UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended September 30, 1997
OR
/ / 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: 0-27256
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
(Exact name of small business issuer as specified in its charter)
DELAWARE 65-0512785
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
200 East Palmetto Park Road, Suite 200, Boca Raton, Florida 33432
(Address of principal executive offices)
Registrant's telephone no., including area code: (561) 393-6685
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 past 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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding as of September 30, 1997
----------------------------- ------------------------------------
Common Stock, $.001 par value 9,465,184
TABLE OF CONTENTS
Heading Page
PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements ..............................................2
Consolidated Balance Sheet - September 30, 1997 (Unaudited)......3-4
Pro-Forma Consolidated Statement of Operations (Unaudited).........5
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) .......................................................6
Consolidated Statement of Cash Flows - Nine months ended
September 30, 1996 and 1997 (Unaudited)..........................7-8
Notes to Consolidated Financial Statements (Unaudited)..........9-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .....................................12-13
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.................................................14
Item 2. Changes In Securities ............................................14
Item 3. Defaults Upon Senior Securities...................................14
Item 4. Submission of Matters to a Vote of Securities Holders ............14
Item 5. Other Information ................................................14
Item 6. Exhibits and Reports on Form 8-K .................................14
Signatures .......................................................15
Exhibit - 27 .....................................................16
i
PART 1
Item 1. Financial Statements
The following unaudited financial Statements for the period ended
September 30, 1997, have been prepared by Atlantic International
Entertainment, Ltd. (the "Company").
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Financial Statements
September 30, 1997
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEET AS OF
SEPTEMBER 30, 1997 (UNAUDITED)
September 30, 1997
------------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash in Bank $ 1,647
Accounts Receivable (net of $4,500 in allowance for bad debts) 3,726,296
Advances 3,548
Prepaid Expenses 7,713
----------
Total Current Assets: 3,739,204
----------
Property and Equipment, at cost - Net of Accumulated
Depreciation and Amortization of $73,845 424,448
Software - Net of Accumulated Amortization of $230,702 1,169,006
OTHER ASSETS
Investment in Subsidiary:
Customer Lists 1,374,687
Goodwill 162,000
----------
1,536,687
Accumulated Amortization 60,692
----------
1,475,995
Investments 52,962
Security Deposits 23,831
Organization Costs - (Net of Accum Amort of $806) 2,419
Due From Related Party 49,855
Other Assets 3,836
Deferred Income Taxes 548,400
----------
Total Other Assets 2,157,298
----------
Total Assets $7,489,956
==========
See accompanying notes to financial statements
3
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD LTD
CONSOLIDATED BALANCE SHEET AS OF
SEPTEMBER 30, 1997 (UNAUDITED)
Liabilities and Stockholders'Equity:
CURRENT LIABILITIES
Accounts Payable $ 545,225
Customer Deposits 64,873
Current Portion of Long Term Debt 18,086
Other Current Liabilities 76,754
Due to Officers 11,946
----------
Total Current Liabilities 716,884
OTHER LIABILITIES
Long Term Debt Net of Current 57,271
Deferred Income Taxes 585,405
Notes Payable 155,000
----------
Total Other Liabilities 797,676
SHAREHOLDERS'S EQUITY:
Preferred Stock - Par Value $.001 Per Share, Authorized
10,000,000 Shares, None Issued or Outstanding --
Common Stock - Par Value $001 Per Share, Authorized
100,000,000 Shares, Issued and Outstanding 9,465,184 Shares 9,465
Additional Paid - in - Capital 3,962,919
Retained Earnings 2,003,012
----------
Total Stockholders' Equity 5,975,396
----------
Total Liabilities and Stockholders' Equity $7,489,956
==========
See accompanying notes to financial statements.
