that time, (See Notes 5 and 9) whereby it acquired the
sole right to purchase ACAMS terminals from ASIT for use in the
ASI-9000 Program at a fixed price per terminal as stipulated in the
agreement or such lesser price as mutually agreed upon from time to
time in line with commercially competitive prices from alternative
suppliers. Under terms of the agreement, ASIT may purchase hardware of
a similar nature from alternative suppliers if the price is lower than
that stipulated in the contract. Additionally, under the agreement ASIT
has agreed to provide technical support at

F-17

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 9 - OPERATING AGREEMENTS - CONT'D

commercially competitive rates. The agreement is effective for 5 years
with an option to renew on the same terms and conditions.

NOTE 10 - RELATED PARTIES

(A) Due to Related Parties

The following schedule reflects amounts due to related parties at June
30, 1999:

Due to company affiliated through
common shareholders and officers $ 53,118

Due to a director of the Company 8,012

Due to ASIT 161
--------

Total $ 61,291
========

(B) Related Party Transactions

At June 30, 1999 and 1998, ASIT was a 12.5% and 11.59% shareholder,
respectively, of the Company (See Note 6). As discussed in Note 9
above, the Company entered into an agreement to purchase ACAMS systems
from ASIT. In addition, as discussed in Note 3, 6 and 7 the Company
purchased certain assets from ASIT during fiscal 1998 and 1997 through
the issuance of common stock. Certain directors of the Company are also
directors of ASIT.

During 1999 and 1998, the Company paid fees of $14,957 and $8,208,
respectively to a company affiliated through common shareholders and
directors. These fees cover office rent and certain utilities and
office expenses of shared offices and are included in office expenses
in the Statement of Operations. During 1998, the Company reimbursed the
same affiliate $27,497 in travel expenses which is included in travel
expenses in the Statement of Operations.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (Year 2000) approaches.
The "Year 2000" problem is pervasive and complex as virtually every
computer operation will be affected in some way by the roll over of the
two-digit year value to 00. The issue is

F-18

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 11 - COMMITMENTS AND CONTINGENCIES - CONT'D

whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a
system to fail.

The Company uses a standard off the shelf accounting software package
for all of its accounting requirements. Management has contacted the
software vendor and determined that the accounting software is Year
2000 compliant. All internal management software is Microsoft based and
management continually monitors the Year 2000 status of such software.
Management has verified Year 2000 status with its primary vendors and
has not identified any Year 2000 issues with those vendors. Costs of
investigating internal and external Year 2000 compliance issues have
not been material to date. As a result, management believes that the
effect of investigating and resolving Year 2000 compliance issues on
the Company will not have a material effect on the Company's future
financial position or results of operations.

In addition to the effect of Year 2000 issues on the Company's
accounting and management systems, Year 2000 issues may effect the
Company's products as the products are primarily computerized systems.
The Company's products have been tested and validated in line with the
supporting documentation from the Company's vendors. All products were
deemed to be Year 2000 compliant. The costs of such testing and
validating were minimal and absorbed as part of the Company's normal
quality control procedures.

NOTE 12 - ACQUISITION AND RECAPITALIZATION

Under an agreement dated June 10, 1998, effective July 1, 1998, the
Company acquired all of the issued and outstanding common stock and
stock options of ASIE in exchange for common stock and common stock
options of the Company. Under the terms of the agreement, the ASIE's
outstanding shares and options were exchanged at a ratio of one share
and one option of the Company for every eight shares and eight options
of ASIE. As a result of the exchange, ASIE and its wholly owned
inactive subsidiary, ASI Media became wholly owned subsidiaries of the
Company, and the shareholders of ASIE received 5,293,990 shares and
became shareholders of 92.7% of the Company. Generally accepted
accounting principles require that the Company whose shareholders
retain a majority interest in a combined business be treated as the
acquiror for accounting purposes. As a result, the merger will be
treated as an acquisition of the Company by ASIE, and a
recapitalization of ASIE. Accordingly, the Company's financial
statements include the following: (1) The balance sheet

F-19

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 12 - ACQUISITION AND RECAPITALIZATION - CONT'D

consists of ASIE's net assets at historical cost and the Company's net
assets at historical cost and (2) the statement of operations includes
the ASIE's operations for the period presented and the operations of
the Company from the date of acquisition. As a result of the
acquisition, the Company obtained 417,189 shares previously issued to
the prior shareholders of ASI Entertainment, Inc., resulting in a total
of 5,711,179 shares issued and outstanding subsequent to the
acquisition.

