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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] Quarterly Report Pursuant to Section 13 or 15(d)
Securities Exchange Act of 1934
for Quarterly Period Ended March 31, 1999
-OR-
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities And Exchange Act of 1934
for the transaction period from _________ to________
Commission File Number 0-14646
Entertainment International Ltd.
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(Exact name of registrant as specified in its charter)
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<S> <C>
New York 06-1113228
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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7380 Sand Lake Road, Suite 350, Orlando, FL 32819
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(Address of principal executive offices, Zip Code)
(407) 351-0011
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of outstanding shares of the registrant's common stock,
par value $.01, as of May 17, 1999 is 67,797,282.
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED BALANCE SHEETS
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<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(NOTE 1) (NOTE 1)
ASSETS
<S> <C> <C>
Airships and related equipment, net $ 3,710,000 $ 3,745,000
Cash and cash equivalents 2,000 0
Due from related parties 122,000 173,000
Prepaid insurance 21,000 21,000
Other assets 6,000 6,000
------------ -----------
Total Assets $ 3,861,000 $ 3,945,000
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Accounts payable - trade $ 989,000 $ 993,000
Customer payments on future services 514,000 514,000
Insurance financing 31,000 31,000
Accrued expenses and other liabilities 16,000 90,000
Notes payable 10,000 10,000
Obligations under capital lease 1,485,000 1,692,000
Deferred gain on sale of airship 711,000 722,000
Due to stockholders 1,035,000 713,000
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Total Liabilities 4,791,000 4,765,000
============ ===========
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value:
Authorized -- 110,000,000 shares
Issued and outstanding -- 57,797,000
and 55,047,000 shares 578,000 550,000
Capital in excess of par value 48,527,000 48,369,000
Accumulated deficit (50,035,000) (49,739,000)
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Total Stockholders' Deficit (930,000) (820,000)
------------ ------------
$ 3,861,000 $ 3,945,000
============ ============
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Unaudited -- See accompanying notes to condensed financial statements.
2
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ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED STATEMENT OF OPERATIONS
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1999 1998
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<S> <C> <C>
AIRSHIP REVENUES:
$ 0 $ 0
COSTS AND EXPENSES:
Operating costs 0 59,000
Selling, general & administrative 258,000 119,000
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258,000 178,000
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OPERATING INCOME (LOSS) (258,000) (178,000)
OTHER INCOME (EXPENSE):
Interest expense (49,000) (295,000)
Other income 11,000 11,000
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(38,000) (284,000)
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NET INCOME (LOSS) $ (296,000) $ (462,000)
============= ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 57,797,000 42,548,000
============= ============
NET LOSS PER SHARE $ (0.01) $ (0.02)
============= ============
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Unaudited -- See accompanying notes to condensed financial statements.
3
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ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED STATEMENTS OF CASH FLOWS
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<CAPTION>
Three Months Ended
March 31,
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (296,000) $ (325,000)
Adjustments to reconcile net loss to
net cash flows used in operating
activities:
Depreciation and amortization 35,000 36,000
Realized gain on sale leaseback (11,000) (11,000)
Changes in operating assets and liabilities (78,000) (91,000)
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Net cash flows used in operating activities (350,000) (391,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in due from Trans Continental 51,000 37,000
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Net cash flows provided by investing activities 51,000 37,000
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock as payment of
accrued salaries and compensation to
officer and employees 186,000 0
Principal payments on capital leases and
loans payable (207,000) (539,000)
Reimbursement of 1993 stock subscriptions 0 (22,000)
Change in loans from stockholder 322,000 895,000
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Net cash flows from financing activities 301,000 334,000
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NET CHANGE IN CASH AND CASH EQUIVALENTS (2,000) (20,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 0 2,000
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ (2,000) $ (18,000)
=========== ==========
SUPPLEMENTAL INFORMATION:
Interest Paid $ 33,476 $ 0
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Unaudited-See accompanying notes to condensed financial statements.
4
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ENTERTAINMENT INTERNATIONAL LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete statements. Management believes that all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of such
financial statements, have been included. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
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. If such differences prove significant and material, Entertainment
International Ltd. (the "Company") will file an amendment to this report on
Form 10-QSB.