4
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For The Three Months Ended For The Nine Months Ended
September 30 September 30,
--------------------------------------------------------------
1996 1997 1996 1997
--------------------------------------------- -----------
REVENUE
Consulting Fees $ 49,352 $ -- $ 363,084 $ --
Software Sales and Related Charges -- 2,160,000 -- 3,759,272
Support Fees -- -- -- 21,000
ISP and Website Income -- 146,017 -- 290,168
----------- ----------- ----------- -----------
Total Revenue 49,352 2,306,017 363,084 4,070,440
COST OF SALES
Installation and Hardware Costs -- 109,710 -- 202,041
Internic Regist. Fees / Connect Fees -- 36,225 -- 86,265
----------- ----------- ----------- -----------
Total -- 145,935 -- 288,306
Gross Profit 49,352 2,160,082 363,084 3,782,134
OPERATING EXPENSES
General and Administrative 214,198 508,259 453,049 1,155,276
Amortization -- 77,636 -- 248,430
Depreciation -- 32,225 -- 67,798
----------- ----------- ----------- -----------
Total Operating Expenses 214,198 618,120 453,049 1,471,504
Income (Loss) From Operations (164,846) 1,541,962 (89,965) 2,310,630
OTHER INCOME (EXPENSE)
Interest Income 2,314 -- 2,314 3,741
Interest Expense -- (4,072) -- (5,441)
Income Tax 41,000 -- 22,400 (119,068)
Loss on Sale of Investments (4,871) -- -- (20,784)
Gain on Sale of Investments -- -- 5,379 --
----------- ----------- ----------- -----------
Total Other Income (Expense) 38,443 (4,072) 30,093 (141,552)
Income From Continuing Operations (126,403) 1,537,890 (59,872) 2,169,078
(Loss) from Operations of Discontinued Foreign Subsidiary
-- -- -- (69,531)
Gain on Sale of Discontinued Foreign Subsidiary
-- -- -- 120,895
----------- ----------- ----------- -----------
Total Income from Discontinued Oper -- -- -- 51,364
Net Income (Loss) (126,403) 1,537,890 (59,875) 2,220,442
Retained Earnings (Deficit) - Beginning (259,649) 465,122 (326,180) (217,430)
Retained Earnings (Deficit) - Ending $ (386,052) $ 2,003,012 $ (386,052) $ 2,003,012
=========== =========== =========== ===========
(Loss) Income Per Common Share $ (0.01) $ 0.16 $ (0.01) $ 0.23
=========== =========== =========== ===========
Number of Shares 8,952,542 9,465,184 8,913,908 9,429,434
=========== =========== =========== ===========
See accompanying notes to financial statements.
5
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Common Stock Additional
Number Paid - In
Shares Amount Capital
-----------------------------------------------------
Balance - December 31, 1996 9,190,184 $ 9,190 $ 1,887,376
Sale of Common Stock (Reg S) 75,000 75 524,925
Recapitalization Costs -- -- (174,750)
Asset Acquisition (EmiNet) 200,000 200 1,599,800
Asset Acquisition Costs -- -- (920)
Consolidation Elimination-EmiNet -- -- 14,238
Income from Continuing Operations -- -- --
Disposal of Discontinued Operations -- -- 98,775
[Loss] from Discontinued Operations -- -- --
-----------------------------------------------------
Balance - June 30, 1997 9,465,184 9,465 3,949,444
Contribution of Capital -- -- 13,475
Income - Third Quarter 1997 -- -- --
-----------------------------------------------------
Balance - September 30, 1997 9,465,184 9,465 3,962,919
=====================================================
Retained Total
Earnings Preferred Stockholders'
(Deficit) Stock Equity
Balance - December 31, 1996 $ (217,430) $ -- $ 1,679,136
Sale of Common Stock (Reg S) -- -- 525,000
Recapitalization Costs -- -- (174,750)
Asset Acquisition (EmiNet) -- -- 1,600,000
Asset Acquisition Costs -- -- (920)
Consolidated Elimination-EmiNet -- -- 14,238
Income from Continuing Operations $ 631,188 -- 631,188
Disposal of Discontinued Operations 120,895 -- 219,670
[Loss] from Discontinued Operations (69,531) -- (69,531)
-----------------------------------------------------
Balance - June 30, 1997 465,122 -- 4,424,031
Contribution of Capital -- -- 13,475
Income - Third Quarter 1997 $1,537,890 -- 1,537,890
-----------------------------------------------------
Balance - September 30, 1997 $2,003,012 $ -- $ 5,975,396
=====================================================
See accompanying notes to financial statements
6
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For The Nine Months
