<PAGE>
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 September 30, 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.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 06-1113228
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7380 Sand Lake Road, Suite 350, Orlando, FL 32819
- -------------------------------------------------------------------------------
(Address of principal executive offices, Zip Code)
(407) 351-0011
- -------------------------------------------------------------------------------
(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 September 30, 1999 is 57,997,000.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(NOTE 1) (NOTE 1)
<S> <C> <C>
ASSETS
Airships and related equipment, net $ 3,642,000 $ 3,745,000
Due from related parties 93,000 173,000
Prepaid insurance - 21,000
Other assets 11,000 6,000
----------- -----------
$ 3,746,000 $ 3,945,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Bank overdrafts $ 35,000 $ -
Accounts payable - trade 183,000 993,000
Customer payments on future services 514,000 514,000
Insurance financing 5,000 31,000
Accrued expenses and other liabilities 16,000 90,000
Notes payable 10,000 10,000
Obligation under capital lease 1,059,000 1,692,000
Deferred gain on sale of airship 689,000 722,000
Loans payable to stockholders 2,844,000 713,000
----------- -----------
Total liabilities 5,355,000 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, respectively 580,000 550,000
Capital in excess of par value 48,554,000 48,369,000
Accumulated deficit (50,743,000) (49,739,000)
----------- -----------
Total stockholders' deficit (1,609,000) (820,000)
----------- -----------
$ 3,746,000 $ 3,945,000
=========== ===========
</TABLE>
Unaudited -- See accompanying notes to condensed financial statements.
2
<PAGE>
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
AIRSHIP REVENUES $ 0 $ 0 $ 0 $ 0
-------- -------- -------- --------
COSTS AND EXPENSES:
Selling, general & administrative 165,000 232,000 622,000 646,000
-------- -------- -------- --------
165,000 232,000 622,000 646,000
-------- -------- -------- --------
OPERATING LOSS (165,000) (232,000) (622,000) (646,000)
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (312,000) 175,000 (415,000) (452,000)
Gain (loss) on sale of fixed assets -- -- -- (22,000)
Other income 11,000 11,000 33,000 33,000
-------- -------- -------- --------
(301,000) (186,000) (382,000) (441,000)
-------- -------- -------- --------
NET LOSS $(466,000) $(46,000) $(1,004,000) $(1,087,000)
========= ======== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 57,902,000 54,743,000 57,833,000 47,770,000
NET LOSS APPLICABLE TO
COMMON STOCK:
Net loss $ (466,000) $(46,000) $(1,004,000) $(1,087,000)
Abolishment of accrued preferred
dividends -- -- -- 6,508,000
Preferred stock dividend -- -- -- (646,000)
-------- -------- -------- --------
Net (loss) income applicable to
common stock $ (466,000) $(46,000) $(1,004,000) $4,775,000
========== ======== =========== ==========
Net (loss) income per share $ (.01) $ (.01) $ (.02) $ .10
========== ======== =========== ==========
</TABLE>
Unaudited -- See accompanying notes to condensed financial statements.
3
<PAGE>
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,004,000) $ (1,087,000)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation 103,000 108,000
Realized gain on sale of airship (33,000) (33,000)
Loss on sale of fixed assets -- 22,000
Changes in operating assets and liabilities (894,000) (126,000)
------------ ------------
Net change in cash used for operating activities (1,828,000) (1,116,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in due from related parties 80,000 147,000
------------ ------------
Net cash flows provided by investing activies 80,000 147,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock as payment for consulting services 215,000 42,000
Principal payments on capital lease and notes payable (633,000) (898,000)
Reimbursement of 1993 stock subscriptions -- (22,000)
Net change in loans payable to stockholders 2,131,000 1,846,000
------------ ------------
Net cash flows provided by financing activities 1,713,000 968,000
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (35,000) (1,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- 2,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $(35,000) $(1,000)
------------ ------------
------------ ------------
SUPPLEMENTAL INFORMATION:
Interest paid $327,000 $309,000
------------ ------------
------------ ------------
Non-cash accrual of common stock dividend on preferred stock $ -- $646,000
------------ ------------
------------ ------------
Non-cash abolishment of accrued preferred dividends $ -- $5,608,000
------------ ------------
------------ ------------
Non-cash extinguishment of debt due to stockholders $ -- $11,886,000
------------ ------------
------------ ------------
</TABLE>
Unaudited-See accompanying notes to condensed financial statements.