NOTE 13 - GOING CONCERN

The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As such, they do not
include adjustments relating to the recoverability of recorded asset
amounts and classification of recorded assets and liabilities.

The Company incurred net losses of $335,615 and $473,779 in 1999 and
1998, respectively and had an accumulated deficit of $809,394 as of
June 30, 1999. Furthermore the Company will be required to make
significant expenditures in connection with continuing engineering,
installation, maintenance and marketing efforts along with general and
administrative expenses. These conditions raise substantial doubt about
the Company's ability to continue as a going concern, and if
substantial additional funding is not acquired or alternative sources
developed, management will be required to curtail its operations.

The Company may raise additional capital through the sale of its equity
securities, through an offering of debt securities, or through
borrowings from financial institutions. The Company is currently
applying for quotation on the NASD OTC Bulletin Board to facilitate the
raising of capital. In addition, the Company may also attempt to
negotiate revenue sharing arrangements with vendors or customer
airlines whereby the Company will share its advertising revenues in
exchange for capital to cover equipment or installation costs. The
Company also expects additional contracts with airlines to install its
equipment in the near future. Management believes that actions
presently being taken to obtain additional funding provide the
opportunity for the Company to continue as a going concern.

NOTE 14 - SUBSEQUENT EVENTS

(A) Consulting Agreements

On August 15, 1999 (the "effective date"), the Company entered into an
agreement (the "Agreement") with a non-related party (the

F-20

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 14 - SUBSEQUENT EVENTS - (CONT'D)

(A) Consulting Agreements - (CONT'D)

"Consultant"). The Agreement was established for a term of two years
from the effective date. The services provided by the Consultant
primarily comprise corporate finance matters, such as reviewing
business plans and projections, advising the Company on its capital
structure and on alternatives for raising capital, reviewing and
advising the Company on prospective mergers and acquisitions. As
consideration for the services provided, the Company agreed to pay to
the Consultant a finder's fee of 5% of the first $3,000,000, 4% of the
next $3,000,000, 3% of the next $2,000,000, 2% of the next $2,000,000
and 1% of the excess, if any, over $10,000,000, of the aggregate
consideration received by the Company with respect to any transaction
introduced to the Company by the Consultant and consummated by the
Company during the two year period commencing on the effective date.
Moreover, as consideration for services related to developing a public
market and public relations, the Company agreed to issue to the
Consultant 100,000 shares of its common stock and 100,000 warrants to
purchase shares of the Company's common stock at an exercise price of
$0.50 per share. These warrants vest immediately and become exercisable
over a period of three years. As of the date of this report, none of
these warrants have been exercised. For all other consulting services
as defined in the Agreement the Company shall pay the Consultant its
customary fees as incurred.

On August 15, 1999 (the "effective date"), the Company entered into an
agreement with a related party, a director of the Company (the
"Consultant"). The agreement was established for a term of six months
from the effective date. The Consultant has been retained to negotiate
on behalf of the Company the 100% acquisition of Hatfield Aviation,
Inc. (see Note 14 (B)). As consideration for the services provided, the
Company agreed to issue to the Consultant 250,000 warrants to purchase
shares of the Company's common stock at an exercise price of $0.50 per
share. These warrants vest immediately and become exercisable over a
period of three years. As of the date of this report, none of these
warrants have been exercised.

Pursuant to SFAS 123, the Company will charge to operations the fair
market value of the common stock and common stock warrants issued to
consultants in the period in which the services are provided.

(B) Acquisition Agreement

On August 27, 1999, the Company entered into an agreement with Hatfield
Aviation, Inc. ("Hatfield"), a company doing business as an aviation
electrical and overhaul repairer, and the shareholders of Hatfield (the
"Hatfield Shareholders"). Under the terms of the agreement, subject to
conditions precedent to closing, the Company will acquire 100% of the
issued and outstanding common stock of Hatfield. As consideration for
the common stock acquired the Company agreed to pay a total purchase
price of $2,500,000,

F-21

<PAGE>

ASI ENTERTAINMENT, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999

NOTE 14 - SUBSEQUENT EVENTS - (CONT'D)

(B) Acquisition Agreement

consisting of $2,000,000 in cash and the issuance of 500,000 shares of
the Company's common stock. As of the date of this report, the
agreement has not closed and the Company had not made any advance cash
payments nor issuances of common stock to Hatfield. The Company intends
to raise capital required to close this transaction through an offering
of its equity securities subsequent to obtaining quotation on the NASD
OTC Bulletin Board (see Note 13).