Ended
--------------------------------
September 30, September 30,
1996 1997
--------------------------------
Operating Activities:
(Loss) Income From Continuing Operations $ (59,872) $ 2,169,078
---------- -----------
Cash Flows from Operating Activities:
Adjustments to reconcile net loss to net
Cash provided by operating activities:
Depreciation and amortization 10,461 316,228
Consulting fees received in form of Securities (26,246) --
Expenses paid by stockholder 873 --
Gain (loss) on sale of investment (5,379) (20,784)
Changes in operating assets and liabilities:
Decrease (increase) in:
Trade accounts receivable (48,250) (3,726,296)
Prepaid expenses and other current assets -- 70,323
Security Deposits -- (23,831)
Investments -- (52,962)
Refundable Income Tax -- 77,215
Other assets (17,337) (552)
Deferred income tax -- (548,400)
Increase (decrease) in:
Accounts payable and Accrued Expenses 71,252 292,280
Income taxes payable (90,500) --
Customer Deposits -- 64,026
Other Current Liabilities (33,000) 76,754
Loans payable - stockholders 40,600 (9,709)
Deferred Income Taxes -- 585,405
---------- -----------
Net cash - Continuing Operations - Forward (157,398) (731,225)
Discontinued Operations:
(Loss) from Discontinued Operations -- (69,531)
Gain on Disposal of Discontinued Operations -- 120,895
Adjustments to reconcile Net (Loss) to Net Cash -- --
Operations:
Depreciation -- 1,366
---------- -----------
Changes in assets and liabilities:
(Increase) Decrease in: --
Other Assets -- 815
Increase (Decrease) in:
Accounts Payable -- (14,808)
Customer Deposits -- (27,648)
---------- -----------
Total Adjustments -- (41,641)
---------- -----------
Net Cash - Discontinued Operations - Forward -- 11,089
---------- -----------
Net Cash - Operating Activities - Forward (157,398) (720,136)
---------- -----------
Investing Activities - Continuing Operations
Net increase in due from related parties --
Net increase (decrease) in Other Receivable -- --
Sale (Purchase) of Subsidiary -- (1,620,000)
Sale (Purchase) of Investments 40,628 (73,746)
Sale (Purchase) of property and equipment (137,639) (322,870)
---------- -----------
Net cash used in investing activities - Forward $ ( 97,011) $(2,016,616)
See accompanying notes to financial statements
7
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (CONTINED)
For the Nine Months
Ended September 30,
----------------------------------
1996 1997
----------------------------------
Investing Activities - Discontinuing Operations
(Purchase) Disposition of property and equipment $ -- $ 11,110
Net Cash Investing Activities (97,011) (2,005,506)
Financing Activities - Continuing Operations
Proceeds from issuance of common stock 470,746 1,949,330
Increase (Decrease) in loan payable to shareholder -- (9,709)
Additions to paid in capital -- 27,713
Increase in equipment loans -- 95,557
Principal payments on capitalized lease and not borrowing -- (10,565)
Purchase of Treasury Shares (8,250) --
Increase in notes payable -- 155,000
Net cash - Financing Activities - Continuing Operations 462,496 2,207,326
Financing Activities - Discontinued Operations
Additions to Additional paid in Capital -- 98,775
Net Cash Financing Activities 462,496 2,306,101
Increase (Decrease) in cash and cash equivalents 208,087 (419,541)
Cash & cash equivalents beginning of period 200,677 421,188
Cash & cash equivalents, end of period $ 408,764 $ 1,647
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest Expense $ -- $ 5,441
Income Tax Refund (Applied) $ -- $ 77,215
Income Tax $ 90,500 $ 119,068
See accompanying notes to financial statements
8
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Uunaudited)
September 30, 1997
Note 1 - Basis of Preparation
--------------------
The accompanying unaudited interim financial statements
include all adjustments (consisting only of those of a normal
recurring nature) necessary for a fair statement of the
results for the interim periods. The results of operations and
cash flows for the nine month period ended September 30, 1997,
are not necessarily indicative of the results of operations or
cash flows to be reported for the full year ending December
31, 1997.
