-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P9iyLt6TSuyABQ4m4R7FEsnX7/qbWFG/3OciIxRYqIFGK68SN01X1vcAh1RcG28Q MW5TsV75pOQS5/eVpFGrnA== 0000921895-99-000166.txt : 19990326 0000921895-99-000166.hdr.sgml : 19990326 ACCESSION NUMBER: 0000921895-99-000166 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC INTERNATIONAL ENTERTAINMENT LTD CENTRAL INDEX KEY: 0001003739 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 133858917 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-72007 FILM NUMBER: 99573056 BUSINESS ADDRESS: STREET 1: 200 E PALMETTO PARK RD, STE 200 CITY: BOCA RATON STATE: FL ZIP: 33432 BUSINESS PHONE: 5613936685 MAIL ADDRESS: STREET 1: 200 E PALMETTO PARK RD STE 200 CITY: BOCA RATON STATE: FL ZIP: 33432 FORMER COMPANY: FORMER CONFORMED NAME: CEEE GROUP CORP DATE OF NAME CHANGE: 19951120 SB-2/A 1 FORM SB-2/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1999 REGISTRATION NO. 333-72007 SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. (Exact name of registrant as specified in its charter)
Delaware 1040 13-3858917 (State or other jurisdiction (Primary Standard (I.R.S. employer of incorporation or organization) Classification Code Number) identification number)
200 EAST PALMETTO PARK ROAD SUITE 200 BOCA RATON, FLORIDA 33431 (561) 393-6685 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) HARRY WINDERMAN, ESQ. GENERAL COUNSEL ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. 200 EAST PALMETTO PARK ROAD SUITE 200 BOCA RATON, FLORIDA 33431 (561) 393-6685 (Name, address, including zip code, and telephone number, including area code, of agent for service) APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At a time or times as may be determined by the selling stockholders after this registration statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.[] The Registrant amends this registration statement on a date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on a date as the Commission, acting pursuant to said Section 8(a), may determine. 2 PROSPECTUS 1,216,667 SHARES ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. COMMON STOCK The selling stockholders listed on pages 34 through 41 are offering 1,216,667 shares of the common stock through this prospectus. selling Our shares trade on the electronic bulletin board and our symbol is "AIEE". The closing price per share of common stock on the electronic bulletin board on January 13, 1999, was $2.875. AN INVESTMENT IN THE SECURITIES OFFERED INVOLVES A HIGH DEGREE OF RISK AND SHOULD ONLY BE MADE BY YOU IF YOU CAN AFFORD THE LOSS OF YOUR ENTIRE INVESTMENT. SEE "RISK FACTORS" AT PAGE 7 HEREOF. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. IF ANYONE MAKES ANY OTHER REPRESENTATION IT IS A CRIMINAL OFFENSE. The date of this prospectus is March __, 1999. 3 TABLE OF CONTENTS Available Information.................................... Prospectus Summary....................................... Risk Factors............................................. Price Range of Common Stock.............................. Use of Proceeds.......................................... Dividend Policy.......................................... Selected Financial Data.................................. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. Business................................................. Management............................................... Certain Transactions..................................... Change of Accountants.................................... Description of Capital stock............................. Legal Matters............................................ Experts.................................................. Security Ownership of Certain Beneficial Owners and Management........................................... 4 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. 1,216,667 shares of common stock PROSPECTUS Summary THIS IS ONLY A SUMMARY OF THE INFORMATION THAT IS IMPORTANT TO YOU AND YOU SHOULD READ THE MORE DETAILED INFORMATION, INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. About Us Atlantic International Entertainment, Ltd., a Delaware corporation, develops and markets interactive gaming products and services in the entertainment and information technology fields. These products and services focus on two major industries which include interactive gaming & wagering and information technology products and services. Our Business We develop and market computer software that is sold to licensed casino operators. Our software enables our customers to operate a gaming business over the internet. Our software includes black jack, poker, bingo and other games. We intend to develop additional games. We also operate an internet service provider named Atlantic Internet. Atlantic Internet provides our customers with access to the world wide web and also develops commercial web sites for our customers. Our Offices Our executive offices are located at 200 East Palmetto Park Rd., Suite 200, Boca Raton, Florida 33432. Our telephone number is (561) 393-6685. We have a home page on the internet at http://www.aieltd.com. About The Offering Common stock Offered by the selling stockholders 1,216,667 shares Common stock Outstanding 12,130,307 shares Common stock to be Outstanding after the Offering 10,913,307 shares Use of Proceeds - We will not receive any of the proceeds from the sale of shares by the selling stockholders. Bulletin Board Symbol AIEE Risk Factors An investment in the shares involves a high degree of risk. See "Risk Factors" beginning on page 6 of this prospectus. 5 Summary Financial Data (Dollar amounts and share data)
NINE MONTHS DECEMBER 31 ENDED SEPTEMBER 30 ----------------------------- ------------------------------- 1997 1996 1998 1997 Revenue 4,416,790 454,656 3,497,281 4,070,440 Income [Loss] From Operations 1,394,890 (427,975) (344,800) 2,258,146 Net Income [Loss] 1,047,317 (376,270) 392,174 2,220,442 Basic and Diluted N/I[Loss] Per common Share 0.11 (0.04) (0.04) 0.23 BALANCE SHEET DATA: Working Capital 352,559 199,893 3,139,047 3,022,320 Total Assets 6,905,999 1,982,014 15,063,225 7,489,956 Total Liabilities 1,959,380 302,879 1,580,435 1,514,560 stockholder's Equity 4,946,619 1,679,135 13,482,790 5,975,396
Risk Factors An investment in the shares discussed in this prospectus involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information contained in this prospectus, before making an investment decision. This prospectus contains forward-looking statements that involve risks and uncertainties. These statements appear throughout this prospectus and include our statements and those of and our directors, officers and management, with respect to the future operations, performance or position and as to their intent, belief or current expectations. Such forward-looking statements are not guarantees of future events and involve risks and uncertainties. Actual events and results, including the results of our operations, could differ materially from those anticipated by forward-looking statements, as a result of various factors, including those set forth below and elsewhere in this prospectus. Limited Operating History We can not be sure that we will sustain profitability or positive cash flow in the future. We commenced operations in July 1996 and, accordingly, have a limited operating history. As of September 30, 1998, we had retained earnings of approximately $144,242. Need for Additional Working Capital in Near Future Due to Various Conditions The timing and amount of capital requirements are not entirely within our control and cannot accurately be predicted. If capital requirements materially exceed those currently anticipated, we may require additional financing sooner than anticipated. We have no commitments for additional financing, and we can not be sure that any additional financing would be available in a timely manner, on terms acceptable to us, or at all. Further, any additional equity financing could reduce ownership of existing stockholders and any borrowed money could involve restrictions on future capital raising activities and other financial and operational matters. If we were unable to obtain additional financing as needed, we could be required to reduce our operations or any anticipated expansion, which could hurt us financially. 6 We believe that the net proceeds from recent stock offerings, together with other available cash, will be sufficient to meet our operating expenses and capital requirements at least through September 1999. However, our capital requirements depend on numerous factors, including: o the level of resources required to expand our marketing and sales organization, information systems and research and development activities o the availability of hardware and software provided by third-party vendors Competition in New Business of Internet Gaming We cannot be that we will have the financial resources, technical expertise or marketing and support capabilities to compete successfully in the internet gaming software business. The market for internet gaming software is extremely competitive and highly fragmented. Inasmuch as there are no significant barriers to entry, we believe that competition in this market will intensify. Currently, we have identified four other companies that compete directly with us in the sale of casino gaming software to our potential customers. We believe that our ability to compete successfully will depend on: o strong market presence in our targeted geographic regions o adequacy of our software development and technical support services o our pricing policies and the price of our competitors and our suppliers o timing of introductions of new products by us and our competitors o our ability to support existing and emerging industry standards o industry and general economic trends. So far, these competitors have been more profitable than we have due to their direct sharing of gaming winnings. Our focus has been on the development of better software and we have spent our funds to accomplish this goal. Dependence on the Internet by Our Potential Customers; UnAcceptance of the Internet as a Medium of Commerce and Communication; Lack of Knowledge as to Capacity of Internet A reduction in the growth of demand for internet services or an absolute decrease in demand could reduce or eliminate our internet provider services business. Further, all of our business is dependent upon use of the internet, primarily by individuals and, to a lesser extent, by businesses and by our current and potential customers. Our success in developing methods for delivery and use of our products will depend in part upon the continuing development and expansion of the internet and the market for internet access. Critical issues concerning business and personal use of the internet (including security, reliability, cost, ease of use, access and quality of service) remain unresolved and may significantly affect the growth of internet use, and additional use-related issues may arise in the future. We believe this is critical for our business since substantial funds will be transmitted over the internet. In addition, the volume of internet traffic is constrained by available bandwidth. To the extent that bandwidth is insufficient to efficiently carry an expanding volume of traffic, users may find the internet an unacceptable medium of commerce and communication and, as a result, may seek alternative media. Acceptance of the internet for 7 commerce and communications generally requires that potential users accept a new way of conducting business and exchanging information, industry participants continue to provide new and compelling content and applications, and the internet provides a reliable and secure computer platform. We are not sure that the internet market will grow or as to the rate of growth. Moreover, the novelty of the internet access market may also adversely affect our ability to retain new subscribers, as subscribers unfamiliar with the internet may be more likely to discontinue our services after an initial trial period. Rapid Technological Change in Software and Internet; Evolving Industry Standards on Software Development in the Interactive Gaming Industry Any failure on our part to identify, adopt and use new software effectively, to develop its technical capabilities or to develop new services or enhance existing services in a timely and cost-effective manner could permit our competitors to gain an advantage if they are successful in their efforts. Our business is sensitive to fundamental changes in the method of internet access delivery. Currently, the internet is accessed primarily via computers connected by telephone lines. A number of alternative methods for users to connect to the internet, including cable modems, satellites and other wireless telecommunications technologies, currently are under development. As the internet becomes accessible through these technologies, or as user requirements as to access methods change, we may have to develop new software or modify our existing software. Our pursuit of these technological advances may require substantial time and expense, and there can be no assurance that we will succeed in adapting our internet access business to alternate access methods. Dependence on Telecommunications Carriers and Other Suppliers for Our Method of Product and Service Delivery We are not sure that our customers will be able to obtain telecommunications services on the scale and within the time frame required by them to benefit from our products and services, on acceptable terms or at all. Our customers rely on local telephone companies and others to provide data communications via local telecommunications lines and leased long distance lines. From time to time, our customers have experienced difficulties and delays in receiving telecommunications services. Fast Growth Causing Problems with Control We are not sure that we will be able to manage our growth effectively, or that our facilities, systems, procedures or controls will be adequate to support these operations. Our inability to manage growth effectively could have a bad effect on us by limiting our ability to service our customers and to market our products and services. We have experienced a substantial growth in the number of our employees (5 to over 30) and our business operations. This growth has placed, and may to continue to place, significant strain on our managerial, operational, financial and other resources. We believe that our performance and success will depend in part on our ability to manage growth effectively. This, in turn, will require ongoing improvement of our operations. We have expanded our Board of Directors to include additional business-experienced people. 8 Dependence on Key Personnel to Control Our Business We are not sure that we will be able to retain our employees or to identify or rehire additional people. The need for people is particularly important in light of the anticipated demands of future growth and the competition of the interactive gaming industry. Our inability to attract, hire or retain good people could have a bad effect on us. We are highly dependent on our key employees, including technical, sales, marketing, information systems, financial and executive personnel due to our new products and the new markets and new sales people we have recently hired. Therefore, our success depends upon our ability to train and retain these people and to identify, hire and retain additional people as the need arises. Competition for these people, particularly persons having technical expertise in the internet casino business is substantial. We also are highly dependent on the continued services of our senior management team, which currently is composed of a small number of individuals. While executive officers and key employees have employment agreements with us, agreements are of limited time and are subject to ending under circumstances. Government Regulation of Our Gaming Related Business The legality of gaming on the internet is uncertain at this point. We do not operate virtual casinos or internet sports books. However, sales of our products depend on the continued international growth of virtual casinos and internet sports books. A number of United States federal and state statutes could be construed to prohibit gaming through use of the internet. While we focus sales and marketing efforts in places that allow private network and interactive gaming which include Australian, Caribbean, African and American gaming markets, we are not sure that international, federal, state or local laws or regulatory procedures, including those which relate to the issue of jurisdiction over gaming on the internet, which would hurt our business will not be expanded or imposed. Possible Lack of Protection of Our Proprietary Rights; Risk of Infringement on Others' Rights We believe that our success depends in part on our software and our continuing right to sell software. We rely on a combination of copyright, trademark and trade secret laws and contractual restrictions to establish and protect our software. We do not know if these protections will be sufficient to prevent misappropriation of our software and other proprietary property or that our competitors will not independently develop software that is substantially equivalent or superior to our software. Without substantial protection of our software, we will have nothing of value to sell to licensed casino operators. Also due to the fact that this is a new and rapidly changing business, we can not assure that others will not assert that our services or its users' content infringe their proprietary rights in similar casino software. We can not assure that infringement claims will not be asserted against us in the future. Such claims could result in substantial costs and diversion of resources, even if ultimately decided in favor of us, and could have a bad effect on us, particularly if judgments on claims were against us. In the event a claim is asserted alleging that we have infringed the intellectual property or information of someone else, we may be required to seek licenses to continue to use intellectual property. We are not sure, however, that licenses would be offered or could be obtained on commercially acceptable terms, if at all. The failure to obtain necessary licenses or other rights could have a bad effect on us. 9 Certain Anti-Takeover Provisions Prevent Changes in Managemement Certain provisions of our Amended and Restated Certificate of Incorporation and Bylaws and of the Delaware General Corporation Law could