<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 June 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.
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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
incorporation or organization) Identification Number)
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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 June 30, 1999 is 57,797,282.
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED BALANCE SHEETS
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<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
(NOTE 1) (NOTE 1)
ASSETS
<S> <C> <C>
Airships and related equipment, net $ 3,675,000 $3,745,000
Due from related parties 104,000 173,000
Prepaid insurance -- 21,000
Other assets 8,000 6,000
----------- ----------
$ 3,787,000 $3,945,000
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LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Bank overdrafts $ 3,000 $ -
Accounts payable - trade 988,000 993,000
Customer payments on future services 514,000 514,000
Insurance financing 8,000 31,000
Accrued expenses and other liabilities 13,000 90,000
Notes payable 11,000 10,000
Obligations under capital lease 1,274,000 1,692,000
Deferred gain on sale of airship 700,000 722,000
Due to stockholders 1,448,000 713,000
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Total Liabilities 4,959,000 4,765,000
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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 (50,277,000) (49,739,000)
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Total Stockholders' Deficit (1,172,000) (820,000)
----------- -----------
$ 3,787,000 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
AIRSHIP REVENUES: $ 0 $ 0 $ 0 $ 0
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Selling, general & administrative 199,000 236,000 457,000 414,000
------------ ------------ ------------ ------------
199,000 236,000 457,000 414,000
------------ ------------ ------------ ------------
OPERATING LOSS (199,000) (236,000) (457,000) (414,000)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (54,000) (332,000) (103,000) (627,000)
Other income 11,000 11,000 22,000 22,000
------------ ------------ ------------ ------------
(43,000) (321,000) (81,000) (605,000)
------------ ------------ ------------ ------------
NET LOSS $ (242,000) $ (557,000) $ (538,000) $ (1,019,000)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 57,797,000 45,846,000 57,797,000 44,206,000
============ ============ ============ ============
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK:
NET LOSS $ (242,000) $ (557,000) $ (538,000) $ (1,019,000)
ABOLISHMENT OF ACCRUED
PREFERRED DIVIDENDS -- 6,508,000 -- 6,508,000
PREFERRED STOCK DIVIDEND -- (277,000) -- (646,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCK $ (242,000) $ 5,674,000) $ (538,000) $ 4,843,000
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE -- $ 0.13 $ (0.01) $ 0.11
============ ============ ============ ============
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Unaudited -- See accompanying notes to condensed financial statements.
3
<PAGE>
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED STATEMENTS OF CASH FLOWS
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<CAPTION>
Six Months Ended
June 30,
--------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (538,000) $(1,041,000)
Adjustments to reconcile net loss to
net cash flows used in operating activities:
Depreciation and Amortization 70,000 73,000
Realized gain on sale leaseback (22,000) (22,000)
Loss on sale of equipment -- 22,000
Changes in operating assets and liabilities (83,000) (73,000)
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Net cash flows used in operating activities (573,000) (1,041,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in due from Trans Continental 69,000 92,000
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Net cash flows provided by investing activities 69,000 92,000
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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 --
Principal payments on capital leases and
loans payable (417,000) (806,000)
Reimbursement of 1993 stock subscriptions -- (22,000)
Change in loans from stockholder 735,000 1,775,000
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Net cash flows from financing activities 504,000 947,000
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NET CHANGE IN CASH AND CASH EQUIVALENTS -- (2,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- 2,000
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ --
=========== ===========
SUPPLEMENTAL INFORMATION:
Interest Paid $ 64,000 $ 267,000
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Non-cash accrual of common stock dividend on preferred stock $ -- $ 646,000
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Non-cash abolishment of accrued preferred dividends $ -- $ 6,508,000
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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 six months ended June 30,
1999, Trans Continental Airlines, Inc. ("Trans Continental"), an affiliated
company, loaned the Company an additional $735,000.
NOTE 3 - STOCKHOLDERS' EQUITY:
During the six months ended June 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. 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 issue. Because the Company's common stock is thinly traded and is
subject to extremely volatility, the value of these shares was reduced by 50%.
This resulted in a charge to earnings 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 Services, Inc. a/k/a Transcontinental 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, 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.
The cases were settled on July 28, 1999 for $1,030,000.
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 whether
Entertainment International, Ltd. (the "Company") will continue as a going
concern. For the first six months of 1999, the Company incurred a loss of
$538,000 and had negative cash flows of $573,000 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 $481,000. The primary
reason for this decrease was a reduction in interest expense incurred by the
Company in the first six months of this year as compared to the first six months
of 1998. The Company incurred a loss of $242,000 during the three month period
ended June 30, 1999, as compared to $557,000 in the three months ended June 30,
1998. This decrease in loss by $315,000 was primarily due to lower interest
expense in 1999 due to debt that was forgiven at the end of the second quarter
of 1998 by stockholders and related parties. The Company is also experiencing
a liquidity shortage.
The Company had a stockholder's deficit as of June 30, 1999 in the amount of
$1,172,000. This represents an increase in the stockholder's deficit for the six
months ended June 30, 1999 as compared to the balance as of December 31, 1998 in
the amount of $352,000. The increase was caused by a net loss in the amount of
$538,000 that was sustained during the six months ended June 30, 1999 offset by
common stock issued to certain officers and employees in the amount of $186,000.
RESULTS OF OPERATIONS
The Company had no revenue from operation of its airships during the first six
months of 1999 and 1998.
Selling, general and administrative costs for the six months ended June 30, 1999
were $457,000 compared to $414,000 for the comparable period in 1999. This
increase is due primarily to common stock issued to certain officers and
employees for bonuses in the amount of $115,000. Selling, general, and
administrative costs for the three months ended June 30,1999 were $199,000
compared to $236,000 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 June 30, 1999, the Company
owed Trans Continental $1,448,000 (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
fa 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
Transcontinental Airlines Travel Services, Inc. a/k/a
Transcontinental 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, 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.
The 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 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.
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Dated: August 16, 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)
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8
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as ...........................'TM'
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 104,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 112,000
<PP&E> 5,373,000
<DEPRECIATION> 1,698,000
<TOTAL-ASSETS> 3,787,000
<CURRENT-LIABILITIES> 3,909,000
<BONDS> 0
0
0
<COMMON> 578,000
<OTHER-SE> (1,750,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,787,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 457,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103,000
<INCOME-PRETAX> (538,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (538,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (538,000)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