Note 2 - Business Combination
--------------------
On July 16, 1996, the Company entered into an Exchange of
Stock Agreement and Plan of Reorganization ( the "Stock
Exchange Agreement"). Under the terms of the Stock Exchange
Agreement, the Company acquired all of the shares of Atlantic
International Capital, Ltd. ("Atlantic Capital"), a Delaware
corporation, in exchange for an aggregate of 25,183,759 shares
of its common stock, of which 7,000,000 shares were
immediately issuable and 18,153,759 shares were to be issued
following an increase in the Company's authorized capital. The
Company plans to satisfy this obligation by issuing
approximately 6,061,253 shares of Common Stock to the former
Atlantic Capital stockholders following a 1-for-3 share
exchange upon the consummation of a merger with and into its
wholly-owned subsidiary, Atlantic International Entertainment,
Ltd. which was approved by the Company's stockholders on
November 18, 1996. Upon consummation of the merger, the
Company's authorized capital will increase to 100,000,000
shares of Common Stock, $.001 par value and 10,000,000 shares
of Preferred Stock, $.001 par value. The combination has been
accounted for as a reverse acquisition, and the combined
entity intends to operate under the name Atlantic
International Entertainment, Ltd. The consolidated balance
sheet as of March 31, 1997 does not reflect the effects of the
recapitalization, issuance of the additional common shares, or
the reverse stock split, all of which were approved by the
stockholders on November 18, 1996.
CEEE has conducted only limited operations prior to 1984, and
has been substantially inactive since that time. It previously
considered itself to be a development stage company as defined
in Statement of Financial Accounting Standards No.7.
Note 3 - Business Acquisitions
---------------------
The business acquisition in the first quarter of 1997 has been
accounted for under the purchase method. The results of
operations of the acquired business are included in the
consolidated financial statements from the date acquisition on
March 26, 1997, the Company concluded its acquisition of 100%
of the outstanding stock of The EmiNet Domain, Inc., located
in Boynton Beach, Florida. EmiNet is an Internet Service
Provider (ISP), and developer of Internet related software
products as well as hosting commercial Web sites. The Company
paid $20,000 in cash and issued 200,000 shares of the
Company's common stock (approximate market value on date of
issue $2,000,000). The Stock Purchase Agreement also contains
additional payments contingent on the future earnings
performance of EmiNet. Any additional payments made, when the
contingency is resolved, will be accounted for as additional
costs of the
9
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
Notes to Consolidated Financial Statements (Continued)
September 30, 1997
acquired assets and amortized over the remaining life of the
assets. No payments were paid or accrued for the third quarter
1997.
The following unaudited pro forma consolidated results of
operations for the years ended December 31, 1996 and 1995 are
presented as if the EmiNet acquisition has been made at the
beginning of each period presented. The EmiNet Domain, Inc.
operated as an S Corporation in 1995 and 1996. Included in the
expenses to arrive at Net Earnings are reclassifications of
Shareholders' Draw to Officers Salaries and Income Tax Expense
in the amounts of $26,200 for the short year 1995 and $132,200
for 1996. The unaudited pro forma information is not
necessarily indicative of either the results of operations
that would have occurred had the purchase been made during the
periods presented or the future results of the combined
operations.
Years ended December 31
-----------------------
1996 1995
Net Sales $ 878,097 $ 818,317
Net earnings (Loss) $ (347,072) $ 178,816
Earnings per common share
And common share equivalent $ (.04) $ .02
Note 4 - Major Customers
---------------
Income fees derived from major customers are tabulated as
follow:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------------
1996 1997 1996 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Customer A - (Consulting) 8,000 - $ 28,000 -
Customer B - (Consulting) 12,000 - 21,500 -
Customer C - (Consulting) 48,5000 - 131,000 -
Customer D - (Software System) - - - 600,000
Customer E - (Software System) - - - 410,000
Customer F - (Software System) - - - 450,000
Customer G - (Software System) - - - 150,000
Customer H - (Software System) - 375,000 - 375,000
Customer I - (Software System) - 600,000 - 600,000
Customer J - (Software System) - 450,000 - 450,000
Customer K - (Software System) - 150,000 - 150,000
Customer L - (Software System) - 585,000 - 585,000
10
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
September 30, 1997
Note 5 - Per Share Data
Per share data are based on the weighted average number of
common shares outstanding during the respective periods,
retroactively adjusted to reflect the common shares issued in
exchange for all outstanding common shares of The EmiNet
Domain, Inc., including the additional shares sold pursuant to
a "Reg S" offering in February, 1997.
11
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition
--------------------------------------------------------------
and Results of Operations
-------------------------
Recent Developments
-------------------
On February 5, 1997, the Company entered into an agreement to
purchase The EmiNet Domain, a Boynton Beach, Florida based
Internet Service Provider and Developer of Internet related
software products. The purchase price of $1,620,000 was
payable in cash and stock. The purchase price recorded
reflects a discount in relation to the approximate fair market
value of the stock to take into consideration certain
restrictions placed upon the stock when issued.