delay or impede the removal of incumbent directors, make more difficult a merger, tender offer or proxy contest involving our company, and could discourage you or others from attempting to acquire control of our company, even if events would be beneficial to the interests of some or all of our stockholders. We currently have 100,000,000 shares of common stock authorized and only approximately 12,000,000 shares are currently outstanding. We will have the ability to issue substantially more shares than are currently outstanding, thereby changing the control of the current stockholders' voting power. In addition, the Board of Directors is authorized to provide for the issuance of shares of Preferred stock in one or more series. The Board of Directors is authorized to determine the rights, preferences, privileges and restrictions granted to, and imposed upon, any series of Preferred stock and to fix the number of shares of any series of Preferred stock and the designation of any series, subject to the consent of the existing holders of Preferred stock in instances. We have no current plans to issue any Preferred stock. We are also subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an "interested stockholder," unless conditions are met. Limited Public Market for Common Stock; Potential Volatility of Stock Price Our operating results, cash flows and liquidity may fluctuate significantly over time. Our revenues depend on our ability to attract and retain customers. We generally offer our new customers a money-back guarantee pro-rated over the unused duration of the service term and customers to our services have the option of discontinuing their service for any reason. Our expense levels are based in part on our expectations of future revenues. To the extent that revenues are below expectations, we may be unable or unwilling to reduce expenses proportionately, and operating results, cash flows and liquidity therefore could be worse than expected. Due to the foregoing factors, it is likely that, from time to time in the future, our quarterly or other operating results and/or growth rate will be below the expectations of public market analysts and investors. Such a failure to meet market expectations could have a bad effect on the market price of the common stock. Prior to this offering, there has been a limited public market for the common stock trading on electronic bulletin board. We are not sure that an increased public trading market for the common stock will develop or continue after this offering, or that the public offering price will correspond to the price at which the common stock will trade subsequent to this offering. The stock market has experienced price and volume fluctuations that have particularly affected the stocks of technology companies, resulting in changes in the market prices of stocks of many companies that may not have been directly related to the operating performance of those companies. Such broad market fluctuations may adversely affect the market price of the common stock following this offering. In addition, the market price of the common stock following this offering may be highly volatile. Factors as variations in our interim financial results, comments by securities analysts, announcements of technological innovations or new products by us or its competitors, changing market conditions in the industry (including changing demand for internet access) changing government regulations, developments concerning our proprietary rights or litigation, many of which are beyond our control, may have a bad effect on the market price of the common stock. 10 Shares Eligible for Future Sale Could Depress the Price of Our Shares Sales of a substantial number of shares of common stock in the public market following this offering, or the perception that sales could occur, could make the market price of the common stock prevailing from time to time go down and could impair our future ability to raise capital through a sale of our stock. Upon completion of this registration, there will be 12,130,307 shares of common stock outstanding, 5,512,641 of which will be freely tradable without restriction. Absence of Cash Dividends We have never declared or paid any cash dividends on its capital stock and do not anticipate paying cash dividends in the foreseeable future. Control by Officers, Directors and Existing Shareholders Prevents Changes in Management Currently, the directors as a group and specifically Mr. Iamunno and Mr. Hoskin and two trusts have the right to vote a majority of the outstanding shares of common stock. This small group will control the operations of our company and make it very hard to elect other management for the company. As a result, the present officers, directors and shareholders will continue to control our operations, including the election of directors and, except as otherwise provided by law, other matters submitted to a vote of shareholders, including a merger, consolidation or other important matters. Risks Inherent in International Operations; Currency Restrictions We do a substantial amount of our business in countries other than the United States. Although we require all payments in United States Dollars, due to fluctuations in other countries' currency, our customers may be required to pay additional amounts to us to adjust for currency fluctuations making the sales price of our products much more expensive. Our competitors may accept payment in the local currency and create an advantage in the sale of their products. In addition, the economic conditions in other countries and in the global economy may require foreign countries to restrict the transfer of its capital to the United States and thereby restrict the receipt of income to us to foreign currency that may fluctuate in value in relation to the United States Dollar keeping sales proceeds in the country of sale instead of in our bank account in the United States. We currently have not experienced any difficulty and have no plans to protect against risks. Indemnification of Officers and Directors The Delaware Statutes permit a corporation to indemnify persons including officers and directors who are or are threatened to be made parties to any threatened, pending or completed action, suit or proceeding, against all expenses including attorneys' fees actually and reasonably incurred by, or imposed upon, him in connection with the defense of action, suit or proceeding by reason of his being or having been a director or officer, except where he has been adjudged by a court of competent jurisdiction and after exhaustion of all appeals to be liable for gross negligence or willful misconduct in the performance of duty. Our Bylaws provide that we shall indemnify our officers and directors to the extent permitted by the Delaware law and thereby limit the actions that may be taken by you against the officers and directors. 11 Forward-Looking Statements The statements contained in this prospectus that are not historical fact are "forward-looking statements," which can be identified by the use of forward-looking terminology as "believes," "expects," "may," "will," "should," or "anticipates," the negatives thereof or other variations thereon or comparable terminology, and include statements as to the intent, belief or current expectations with respect to the future operations, performance or position. These forward-looking statements are predictions. We cannot assure you that the future results indicated, whether expressed or implied, will be achieved. While sometimes presented with numerical specificity, these forward-looking statements are based upon a variety of assumptions relating to our business, which, although considered reasonable by us, may not be realized. Because of the number and range of the assumptions underlying our forward-looking statements, many of which are subject to significant uncertainties and contingencies beyond our reasonable control, some of the assumptions inevitably will not materialize and unanticipated events and circumstances may occur subsequent to the date of this prospectus. These forward-looking statements are based on current information and expectation, and we assume no obligation to update. Therefore, our actual experience and results achieved during the period covered by any particular forward-looking statement may differ substantially from those anticipated. Consequently, the inclusion of forward-looking statements should not be regarded as a representation by us or any other person that these estimates will be realized, and actual results may vary materially. We can not assure that any of these expectations will be realized or that any of the forward-looking statements contained herein will prove to be accurate. Use Of Proceeds We will not receive any of the proceeds from the sale of selling shares by the selling stockholders. Price Range Of Common Stock Since November, 1996, our common stock has traded on the electric bulletin board under the trading symbol AIEE. The following table sets forth the average range of bid and ask quotations for our common stock as reported by the electronic bulletin board for each full quarterly period within the two most recent fiscal years and subsequent interim periods. FISCAL YEAR ENDED DECEMBER 31, 1997 By Quarter Common Stock - ---------- ------------ Quarter Date High Low ------- ---- ---- --- 1st March 31, 1997 $10.25 $1.50 2nd June 30, 1997 $8.50 $1.469 3rd September 30,1997 $5.25 $3.25 4th December 30, 1997 $5.25 $2.75 12 FISCAL YEAR ENDING DECEMBER 31, 1998 By Quarter Common Stock - ---------- ------------ Quarter Date High Low ------- ---- ---- --- 1st March 31, 1998 $4.80 $3.00 2nd June 30,1998 $4.125 $3.625 3rd September 30, 1998 $4.375 $3.875 4th December 31, 1998 $1.968 $1.625 FISCAL YEAR ENDING DECEMBER 31, 1999 By Quarter Common Stock - ---------- ------------ Quarter Date High Low ------- ---- ---- --- 1st through February 2, 1999 $3.00 $2.406 Trading transactions in our securities occur in the over-the-counter electronic bulletin board market. All prices indicated herein are as reported to us by broker-dealer(s) making a market in our securities. The quotes indicated above reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. As of December 31, 1998, there were approximately 827 Holders of record of our common stock, including brokerage firms, clearinghouses, and/or depository firms holding our securities for their respective clients. The exact number of beneficial owners of our securities is not known. Dividend Policy We have never declared or paid any cash dividends on our stock and do not anticipate paying cash dividends in the foreseeable future. The payment of cash dividends, if any, in the future will be at the sole discretion of the Board of Directors. 13 Selected Financial Data (Dollar amounts and share data, except per share data) The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the notes thereto, which appear elsewhere in this prospectus. The Statement of Operations Data for the period ended December 31, 1997, and the Balance Sheet Data as of December 31, 1996 and 1997, have been derived from financial statements audited by Moore Stephens, P.C., independent auditors, whose report with respect thereto appears elsewhere in this prospectus. The Statement of Operations Data for the nine months ended September 30, 1998 has been derived from our unaudited financial statements. In the opinion of management, the unaudited financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the period presented. Operating results for interim periods are not necessarily indicative of the results that might be expected for the entire year. SUMMARY FINANCIAL INFORMATION
YEAR ENDED NINE MONTHS ENDED DECEMBER 31 SEPTEMBER 30 1997 1996 1998 1997 ----------- ----------- ----------- ----------- NET SALES: Investment Advisory Services -- 366,204 -- -- Internet Software / Services 4,002,894 87,000 3,174,000 3,780,272 Medical Products -- 1,452 -- -- Internet Access & Services 413,896 -- 323,281 290,168 ----------- ----------- ----------- ----------- 4,416,790 454,656 3,497,281 4,070,440 OPERATING INCOME/(LOSS): Investment Advisory Services -- 231,081 -- Internet Software / Services 1,564,666 (659,056) (247,956) 250,853 Medical Products -- -- -- -- Internet Access & Services (169,776) -- (96,844) 100,898 ----------- ----------- ----------- ----------- 1,394,890 (427,975) 344,800 2,310,630 TOTAL ASSETS: Investment Advisory Services -- 1,423 -- -- Internet Software / Services 5,181,740 1,980,591 13,462,884 7,489,956 Medical Products -- -- -- -- Internet Access & Services 1,724,259 -- 1,600,341 -- ----------- ----------- ----------- ----------- 6,905,999 1,982,014 15,063,225 7,489,956 DEPRECIATION/ AMORTIZATION: Investment Advisory Services -- 285 -- -- Internet Software / Services 323,959 67,091 325,307 316,228 Medical Products -- -- -- -- Internet Access & Services 98,579 -- 107,913 -- ----------- ----------- ----------- ----------- 422,538 67,376 433,220 316,228 CAPITAL EXPENDITURES: Investment Advisory Services -- 1,423 -- -- Internet Software / Services 490,594 1,490,395 916,661 322,870 Medical Products -- -- -- -- Internet Access & Services 122,558 -- 12,318 -- ----------- ----------- ----------- ----------- 613,152 1,491,818 928,979 322,870
14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- Overview During 1997, we focused our business efforts in two areas, interactive gaming and wagering and information technologies. Gaming and wagering continues to grow in terms of customer base and product line. A market for the gaming and wagering products has been established in that we have entered into various license agreements. We expect to expand our account base with our existing product line for the foreseeable future. At this time efforts in the information technology area mainly consists of the operations of The EmiNet Domain, an internet service provider and developer. We acquired the assets of another internet service provider in November, 1998 in exchange for an amount of our stock not to exceed 200,000 shares. The amount of the shares will be adjusted downward based on representations contained in the acquisition agreement concerning the monthly billings of the acquired company. Results Of Operations The following is a summary of our consolidated financial and operating data: Our net revenues for the nine months ended September 30, 1998 were $3,497,281 which represented a 14 percent decrease from the same period of the year. The decrease in revenues was the result of the development of the new product version. We stopped promotion of the old version and did not allocate large resources to sales and marketing. We currently intend to conduct aggressive sales and marketing campaign for our new products and expect revenues to increase modestly. No income was generated from the investment advisory services for the year ended December 31, 1997. Internet software and related activities generated net income from operations of $1,047,317 due to the growth in the industry and our product recognition. In the first quarter of 1997, AIE(TM) NV and its operations were sold as an operating internet sports book. The operating loss from this discontinued business segment totaled ($69,531) pre tax benefit. In 1997, we continued our focus on internet related products and services while continuing to identify new markets and strategic alliances. In 1997, expenditures were made for both software and hardware in an aggregate amount of $613,152. Additional employees were hired in both the technical and sales areas. With the further development of the internet related software products and the change of business focus, revenues increased by 912%, or $3,962,134 to a total of $4,416,790 for 1997. Depreciation expense and software amortization for 1997 totaled $442,538 or 10.02% of gross revenues. 15 In the first half of the year ended December 31, 1996, the focus of our business activity shifted from investment advisory services to supplying internet related products upon the acquisition of various computer software products from RAM. During this period, investment advisory services were phased out and currently remain an inactive profit center. In 1996, expenditures were made for both software and hardware in an aggregate amount of $1,490,395. Additional employees were hired in both the technical and sales areas. With the further development of the internet related software products and the change of business focus, revenues dropped by 35.26%, or $247,651 to a total of $454,656 for 1996. Investment advisory service income for 1996 was $366,204 representing 80.55% to total revenues. internet related sales totaled $88,452 or 19.45% of total revenues. Depreciation expense and software amortization for 1996 totaled $68,332 or 15.03% of gross revenues. The operating income from the investment advisory services for the year ended December 31, 1996 totaled $231,081. Internet related activities generated a net loss from operations of ($659,056) due to the costs associated with the start up of the new business segment. In the fourth quarter of 1996, our wholly owned subsidiary, AIE(TM), NV, opened a demonstration site for it's internet gaming software in Curacao. In the first quarter of 1997, AIE(TM) NV and its operations were sold as an opening internet casino and sports book. The net operating loss from this discontinued business segment totaled ($29,244). Liquidity And Capital Resources Working Capital: At September 30, 1998 we had a working capital of $3,139,047. At September 30, 1997, we had working capital of $3,022,320. Cash Flows From Continuing Operating Activities: During the nine months ended September 30, 1998 and 1997, net cash used by operating activities was $(1,266,291) and $731,225, respectively. Cash flows from continuing operating activities decreased by $535,066 for the nine months ended September 30, 1998 compared to the same period in 1997 primarily due to decrease in net sales and increase in operational expenses related to global expansion efforts and expenses related to the development of the new product version. Cash Flows From Investing Activities: During the nine months ended September 30, 1998 and 1997, we made net expenditures of $281,934 and $2,016,616, respectively, primarily for purchases of property and equipment, sale of our accounts receivable for stock (September 1998) and the purchase of subsidiary (1997). Cash Flows From Financing Activities: During the nine months ended September 30, 1998 and 1997, cash flows from financing activities were $8,897,401 and $2,207,326, respectively. Cash flows from financing activities are primarily from the issuance of common stock in connection with private placements of our common stock and the sale of preferred stock. We believe that cash from operating activities and sale of its investments will be sufficient to fund proposed operations for at least through December 1999. 