4
<PAGE>
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 TO STOCKHOLDERS:
During the nine months ended September 30, 1999, Trans Continental Airlines,
Inc. ("Trans Continental"), an affiliated company, loaned the Company an
additional $2,131,000.
NOTE 3 -- STOCKHOLDERS' EQUITY:
During the nine months ended September 30, 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 and issued 200,000 shares of
its common stock to certain individuals for public relations and other
consulting services. The value of these shares of common stock were determined
to be $.135 and $.29 per share, respectively, which was the average value per
share on the date of issue. 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 reduction resulted in a charge to earnings for officers' compensation
in the amount of $115,000 and for consulting fees in the amount of $29,000. (See
Item 2)
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 Trans
Continental Airlines Travel Services, Inc. a/k/a Trans Continental Airlines
Service, Inc., Case No. CI099-3082 40, alleging 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 is seeking damages of $1,488,613.90
plus interest, costs and other relief.
On April 8, 1999, WDL Luftschiffgesellschaft MBH ("WDL"), an affiliate company,
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 alleging 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 prejudgement interest,
costs and other relief.
These cases were settled on July 28, 1999 for $1,030,000.
5
<PAGE>
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 nine months of 1999, the Company incurred a loss of $1,004,000 and had
negative cash flows of $1,828,000 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 from the same
period last year was $83,000. The primary reason for this decrease was a
reduction in operating expenses and interest expense incurred by the Company in
the first nine months of this year as compared to the first nine months of 1998.
The Company incurred a loss of $466,000 during the three month period ended
September 30, 1999, as compared to $46,000 in the three months ended September
30, 1998. This increase in loss by $420,000 was primarily due to lower interest
expense in the third quarter of 1998 due to debt that was forgiven at the end of
the second quarter of 1998. The Company is also experiencing a liquidity
shortage.
The Company had a stockholder's deficit as of September 30, 1999 in the amount
of $1,609,000. This represents an increase in the stockholder's deficit for the
nine months ended September 30, 1999 as compared to the balance as of December
31, 1998 in the amount of $789,000. The increase was caused by a net loss in the
amount of $1,004,000 that was sustained during the nine months ended September
30, 1999 offset by common stock issued to certain individuals in the amount of
$215,000.
RESULTS OF OPERATIONS
The Company had no revenue from operation of its airships during the first nine
months of 1999 and 1998.
Selling, general and administrative costs for the nine months ended September
30, 1999 were $622,000 as compared to $646,000 for the comparable period in
1998. Selling, general, and administrative costs for the three months ended
September 30,1999 were $165,000 compared to $232,000 for the comparable 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, and guarantees on an ongoing basis. At September 30, 1999, the
Company owed Trans Continental $2,844,000 (see Note 2). 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 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
<PAGE>
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
Trans Continental Airlines Travel Services, Inc. a/k/a Trans
Continental Airlines Service, Inc., Case No. CI099-3082 40,
alleging 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 is seeking damages of
$1,488,613.90 plus interest, costs and other relief.
On April 8, 1999, WDL Luftschiffgesellschaft MBH ("WDL"), an
affiliate company, 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 alleging 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 prejudgement interest, costs and
other relief.
These cases were settled on July 28, 1999 for $1,030,000.
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS
In January 1999, the Company issued to a certain employee
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 the employee
during the period from 1995 through 1998. The Company also
issued an aggregate 1,750,000 shares of the Company's common
stock to certain employees as compensation in connection with
their employment by the Company.
In August 1999, the Company also issued 200,000 shares of the
Company's common stock to a certain individual as compensation
in consideration with public relations and other consulting
services provided to the Company.
Subsequent Events:
In November 1999, the Company also authorized and issued an
aggregate of 6,000,000 shares of the Company's common stock to
an affiliate of the Company for providing a line of credit and
funding ongoing costs and expenses of the Company and waiving
and deducting salaries payable by the Company from fiscal 1995
through 1998 and also issued 4,000,000 shares to a
non-affiliate in consideration of financial services rendered
in the past.
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
<PAGE>
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: November 18, 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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 93,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 104,000
<PP&E> 5,373,000
<DEPRECIATION> 1,731,000
<TOTAL-ASSETS> 3,746,000
<CURRENT-LIABILITIES> 5,355,000
<BONDS> 0
0
0
<COMMON> 580,000
<OTHER-SE> (2,189,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,746,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 622,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 415,000
<INCOME-PRETAX> (1,004,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,004,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,004,000)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