The purchase of The EmiNet Domain's Commercial Web-hosting and
ISP base will bring a significant benefit to the Company's
non-gaming Internet products, furthermore, the Internet
software development capabilities of EmiNet will augment the
Company's on-going gaming product development activities.
On March 23, 1997, the Company entered into an Agreement to
sell its Netherland Antilles based subsidiary, Atlantic
International Entertainment, NV. To Australian Advisors
Corporation, a Bahamian corporation. Terms of the sale call
for Australian Advisors Corporation to purchase 100% of the
stock and assets of the subsidiary, including its license
agreement for one webSports(TM)system.
In addition to the sale of the Company's subsidiary, a license
agreement for one Internet Casino Extension(TM) (ICE(TM)) was
also purchased for $600,000.
On January 16, 1997, a Stock Purchase Agreement was signed
with Brindenberg Securities, A/S under Regulation S of the
Securities & Exchange Commission. A total of 75,000 shares
were issued under this agreement.
Results of Operations
---------------------
The Company incurred expenses of $ 1,155,276 in the nine
months ended September 30, 1997. Such expenses were primarily
attributable to marketing the Company's Internet products as
well as continued development of its Internet products.
During the nine month period ended September 30, 1997, the
Company had net income of $ 2,220,442, of which The EmiNet
Domain, Inc., (EmiNet), contributed $65,156 in profits.
Revenue was $ 2,306,017 for the third quarter of which EmiNet
contributed $ 466,285.
Other income (expenses) included the gain on the sale of its
Netherland Antillies based subsidiary, Atlantic International
Entertainment N.V., Ltd. of $120,895. The net (Loss) generated
by this subsidiary for the first quarter 1997 operations until
sale was ($69,531).
12
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (Continued)
During the third quarter the Company continued it's marketing
campaign of it's Internet products and the results of operations
showed four Internet Casino Extension(TM) (ICE(TM)) systems installed
and operational as well as three webSports(TM) system installed and
operational. Support contracts for these systems is expected to
generate an additional monthly income stream of $11,000 for the next
forty-eight months. Product development continues to be an on-going
process as additional features are added to existing products and
additions are made at the customer's request. We anticipate continued
market leadership in the systems offered and anticipate an additional
investment in the development and upgrades of our products of
approximately $400,000 over the next twelve months.
Our wholly owned subsidiary, The EmiNet Domain, Inc., has upgraded
its' hardware and software in order to better compete with area
Internet service providers by offering the latest technology and
system features. An aggressive marketing campaign began in the fourth
quarter aimed at web page hosting, site development, individual and
commercial monthly accounts.
In looking forward to the fourth quarter of 1997 we continue to see
considerable interest building in our Internet products. The Company
has signed contracts and is in the process of installing four
Internet Casino Extension(TM) (ICE(TM)) systems as well as three
webSports(TM) systems and it is anticipated that all installations
will be complete by the close of the fourth quarter. This is expected
to generate sales in excess of $2,000,000 for the quarter. In
addition, these installations are expected to generate additional
monthly income from support and maintenance agreements in excess of
$10,000 per month over the next forty-eight months.
The Company has recently entered into a pilot program in order to
ascertain the viability of entering additional markets in areas such
as Australia. Considerable advances have been made in the Australian
jurisdictions since the second quarter and we continue to be
optomistic over the Australian and area markets.
We continue to watch interest and enthusiasm grow in our products and
we are responding by adding key people in the development, support
and sales areas.
13
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
PART II
Item 1. Legal Proceedings
There are presently no materials pending legal proceedings in
which the Company is a party or to which any of its property
is subject.
Item 2. Changes in Securities
This Item is not applicable to the Company.
Item 3. Defaults upon Senior Securities
This Item is no applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
14
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Atlantic International Entertainment, Ltd.
Date: November 20, 1997 By: /s/ Richard A. Iamunno
-----------------------------
(Signature)
Richard A. Iamunno, President
And Chief Executive Officer
Date: November 20, 1997 By: /s/ David P. Halaburda
-----------------------------
(Signature)
David P. Halaburda
Chief Financial Officer
15