16 Liquidity And Capital Resources Working Capital. At December 31, 1997 we had a working capital of $352,559. At December 31, 1996, we had working capital of $199,893. Cash Flows From Continuing Operating Activities. During the years ended December 31, 1997 and 1996, net cash provided (used) by operating activities was ($811,628) and ($193,975) respectively. Cash flows from continuing operating activities decreased by $617,653 for the year ended December 31, 1997 compared to the same period in 1996 primarily due to the transition from start up activities of a new segment of business to the sales and marketing phase with continued product enhancements. Cash Flows From Investing Activities. During the years ended December 31, 1997 and 1996, we made net capital expenditures of $425,862 and $281,934, respectively, primarily for purchases of property and equipment. The amounts expended in 1997 represent expenditures necessary for the internet and private network development and implementation as well as the acquisition and upgrade of the internet service provider. [EmiNet Domain]. Cash Flows From Financing Activities. During the years ended December 31, 1997 and 1996, cash flows from financing activities were $852,012 and 723,425 respectively. For the year ended December 31, 1997, cash flows from financing activities are primarily from the issuance of common stock in connection with private placements of our common stock which raised proceeds of approximately $350,000. Outlook The interactive gaming and wagering industry, is expected to continue to grow for the foreseeable future. Worldwide interest in the ICE(TM) and webSports(TM) software systems is high with particular attention coming from Australia & South Africa where the government is supportive of private network and interactive gaming. Management expects continued sales growth from these products. We will continue to focus its efforts on marketing these software systems as well as the Hotel Hotlinks(TM) and networked touch screen kiosk products. Management believes that interest in all of the interactive gaming & wagering products is very high especially in Australia, South Africa and surrounding regions. We expect to continue sales of these products for the foreseeable future. We will also continue its development of add-on products for both ICE(TM) and webSports(TM) including the adaptations for overseas gaming markets. Management expects continued growth in the information technologies areas. It is expected that through On-line, private network, web and networking services. We are considering expanding our portfolio of information technology companies and are looking for internationally based companies to bring into the United States marketplace. Y2K We have fully investigated the application of any Year 2000 disruptions or complications in the operation of our business or in the operation of any of our services or products. Because we developed our products recently, we were aware of the Year 2000 possible problems and designed our products to avoid disruption. However, to the extent that our business and the business of our customers depends on the use of electricity and telephone lines, we are unable to measure the uncertainities with these resources and do not have the rresources to supply alternative supplies. In the event of a stoppage of either electical service or telephone service, our business would completely stop and we would be forced to stop operating shortly after disruptions. 17 Inflation In our opinion, inflation has not had an effect on our results of operations. Our Business Overview We develop and market interactive products and services in the entertainment and information technology fields. We were incorporated in the state of Colorado in October 1939 under the name "Pacific Gold, Inc." to explore and develop gold and silver ore prospects and to operate mining and milling facilities. Pacific Gold, Inc. conducted limited mining activities until operations ceased. After we changed our name to The CEEE Group, we then sought new business opportunities as a development stage entity. In 1973 we changed our name to Cine-Chrome Laboratories, Inc. and operated a film-processing lab in California. From 1984 until June 1994, we did not conduct any operations, transactions or business activities. In June 1994, we began acting as a corporate advisory operation which included acting as a "finder" with respect to U.S. public companies and providing advisory services concerning corporate structure and raising capital. Beginning in 1996, we have concentrated our business operations primarily on the manufacturing, marketing and development of interactive products and services. These products and services are focused on two major industries that include interactive gaming & wagering and information technology products and services. Prior to July 16, 1996, we had no operations other than searching for a business combination. In July 1996, we consummated a share exchange pursuant to an Exchange of Stock Agreement and Plan of Reorganization with Atlantic International Capital Ltd., a Delaware corporation and the former stockholders of Atlantic Capital. As a result, the business of Atlantic Capital became our business. On November 22, 1996, we merged with and into a wholly-owned Delaware subsidiary, Atlantic International Entertainment, Ltd. We, among other things: o changed our state of incorporation to Delaware o increased our authorized capital stock to 110,000,000 (100,000,000 shares of common stock, $.001 per share (the "common stock") and 10,000,000 shares of preferred stock, $.001 par value per share (the "Preferred stock"); o performed a 1 for 3 share exchange. We acquired the major assets of RAM Associates, Inc. in 1996. The RAM assets we acquired included o COMMUNITY CASINO o REALSPORTS(TM) 18 These products formed a part of the foundation of our current gaming software products. Other products acquired from RAM included HOTEL o HOTLINKS(TM) o CLUB INTERACTIVE. We have significantly improved and expanded this software and the software products developed by RAMus. We continue to perform substantial development efforts to adapt to current technological advances. o In March 1997, we acquired the internet service provider and developer The EmiNet Domain, Inc. Through the EmiNet Domain, Inc. we based our interactive non-gaming wagering products and services. The EmiNet Domain, Inc. offers dial-up internet business web hosting development services to commercial markets. PRODUCTS AND SERVICES INTERACTIVE GAMING AND WAGERING PRODUCTS INTERNET CASINO EXTENSION(TM) - ------------------------- We are a developer and worldwide marketer of private network and interactive gaming and wagering products including our proprietary flagship product, internet Casino ExtensionTM or "ICE(TM)." We license these products to licensed casino, gaming operators and sports wagering businesses. Trial operations, under the name ARUBA PALMS CASINO and SPORTSBOOK, began in October, 1996. Upon conclusion of its successful trial in the first quarter of 1997 the casino site reverted back to its generic name, ICE(TM) and is now available for demonstration for potential new clients. We have added other variations to ICE(TM) aimed at a specific market including Indian Casino ExtensionTM, Interactive Club Extension Internet Charity Extension. We have entered into 11 license agreements for the ICE(TM) product. The base License Agreement calls for a fully customized package of o four (4) casino games o hardware o complete back-office accounting and marketing program for $150,000 plus 10% of net wagering. Additional games and customizations are at additional cost to the customer. All of the $150,000 is now required at contract signing. Additionally, we will receive a fee of $2,000 per month for technical support and product upgrades. 19 WEBSPORTS(TM) - --------- We license the webSports(TM) sportsbook software system to casino operators and sports book businesses. The system can be accessed via the telephone, internet, private network, touch screen kiosk and walk-up sports book. The system allows for automated position keeping as well as manual input into the managing of the sports book operations. The system has American and International sports and allows both fixed price and fractional wagering. As with all of our products, our products create a database including O customer information and preferences O accounting O auditing features. We have entered into 7 license agreements for the webSports(TM) product. The complete system integrating both internet and phone wagering for the U.S. sports markets is offered for $175,000, not including hardware. In addition, we offer an international version that offers U.S., European, Australian and South African style wagering for $225,000. A minimum deposit of $55,000 is required prior to installation. Additionally, we will receive a monthly maintenance and support agreement in the amount of $1,000. NETWORK GAMING - -------------- We offer stand-alone bingo, keno and lottery systems that utilize the ICE(TM) and webSports(TM) gaming platforms. INTERACTIVE CLUB EXTENSION We offer a system that integrates on-site networked touch screen kiosks giving players the ability to play games, both at the venue and at home. HOTEL HOTLINKS(TM) - -------------- We also market the Hotel Hotlinks(TM) system which is a variation and expansion of ICE(TM) and webSports(TM) which has features specific to hotel guests as in-room services, internet access and in-room advertising of local goods and services. The product uses set top boxes and infrared remote controls to allow hotel guests to access gaming and the additional services mentioned above. As of the date hereof, we have not consummated any sales of the Hotel Hotlinks(TM) system. The television set top boxes used in the Hotel Hotlinks(TM) product permit the use of credit cards with personal information imbedded, commonly known as smart cards, for identification and other purposes. This same hardware/smart card technology will be employed in other products that we intend to develop throughout the year ending December 31, 1998. INDUSTRY OVERVIEW The internet is a global network of computers connecting millions of individual computers and more than 70,000 business, commercial, government and academic networks. This interconnectivity allows any one of these computers to transmit information to any other computer. Management believes that there is tremendous growth potential for internet products as consumer and business access becomes easier and more cost efficient. We estimate that there are already over 50 million internet users, and the number of users is growing at a rate of 10% per month. The commodity pricing of powerful computers and the wealth of information available on the internet have all contributed to the creation of a vast market of consumers and business buyers. During the last three years, the number of internet service providers ("ISP's") in the United States has grown from roughly zero to over 3,000. Management attributes the influx of ISP's to several factors which include O an increasing demand for connection to the internet O the internet offers significant marketing opportunities for a variety of products and services O providing internet connections requires minimum expertise and start-up costs 20 The interactive gaming and wagering marketplace has become the next step in the gaming industry. Revenues from the worldwide gaming market exceeds $50,000,000,000. We estimate that gaming revenues derived from just internet gaming revenues will exceed $8,000,000,000 by the year 2000. The integrated interactive gaming and wagering (network gaming terminals, lotteries, internet, telephone) revenues will far exceed that amount. The existing customer base from the established gaming and wagering marketplace will be where the vast majority of these new revenues are derived. Building upon the gaming industry's high customer loyalty level, the existing gaming operators will be able to launch a new generation of gaming and wagering products to it's player base. GROWTH STRATEGY Our current plan of operations is to expand its current worldwide account base by offering a complete interactive gaming & wagering product line. We will also seek to expand upon its current Information technology products and services in the form of international acquisition with or merger into existing operations. Achieving market acceptance for our services and products will require substantial marketing efforts and the expenditure of significant funds to create awareness and demand. MARKETING Our President and Chief Executive Officer runs the marketing effort. We currently employ a direct sales team directed primarily to casino operators and duly licensed sports books throughout the Caribbean, Central & South America and Europe. We want to expand direct sale coverage to the Australian-Asian and African markets by having locally based operations in each region. TRADEMARKS We market our services utilizing various names. We are currently in the process of registering the following trademarks recognizable in the United States: AIE(TM), internet Casino Extension(TM), ICE(TM), webSports(TM), realSports(TM), Indian Casino Extension(TM), internet Charity Extension(TM) and Hotel Hotlinks(TM). We have no patents but we believe that we are protected by copyright laws on our software products even though we have not yet filed for copywrite protection. COMPETITION We compete with other companies involved in the development and marketing of gaming related entertainment and information products and services. We face intense competition in connection with our gaming operations. We believe that our internet casino and sports book products currently compete with four (4) companies. We continue to face increasing competition from both established and newly emerging operations in both the United States and elsewhere. There are numerous casinos and sports books currently operating over the internet, many of which use software developed for their own purposes. We believe that some of these operators may decide to offer to sell their software to other casino and sports book operators in the future. Our gaming products also compete with other forms of gaming activities, including state-sponsored lotteries and horse racing and competes for discretionary spending with other leisure time activities and alternate forms of entertainment. While competition for interactive Gaming is intense, our marketing approach is unique in that the major marketing & sales focus is with the established gaming and wagering marketplace. 21 EMPLOYEES As of November 16, 1998, we had thirty (30) full-time employees (nine (9) employed by EmiNet), of whom two (2) were software engineers. None of our employees is covered by a collective bargaining agreement or is a member of a union. We may also employ full-time and part-time consultants on an as-needed basis. We consider our relationship with our employees to be satisfactory. LEGAL PROCEEDINGS We are a party to pending litigation, both as plaintiff and defendant. However, we believe that said litigation is not material and will not hurt our operations or financial condition. RECENT DEVELOPMENTS In December 1997, we sold Australian Advisers, an Australian business consultant to our company, 100,000 shares of common stock and registered the shares on a form S-8 registration. Australian Advisors continues to render valuable marketing, product development and consulting services to us. On April 3, 1998, we entered into a Securities Purchase Agreement with The Shaar Fund, an Israeli venture fund, for the sale of 10,000 shares of the Convertible Preferred stock for $500,000.00. The Agreement also grants the purchaser the right to purchase up to an additional $2,500,000.00 in Convertible Preferred stock at the same price as the first 10,000 shares of Convertible Preferred stock by April 2, 2000. The Convertible Preferred stock is convertible into our common stock at The Shaar Fund's option. When the Securities Purchase Agreement was signed, we entered into an agreement with The Shaar Fund to register all of the shares of the purchased securities and the common stock that may be issued upon the exercise of the The Shaar Fund's conversion rights. We filed a registration statement with the Securities and Exchange Commission for the registration of the shares of the Convertible Preferred stock and the shares of common stock issuable upon exercise of The Shaar Fund's conversion rights. The registration statement became effective and we will maintain the effectiveness of registration statement for the term of the above Agreement. On April 30, 1998, Hosken Consolidated Investments, Ltd., a South African corporation, purchased 1,000,000 shares of our common stock at $4.00 per share. We issued the shares to Hosken Consolidated Industries to fund operations in South Africa and to obtain additional working capital. On August 24, 1998, our wholly-owned subsidiary, AIE, Australia, Ltd. submitted an offer for the acquisition of an Australian listed company, Coms21. We offered Coms21 shareholders the equivalent of $.70 AUD per share in the form of our U.S. shares. We eventually accepted approximately 12,000,000 shares of Coms21, or approximately 10% of Coms21, in exchange for approximately 1,200,000 shares of our common stock and therafter withdrew our offer for the rest of the Coms21 stock. All of the stock purchases described in this section were offered under Regulation S. 22 INFORMATION PRODUCTS AND SERVICES THE EMINET DOMAIN Our focus outside of interactive gaming & wagering is in information technologies. All non-interactive gaming projects and activities were placed under the supervision and direction of The EmiNet Domain, Inc. ("EmiNet"). EmiNet seeks to expand its current product line and is exploring internet telephony and internet financial transaction products to offer the market in 1999. The EmiNet Domain is a wholly owned subsidiary of Atlantic International Entertainment, Ltd. with its offices in Boca Raton. On December 31, 1998 EmiNet had approximately 10 employees. At present, EmiNet is a South Florida internet service provider with a leased high speed fiber