NOTE 2-LOANS PAYABLE:
Loans from Trans Continental Airlines, Inc. During the three months ended
March 31, 1999, Trans Continental loaned the Company an additional $322,000.
NOTE 3-STOCKHOLDERS' EQUITY:
During the three months ended March 31, 1999, the Company issued 2,750,000
shares of its common stock to certain of its officers and employees in
settlement of accrued compensation and for bonuses. The value of these shares of
common stock were determined to be .135 per share, which was the average value
per share on the date of issuance. Because the Company's common stock is thinly
traded and is subject to extreme volatility, the value of these shares was
reduced by 50%. This resulted in a charge to earning for officers' compensation
in the amount of $115,000.
NOTE 4-LITIGATION
On April 7, 1999, U.S. Airship Leasing, Inc. f/k/a WDL Airship, Inc. ("US
Airship") commenced a suit in the Florida Circuit Court of the Ninth Judicial
Circuit, Orange County, entitled U.S. Airship Leasing, Inc. f/k/a WDL Airship,
Inc. v. Louis J. Pearlman, Airship International Ltd. Corporation and
Transcontinental Airlines Travel Service, Inc. a/k/a Transcontinential Airlines
Service, Inc., Case No. CI099-3082 40. US Airship alleges in the complaint that
the Company entered into a lease agreement with US Airship and breached the
lease by failing to make all payments due under the lease. US Airship further
alleges that it rendered a statement to the Company to which the Company did
not object. Accordingly, US Airship is seeking damages of $1,488,613.90 plus
interest, costs and other relief.
On April 8, 1999, WDL Luftschiffgesellschaft MBH ("WDL") commenced a suit in
the Florida Circuit Court of the Ninth Judicial Circuit, Orange County, entitled
WDL Luftschiffgesellschaft MBH v. Airship International Ltd. and Louis J.
Pearlman, Case No. CI099-3081 #33. WDL's complaint alleges that the Company
entered into a lease agreement pursuant to which the Company leased an airship
from WDL. The suit seeks $148,558.49 in damages plus prejudgment interest,
costs and other relief.
Management believes that the Company has meritorious defenses to these
litigations and the Company will vigorously defend both lawsuits.
5
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERALL FINANCIAL CONDITION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate that Entertainment
International Ltd. (the "Company") will continue as a going concern. For the
first three months of 1999, the Company incurred a loss of $296,000 and had
negative cash flows of $350,000 from operations. The accompanying financial
statements do not include any adjustments that might result from the Company's
current liquidity shortage. The decrease in the Company's net loss as compared
to the same period last year was $54,000. The primary reason for this decrease
was a reduction in the interest expense incurred by the Company in the first
quarter of this year as compared to the first quarter of 1998. The Company is
also experiencing a liquidity shortage.
The Company had a stockholder's deficit as of March 31, 1999 in the amount of
$930,000. This represents an increase in the stockholder's deficit for the
quarter ended March 31, 1999 as compared to the quarter ended December 31,
1998 in the amount of $110,000. The increase was caused by a net loss in the
amount of $296,000 that was sustained during the three months ended March 31,
1999.
RESULTS OF OPERATIONS
The Company had no revenue from operation of its airships during the first three
months of 1999 and 1998.
Selling, general, and administrative costs for the three months ended March
31,1999 were $258,000 compared to $178,000 for the comparable period in 1998.
This increase is due primarily to common stock issued to certain officers and
employees for bonuses in the amount of $115,000. This amount was offset by a
decrease in interest expense of $246,000 for the quarter ended March 31, 1999
as compared to the same period in 1998.
PLAN OF OPERATION
The Company continues to experience negative cash flows from operating
activities. Due to the continued negative cash flow and existing encumbrances on
its assets, the Company has relied on loans, cash advances, and guarantees from
Louis Pearlman, the Company's president and principal stockholder, and Trans
Continental Airlines, Inc. ("Trans Continental"), an affiliated company of which
Mr. Pearlman is the Chairman, President and 21% shareholder. There can be no
assurance that Mr. Pearlman and Trans Continental will make additional loans,
cash advances, or guarantees on an ongoing basis. At March 31, 1999, the
Company owed Trans Continental $1,035,000. Trans Continental has deferred
repayment of such amounts for an indefinite period. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans to improve the financial position of the Company, with the
goal of sustaining the Company's operations for the current year and beyond
include: (1) establishing continued arrangements with Trans Continental, a
company related through common directorship and ownership, to provide funding
on a monthly basis, and (2) establishing goals for the acquisition of assets and
operations of one or more entities, with the expectation that such business
combinations, if completed, would provide additional cash flow and net income.