F-22

<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

The officers and directors of the Company are as follows:

Name: Title:
- ----- ------

Ronald J. Chapman President and Director

Graham O. Chappell Director

Philip A. Shiels Vice President, Chief Financial Officer
and Director

Richard W. Mason Director

All directors of the Company hold office until the next annual meeting of
shareholders or until their successors are elected and qualified. At present,
the Company's Bylaws provide for not less than one nor more than five directors.
Currently, there are four directors of the Company. The Bylaws permit the Board
of Directors to fill any vacancy and such director may serve until the next
annual meeting of shareholders or until his successor is elected and qualified.
Officers serve at the discretion of the Board of Directors.

The principal occupation and business experience for each officer and director
of the Company, for at least the last five years are as follows:

RONALD J. CHAPMAN, 47, serves as President and a director of the Company.
Commencing in 1985, Mr. Chapman founded and remains the managing director of ASI
Holdings Pty. Ltd., ASI Australia, ASI Entertainment Pty. Ltd., and ASI Media
Pty. Ltd. ASI Entertainment Pty. Ltd. and ASI Media Pty. Ltd. are subsidiaries
of the Company. Since inception, Mr Chapman has overseen the product development
and coordinated the marketing for ASIT Australia. Mr. Chapman is also managing
director and the beneficial owner of 75% of Chapman International Pty Ltd., a
shareholder of the Company.

GRAHAM O. CHAPPELL, 54, has been a director of the Company since its inception
and a director of ASIT Australia since 1987. Mr. Chappell has worked in the
aerospace industry for 30 years. Since 1985, Mr. Chappell has operated as the
principal of Chappell Salikin Weil Associates Pty. Ltd. ("Chappell Salikin"),
Victoria, Australia, a private aviation trading and aerospace, technology and
defence industries consultancy company. Chappell Salikin

-15-
<PAGE>

has served as a consultant to ASIT Australia, ASI Holdings Pty. Ltd. and ASI
Entertainment Pty. Ltd. Mr. Chappell obtained a Diploma of Aeronautical
Engineering degree from the Royal Melbourne Institute of Technology in 1968 and
a Masters of Science (Air Transport Engineering) from Cranfield University in
1974.

PHILIP A. SHIELS, 47, has been a director of the Company since 1996. From 1992
to the present, Mr. Shiels has operated Shiels & Co., Victoria, Australia, a
private consulting practice providing management and corporate advisory
services. Shiels & Co. has served as a consultant to ASIT Australia, ASI
Holdings Pty. Ltd. and ASI Entertainment Pty. Ltd. since 1994. Mr Shiels has
served as the Director of Finance for ASI Holdings Pty. Ltd. Mr. Shiels received
a Bachelor of Business (Accountancy) Degree from the Royal Melbourne Institute
of Technology in 1976. Mr. Shiels has been an Associate Member of the Institute
of Chartered Accountants in Australia since 1978.

RICHARD W. MASON, 66, has been a director of the Company since June, 1998. From
1989 through 1997, Mr. Mason served as president of Global Aviation Associates,
Inc. From June, 1997 to the present, Mr. Mason served as chairman of the Board
of Directors of Global Aviation Company, Aurora, Colorado. Prior to forming
Global Aviation, Mr. Mason held the position of Vice President of Combs Gates,
Inc. (a subsidiary of Gates Learjet, Denver Colorado), a company with which he
was associated twenty years. From 1995 to present, Mr. Mason has served as vice
president of Lasting Treasures Publishing Company, Houston, Texas, a music
publishing company.

ITEM 10. EXECUTIVE COMPENSATION.

The Company does not intend to pay any officer or director annual compensation
exceeding $100,000 during the 12 months following incorporation of the Company.
The Company has not entered into any employment agreements with its executive
officers or directors nor has it obtained any key-man life insurance.

Each director is entitled to receive reasonable expenses incurred in attending
meetings of the Board of Directors of the Company. The members of the Board of
Directors intend to meet at least quarterly during the Company's fiscal year,
and at such other times duly called. The Company presently has four directors.