optic telephone lines, computer hardware and software, and points of presence in 18 South Florida cities providing access availability to thousands of customers from Miami to Northern West Palm Beach. EmiNet currently offers a wide range of internet products as a full service internet company. Those products include dial-up access, dedicated high speed access, Integrated Services Digital Network ("ISDN") service, and other internet related services to businesses and individuals including world wide web services, which includes web page design/development and web page hosting, data services and network frame relay services. EmiNet's high speed, digital telecommunications network provides subscribers with direct access to the full range of internet applications and resources in e-mail and web page sites. MEDICAL PRODUCTS In February 1998, we entered into an agreement with ELG Health Management Services, an independent company based in South Florida to market the Atlantic International Medical products & services. ELG Health Management Services will be the sole marketer of the Atlantic International Medical products. ELG will provide us with 40% of the net profits from the sale and distribution of medical products. Currently, we have received no significant revenue from ELG. INTERNET INDUSTRY OVERVIEW The internet had its origins in 1969 as a project of the Advanced Research Project Agency ("ARPA") of the U.S. Department of Defense. The network established by ARPA was designed to provide efficient connections between different types of computers separated by large geographic areas and to function even if part of the network became inoperative. Historically, the infrastructure was used by academic institutions and governmental agencies for remote access to host computers and electronic mail communications. Accordingly, the U.S. government historically provided the majority of funding for the infrastructure. However, as the modern internet developed and became commercial, funding shifted to the private sector. The number of worldwide internet users continues to increase significantly. In a recent government study, it was stated that traffic on the internet doubles every 100 days. Business use is growing the fastest and as many as 62 million Americans now have internet access. In addition, the number of domains registered, which EmiNet believes is a forward-indicator of activity on the internet, has increased at a rapid pace. EmiNet believes that there are several key drivers responsible for the rapid proliferation of internet use: 23 Service Quality: Quality is the differentiating aspect that sets EmiNet apart from the other carriers. Improving Performance - There have been significant bandwidth, communications, and price/performance improvements in communications over the internet. These developments make the internet an increasingly attractive medium for conducting business, adding convenience, and attracting more users. High Speed Modems - As the installed personal computer ("PC") base has grown, it has become increasingly common for those PCs to have a modem connection. Many new computers now have higher speed, pre-installed modems, as a K56 Flex, allowing connections to be made even more easily. Improved Content - As the internet grows new information and services available on the internet have attracted attention and created a more widespread appeal. Expansion Of Local Area Networks And Wide Area Networks - Corporate, government, and educational local area networks and wide area networks used by businesses are expanding and these installed networks enable multiple users to be connected to the internet through a single point of contact. Therefore, the actual number of internet users connected through these networks greatly exceeds the number of connection points. Extranet - Businesses can set up a proprietary network or Virtual Private network using the internet. A Virtual Private network is a secure and cost effective means of data communication. Expectations For Electronic Commerce Over The Internet - With the increased recognition of the internet's potential as a medium for marketing and purchasing, a growing number of companies are initiating or expanding their use of the internet for commercial purposes. The United States Department of Commerce stated that 10 million North Americans made purchases over the internet by the end of 1997. Dramatic Increase In Navigational And Utility Tools - The proliferation and improvement of software tools and browsers, which facilitate internet use, have attracted more users. The world wide web browsers and other user-friendly interfaces have made it easier for users to access desired information on the internet. A convergence is occurring in the internet industry as more traditional internet providers become communications companies and communication companies become internet companies. These factors are creating an environment in which individuals and businesses and other organizations perceive a compelling need to establish internet access and an internet presence. EmiNet believes that its internet access, web services and value-added service offerings are particularly appealing to businesses for a number of reasons. For example, many businesses are accustomed to working with a vendor with a local presence and may prefer to contract with an internet service provider as EmiNet which has a local presence and the experience and reputation of providing quality and dependable service. Furthermore, many businesses have internet requirements that go beyond the simple access that most internet service providers offer. These internet requirements include security, network consulting, high-bandwidth managed access and data services. 24 Eminet Strategy EmiNet is implementing a strategy to become a full service internet service provider company providing a full complement of communication services, a one-stop shop for the small and medium size business user and the consuming public. As a full service internet service provider, EmiNet will continue to offer full web services, including production of web sites, the hosting of web sites and the marketing of web sites. EmiNet believes the foundation for business growth and electronic commerce will be through the creation, hosting and marketing of web sites. As more companies want to sell their products and services over the internet, the demand for web services is expected to increase rapidly. This will require an electronic commerce solutions for most web sites that will be developed for the business community. EmiNet has provided this capability to its customers and expects to expand this through additional E Commerce offerings as ATM. Marketing will play a more important role for web Site owners, as more people will want to monitor the activity on their site. As the demand for speed increases, EmiNet will meet the challenges of providing greater bandwidth to its customers. EmiNet will seek to meet the challenge through various types of dedicated connections at the local loop level and greater bandwidth at the backbone level. The cable industry faces considerable challenges to enter the internet access market. The high cost of cable modems and the cost to upgrade systems may continue to slow that segment of the industry. Given the significant cost for the cable companies to rapidly deploy internet services over coaxial cable, the traditional wire line carriers will remain the dominant providers of internet access in the near term. EmiNet also recognizes the increased security requirements being demanded by some of their medium to large customers. This coming year, they will begin offering security services, which include: producing security documents, installing and configuring firewalls, and for those who request it, EmiNet will remotely manage the customer's firewall. Additionally, vertical markets are becoming more and more important in expanding the level of services. This coming year will see EmiNet enter the world of documents on demand. This is extremely important as the revenues comes from a per page fee per year. This leads to a reoccurring revenue stream, which fits nicely with the many law offices, legal offices and small business which currently are EmiNet customers. 25 EMINET SERVICES EmiNet primarily provides two high quality services which it believes, are competitively priced: internet access service and web services. Internet access services can be divided into two basic categories: personal accounts for individuals and small businesses that connect to the internet via a modem (referred to as "dial-up" accounts), and high speed dedicated accounts (principally for medium to large business users) that connect to the internet via dedicated telecommunications lines. Dial-up subscribers can access the internet by calling EmiNet's local POPs. EmiNet's dedicated accounts consist of subscribers that desire to connect internal computer networks to the internet. EmiNet offers a wide variety of service options, which vary in price depending upon the features included and the data rate, the amount of space, or bandwidth, of the connection. EmiNet bills its internet access subscribers monthly, quarterly or annually in advance. A significant percentage of individual accounts are billed automatically through pre-authorized credit card accounts. EmiNet also provides complete installation services, sales of turnkey networking equipment, education and training services, through their technical support and network monitoring support teams. Web services can also be divided into three basic categories: web hosting services and web production (or content) and web marketing. EmiNet designs web sites and performs additional programming for web sites on behalf of its business subscribers. Charges for web site design and programming vary widely with the size and complexity of the project. EmiNet's web services produce web sites that make use of original graphic arts, interactive forms, data base queries and search engines. EmiNet hosts a substantial number of web sites on behalf of its customers enabling them to have a continued presence on the internet. In addition, EmiNet offers its customers a marketing strategy to insure that their web sites are visited by potential customers. ON-LINE NETWORK REPORTS EmiNet operates a password-protected on-line network reporting service and provides a report to all customers on the traffic and performance of both EmiNet's network and the client's web page hits. TRAINING EmiNet provides on site training or one on one training in their offices. NETWORK INFRASTRUCTURE EmiNet believes that its future success in the internet access services market depends in part on its ability to enhance its current service offerings for individuals and businesses and to advance the capabilities and capacity of its telecommunications network. EmiNet is continuing to optimize and increase the capacity and capabilities of its telecommunications network. EmiNet currently is working to increase its speed, reliability, and network fault tolerance. EmiNet operates a data center, which is located in their Boca Raton office. This facility not only provides redundancies and stability to our network. 26 OPERATIONS AND CUSTOMER SUPPORT EmiNet has approximately 3 employees dedicated to technical dial-up support, commercial account support, network operations and customer service. SALES & MARKETING EmiNet's growth in its subscriber base is attributable to word-of-mouth referrals primarily in the individual dial-up market. EmiNet has a direct sales group in order to support a strong focus on business customers. EmiNet is delivering high-speed internet access solutions and web services to business customers in its regional markets and is differentiating itself through a non-site consultative approach, high-quality services and exemplary customer service. EmiNet believes that its ability to differentiate itself from the national internet access providers, long distance providers and regional telephone companies can best be achieved in the business market by becoming a one stop shop and providing the highest quality of service at competitive prices. EmiNet intends to increase its advertising and to maximize the amount of local newspaper, yellow pages support with press releases and interest articles on EmiNet. COMPETITION The internet connectivity business is highly competitive, and there are no substantial barriers to entry. EmiNet believes that competition will intensify in the future and its ability to successfully compete depends on a number of factors including market presence, the capacity, reliability, and the security of its network infrastructure, its pricing of services compared to its competitors, the timing of new products and services by EmiNet and its competitors, EmiNet's ability to react to changes in the market, and industry and economic trends. EmiNet's competitors and positioning was recently published in the March 13th, 1998 issue of the South Florida Business Journal. The number one (Icanect) is located in Miami and has 17,000 subscribers primarily in the Miami and Southern portion of Ft. Lauderdale. The number two (Florida internet) is in West Palm Beach and extends Northward and has 7,000 subscribers. EmiNet is conveniently located in Boca Raton and address the northern Ft. Lauderdale and Southern Palm Beach area with 4,000 potential subscribers. Numbers 4 through 10 in the survey are all located in Broward county with four in Ft. Lauderdale, one in Hollywood and one in Plantation ranging from 1500 subscribers to 500. We lease approximately 5,150 square feet of office space in Boca Raton, Florida expiring on September 30, 2002 with a monthly rent of approximately $9,100. We believe that our existing facilities are adequate for our current needs and that additional facilities in its service area are available to meet future needs. Eminet leases separate facilities in Boca Raton of approximately 4,000 square feet, with monthly rent of $7,700. 27 Management DIRECTORS AND EXECUTIVE OFFICERS Our directors and executive officers and their positions with us are set forth below. Name Age Position Norman J. Hoskin 63 Chairman of the Board, Secretary and Treasurer Richard A. Iamunno 40 President, Chief Executive Officer, Principal Financial Officer and Director Steven D. Brown 51 Director Martin V. McCarthy 42 Director Jeffrey L. Hurwitz 42 Director Marcel Golding 38 Director Dr. Leonard Haimes 70 Director NORMAN J. HOSKIN has served as the Chairman of the Board, Secretary and Treasurer since July 16, 1996 and served as Chairman of the Board, Secretary and Treasurer of Atlantic since its inception in 1994. Mr. Hoskin served a Senior Vice President of Rentar Industries Group from 1972 to 1982, one of the largest transportation, warehousing and banking conglomerates in the United States. Mr. Hoskin was former Chairman of the Board of Tapistron International and Director and Officer of Trinitech System, Aquacare Systems, Consolidated Technologies , Spintek Gaming and American Artists Corporation . Mr. Hoskin is also a Director and Secretary of Aqua Care Systems. RICHARD A. IAMUNNO has served as a Director, the Chief Executive Officer and President since July 16, 1996 and served as a Director, the Chief Executive Officer and President of Atlantic since its inception in 1994. Prior to starting our business, Mr. Iamunno was President of Ameristar International, an investment banking firm which provided European-based companies with merger assistance into the U.S. public marketplace from December 1992 to June 1994. Mr. Iamunno's business experience includes positions as Senior Director of Marketing and Vice President of Western Union Corporation. Mr. Iamunno has in the past served as a Director of Tapistron International, as a Director and officer of Trinitech Systems, Inc.. Mr. Iamunno earned his Business degree from Drake University in Des Moines, Iowa. STEVEN D. BROWN was appointed a Director on July 16, 1996. Mr. Brown is the Chairman of American Artists Film Corporation, A Georgia-based public company. Since 1989, Mr. Brown has been active in the development of feature film projects, through Movie America Corporation, a Georgia corporation which Mr. Brown helped organize and for which he served as President and Director until leaving that company in 1991 to found American Artists Film Corporation. MARTIN V. MCCARTHY was appointed a Director in March of 1998. Mr. McCarthy was the President and CEO of IDD Enterprises, L.P. which was recently sold to Dow Jones and Company. Mr. McCarthy has been a pioneer in the online world for almost two decades. He has led organization of scale that have created, commercialized and deployed leading edge technologies in the areas of communications, information services and transactions. Prior to joining IDD in 1988, Mr. McCarthy served as Vice President, Office Message and Information Services at Western Union and was the youngest corporate officer in the firm's 130 year history. Mr. McCarthy has an MBA from Harvard University. 28 JEFFREY L. HURWITZ was appointed a Director in March of 1998. Mr. Hurwitz had been the Managing Director of South African based Clinic Holdings since 1987. While at Clinic Holdings, it grew to 26 Hospitals with annual turnover of over $370,000,000. In November 1997 Mr. Hurwitz left Clinic Holdings under the terms of Agreement of Sale. Prior to Clinic Holdings, Mr. Hurwitz was employed as a Chartered Accountant with Deloitte & Touche. Mr. Hurwitz graduated from the University of Witwatersrand in South Africa with degrees in Commerce and Accounting. MARCEL GOLDING was appointed a Director in August of 1998. Mr. Golding is Chairman of Hosken Consolidated Investments (HCI) and Softline Holdings, as well as being a Director of JCI and Global Capital, which are all listed companies on the Johannesburg Stock Exchange. In addition, he was the founding chairman of the Mineworkers Investment Company (linked to the National Union of Mineworkers), one of the two pioneering trade union investment companies in South Africa. He was elected the first Deputy General Secretary of the union in 1987 at the age of 26, and was re-elected on three additional occasions to this post of the Country's largest trade union. From 1994 to 1997 he served as a Member of Parliament, where he chaired the Minerals and Energy Committee and the Audited Commission, the oversight committee of the office of the Auditor-General. Mr. Golding holds a post graduate degree from the University of Cape Town. DR. LEONARD HAIMES was appointed Director in October of 1997. Since 1985, Dr. Haimes has been the Medical Director at the Haimes Centre Clinic in Boca Raton, Florida. As an expert in alternative care & medicine, Dr. Haimes is an often featured media speaker in the United States and internationally. Dr. Haimes was formally the Chief of Staff of the Nevada Clinic of Preventative Medicine. Dr. Haimes has a medical degree from Hahnemann Medical College in Philadelphia, PA. EXECUTIVE COMPENSATION The following table sets forth the total compensation for our executive officers during the year ended December 31, 1998, 1997 and 1996. No other executive officer's salary and bonus exceeded $100,000 for services performed for us during these years. SUMMARY COMPENSATION TABLE ---------------------------------------------------------------------------- NAME AND YEAR SALARY($) BONUS($) PRINCIPAL POSITION ---------------------------------------------------------------------------- Richard A. Iamunno 1998 144,000 -0- President and Chief 1997 91,000 -0- Executive Officer -0- Norman J. Hoskin 1998 144,000 -0- Chairman of the Board 1997 91,000 -0- ---------------------------------------------------------------------------- The columns for "Other Annual Compensation" and "Long-term Compensation" have been omitted as there is no compensation required to be reported in columns. The aggregate amount of perquisites and other personal benefits did not exceed the lesser of $50,000 or 10% of the total of salary and bonus. In addition, the Option Grants in Last Year Table and Aggregated Option Exercises in Last Year and Year End Option Values Table have been omitted as the above named executive officer was not granted any options during the last year and owns no options. BOARD OF DIRECTORS COMPENSATION We do pay directors who are also executive officers for service on the Board of Directors. Directors receive $1,500 per meeting and are reimbursed for their expenses incurred in attending meetings of the Board of Directors. LONG-TERM INCENTIVE AND PENSION PLANS We do not have any long-term incentive or defined benefit pension plans. OTHER No director or executive officer is involved in any material legal proceeding in which he is suing us or he will receive a benefit from the legal proceedings. EMPLOYMENT AGREEMENTS We currently have employment agreements with Messrs. Iamunno & Hoskin. They will continue to serve as our President and Chief Executive Officer, Chairman of the Board, Secretary and Treasurer respectively. It is anticipated that as compensation for their services, we will pay Messrs. Iamunno and Hoskin base salaries of $144,000 each per annum, respectively which shall be subject to annual increases of 10%. The agreements will continue for three years and will expire in the year 2000. Other than the aforementioned agreements, we have not entered into any other employment agreement with any of its officers, directors or any other persons and no agreements are anticipated in the immediate future. 29 INDEMNIFICATION OF DIRECTORS AND OFFICERS Our Charter and Bylaws provide that we shall indemnify all directors and officers to the full extent permitted by the Delaware Corporation Law. Under provisions, any director or officer who, in person's capacity as , is made or threatened to be made a party to any suit or proceeding, may be indemnified if the Board determines director or officer acted in good faith and in a manner director reasonably believed to be in or not opposed to our best interest. The Charter, Bylaws, and the Delaware Corporation Law further provide that indemnification is not exclusive of any other rights to which individuals may be entitled under the Charter, the Bylaws, any agreement, any vote of stockholders or disinterested directors, or otherwise. We have power to purchase and maintain insurance on behalf of any person who is or was our director, officer, employee, or agent, or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise against any expense, liability, or loss incurred by person in any capacity or arising out of his status as , whether or not we would have the power to indemnify person against liability under Delaware law. Security Ownership Of Certain Beneficial Owners And Management The following table sets forth, as of August 12, 1998, information regarding the beneficial ownership of our common stock by each person we know to own five percent or more of the outstanding shares, by each of the directors and officers, and by the directors and officers as a group. As of December 31, 1998, there were outstanding 12,130,307 shares of our common stock. Amount of Beneficial Percent of Name and Address of Beneficial Owner(2) Ownership Class Norman J. Hoskin 1,115,935 11.53% Richard A. Iamunno 1,133,270 11.71% Steven D. Brown 50,000 0.52% Martin V. McCarthy 10,000 0.10% Jeffrey L. Hurwitz N/A Dr. Leonard Haimes 8,333 0.09% The AWIXA Trust 1,161,536 12.0% C/o Mello, Hollis, Jones & Martin 31 Church Street Hamilton, Bermuda The Kunni Lemmel Trust 1,154,868 11.94% C/o Mello, Hollis, Jones & Martin 31 Church Street Hamilton, Bermuda All Officers and Directors as a Group 2,317,538 23.95% (7 persons) 30 (1) Beneficial ownership has been determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934. Generally, a person is deemed to be the beneficial owner of a security if he has the right to acquire voting or investment power within 60 days. (2) Unless otherwise indicated, all addresses are at our office at 200 East Palmetto Park Rd., Suite 200, Boca Raton, Florida 33432. Description Of Capital Stock We have an authorized capital of 100,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of Preferred stock, par value $0.001 per share. As of August 5, 1998, 12,130,307 shares of common stock were outstanding, held of record by 827 persons, and 10,000 shares of Preferred stock were outstanding. Common Stock The holders of common stock are entitled to one vote per share on all matters voted on by stockholders, including the election of directors. Except as otherwise required by law or provided in any resolution adopted by the Board with respect to any series of Preferred stock, the holders of common stock exclusively possess all voting power. Subject to any preferential rights of any outstanding series of our Preferred stock, the holders of common stock are entitled to dividends as may be declared from time to time by the Board from funds available for distribution to holders. No holder of common stock has any preemptive right to subscribe to any securities of ours of any kind or class or any cumulative voting rights. The outstanding shares of common stock are, and the shares, upon issuance and sale as contemplated will be, duly authorized, validly issued, fully paid and nonassessable. Convertible Preferred Stock The Shaar Fund is the sole holder of shares of our Convertible Preferred stock. The Shaar Fund has purchased a total of $1,000,000 of the Preferred stock and has an option to purchase another $1,500,000. There are 5,000 shares of Convertible Preferred stock currently outstanding since The Shaar Fund has converted 5,000 shares of the Convertible Preferred stock. The Shaar Fund has the right to convert the Convertible Preferred stock for the common stock based on a formula which roughly equates to 78% of the trading price for our common stock on an average of several business days. The Shaar Fund would be entitled to convert the Convertible Preferred stock into 33,333 shares of our coomon stock at the current price of $1.50. The holder of the Convertible Preferred stock has the right to require registration of the common stock into which the Convertible Preferred stock may be converted. 31 Other Preferred stock We may issue other preferred stock of a different class from time to time in one or more series. The Board of Directors is authorized to determine the rights, preferences, privileges and restrictions granted to, and imposed upon, any series of Preferred stock and to fix the number of shares of any series of Preferred stock and the designation of any series, subject to the consent of the existing holders of Preferred stock in instances. The issuance of Preferred stock could be used, under circumstances, as a method of preventing our takeover and could permit the Board of Directors, without any action of the holders of the common stock to issue Preferred stock which could have a bad effect on the rights of holders of the common stock, including loss of voting control. Registration Rights Following this offering, no shareholders of our common stock will have rights to register those shares for sale to the public under the Securities Act of 1933, as amended (the "Securities Act"). Certain Provisions of our Charter and Bylaws and of Delaware Law General Our Charter and Bylaws contain provisions that could make difficult the acquisition of control of us by means of a tender offer, open market purchases, proxy fight or otherwise. These provisions may discourage types of coercive takeover practices and inadequate takeover bids and encourage persons seeking to acquire control of us first to negotiate with us. We believe that the benefits of its potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to take over or restructure us outweigh the disadvantages of discouraging proposals because, among other things, negotiation of proposals could result in an improvement of their terms. Our Certificate of Incorporation and By-laws contain provisions which may deter, discourage, or make more difficult the assumption of control of us by another corporation or person through a tender offer, merger, proxy contest or similar transaction or series of transactions. These provisions include an unusually large number of authorized shares of common stock (100,000,000) the authorization of the Board of Directors to issue Preferred stock as described above and the prohibition of cumulative voting. The overall effect of these provisions may be to deter a future tender offer or other takeover attempt that some shareholders might view to be in their best interest as the offer might include a premium over the market price of our capital stock at the time. In addition, these provisions may have the effect of assisting our current management in retaining its position and place it in a better position to resist changes which some stockholders may want it to make if dissatisfied with the conduct of our business. 32 Set forth below is a summary of provisions in the Charter and Bylaws. Delaware General Corporation Law We are subject to the provisions of Section 203 of the Delaware Corporation Law. Section 203 provides, with exceptions, that a Delaware corporation may not engage in any of a broad range of business combinations with a person or affiliate or associate of person who is an "interested stockholder" for a period of three years from the date person became an interested stockholder unless o the transaction resulting in a person's becoming an interested stockholder, or the business combination, is approved by the board of directors of the corporation before the person becomes an interested stockholder o the interested stockholder acquires 85% or more of the outstanding voting stock of the corporation in the same transaction which makes it an interested stockholder (excluding employee stock plans) or o on or after the date the person becomes an interested stockholder, the business combination is approved by the corporation's board of directors and by the holders of at least 66 2/3% of the corporation's outstanding voting stock at an annual or special meeting, excluding shares owned by the interested stockholder. An "interested stockholder" is defined as any person that is (x) the owner of 15% or more of the outstanding voting stock of the corporation or (y) an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three year-period immediately prior to the date on which it is sought to be determined whether person is an interested stockholder. Limitations on Directors' Liability o The Charter contains provisions to eliminate the personal liability of its directors for monetary damages resulting from breaches of their fiduciary duty (other than breaches of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, violations under Section 174 of the Delaware Corporation Law or for any transaction from which the director derived an improper personal benefit) indemnify its directors and officers to the fullest extent permitted by Section 145 of the Delaware Corporation Law, including circumstances in which indemnification is otherwise discretionary.Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons, we has been advised that, in the opinion of the Commission, indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. We believe that these provisions are necessary to attract and retain qualified persons as directors and officers. Transfer Agent The Transfer Agent and Registrar for the common stock is Continental stock Transfer & Trust Company, New York, New York. 33 Change Of Accountants On January 30, 1997, the Board of Directors dismissed Buchbinder Tunick & Company LLP as our independent accountants and on March 5, 1997 appointed Moore Stephens, P.C. as our new independent accountants. Buchbinder Tunick & Company LLP has not reported on any of our financial statements. Since, December 19, 1996 (the date on which Buchbinder was engaged as our independent accountants), there were no disagreements between us and Buchbinder Tunick & Company LLP on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Buchbinder Tunick & Company LLP, would have caused Buchbinder Tunick & Company LLP to make a reference to the subject matter of the disagreements in connection with its reports. Selling Stockholders The following table contains o the number of shares of common stock beneficially owned by the selling stockholders as of December 31, 1998 o the number of shares of common stock to be offered for resale by the selling stockholders o the number and percentage of shares of common stock to be beneficially owned by the selling stockholders after completion of the offering. The selling stockholders have not had a material relationship with us during the past three years. No. of Shares of Common Stock Beneficially Owned Percentage of Shares Name and Offered beneficially owned - --------------------------- ------------------- -------------------- Larry John Adler 5000 * Mr Darren Wayne Allen 1820 Allied Ifs Pty Limited 6000 Allied Systems Pty Limited 6000 Amellen Pty Limited 10000 Mr Mario Amoroso 20000 Mr Ronald S Anderson & 6000 Mr Phillip John Annett 2000 Anz Nominees Limited 27500 Mr David John Arney 6000 Ashdot Pty Limited 17000 Mr Michael Aurisch 10000 Austen Gains Consolidated Pty Limited 11111 Austrust Limited 66364 Aviva Pty Ltd 5000 Aymjay Pty Limited 29000 Bagden Pty Ltd 41000 Mrs Helen Bailey 4000 Mr Joe Bandiziol 4000 Mr Brian Joseph Barker 2000 Mr Trevor James Barker 3000 Mr Raymond Vincent Barlow 5000 Ms Jeanette B Barnes 30000 Barrington International Pty Ltd 8000 34 Mr Timothy Oliver Bayley & Mrs Anita Mary Bayley 30000 Mr Hans Helmut Beier & Mrs Kay Kakabok Beier 15000 Benefit Farm Pty Ltd 20000 Ms Carol Glen Bennetto 9000 Mrs Valerie Louise Bennetto 18000 Mr George Berry 5000 Mrs Diana Bienkiewicz 1200 Miss Christine Patricia Biggs 8300 Miss Jennifer Ann Biggs 26500 Miss Margot Jane Biggs 11500 Birapoint Pty Ltd 15000 Mr William Nicholas Blandford 1000 Mr Willi Boehm 90909 Dr Graham Ross Bonnette 1000 Mr Andrew Boorer 9000 Mr Christopher Booth 1500 Bow Lane Nominees Pty Ltd 837000 Mr Darryl Bowling 10000 Mrs Judith Dianne Bowling 10000 Mrs Wendy Leak Bradford 3300 Mr Nicholas Brinkley 1000 Mr Adam Brown 50000 Ms Bernice Olive Brown 4000 Mr Derek Brown 1000 Mr Gavin Buchanan 1000 & Miss Gloria Carolyn Dawn Burn 5000 Mr Mervyn Leighton Harold 7000 Busmack Pty Limited 10000 Mrs Doris Butler 2000 Mr Troy Steve Butler 2000 Mr Terence Peter Buxton 550 Mr Desmond Andrew Byrne & Mrs Gloria Blanche Byrne 11100 Mrs Dorothy Cairns 3500 Mr Sean Douglas Cairns 7270 Mr Edmund J N Callanan 3000 Mr Celeste Camillo 1000 Mr Per Ejner Carlsen 10000 Mrs Fay Dawn Carrick 30000 S J Casher 4400 Mr Tony Raymond Castleman 89200 Mr Albert Cavallo & Mrs Giulia Cavallo 3000 Celere Pty Limited 20000 Cglw Nominees Pty Ltd 5000 Chase Manhattan Nominees Limited 20000 Mr Ming Fat Chen 12000 Mrs Edna Chien 25000 Mr Barry James Christie 8000 Mrs Sok Ngy Chung 66000 Citicorp Nominees Pty Limited 112200 Mr John Cleave Clemow & Mrs Lynn Roberta Clemow 4300 Mr Frank Coker & 1000 Mrs Annette Coleman 8000 Mr George Austin Colman 4000 Mr Nicholas Antony John Connor 10527 Mr Timothy Connor 10356 Mr Mauro Consalvi 10000 Mrs Jeanette Patricia Cooper 1950 Mrs Jennifer Cooper 1000 Ms Nadina Cooper 200 Coppertech Pty Ltd 72000 Mr Michael Wayne Cottier 2000 Mr Alan John Couch 2250 Mr Ian Crabb 2000 Mr Ian Maxwell Crabb 12500 Mr Thomas Macdonald Crabb 10000 35 Mr Noel Gregory Craske & Ms Margaret Irene 10000 Cush Timbers Pty Ltd 85000 Mr Ian Cuthbertson 5000 Mr Ian Robert Cutmore 1052 Mr Brett Lionel Dale 4500 Data Channel Pty Limited 20000 Mr Neil Alan Davidson 2000 Mr Martin Davies 2000 Mr Allan George Davis 800 Mr Christopher Day 10000 Ms Pauline Ann Day 10000 Ms Hazel Claire Deane & Mr Daine Deane & Ms Nicky Deane 11372 Mrs Annette Cecilia Debenham 8000 Mr Barry Allan De Crummere 4000 Moira Charlotte De Steiger 5000 Mr Mark Dixon 4000 Mr Raymond Doak & Mrs Alysum Doak 6000 Mr Robert Irvin Doig 8000 Mr Ronald Munro Don 5000 Mr Kenneth Edward Dorrell 12000 Double Green Pty Ltd 40000 Drilling Investments Pty Ltd 29000 Drilling Investments Pty Ltd 160000 Mr Arthur Kent Duffield & Mrs Marjorie Duffield 6000 Mr Warren Dunbar 5000 Mr Ronald Stanley Dupen & Mrs Rondalyn Dupen 15000 Duskdell Pty Limited 20000 E & A Frino Pty Limited 10000 Mr Neville Frank East & Mrs Pamela East 8000 Edenlee Pty Ltd 20000 Ms Christine Egan 5000 Mrs Sandra Joan Emery 10000 Fabemu No 2 Pty Limited 285000 Mr Tony Farrugia 4000 Ms Lauren Favretto 4000 Ms Nicole Favretto 4000 Mr Peter Favretto 4000 Mrs Elizabeth Anne Fielding 14700 Mr Melvin Legh Fisher 10000 Mrs Shirley Fladun 2108 Mr Richard Alan Florence 8300 Mr Michael Daniel Flynn & Mrs Jann Maree Flynn 1000 Dr Geoffrey Hunter Ford 10000 Mr Dario Forner 4000 Fos Nominees Pty Limited 10900 Mr Russell France & Mrs Julie Halsall France 2000 Mr Noel Wayne Franks & Mrs Marian Joan Franks 40000 Ms Stella Rose Freund 9600 Mr Raymond Albert Fricker 1000 Mr Andrew Fryer 12500 F W Mitchell Pty Ltd 18000 Sir William Gage & Lady Penelope Gage 30000 G C Black Nominees Pty Ltd 10000 G D Braybrook Pty Ltd 10000 Mr Lennard Edward Genoni 2000 Geoff Ward & Associates Pty Limited 10000 Mr Anthony Humphrey Germain & Mrs Moya Soong Germain 60000 Mr Anthony Humphrey Germain & Mrs Moya Soong Germain 70000 Mr Richard Mark Germain 300000 Giant Nominees Pty Ltd 25000 Mr Howard William Giles 1000 Gladewest Pty Limited 643891 Gladstone River Pty Ltd 40000 Miss Samantha Jane Glencross 12000 36 Golsan Pty Ltd 10000 Golsan Pty Ltd 10000 Mr Olly Goodwin 40000 Mr Olly Goodwin 60000 Ms Katherine Marion Gould 20000 Ms Belinda Jennifer Grant 8000 Mr Peter George Gray & Mrs Anna Patricia Gray 30000 Mr Peter George Gray & Mrs Anne Patricia Gray 10000 Mr Paul Ellis Green 6000 Dr Kathleen Griffiths 6000 Mr Ronald Ivor Griffiths 22150 Mr Geoffrey Allen Groth & Mrs Kathleen Mary Groth 3000 Mr Mark Stephen Groves & Mrs Karen Patricia Groves 2500 Ms Elina Gunawan 1000 Mrs Dorothy Anne Gurevitch 10000 Mr Mark Andrew Haigh 82000 The Hale Agency Pty Limited 265585 The Hale Agency Pty Ltd 355673 Mr Michael Bernard Hale 19500 Mr Raymond George Halford 2043 Mr Colin James Hall 19320 Sydney Keith Hall 10000 Mr Alan Ross Hamilton 5563 Mrs Gloria Juliet Hammond 10000 Dr Anthony John Hanks & Mrs Vicki Joyce Hanks 25000 Mrs Sandra Anne Harding 10000 Ms Robin Haswell 20000 Ms Ronda Rosamond Hatch 20000 Mr Rodney James Hatchett 15000 Mr Keith Ernest Hawton & Mrs Lorraine Susan Hawton 56000 Mr Keith Ernest Hawton & Mrs Lorraine Sue Hawton 54000 Ms Marlene Hay 10000 Mr Paul Anthony Heath & Mrs Genevieve Maria Heath 3900 Mr John Lewis Henden 3000 Mrs Gisella Henry 2750 Mrs Mary Heron 10000 Mr Christopher James Hing 20000 Mr Ian Harold Hobbs 12000 Mr Rodney Mark Hobbs 2000 Dr Trevor Ian Hobbs 10000 Dr Trevor Ian Hobbs 10000 Mrs Marlene Holmes 5000 Ms Dianne Mary Hudson 8000 Mr Carl Hulton & M/S Ann Viney 4000 Mr Brian Ross Humphries 10000 Mrs Kerin Louise Hurrell 10000 Mr Jerry Ianno 1000 Invia Custodian Pty Limited 46000 Mr Andrew Rhys Jackson 10000 Mr Graham Norman Jackson 4000 Jadana Pty Limited 4000 Maj Gen William Brian James 1000 Janase Investments Pty Limited 200019 Mr Scott Jenkins 15000 John T Jennings Pty Ltd 4000 Ms Jill Johnstone 5500 Mr Graham Mitchell Jones 12000 Mr Robert James Judd 4000 Juletta Pty Limited 20000 K Biggs Enterprises Pty Limited 150000 K Biggs Enterprises Pty Ltd 818182 K Biggs Enterprises Pty Ltd 200000 K Biggs Enterprises Pty Ltd 80000 Kalina Holdings Pty Ltd 20000 Mr Stanley Karantoni 5000 37 Mrs Erna Kathriner 2000 Mr Robert Charles Keyes 9300 Mrs Patricia Rose King 10000 Mr Robert John King 10000 Ms Susan Rosalie King 4000 Mr Richard Allen Kirby 4400 Kirkby Investments Pty Limited 370182 Mr Andrew Peter Henry Kiss 5000 Ms Anita Catherine Kuffner 8000 Ms Anita Catherine Kuffner 5221 Mr John Lak 4000 Miss Kim Elizabeth Lakatos 2000 Mr Benjamin Lancsar 2500 Mrs Hui Yun Lao 4000 Larkdell Pty Limited 20000 Mr Jeremy Lasek 2500 Mr Yuk Wing Leung & Mrs Yim Ling Ho Leung 5000 Mrs Robyn Lucy Lewis 2000 Lewnor Pty Ltd 5000 Mr Jonathan Liew 40000 Mr Craig Lilienthal 8000 Ms Shirley May Lilienthal 18000 Lisdoon Management Pty Ltd 45000 Lotta Nominees Pty Ltd 18000 Mrs Cathy Lozier 55513 Miss Lesley Ludkin 1000 Mrs Sharren Leanne Ludlow 1000 Luton Park Pty Ltd 12000 Mr Blake Lynn 10000 Mr Andrew Grant Macdonald & Mrs Lisa Janet Macdonald 5000 Mrs Joanne Mary Macdonald 2000 Mr Anthony Magnus 30000 Mango Nominees Pty Ltd 30000 Mr Robert Marr 90000 Mr Gary Martin 1800 Mr Yutaka Maruta & Ms Mie Urayama 20000 Mr Donald Mazlin 10000 Mr John Fitzgerald Mccarthy 3000 Miss Inda Marie Mccauley 5000 Mr Perry Mcgill & Ms Charlene Beale 3250 Mr Bruce Ian Mcintyre 1000 Mrs Gayle Magaret Mckew & Mr Wayne Kenneth Mckew 2000 Mr Michael Mclagan & Mrs Pat Mclagan 20000 Mr Michael Mclagan & Mrs Pat Mclagan 20000 Mr Barry Robert Mclean & Mrs Louise Mclean 5000 Mrs Lois Mcnamara 6000 Mr Mark Mcnamara & Mrs Maybron Mcnamara 17365 Mr Ewen John Mcpherson 20000 Mr Trevor Mcpherson 177273 Mr John William Meads & Mrs Wendy Edna Meads 40000 Mr John William Meads & Mrs Wendy Edna Meads 15000 Mentoran Pty Limited 20000 Mentoran Pty Limited 10000 Mr David Wheeler Mercer & Mrs Dianne Esther Mercer 10000 Mibran Services Pty Limited 12000 Miss Betty Lorraine Miller 10000 Mr Geoffrey John Mitchell 2000 Mr Maxwell Mitchell 2000 Mr Gerald Chan Yin Mok & Miss Alza Tsui-Yan Wong 5000 Mulbridge Pty Limited 10000 Mr Enoch Muriti 2000 Ms Derryth Nash 7500 Mrs Wendy Nash 5300 Nasir Dean Pty Limited 40000 Nasir Dean Pty Ltd 30000 National Nominees Limited 110000 38 Mr Atul Chandra Nayak & Mr Kurt Francis 5000 Irena Nebenzahl 25000 Mr John Edward Neilsen 4000 Mr Richard Jones Neves 2000 Miss Elisha Gay Newman 1000 Miss Erin Clare Newman 2000 Mr Grant Peter Newman 3000 Mr James Patrick Newman 10000 Niab Holdings Pty Limited 65455 Mr Brian Gregory Nicholls & Mrs Mary Nicholls 9400 Mr Herbert Nixon & Mrs Joy Nixon 2000 Noray Investments Pty Ltd 10000 Noray Investments Pty Ltd 20000 Noray Investments Pty Ltd 10000 Noray Investments Pty Ltd 10000 Noray Investments Pty Ltd 10000 Noray Investments Pty Ltd 10000 Noray Investments Pty Ltd 10000 Noray Investments Pty Ltd 10000 Noray Investments Pty Ltd 8000 Noray Investments Pty Ltd 4000 Noray Investments Pty Ltd 20000 Noray Investments Pty Ltd 12000 Noray Investments Pty Ltd 10000 Noray Investments Pty Limited 10000 Nordsvan Pty Ltd 10000 Mr John Frederick Nunn 6000 Mr Peter O'brien 10000 Mrs Traci Leanne O'brien 17500 Mr Richard Charles Ochojski 8000 Mrs Nicola Jane O'neill 45454 Overshire Pty Ltd 10000 Mr Bruce Paige & Mr Sean Lawson 2000 Pal Nominees Pty Ltd 10000 Ms Fiona Heather Patten 4000 Mr Robert Penfold & Mrs Susan Penfold 2272 Mr Anthony Desmond Percival 1000 Mrs Shirley-Ann Percival 5000 Perpetual Custodians Limited 10000 Mrs Narelle Joan Peters 4000 Miss Margerita Pietilainen 6000 Mr Hugo Pikse 4000 Mr Beno Pipersberg & Mrs Evelyne Pipersberg 7000 Mr Shaun Polovin 6000 Taryn Polovin 6000 Mr Joseph Pongrac 4000 Mr Selvam Ponnuthurai 3500 Ponton Investments Pty Ltd 40000 Mr Stephen John Powell 11111 Mr John Peter Price 3000 Primerate Investments Pty Ltd 4000 Mr Mark Provost 500 Mr Ian Pynt 10000 Pyrotherm Pty Ltd 10000 Quest Traders Pty Ltd 10000 Mrs Jennifer Michelle Radford 27273 Ms Rosemary Louise Radford 6000 Radio & Television Academy Pty Limited 5000 Ms Leanna Patricia Ralph & Mr Spyros Sideratos 10000 Ms Annette Joy Randall 4000 Mr Emilio Rao & Mrs Carmen Rao 5000 Raptai Holdings Pty Ltd 6000 Ms Patricia Anne Reibelt 4000 Mr Anton Renkema 10000 Mrs Llayana Valetta Richards 147000 39 R J Pty Limited 10000 Mr Gregory Samuel Robson 13000 Mr Gregory Samuel Robson 2633 Mr John Leonard Maxfield Rogers & Mrs Sylvia Mary Rogers 5000 Ms Sandra Rose 4300 Mrs Debora Kay Rossiter 1897 R W Wilkins & Associates Pty Ltd 4000 Ryan Consultancy Group Pty Ltd 18000 Saltbush Nominees Pty Ltd 200000 Sardon Investments Pty Ltd 10000 Mr Martin Satterthwaite 2000 Mr Geoffrey Saxton & Mrs Norma Saxton 2000 Mr Claude George Scarfidi & Mrs Leonie Elizabeth Scarfidi 8000 Mr Olav Schappacher 1000 Mr Alan Rodney Schwab & Mrs Lolita Acabodillo Schwab 5000 Mrs Katrina Louise Scott 20000 Mr Edgar Sediey & Mrs Mabel Impieri 100000 Mr Karl Seidler 8772 Mr Greg Seymour 1650 Mr George Francis Shanton & Mrs Lesley Anne Shanton 16000 Mr Robert Shaw 2000 Mr David Wayne Shields & Mrs Browyn Clara Shields 2500 Ms Susan Shing 2000 Silmar Pty Limited 30000 Sinomer Pty Ltd 10000 Skyglen Pty Ltd 8000 Mr Graeme Ian Smail & Mrs Helen Elizabeth Smail 1000 Mr Samer Smair 20000 Mr Shaun Anthony Smith 1220 Mr Steven Smith 4400 Mr Michael Joel Solomon & Mrs Rosemary Solomon 18000 Ms Nina Solomons 11500 Mr Tack Kuang Soon 30000 Spicer Management Pty Limited 20000 Stephens Enterprises Pty Ltd 32000 Stevac Pty Ltd 62905 Mrs Kathleen Stevens 8000 Mr Alan James Stewart 40000 Mrs Sandra Marion Still 5000 Mr Mario Anthony Stivala 5000 Mr John Michael Stott & Mrs Priscilla Frances Stott 10000 Mrs Lesley Edna Strange 18000 Mr William Edward Strange 19000 Mr Chiung Yu Su 3000 Mrs Kalaichelvi Sundararaju 5000 Surostyle Pty Ltd 10000 Mrs June Marie Swan 4000 Mr Maxwell Owen Sweetman 6000 Sydney Allen Holdings Pty Ltd 10000 Mr Peter Frank Sydney 10000 Mr Mark John Sykes 5800 Systemlink Pty Limited 35000 Mr Nabih Taleb 22000 Ms Kim Lai Tan 36000 Mr Kim Seong Tan 10000 Tasa Nominees Pty Ltd 303000 Teakhold Pty Limited 177000 Terelba Pty Limited 20000 Dr Deo Tewari 25000 Theunar Pty Limited 1325 Mrs Carol Ann Thompson 4000 Mr Glen Thorpe & Mrs Lorna Thorpe 6000 Mr Glen Campbell Thorpe 2500 Mr Fan Him Tjan 10000 Mr Thomas Alexander Tonkin 10000 Mr Vince Torcasio 4000 Trapdoor Pty Ltd 10000 Mr Nicolas Tsotsos & 40 Mrs Angela Tsotsos 18000 Mr Michael Turano & Mrs Antoinette Turano 10000 Mr Phillip Tustin 40000 Mrs Leigh Robyn Van Haalen 4000 Mr Troy Van Heemst 1000 Ms Mary Therese Vaughan 10000 Ms Veronik Verkest 6000 Mr Ben Mark Vigilante 1520 Viper Investments (Australia) Pty Ltd 10000 Viper Investments Pty Limited 20000 Mrs Sara Elizabeth Wakeling 8000 Mrs Judith Anne Walding 2000 Miss Carol Ann Wallbank 1600 Mrs Helen Margaret Wallbrink & Mr Robert John Wallbrink 2000 Mr David Charles Wallis 5800 Wei Jian Wan & Jing Jing Wang 8000 Wangi Man Pty Ltd 20000 Mr Robert Murdoch Wardlaw 255 Mr John Watson & Mr Robert Harrod 1000 Mrs Margeret Irene Weiss 7000 Mr Geoffrey Brian Wells 5000 Mr John Charles Wells 10000 Mrs Wendy Whatson 5000 Mr Anthony John Wheeler 1000 Mrs Edith Wheeler 500 Mr Geoffrey Whitaker & Mrs Margaret Ellen Whitaker 35000 Mr David Floyd White 8300 Wica Investments Pty Limited 70000 Wilf Barker Australia Pty Ltd 10000 Mr Larry Robert Williams & Mrs Diana Margaret Williams 5000 Mr Peter Richard Williams 25000 Mr Alexander Richard Wilson & Mrs Grace Margaret Wilson 20000 Mr Alexander Richard Wilson 10000 Mr John Walby Wilson 20000 Mr Graeme Joseph Wiseman 4000 Mr Ming Wong 2500 Mrs Siew Yun Wong 12000 Mr Simon Shing Tak Wong 10000 Woodhouse Nominees Pty Ltd 16559 Mr Alistair Gordon Worrall 20000 Mr Bruce Wyatt & Mrs Nancy Wyatt 20000 Mr Brant William Yench 1000 Mr Norman John Yench & Mrs Lynda Gaye Yench 3000 Mr Donald Charles Young 16000 Mr Hubert Zochling 1000 Mrs Livia Zsido 15000 Mr Steven Andrew Zuckerman 19000 Mr Alexander James Zylberberg 4000 - -------------------------------------------------------------------------------- (1) As to all of the Selling Stockholders, they each have less than 1% of our stock before this Offering and each selling stockholder will have 0% after this Offering assuming they sell the stock listed above. We assume that all Common Stock offered by the Selling Stockholders will be sold. We can not be sure that the Selling Stockholders will opt to sell any of the shares of Common Stock offered. To the extent required o the specific shares of Common Stock beneficially owned by such Selling Stockholders o the public offering price of the Shares to be sold o the names of any agent, dealer or underwriter employed by such Selling Stockholders in connection with such sale o any applicable commission or discount with respect to each o offer will be set forth in an accompanying prospectus supplement. 41 THE SHARES COVERED BY THIS PROSPECTUS MAY BE SOLD FROM TIME TO TIME SO LONG AS THIS PROSPECTUS REMAINS IN EFFECT; PROVIDED, HOWEVER, THAT THE SELLING STOCKHOLDERS ARE FIRST REQUIRED TO CONTACT OUR CORPORATE SECRETARY TO CONFIRM THAT THIS PROSPECTUS IS IN EFFECT. THE SELLING STOCKHOLDERS EXPECT TO SELL THE SHARES AT PRICES THEN ATTAINABLE, LESS ORDINARY BROKERS' COMMISSIONS AND DEALERS' DISCOUNTS AS APPLICABLE. The selling stockholders and any broker or dealer to or through whom any of the shares are sold may be deemed to be underwriters within the meaning of the Securities Act of 1933 with respect to the common stock offered and any profits realized by the selling stockholders or brokers or dealers may be deemed to be underwriting commissions. Brokers' commissions and dealers' discounts, taxes and other selling expenses to be borne by the selling stockholders are not expected to exceed normal selling expenses for sales over-the-counter or otherwise, as the case may be. The registration of the shares under the Securities Act of 1933 shall not be deemed an admission by the selling stockholders or us that the selling stockholders are underwriters for purposes of the Securities Act of 1933 of any shares offered under this prospectus. Plan Of Distribution This prospectus covers 1,216,667 of our common stock. All of the shares offered are being sold by the selling stockholders. The Securities covered by this prospectus may be sold under Rule 144 instead of under this prospectus. We will realize no proceeds from the sale of the shares by the selling stockholders. 42 The distribution of the shares by the selling stockholders is not subject to any underwriting agreement. The selling stockholders may sell the shares offered from time to time in transactions on one or more exchanges, in the over-the-counter market, in negotiated transactions, or a combination of methods of sale, at fixed prices which may be changed, at market prices prevailing at the time of sale, at prices relating to prevailing market prices or at negotiated prices. In addition, from time to time the selling stockholders may engage in short sales, short sales against the box, puts and calls and other transactions in our securities or derivatives thereof, and may sell and deliver the shares in connection therewith. From time to time the selling stockholders may pledge their shares with their brokers. Upon a default by the selling stockholders, the broker may offer and sell the pledge shares. The selling stockholders' sales may be effected by selling the shares to or through broker-dealers, and broker-dealer may receive compensation in the form of discounts, concessions or commissions from the selling stockholders and/or the purchasers of the shares for whom broker-dealers may act as agents or to whom they sell as principals, or both (which compensation as to a particular broker-dealer might be in excess of the customary commissions). The selling stockholders and any broker-dealers that participate with the selling stockholders in the distribution of the shares may be deemed to be underwriters within the meaning of Section 2(a) (11) of the Securities Act and any commissions received by them and any profit on the resale of the shares may be deemed to be underwriting commissions or discounts under the Securities Act. The selling stockholders will pay any transaction costs associated with effecting any sales that occur. In order to comply with the securities laws of states, if applicable, the shares will be sold in jurisdictions only through registered or licensed brokers or dealers. In addition, in states the shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with by usand the selling stockholders. Any broker-dealer acquiring common stock offered may sell securities either directly, in its normal market-making activities, through or to other brokers on a principal or agency basis or to its customers. Any sales may be at prices then prevailing on Nasdaq, at prices related to prevailing market prices or at negotiated prices to its customers or a combination of methods. In addition and without limiting the foregoing, the selling stockholders will be subject to applicable provisions of Regulation M, which may limit the timing of the purchases and sales of shares of common stock by the selling stockholders. The selling stockholders is not restricted as to the price or prices at which it may sell its shares. Sales of these shares may have an adverse effect on market price of common stock. Moreover, the selling stockholders is not restricted as to the number of shares that may be sold at any time, and it is possible that a significant number of shares could be sold at the same time which may also have an adverse effect on the market price of our common stock. We have agreed to pay all fees and expenses incident to the registration of the shares , except selling commissions and fees and expenses of counsel or any other professionals or other advisors, if any, to the selling stockholders. 43 This prospectus also may be used, with our consent, by donees or other transferees of the selling of the selling stockholders, or by other persons acquiring the common stock under circumstances requiring or making desirable the use of this prospectus for the offer and sale of shares. Legal Matters The validity of the shares will be passed upon for us by its counsel, Harry Winderman, Esq., Boca Raton, Florida. Experts The financial statements of Atlantic International Entertainment, Ltd. at December 31, 1997 and 1996, appearing in this registration statement have been audited by Moore Stephens, P.C., our independent auditors. NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN GIVEN ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THE INFORMATION CONTAINED OR INCORPORATED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US, BY THE SELLING STOCKHOLDERS OR BY ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES DESCRIBED IN THIS PROSPECTUS OR AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY SUCH SHARES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. WHERE YOU CAN FIND MORE INFORMATION We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended and , we file reports, proxy statements and other information with the Securities and Exchange Commission. These reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Securities Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 as well as at the following regional offices: 7 World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60606-2511 upon payment of the fees prescribed by the Securities Exchange Commission. This material may also be viewed on the internet at http//www.sec.gov. We have also filed with the Securities Exchange Commission a Form SB-2 registration statement under the Securities Act of 1934 with respect to the shares offered by the selling stockholders listed in this prospectus. This prospectus does not contain all of the information set forth in the registration statement, parts of which are omitted to comply with the rules and regulations of the Securities Exchange Commission. For further information, please see the registration statement. 44 INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report............................................F-2 Balance Sheet at December 31, 1997......................................F-3 Statements of Operations for the years ended December 31, 1997 and 1996..........................................F-5 Statement of stockholders' Equity (Deficit) For the years ended December 31, 1997 and 1996......................F-6 Statements of Cash Flows for the years ended December 31, 1997 and 1996..........................................F-7 Notes to Audited Financial Statements...................................F-9 Unaudited Balance Sheets at September 30, 1998..........................F-25 Unaudited Statement of operations for the nine months ended September 30, 1998 and 1997.................F-27 Unaudited Statements of Cash Flows for the nine months ended September 30, 1998 and 1997.................F-28 Notes to Unaudited Financial Statements.................................F-30 F-1 INDEPENDENT AUDITOR'S REPORT To the Stockholders and Board of Directors of Atlantic International Entertainment, Ltd. We have audited the accompanying consolidated balance sheet of Atlantic International Entertainment, Ltd. and its subsidiaries as of December 31, 1997, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the two years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Atlantic International Entertainment, Ltd. and its subsidiaries as of December 31, 1997, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /S/ MOORE STEPHENS, P. C. ------------------------- MOORE STEPHENS, P. C. Certified Public Accountants. Cranford, New Jersey April 24, 1998 F-2 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