The Company is currently negotiating the acquisition of Trans Continental
Media, Inc. ("TCM"), an affiliate of Trans Continental, and has entered into a
letter of intent with respect to such acquisition, but has not disclosed the
terms of the transaction at this time. The Company and TCM have not yet reached
a definitive agreement and there is no assurance that the Company will do so.
In addition, the Company is continuing to seek other candidates engaged in the
entertainment industry or a media/Internet-based business for an acquisition
or merger.
6
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Part II
ITEM 1 -- LEGAL PROCEEDINGS
On April 7, 1999, U.S. Airship Leasing, Inc. f/k/a WDL Airship, Inc.
("US Airship") commenced a suit in the Florida Circuit Court of the
Ninth Judicial Circuit, Orange County, entitled U.S. Airship Leasing,
Inc. f/k/a WDL Airship, Inc. v. Louis J. Pearlman, Airship
International Ltd. Corporation and Transcontinental Airlines Travel
Service, Inc. a/k/a Transcontinential Airlines Service, Inc., Case
No. CI099-3082 40. US Airship alleges in the complaint that the
Company entered into a lease agreement with US Airship and breached
the lease by failing to make all payments due under the lease. US
Airship further alleges that it rendered a statement to the Company
to which the Company did not object. Accordingly, US Airship is
seeking damages of $1,488,613.90 plus interest, costs and other
relief.
On April 8, 1999, WDL Luftschiffgesellschaft MBH ("WDL") commenced a
suit in the Florida Circuit Court of the Ninth Judicial Circuit,
Orange County, entitled WDL Luftschiffgesellschaft MBH v. Airship
International Ltd. and Louis J. Pearlman, Case No. CI099-3081 #33.
WDL's complaint alleges that the Company entered into a lease
agreement pursuant to which the Company leased an airship from WDL.
The suit seeks $148,558.49 in damages plus prejudgment interest,
costs and other relief.
Management believes that the Company has meritorious defenses to
these litigations and the Company will vigorously defend both
lawsuits.
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS
In January 1999, the Company issued to Alan Siegel 1,000,000 shares of
the Company's common stock in consideration for services rendered and
the waiver and deduction of salary payable by the Company to Mr.
Siegel during the period from 1995 through 1998.
In January 1999, the Company issued to Frank Sicoli, Scott Bennett and
Frank Vazquez, employees of the Company, 1,000,000, 500,000 and
250,000 shares of the Company's Common Stock, respectively, as
compensation in connection with their employment by the Company.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 -- OTHER INFORMATION
The Company entered into a letter of intent to acquire Trans
Continental Media, Inc. ("TCM"). TCM provides Internet web site
development, hosting, management, marketing and promotions services.
TCM is an affiliate of Trans Continental. The financial terms of
the transaction have not been disclosed at this time.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
Exhibit 27.1 Financial Data Schedule
7
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENTERTAINMENT INTERNATIONAL LTD.
Dated: May 20, 1999 By: /s/ Louis J. Pearlman
_______________________
Louis J. Pearlman
Chairman of the Board of
Directors, President and
Treasurer (duly authorized
officer of the registrant and
principal financial officer
of the registrant)
8
STATEMENT OF DIFFERENCES
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The trademark symbol shall be expressed as......................... 'TM'
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,000
<SECURITIES> 0
<RECEIVABLES> 122,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 151,000
<PP&E> 5,373,000
<DEPRECIATION> 1,663,000
<TOTAL-ASSETS> 3,861,000
<CURRENT-LIABILITIES> 3,877,000
<BONDS> 0
<COMMON> 578,000
0
0
<OTHER-SE> (1,508,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,861,000
<SALES> 0
<TOTAL-REVENUES> 11,000
<CGS> 0
<TOTAL-COSTS> 258,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,000
<INCOME-PRETAX> (296,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (296,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (296,000)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
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