The following table sets forth the total compensation paid or accrued by the
Company on behalf of the Chief Executive Officer and President of the Company
during 1997. No officer of the Company received a salary and bonus in excess of
$100,000 for services rendered during the fiscal year ended June 30, 1998:

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<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
NAME AND PRINCIPAL COMPENSATION OTHER COMPENSATION
POSITION FISCAL YEAR ANNUAL SALARY BONUS/AWARDS ALL OTHER

<S> <C> <C> <C> <C> <C>
Ronald Chapman, President 1998 0 0 A$72,000 (1)

Philip Shiels, Chief 1998 0 0 A$60,000 (1)
Financial Officer

Richard Mason, Director 1998 0 0 US$12,000 (2)
</TABLE>

(1) The Company was invoiced A$180,000 by Chapman International Pty. Ltd. for
management services rendered by Messrs. Chapman and Shiels. The fee was in
turn allocated to Messrs. Chapman and Shiels for services rendered to the
Company for the fiscal year ended June 30, 1999 on the basis set out above.
(2) Mr Mason has received advances from the Company of $1,000 per month which
will be offset against future directors fees.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information as of the date of this Report
regarding the beneficial ownership of the Company's Common Stock by each officer
and director of the Company and by each person who owns in excess of five
percent of the Company's Common Stock giving effect to the exercise of warrants
or options held by the named security holder.

Shares of Common
Stock Beneficially Percentage of
Name, Position and Address Owned Shares Owned

Ronald J. Chapman (3) 3,766,587 50.3%
President and director
160 Silvan Road,
Wattle Glen
Victoria, 3096, Australia

Graham O. Chappell (4) 1,293,412 20.3%
Director
5 Marine Parade, Suite 2
St. Kilda,
Victoria, 3148, Australia

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<PAGE>

Philip A. Shiels (5) 500,000 8.3%
Chief Financial Officer and director
39 Alta Street
Canterbury, Victoria, 3126,
Australia

Richard W. Mason 0 0%
Director
79 Tami Road
Red Feather Lakes, Colorado 80013

Chapman International Pty. Ltd. (6) 950,000 15.2%
160 Silvan Road
Wattle Glen, Victoria, 3096,
Australia

ASI Technologies Pty. Ltd. (7) 616,575 10.7%
3/1601 Main Road
Research, Victoria, 3095,
Australia

Research No. 1 Trust (8) 1,950,000 28.4%
4th Floor
136 Broadway, Newmarket
Auckland 1 New Zealand

Wardour Consultants Ltd. (9) 1,562,500 24.0%
Nine Queens Road
Suite 605-6
Central, Hong Kong

Swiss Time Australia 537,500 10.8%
Pty. Ltd. (10)
2C Dudley Street
Brighton, Victoria, 3186
Australia

Research No. 2 Trust (11) 500,000 8.3%
4th Floor
136 Broadway, Newmarket
Auckland 1 New Zealand

Heatherwood Pty. Ltd. (12) 442,006 7.6%
16 Severn Street
Moonee Ponds, Victoria, 3039
Australia

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<PAGE>

Pierce Mill Associates, Inc. (13) 417,189 7.2%
1504 R Street N.W.
Washington, D.C. 20009

Maxwell Grant Productions 337,500 5.6%
Pty Ltd.(14)
P.O. Box 103
Burnley, Victoria, 3121
Australia

Vision, Inc.(15) 312,500 5.4%
c/o Tramontana Accountants
Level 1 501 LaTrobe Street
Melbourne, Victoria, 3000
Australia

All the officers and directors
as a group (4 persons) 5,559,999 66.5%

(3) Assumes 5,754,337 shares of Common Stock outstanding and assumes exercise
of options held by named security holder.
(1) Assumes sale of all the Securities offered by the Selling Securityholders.
(2) Ronald J. Chapman, President and a director of the Company, owns 125,006
shares directly and is the managing director (president) and majority
shareholder of Chapman International Pty. Ltd., and may be considered the
beneficial owner of the 450,000 Shares owned by it. Chapman International
Pty. Ltd. is the controlling shareholder of ASIT Australia which owns
616,575 Shares and Mr. Chapman is the majority shareholder thereof and may
be deemed to be the beneficial owner of such Shares. Mr. Chapman holds the
power of attorney for the trustee of the Research No. 1 Trust which holds
850,000 Shares. The listed share holdings also include the Options to
purchase 500,000 Option Shares held by Chapman International Pty. Ltd.,
Options to purchase 125,006 Option Shares held directly by Mr. Chapman, and
Options to purchase 1,100,000 Options Shares held by the Research No. 1
Trust.
1 Graham O. Chappell, a director of the Company, is the managing director
(president) and sole shareholder of Chappell Salikin Weil Associates Pty.
Ltd. and is considered the beneficial owner of the 625,006 Shares and
625,006 Option Shares held by it. Mr. Chappell is the sole shareholder of
International Aviation Services Pty. Ltd. which owns 43,400 shares (all of
which are registered herein) of which Mr. Chappell is considered the
beneficial owner. Chappell Salikin Weil Associates Pty. Ltd. is 20%
shareholder of ASI Holdings Pty. Ltd. which holds 61.5% of ASIT Australia.
Mr. Chappell is not deemed to be a beneficial holder thereof.
2 Philip A. Shiels, Chief Financial Officer and a director of the Company,
holds the power of attorney for the trustee of the Research No. 2 Trust
which holds 250,000 Shares and

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<PAGE>

250,000 Options. Mr. Shiels is a 25% shareholder of Chapman International
Pty. Ltd. which owns 55% of ASI Holdings Pty. Ltd. which, in turn, holds
61.5% of ASIT Australia. Mr. Shiels is not deemed to be a beneficial owner
thereof.
3 Includes 450,000 Shares and 500,000 Options. Ronald J. Chapman, President
and a director of the Company is the managing director (president) and
majority shareholder of Chapman International Pty. Ltd., and Philip A.
Shiels, Chief Financial Officer and a director of the Company, is a 25%
shareholder of Chapman International Pty. Ltd.
4 ASIT Technologies is owned 61.5% by ASI Holdings Pty. Ltd., 25% by Chappell
Salikin Weil Associates Pty. Ltd. and the remainder by two unaffiliated
entities. ASI Holdings Pty. Ltd. is owned 55% by Chapman International Pty.
(see preceding footnote), 20% by Chappell Salikin Weil Associates, and the
remainder by unaffiliated entities. Chappell Salikin Weil Associates is
solely owned by Graham O. Chappell, a director of the Company.
5 Includes 850,000 Shares and 1,100,000 Options. Ronald J. Chapman, President
and a director of the Company, holds the power of attorney for the trustee
of the Research No. 1 Trust which holds 850,000 Shares.
6 Includes 812,500 Shares and 750,000 Options. Lim Tjoei Hoat is the
beneficial owner of Wardour Consultants, an unrelated independent entity.
7 Includes 268,750 Shares and 268,750 Options. Eric van der Griend and Joanne
van der Griend are the beneficial owners of Swiss Time Australia Pty. Ltd.,
an unrelated independent entity.
8 Includes 250,000 Shares and 250,000 Options. Philip A. Shiels, Chief
Financial Officer and a director of the Company, is the trustee and
beneficial shareholder of the 250,000 Shares and 250,000 Options owned by
Research No. 2 Trust.
9 Includes 217,003 Shares and 225,003 Options. Heatherwood Pty. Ltd. is the
corporate trustee of The Traftrams Trust and is an unrelated independent
entity.
10 Pierce Mill Associates, Inc. is an affiliate of Cassidy & Associates, the
law firm which prepared the Company's registration statement and of which
James M. Cassidy is a principal. James Cassidy is the sole shareholder of
Pierce Mill Associates. Mr. Cassidy owns 100% of Pierce Mill Associates and
is principal of Cassidy & Associates, a Washington, D.C. securities law
firm, and is considered the beneficial owner of the Shares issued to it.
11 Includes 106,250 Shares and 231,250 Options. Maxwell Grant is the
beneficial owner of Maxwell Grant Productions Pty. Ltd., an unrelated
independent entity.

Frank Flammea is the beneficial owner of Vision, Inc., an unrelated independent
entity.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company has purchased the intellectual property of the ASI-9000 from ASI
Australia and has contracted to purchase the ACAMS, when available, from ASIT
Australia. ASIT Australia provides maintenance and servicing of the ACAMS
equipment and the ASI-9000 technology. Ronald J. Chapman, President and a
director of the Company, controls Chapman International Pty. Ltd. which owns 55%
of ASI Holdings Pty. Ltd. ASIT Australia which, in turn, owns 61.5% of ASI
Australia. Philip A. Shiels, Chief Financial Officer and a director of the
Company, is a 25% shareholder of Chapman International Pty. Ltd. Graham O.
Chappell, a director of the Company, is the managing director (president) and
sole

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<PAGE>

shareholder of Chappell Salikin Weil Associates Pty. Ltd. which is a 20%
shareholder of ASI Holdings Pty. Ltd. and 25% shareholder in ASIT Australia.

Ronald Chapman, Graham Chappell, and Philip Shiels are directors of the Company
and directors of the Company's subsidiaries ASI Entertainment Pty. Ltd. ("ASIE
Australia") and ASI Media Pty. Ltd. Ronald Chapman and Graham Chappell are the
directors and officers of ASIT Australia.

Chapman International Pty. Ltd. will likely provide management services to the
Company. Ronald J. Chapman, President and a director of the Company, is the
beneficial owner of 75% of Chapman International Pty. Ltd. and Philip A. Shiels,
a director of the Company, is the owner of the remaining 25%.

By an agreement of January 9, 1996, ASI Entertainment Pty. Ltd. (prior to
becoming a subsidiary of the Company) purchased from ASI Technologies Pty. Ltd.
("ASIT Australia") for the purchase price of $894,450, among other items, 40
outstanding shares of ASI Media Pty. Ltd., the intellectual property of the
ASI-9000 Program, and all rights contained in the exclusive Reseller Agreement
for the ACAMS Cabin Management and Communications System. The purchase price was
paid by the issuance of 1,500,000 shares of ASI Entertainment, Inc. common
stock. The exclusive Reseller Agreement provides, among other matters, that ASI
Entertainment Pty. Ltd. shall have the sole and exclusive right on a world wide
basis to purchase ACAMS terminals from ASI Australia for use in the ASI-9000 at
$30,000 each, or such lesser price as mutually agreed from time to time, and
that ASI Australia shall provide all necessary technical support services,
including training, to ASI Entertainment Pty Ltd. or its customers in regard to
such terminals. The Reseller Agreement has a term of 5 years from the date of
execution (January 9, 1996) with an automatic 5 year renewal at the option of
ASI Entertainment Pty. Ltd.

By an agreement of December 16, 1996, ASI Entertainment Pty. Ltd. (prior to
becoming a subsidiary of the Company) purchased from ASIT Australia for the
purchase price of $418,358, the hardware and equipment, including aircraft
certification on the Boeing 737 and Boeing 757, relating to the Passenger Video
Systems which had been installed on certain aircraft operated by Air Europa
including 9 moving map displays (the CMA 3200), 9 cabin control units, 9
installation kits and 8 Sony 8.6" monitors. The purchase price was paid by the
issuance of 659,975 shares of ASI Entertainment, Inc. common stock.

On September 30, 1997, ASI Entertainment Pty. Ltd. (prior to becoming a
subsidiary of the Company) and ASIT Australia executed an agreement where ASI
Entertainment Pty. Ltd. purchased certain communications systems and stocks,
including but not limited to, 36 ACAMS I systems, two ACAMS prototype systems,
and 2 VI-4000 Satellite News Units, in exchange for a purchase price of
$1,081,650 payable by the issuance of 1,875,000 shares of common stock of ASI
Entertainment, Inc. and options to acquire 1,875,000 shares of ASI
Entertainment, Inc. common stock for $0.50 per share. These shares were
subsequently assigned by ASIT Australia to certain debtors in payment of
outstanding liabilities owed by ASIT Australia.

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<PAGE>

On October 9, 1997, ASI Entertainment Pty. Ltd. (prior to becoming a subsidiary
of the Company) and ASI Media Pty. Ltd. executed an agreement where ASI
Entertainment Pty. Ltd. acquired for a purchase price of $328,945 all of ASIM's
right, title and interest to the Media Agreement and the Media Agreement was
canceled and voided. The purchase price was paid by distribution of 375,000
shares to all the beneficiaries of the ASIM Trust except ASI Entertainment Pty.
Ltd. As a result, 375,000 shares of ASI Entertainment, Inc. were issued to
Vision, Inc. and Australian Authorised Investments, Ltd. as the beneficiaries of
the ASIM Trust.

The Company has in the past and plans to continue in the future to purchase
products and services from ASIT Australia.

(NOTE: Share numbers referred to in this section reflect the post merger
equivalent of ASI Entertainment, Inc. shares, rather than the numbers of ASI
Entertainment Pty. Ltd. shares originally issued)

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
None

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<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

ASI ENTERTAINMENT, INC.

By: /s/ Ronald J. Chapman
-------------------------------------
Ronald J. Chapman, President

By: /s/ Philip A. Shiels
-------------------------------------
Principal Financial Officer

Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

Signature Title Date
- --------- ----- ----

/s/ Ronald J. Chapman Director 11/30/99
- --------------------------------
Ronald J. Chapman

/s/ Graham O. Chappell Director 11/30/99
- --------------------------------
Graham O. Chappell

/s/ Philip A. Shiels Director 11/30/99
- --------------------------------
Philip A. Shiels

Director
- --------------------------------
Richard Mason

Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

NAME OFFICE DATE

James M. Cassidy Director
1999