ASSETS: CURRENT ASSETS: Cash and Cash Equivalents $ 11,260 Accounts Receivable [Net of Allowance for Doubtful Accounts of $22,204] 43,228 Notes Receivable 1,927,899 Refundable Income Taxes 77,215 Deferred Tax Asset 176,812 Prepaid Expenses 6,564 Other Current Assets 10,000 ---------- TOTAL CURRENT ASSETS 2,252,978 ---------- FURNITURE, FIXTURES AND EQUIPMENT - NET 464,454 ---------- SOFTWARE [NET OF ACCUMULATED AMORTIZATION OF $313,655] 1,285,574 ---------- COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED - [NET OF ACCUMULATED AMORTIZATION OF $78,132] 1,465,149 ---------- OTHER ASSETS: Due from Related Parties 49,855 Other Assets 18,781 Investments 10,125 Notes Receivable [Net of Discounts and Reserve] 1,359,083 ---------- TOTAL OTHER ASSETS 1,437,844 ---------- TOTAL ASSETS $6,905,999 ==========
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements. F-3 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997. LIABILITIES AND STOCKHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts Payable and Accrued Expenses $ 951,592 Notes Payable - Officers 166,636 Due to Customers 20,721 Current Portion of Long-Term Debt 36,000 Current Portion of Capital Lease Obligations 41,427 Income Taxes Payable - Federal 605,213 Income Taxes Payable - State 29,123 Line of Credit 24,391 Other Current Liabilities 25,316 ----------- TOTAL CURRENT LIABILITIES 1,900,419 LONG-TERM DEBT 4,500 CAPITAL LEASE OBLIGATIONS 54,461 COMMITMENTS AND CONTINGENCIES -- ----------- TOTAL LIABILITIES 1,959,380 ----------- STOCKHOLDERS' EQUITY: Preferred Stock - Par Value $.001 Per Share; Authorize 10,000,000 Shares, None Issued or Outstanding -- Common Stock - Par Value $.001 Per Share; Authorized 100,000,000 Shares, Issued and Outstanding 9,590,184 Shares 9,590 Additional Paid-in Capital 4,149,906 Unrealized Holding Loss on Marketable Securities (42,763) Retained Earnings 829,886 ----------- TOTAL STOCKHOLDERS' EQUITY 4,946,619 ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,905,999 =========== The Accompanying Notes are an Integral Part of these Consolidated Financial Statements. F-4 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ------------ 1 9 9 7 1 9 9 6 ------- ------- REVENUE $ 4,416,790 $ 454,656 COST OF SALES 527,344 48,894 ----------- ----------- GROSS PROFIT 3,889,446 405,762 ----------- ----------- GENERAL AND ADMINISTRATIVE 1,895,616 766,361 PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES 412,698 -- DEPRECIATION AND AMORTIZATION 186,242 67,376 ----------- ----------- TOTAL OPERATING EXPENSES 2,494,556 833,737 ----------- ----------- INCOME [LOSS] FROM OPERATIONS 1,394,890 (427,975) ----------- ----------- OTHER INCOME [EXPENSES]: Interest Income 17,331 4,350 Interest Expense (10,477) (2,870) Interest Expense - Related Party (7,525) (1,302) Other Income [Expense] (34,669) 3,556 ----------- ----------- OTHER [EXPENSES] INCOME - NET (35,340) 3,734 ----------- ----------- INCOME [LOSS] FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE [BENEFIT] EXPENSE 1,359,550 (424,241) INCOME TAX EXPENSE [BENEFIT] EXPENSE 411,325 (77,215) ----------- ----------- INCOME [LOSS] FROM CONTINUING OPERATIONS 948,225 (347,026) DISCONTINUED OPERATIONS - [NET OF INCOME TAXES OF 51,047]: [Loss] from Operations of Discontinued Foreign Subsidiary (45,890) (29,244) Gain on the Disposal of Discontinued Foreign Subsidiary 144,982 -- ----------- ----------- NET INCOME [LOSS] $ 1,047,317 $ (376,270) =========== =========== INCOME [LOSS] PER COMMON SHARE: Continuing Operations .10 (.04) Discontinued Operations .01 -- ----------- ----------- BASIC AND DILUTED NET INCOME PER SHARE OF COMMON STOCK $ .11 $ (.04) =========== =========== WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING 9,452,992 8,514,537 =========== ===========
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements. F-5 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK UNREALIZED --------------------- ADDITIONAL LOSS ON RETAINED TOTAL PREFERRED NUMBER OF PAID-IN MARKETABLE EARNINGS STOCKHOLDERS' --------- --------- ------- ---------- -------- ------------- STOCK SHARES AMOUNT CAPITAL SECURITIES (DEFICIT) EQUITY ----- ------ ------ ------- ---------- --------- ------ BALANCE - DECEMBER 31, 1995 $ -- 6,803,451 $ 6,803 $ (6,713) $ -- $ 158,839 $ 158,929 Equity of CEEE [1] -- 1,500,033 1,500 (6,794) -- -- (5,294) Sale of Common Stock -- 13 13 35,749 -- -- 35,762 Recapitalization Adjustment [1] -- (13) (13) 13 -- -- -- Private Placement [1] -- 886,700 887 825,994 -- -- 826,881 Asset Acquisition [4] -- 200,000 -- 1,200,000 -- -- 1,200,000 Recapitalization Adjustment [1] -- (200,000) -- -- -- -- -- Recapitalization Costs [1] -- -- -- (160,873) -- -- (160,873) [Loss] from Continuing Operations -- -- -- -- -- (347,026) (347,026) [Loss] from Discontinued Foreign Subsidiary -- -- -- -- -- (29,244) (29,244) ------- ------------- --------- ------------- ---------- ----------- ----------- BALANCE - DECEMBER 31, 1996 -- 9,190,184 9,190 1,887,376 -- (217,431) 1,679,135 Sale of Common Stock -- 75,000 75 350,175 -- -- 350,250 Sale of Common Stock -- 25,000 25 -- -- -- 25 Asset Acquisition [Note 8] -- 200,000 200 1,598,880 -- -- 1,599,080 Conversion of Debt to Equity -- -- -- 313,475 -- -- 313,475 Issuance of Shares in Escrow -- 100,000 100 -- -- -- 100 Unrealized Holding Loss on Marketable Securities -- -- -- -- (42,763) -- (42,763) Income from Continuing Operations -- -- -- -- -- 948,225 948,225 Income from Discontinued Operations -- -- -- -- -- 99,092 99,092 ------- ------------- --------- ------------- ---------- ----------- ----------- BALANCE-DECEMBER 31, 1997 $ -- 9,590,184 $ 9,590 $ 4,149,906 $ (42,763) $ 829,886 $ 4,946,619 ======= ============= ========= ============= ========== =========== ===========
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements. F-6 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1 9 9 7 1 9 9 6 ------- ------- OPERATING ACTIVITIES: Income [Loss] from Continuing Operations $ 948,225 $ (347,026) Adjustments to Reconcile Net Income [Loss] to Net Cash Provided by [Used for] Operating Activities: Depreciation and Amortization 422,538 67,376 Provision for Doubtful Accounts 412,698 -- Changes in Assets and Liabilities: [Increase] Decrease in: Accounts Receivable (65,432) (63,965) Prepaid Expenses (2,195) 20,723 Notes Receivable (3,677,476) -- Deferred Taxes (176,812) -- Restricted Cash (10,000) Other Assets (13,915) (6,900) Increase [Decrease] in: Accounts Payable and Accrued Expenses 698,647 225,686 Income Taxes Payable 634,336 (90,500) Other Current Liabilities 25,316 631 Due to Customers (7,558) -- ----------- ----------- NET CASH - CONTINUING OPERATIONS (811,628) (193,975) ----------- ----------- DISCONTINUED OPERATIONS: [Loss] from Discontinued Operations (45,890) (29,244) Adjustments to Reconcile Net [Loss] to Net Cash Operations: Depreciation 1,366 1,278 Changes in Net Assets and Liabilities (44,411) 41,641 ----------- ----------- NET CASH - DISCONTINUED OPERATIONS (88,935) 13,675 ----------- ----------- NET CASH - OPERATING ACTIVITIES - FORWARD (900,563) (180,300) ----------- ----------- INVESTING ACTIVITIES - CONTINUING OPERATIONS: Increase in Due from Related Parties (1,582) (37,177) Purchase of Investments (109,418) Sale of Investments 35,671 10,252 Purchase of EmiNet - Net of Cash Acquired (18,268) -- Purchase of Property and Equipment (425,862) (281,934) ----------- ----------- NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS - FORWARD (519,459) (308,859) ----------- ----------- INVESTING ACTIVITIES - DISCONTINUED OPERATIONS: Purchase of Property and Equipment -- (13,755) Gain on the Disposal of Discontinued Foreign Subsidiary [Net of Tax] 144,982 -- Sale of AIE NV - Net of Cash 13,100 -- ----------- ------------ NET CASH INVESTING ACTIVITIES - DISCONTINUED OPERATIONS - FORWARD $ 158,082 $ (13,755)
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements. F-7 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1 9 9 7 1 9 9 6 ------- ------- NET CASH - OPERATING ACTIVITIES - FORWARDED $ (900,563) $ (180,300) ----------- ----------- NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS - FORWARDED (361,377) (322,614) ----------- ----------- NET CASH INVESTING ACTIVITIES - DISCONTINUED OPERATIONS - FORWARDED 158,082 (13,755) ----------- ----------- FINANCING ACTIVITIES - CONTINUING OPERATIONS: Proceeds from the Conversion of Debt to Equity 313,475 -- Proceeds from Issuance of Common Stock 350,250 701,770 Increase in Loan Payable to Shareholder 144,981 21,655 Proceeds from Long-Term Debt 45,000 -- Payment of Notes Payable (4,500) -- Proceeds from Line of Credit 24,391 -- Payment of Lease Payable (21,585) -- ----------- ----------- NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS 852,012 723,425 ----------- ----------- [DECREASE] INCREASE IN CASH AND CASH EQUIVALENTS (409,928) 220,511 CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 421,188 200,677 ----------- ----------- CASH AND CASH EQUIVALENTS - END OF YEARS $ 11,260 $ 421,188 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the years for: Interest $ 5,903 $ 4,172 Income Taxes $ -- $ 77,215
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: On April 15, 1996, the Company entered into an asset acquisition agreement. The non-cash portion of the transaction included the issuance of 200,000 shares of common stock with a fair value of $1,200,000 [See Note 1 for details of recapitalization]. On March 26, 1997, the Company issued 200,000 shares of the Company's common stock as part of the acquisition of its subsidiary, The EmiNet Domain [See Note 7]. As part of the acquisition of EmiNet Domain, Inc. [See Note 7], capital lease obligations of approximately $106,000 were incurred for the purchase of equipment [See Note 10]. The Accompanying Notes are an Integral Part of these Consolidated Financial Statements. F-8 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [1] ORGANIZATION AND STOCK ACQUISITION CORPORATE STRUCTURE - CEEE Group, Inc. ["CEEE"] was incorporated under the laws of the State of Colorado in October of 1939 as Pacific Gold, Inc. CEEE was organized to explore, develop, mine and mill gold and silver deposits of ore. The Company conducted limited mining activities until operations ceased. CEEE was seeking new business opportunities as a development stage entity. On July 16, 1996, CEEE entered into an exchange of stock and plan of organization with Atlantic International Capital, Ltd. ["AIC"] pursuant to which CEEE acquired all of the common shares of AIC in exchange for an aggregate of 6,803,451 common shares of CEEE. Following the share exchange and the issuance of all shares, the shareholders of AIC own approximately 94% of CEEE. For accounting purposes, the acquisition was recorded as a recapitalization of AIC, with AIC as the acquirer. The shares issued were treated as issued by AIC for cash and are shown as outstanding for all periods presented in the same manner as for a stock split. Recapitalization costs totaling $160,873 were charged to additional paid-in capital. The consolidated financial statements of the Company reflect the results of operations of CEEE and AIE from July 1, 1996 through December 31, 1996. The consolidated financial statements prior to July 1, 1996 reflect the results of operations and financial position of AIC. Pro forma information on this transaction is not presented as, at the date of this transaction, CEEE is considered a public shell and, accordingly, the transaction will not be considered a business combination. CEEE changed its name to Atlantic International Entertainment, Ltd. ["AIE or the "Company"]. AIE was incorporated under the laws of the State of Delaware on August 22, 1996. Upon consummation of the merger, the Company's authorized capital was increased to 100,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of preferred stock, $.001 par value. The combined entity operates under the name of Atlantic International Entertainment, Ltd. In March 1997, the Company concluded its acquisition of the EmiNet Domain, Inc., an Internet service provider and developer of Internet related software products as well as hosting commercial web sites [See Note 8]. In October 1997, the Company formed two subsidiaries, Atlantic International Entertainment, Australia, Ltd. ["AIE, Australia"] and Atlantic International Entertainment, South Africa, Ltd. ["AIE, SA"]. The Company advanced $10,000 to AIE, SA to assist in the incorporation process [see restricted cash]. Both AIE, Australia and AIE, SA were inactive for the year ended December 31, 1997. NATURE OF BUSINESS - The Company is located in Southern Florida and develops and markets interactive products and services which are offered and operated via the Internet and World Wide Web. The operations are focused on two segments which include Internet software licensing and Internet service providers and developer of Internet related software products. [2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated. USE OF ESTIMATES - 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 at 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. CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments, with a maturity of three months or less when purchased, to be cash equivalents. At December 31, 1997, the Company did not have any cash equivalents. F-9 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2 [2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED] PROPERTY AND EQUIPMENT AND DEPRECIATION - Property and equipment are stated at cost. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the assets, which range from 5 to 7 years. Leasehold improvements are amortized using the straight-line method over the lesser of the term of the related lease or the estimated useful lives of the improvements. Routine maintenance and repair costs are charged to expense as incurred and renewals and improvements that extend the useful life of the assets are capitalized. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from the respective accounts and any resulting gain or loss is reported as income or expense. ORGANIZATION COSTS - Costs incurred with the organization of the Company have been capitalized and are being amortized over a period of five-years on the straight-line method. As of December 31, 1997, organization costs net of accumulated amortization totaled $2,096. Net organization costs are included in other assets as of December 31, 1997. COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED - The cost in excess of net assets of business acquired is being amortized on a straight-line basis over 15 years. Amortization expense amounted to $77,099 and $-0- for the years ended December 31, 1997 and 1996, respectively. REVENUE RECOGNITION - Revenue from computer software licensing agreements is accounted for under the completed contract method, income of all revenue and related expenses are recognized at completion of installation or acceptance by the user. Revenue from providing Internet service and web hosting and development services is recognized when services are rendered. INVESTMENTS - The Company accounts for investments in accordance with Statement of Financial Accounting Standards ["SFAS"] No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Management determines the appropriate classification of its investments in debt and equity securities at the time of purchase and reevaluates such determination at each balance sheet date. Equity securities, and debt securities which the Company does not have the intent to hold to maturity, are classified as trading or available for sale. Securities available for sale are carried at fair value, with any unrealized holding gains and losses, net of tax, reported in a separate component of shareholders' equity until realized. Trading securities are carried at fair value with any unrealized gains or losses included in earnings. Held to maturity securities are carried at amortized cost. Marketable debt and equity securities available for current operations are classified in the balance sheet as current assets while securities held for non-current uses are classified as long-term assets. Realized gains and losses are calculated utilizing the specific identification method [See Note 6]. INCOME TAXES - Pursuant to SFAS No. 109, "Accounting for Income Taxes," income tax expense [or benefit] for the year is the sum of deferred tax expense [or benefit] and income taxes currently payable [or refundable]. Deferred tax expense [or benefit] is the change during the year in a company's deferred tax liabilities and assets. Deferred tax liabilities and assets are determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. ADVERTISING EXPENSES - The Company expenses advertising costs as incurred. Total advertising costs charged to expenses for the years ended December 31, 1997 and 1996 amounted to approximately $122,000 and $51,500, respectively. NET INCOME PER SHARE - The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ["SFAS"] No. 128, Earnings per Share, which is effective for financial statements issued for periods ending after December 15, 1997. Accordingly, earnings per share data in the financial statements for the year ended December 31, 1997, have been calculated in accordance with SFAS No. 128. Prior periods loss per share data did not require restatement. Potential common shares are included if dilutive. F-10 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2 [2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED] NET INCOME PER SHARE [CONTINUED] - SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, Earnings per Share, and replaces its primary earnings per share with a new basic earnings per share representing the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Basic earnings [loss] per share is computed by dividing income [loss] available to common stockholders by the weighted average number of common shares outstanding during the period. SFAS No. 128 also requires a dual presentation of basic and diluted earnings per share on the face of the statement of operations for all companies with complex capital structures. Diluted earnings per share reflects the amount of earnings for the period available to each share of common stock outstanding during the reporting period, while giving effect to all dilutive potential common shares that were outstanding during the period, such as common shares that could result from the potential exercise or conversion of securities into common stock. The computation of diluted earnings per share does not assume conversion, exercise, or contingent issuance of securities that would have an antidilutive effect on per share amounts (i.e., increasing earnings per share or reducing loss per share). The dilutive effect of outstanding options and warrants and their equivalents are reflected in dilutive earnings per share by the application of the treasury stock method which recognizes the use of proceeds that could be obtained upon exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common stock at the average market price during the period. Options and warrants will have a dilutive effect only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants. STOCK-BASED COMPENSATION - The Company follows Accounting Principles Board Opinion No. 25. "Accounting for Stock Issued to Employees" ["APB No. 25"] with regard to the accounting for its employee stock options. Under APB No. 25, compensation expense is recognized only when the exercise price of options is below the market price of the underlying stock on the date of grant. Accordingly, no compensation expense has been recognized for the Company's stock-based compensation plan for fiscal year 1997. The Company applies the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" to non-employee stock-based compensation and the pro forma disclosure provisions of SFAS No. 123 to employee stock-based compensation. SOFTWARE AND AMORTIZATION - Costs related to the conceptual formulation and design of licensed programs are expensed as research and development. Costs incurred subsequent to establishment of technological feasibility to produce the finished product are capitalized. The annual amortization of the capitalized amounts is the greater of the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or the straight-line method over the remaining estimated economic life of the product including the period being reported on. Amortization begins when the product is available for general release to customers. Periodic reviews are performed to ensure that unamortized program costs remain recoverable from future revenues. Costs to support or service licensed programs are charged against income as incurred, or when related revenue is recognized, whichever occurs first. Amortization expense related to software amounted to $236,296 and $48,894 for the years ended December 31, 1997 and 1996, respectively. The amortization expense is included in cost of sales. IMPAIRMENT - Certain long-term assets of the Company are reviewed when changes in circumstances require as to whether their carrying value has become impaired, pursuant to guidance established in Statement of Financial Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment of Long-Lived Assets and for F-11 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #3 Long-Lived Assets to be Disposed Of." Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations [undiscounted and without interest charges]. If impairment is deemed to exist, the assets will be written down to fair value. Management also reevaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of December 31, 1997, management expects these assets to be fully recoverable. RECLASSIFICATION - Certain prior year amounts have been reclassified to conform to current year's financial statement presentation. [3] SIGNIFICANT RISKS AND UNCERTAINTIES [A] CONCENTRATIONS OF CREDIT RISK - CASH - Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts and notes receivable. The Company places its cash and cash equivalents with high credit quality institutions to limit its credit exposure. The Company believes no significant concentration of credit risk exists with respect to these investments. The Company routinely assesses the credit worthiness of its customers before a sale takes place and believes its credit risk exposure on notes receivable is limited. Five major customers accounted for approximately 67% of the Company's notes receivable portfolio. The Company performs ongoing credit evaluations of its customers but does not require collateral. The Company maintains allowances for potential credit losses. [B] OTHER CONCENTRATIONS - All of the Company's sales from Internet software licensing is from outside the United States. These sales however, are not subject to currency fluctuations as payment is made in U.S. dollars. The Company had a portion of its revenues from five customers in 1997, totaling approximately 66% of total revenues. The customers account for approximately $2,935,000 of revenues for the year ended December 31, 1997. For the year ended December 31, 1996, two customers accounted for 46% of revenues which accounted for $125,500 [Investment Advisory Services] and $87,000 [Internet Software] of revenues. The Company purchases software from two vendors. Management believes that there is no business vulnerability regarding this concentration of purchases from the vendor as the software is available from other sources. [4] NOTES RECEIVABLE Notes receivable at December 31, 1997 consist of the following:
Australian Advisors, Ltd., minimum monthly principal and interest payments of $3,000 or 40% of net win before expenses until June 1999 and $6,222 thereafter, interest at 8%, remaining balance due in full by June 2007. $ 826,000 Casinos of the South Pacific, monthly principal payments of $10,000 through August 2000; non-interest bearing. 310,000 BTN, Inc., monthly principal payments of $11,111 through June 2000, non-interest bearing. 400,000 Carib Sportsbook, Inc., varying monthly payments, through June 1999, non-interest bearing. 129,137 Intercoin AVV, monthly principal payment of $9,722, through November 2000, non-interest bearing. 350,000 Tropical Reef Resorts, monthly principal payment of $2,542, through November 2001, non-interest bearing. 122,000 Tropical Reef Resorts, monthly principal payment of $9,833 through February 2001, non-interest bearing. 354,000 ---------- Total - Forward $2,491,137
F-12 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #4 [4] NOTES RECEIVABLE [CONTINUED]
Total - Forwarded $2,491,137 Permanent Mutual Investment Limited, monthly principal payment of $11,388 through August 200, non-interest bearing. 410,000 Tradewinds Virtual Gaming, Inc., monthly principal and interest payments of $10,725 through May 2001, interest at prime rate plus 2% [10.5% at December 31, 1997]. 385,000 Tradewinds Virtual Gaming, Inc., monthly principal and interest payments of $1,950, through May 2001, interest at prime rate plus 2% [10.5% at December 31, 1997]. 70,000 Cyber Gold Casino, Corp., monthly principal and interest payments of $10,575, through July 2001, interest at prime rate plus 2% [10.5% at December 31, 1997]. 400,000 ----------- Total Notes Receivable 3,756,137 Less: Reserve for Uncollectible Notes (385,052) Discounts for Non-Interest Bearing Notes (84,103) ----------- Total 3,286,982 Less: Amounts Shown as Current (1,927,899) ----------- NOTES RECEIVABLE - NON-CURRENT PORTION $ 1,359,083 -------------------------------------- ===========
The Collateral for notes receivable are the activation codes supplied by AIE to its customers in order for them to commence uninterrupted use of the software. If payment is withheld from AIE, for any reason, AIE can in effect shut down the Internet operation and make the program inoperable until a new activation code is supplied by Atlantic. To this date, the Company has not shut down any service to any of its customers. [5] ASSET ACQUISITION On April 15, 1996, the pre-merger Company [See Note 1] purchased certain assets consisting principally of computer software for Internet products and hardware. The purchase price was $1,230,000 payable as $30,000 in cash and issued 200,000 shares of common stock with a fair value of $1,200,000. F-13 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #5 [6] INVESTMENTS IN EQUITY SECURITIES At December 31, 1997, the Company's available for sale securities consisted of equity securities. A summary of the Company's investments in equity securities is as follows: DECEMBER 31, 1997 ----------------- FINANCIAL STATEMENT CAPTION CARRYING VALUE FAIR VALUE - --------------------------- -------------- ---------- Available for Sale: Common Stock $ 10,125 $10,125 ======== ======= Gross proceeds from sale of available for sale securities was $35,671 and net realized loss on sales was $20,859 for the year ended December 31, 1997. The net unrealized holding loss on securities available for sale securities was $42,763 and is included as a separate component of stockholder's equity for the year ended December 31, 1997. [7] BUSINESS ACQUISITION On January 31, 1997, the Company entered into an agreement to purchase all of the shares of EmiNet Domain, Inc. ["EmiNet"]. The purchase price for the shares was $2,020,000 payable by the issuance and delivery to the shareholders of EmiNet or their designees of a minimum of 200,000 shares of fully-paid and non-assessable common stock of the Company at the market value as of January 31, 1997 and $20,000 cash payable at March 31, 1997. In addition, the shareholders of EmiNet or their designees will receive additional shares at market equal to one time EmiNet's net profit before taxes for the years ending 1997 and 1998 up to $750,000 per annum, one and one-half times over $750,000 to $1,000,000 and two times over $1,000,000. No additional shares were issued in 1997 due to the net loss of EmiNet. The transaction, effective April 1, 1997 was accounted for as a purchase and the results of EmiNet's operations are included in the statement of operations from that date. As a result of the acquisition, cost in excess of net assets of approximately $1,563,000 was recorded. The cost in excess of net assets is being amortized using the straight-line method over 15 years. The following unaudited pro forma consolidated results of operations for the years ended December 31, 1997 and 1996 are presented as if the EmiNet acquisition has been made at the beginning of each period presented. EmiNet operated as an S corporation in 1996. Included in the expenses to arrive at Net Income are reclassifications of Shareholders' Draw to Officers Salaries and Income Tax Expense in the amounts of approximately $86,000 and $132,000 for 1997 and 1996, respectively. 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, ------------ 1 9 9 7 1 9 9 6 ------- ------- Net Sales $4,593,078 $ 878,097 Net Income [Loss] $1,096,976 $(347,072) Basic Net Income [Loss] Per Share of Common Stock $ .12 $ (.04) Diluted Net Income [Loss] Per Share of Common Stock $ .12 $ (.04) F-14 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #6 [8] CAPITAL STOCK On September 18, 1996 and October 31, 1996, the Company issued 521,500 and 365,200 shares, respectively of common stock in a private placement of its securities. The Company received net proceeds of $826,881. On January 16, 1997, the Company entered into a stock purchase agreement with Brindenberg Securities, A/S under Regulation S of the Securities and Exchange Commission. A total of 75,000 shares were issued under the agreement for $525,000 net of offering costs and expenses of approximately $175,000. In February 1997, the Company issued 25,000 shares of its common stock to an outside consultant for services to be rendered. The consultant never performed the required services and therefore, the common shares issued will be returned in 1998. In March 1997, the Company issued 200,000 shares of the Company's common stock as part of the acquisition of EmiNet Domain, Inc. [See Note 7]. In December of 1997, the Company sold 100,000 shares of the Company's common stock to Australian Advisors for a total of $300,000 pursuant to the Registration Statement S-8. Also in December 1997, the Company converted debt totaling $313,475 to equity. The shares related to the conversion were unissued at December 31, 1997 and the conversion ratio has yet to be determined. [9] PROPERTY AND EQUIPMENT The following details the composition of property and equipment: ACCUMULATED COST DEPRECIATION NET ---- ------------ --- Computer Hardware $485,031 $88,867 $396,164 Equipment, Office Fixtures and Furnishings 56,296 6,803 49,493 Leasehold Improvements 19,352 555 18,797 -------- ------- -------- TOTALS $560,679 $96,225 $464,454 ------ ======== ======= ======== Depreciation expense for the years ended December 31, 1997 and 1996 was $97,976 and $19,438, respectively. [10] LEASES CAPITAL LEASES - The Company is the lessee of office equipment under capital leases expiring in various years through December 2001. The various leases are collateralized by the related assets. The assets and liabilities under capital leases are recorded at the present value of the net future minimum lease payments. The assets are amortized over their estimated productive lives. Amortization of assets under capital leases is included in depreciation expense. Following is a summary of property held under capital leases: Office Equipment $105,750 Less: Accumulated Amortization 8,860 -------- TOTAL $ 96,890 ======== F-15 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #7 [10] LEASES [CONTINUED] CAPITAL LEASES [CONTINUED] - Minimum future lease payments under capital leases for each of the next five years and in the aggregate are: 1998 $ 48,732 1999 31,930 2000 20,984 2001 7,227 2002 -- Thereafter -- --------- Net Minimum Lease Payments 108,873 Less: Amount Representing Interest 12,985 --------- Present Value of Net Minimum Lease Payments 95,888 Less: Current Portion 41,427 --------- LONG-TERM PORTION $ 54,461 ----------------- ========= OPERATING LEASES - The Company leases office space and equipment under operating leases expiring through September 2002, and has a $10,236 security deposit with its landlord. The lease grants an option for renewal for an additional 5 years. Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year as of December 31, 1997. YEAR ENDING OPERATING DECEMBER 31, LEASES - ------------ ------ 1998 $ 114,266 1999 116,988 2000 119,344 2001 119,347 2002 92,121 Thereafter -- --------- TOTAL $ 562,066 ----- ========= Rent expense for the years ended December 31, 1997 and 1996 was $91,525 and $53,427, respectively. [11] FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards ["SFAS'] No. 107, "Disclosure About Fair Value of Financial Instruments" requires disclosing fair value to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement. The following table summarizes financial instruments by individual balance sheet classifications as of December 31, 1997: CARRYING FAIR AMOUNT VALUE Due from Related Parties $49,855 $41,275 F-16 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #8 [11] FAIR VALUE OF FINANCIAL INSTRUMENTS [CONTINUED] In assessing the fair value of financial instruments, the Company used a variety of methods and assumptions, which were based on estimates of market conditions and risks existing at that time. For certain instruments, including cash and cash equivalents, short term notes receivable, related party and trade and notes payables, it was assumed that the carrying amount approximated fair value for the majority of these instruments because of their short maturities. The long-term notes receivable approximate fair value as all non-interest bearing notes have been discounted to their present value. [12] LINE OF CREDIT - BANK The Company has a credit facility with a bank consisting of a revolving line of credit under which the Company can borrow up to a maximum of $25,000. The Company has borrowings of approximately $24,400 under the line of credit outstanding at December 31, 1997. The revolving line of credit bears interest at 2.25% above the prime rate [8.5% at December 31, 1997] and is payable on demand. The line of credit is guaranteed by the former shareholders of EmiNet [See Note 7] and collateralized by certain assets. At December 31, 1997, the Company had approximately $600 available under the line of credit. [13] LONG-TERM DEBT At December 31, 1997, long-term debt consisted of the following:
Note payable bank, payable in thirty-six monthly installments of $500 plus interest of 2.8% above a variable interest rate [prime rate] per annum, [8.5% at December 31, 1997] through August 1999, collateralized by all borrower's deposits and accounts on deposit with the lending institution. $ 10,500 Note payable - consultant, demand notes due September 5, 1998. The notes accrue interest at 6% per annum. 30,000 ---------- Total 40,500 Less: Current Portion (36,000) ---------- TOTAL $ 4,500 ----- ==========
Long-term debt at December 31, 1997, matures as follows: 1998 $ 36,000 1999 4,500 2000 -- ---------- TOTAL $ 40,500 ----- ========== The Company is subject to restrictive covenants including maintaining primary banking depositary relations with the lender and no additional debt to be incurred unless it is in the normal and ordinary course of business. Management believes the Company was in compliance with all debt covenants at December 31, 1997. The weighted average interest rate on short-term borrowings as of December 31, 1997 was 10%. F-17 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #9 [14] RELATED PARTY TRANSACTIONS The Company made advances to an affiliated company, whose shareholders are also shareholders of the Company during the year ended December 1997, increasing the balance receivable to $49,855. The advances accrue interest at a rate of 6% per annum, and are due on demand. The Company has notes payable to two officers in the aggregate amount of $166,636 at December 31, 1997. The notes are demand notes and incur interest at 8% per annum. