<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
Securities Exchange Act of 1934
for Quarterly Period Ended June 30, 2000
-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 June 30, 2000 is 69,597,000
1
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
(NOTE 1) (NOTE 1)
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Airships and related equipment, net $ 1,896,000 $ 1,929,000
Cash and cash equivalents -- 1,000
Prepaid insurance 8,000 16,000
Other assets 6,000 6,000
------------ ------------
$ 1,910,000 $ 1,952,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Accounts payable -- trade 236,000 226,000
Customer payments on future services 200,000 514,000
Accrued expenses and other liabilities 43,000 32,000
Obligation under capital lease 690,000 839,000
Loans payable to stockholders 3,803,000 3,221,000
------------ ------------
Total liabilities 4,972,000 4,832,000
------------ ------------
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value:
Authorized -- 110,000,000 shares
Issued and outstanding -- 69,597,000
shares and 68,097,000, respectively 696,000 681,000
Capital in excess of par value 50,987,000 50,788,000
Accumulated deficit (54,745,000) (54,349,000)
------------ ------------
Total stockholders' deficit (3,062,000) (2,880,000)
------------ ------------
$ 1,910,000 $ 1,952,000
============ ============
</TABLE>
Unaudited -- See accompanying notes to condensed financial statements.
2
<PAGE>
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
AIRSHIP REVENUES $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Selling, general & administrative 103,000 199,000 231,000 457,000
----------- ----------- ----------- -----------
103,000 199,000 231,000 457,000
----------- ----------- ----------- -----------
OPERATING LOSS (103,000) (199,000) (231,000) (457,000)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (80,000) (54,000) (165,000) (103,000)
Other income -- 11,000 -- 22,000
----------- ----------- ----------- -----------
(80,000) (43,000) (165,000) (81,000)
----------- ----------- ----------- -----------
NET LOSS $ (183,000) $ (242,000) $ (396,000) $ (538,000)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 69,597,000 57,797,000 69,490,000 57,797,000
NET LOSS PER SHARE $ -- $ -- $ (0.01) $ (0.01)
=========== =========== =========== ===========
</TABLE>
Unaudited -- See accompanying notes to condensed financial statements.
3
<PAGE>
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(396,000) $(538,000)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation 33,000 70,000
Realized gain on sale leaseback -- (22,000)
Changes in operating assets and liabilities (71,000) (83,000)
--------- ---------
Net change in cash used for operating activities (434,000) (573,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in due to related parties 582,000 69,000
--------- ---------
Net cash flows provided by investing activities 582,000 69,000
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock as payment of accrued salaries -- 186,000
Principal payments on capital lease and notes payable (149,000) (417,000)
Net change in loans payable to stockholders -- 735,000
--------- ---------
Net cash flows provided by financing activities (149,000) 504,000
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,000) --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,000 --
========= =========
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ --
========= =========
SUPPLEMENTAL INFORMATION:
Non-cash financing activity:
Conversion of debt into common stock $ 214,000 $ --
========= =========
Cash paid for interest $ 16,000 $ 64,000
========= =========
</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 - STOCKHOLDERS' EQUITY:
During the six months ended June 30, 2000, the Company issued 1,500,000 shares
of its common stock and paid $100,000 in cash to Gulf Oil Limited Partnership
f/k/a Catamount Petroleum Limited Partnership ("Gulf Oil") in settlement of
claims against the Company by Gulf Oil. The value of these shares of common
stock were determined to be $.143 per share. This amount was determined by
converting the liability that was accrued to Gulf Oil to reflect a price per
share equivalent to the number of shares of common stock issued in the
settlement agreement.
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 six months of 2000, the Company incurred a loss of $396,000 and had
negative cash flows of $434,000 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 $142,000. The primary reason for this decrease was a
reduction in operating expenses incurred by the Company in the first six months
of this year as compared to the first six months of 1999. The Company is also
experiencing a liquidity shortage.
RESULTS OF OPERATIONS
The Company had no revenue from operation of its airships during the first six
months of 2000 and 1999.
Selling, general and administrative costs for the six months and three months
ended June 30, 2000 were $231,000 and $103,000, respectively as compared to
$457,000 and $199,000, respectively for the comparable periods in 1999. These
amounts represent decreases of $226,000 and $96,000, respectively. This decrease
is primarily attributable to decreased officer salary.
Interest expense increased $62,000 or 60% to $165,000 for the six months ended
June 30, 2000 from $103,000 during the same period during 1999. The increase in
interest expense was directly attributable to the increase in loans from related
parties.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced negative cash flow from operations of $434,000 in the
six-month period ended June 30, 2000 due primarily to an operating cash loss of
$363,000 net of the change in non-cash working capital balances related to
operations. Proceeds of $582,000 from Trans Continental Records had a positive
impact on cash flow, however, this was offset by debt reduction under the
Company's capital lease obligation. The Company also had negative working
capital of $4,958,000 as at June 30, 2000 compared with $4,809,000 at
December 31, 1999. Because of the continued negative cash flow, working capital
and existing encumbrances on assets, the Company has relied on loans, cash
advances, and guarantees from Louis Pearlman, the Company's president and
principal stockholder, and TransContinental Airlines ("TCA"), a related party,
Trans Continental Records ("TCR"), a related party, and other affiliated
companies of which Mr. Pearlman is the Chairman, President, and shareholder.
There can be no assurance that Mr. Pearlman, TCA, TCR, and affiliates will make
additional loans, cash advances, and guarantees on an ongoing basis. At June 30,
2000, the Company owed $3,803,000 to related parties. Repayment of such amounts
has been deferred 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) continued arrangements with companies 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 negotiating
the acquisition of WeBeCD.com,Inc. ("WeBeCD"), and has entered into a letter of
intent to acquire 100% of the capital stock, including options and warrants of
WeBeCD. If all agreement terms are met, shares of the Company's common stock
will be issued in exchange for shares of WeBeCD's common stock.
6
<PAGE>
Other
The Company has approximately $47,825,000 in losses for income tax purposes
available to reduce future taxable income which will begin to expire in 2005. We
have no commitments for capital expenditures of a material nature in the near
future.
Inflation
The Company believes that there has not been a significant impact from inflation
on the Company's operations during the past three fiscal years.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
Future Operating Results - Future operating results may be impacted by a number
of factors that could cause actual results to differ materially from those
stated herein, which reflect management's current expectations. These factors
include worldwide economic and political conditions, industry specific factors,
the Company's ability to maintain access to external financing sources and its
financial liquidity, the acceptance of the Company by small and mid-sized
businesses, and the Company's ability to manage expense levels.
Stock Price Fluctuations - The Company's participation in a highly competitive
industry often results in significant volatility in the Company's common stock
price. This volatility in the stock price is a significant risk investors should
consider.
Forward Looking Statements - This report contains certain forward-looking
statements that are based on current expectations. In light of the important
factors that can materially affect results, including those set forth above and
elsewhere in this report, the inclusion of forward-looking information herein
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved. The Company may
encounter competitive, technological, financial and business challenges making
it more difficult than expected to continue to market its products and services;
competitive conditions within the industry may change adversely; the Company may
be unable to retain existing key management personnel; the Company's forecasts
may not accurately anticipate market demand; and there may be other material
adverse changes in the Company's operations or business. Certain important
factors affecting the forward looking statements made herein include, but are
not limited to (i) accurately forecasting capital expenditures and (ii)
obtaining new sources of external financing. Assumptions relating to budgeting,
marketing, product development and other management decisions are subjective in
many respects and thus susceptible to interpretations and periodic revisions
based on actual experience and business developments, the impact of which may
cause the Company to alter its capital expenditure or other budgets, which may
in turn affect the Company's financial position and results of operations.
7
<PAGE>
Part II
ITEM 1 - LEGAL PROCEEDINGS
Not applicable
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 14, 2000 1,500,000 shares of the Company's common
stock was issued to Gulf Oil. This issuance was the result of
a settlement agreement dated December 15, 1999 (Note 2).
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
Not applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
Exhibit 27.1 Financial Data Schedule
8
<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: August 21, 2000 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)
9
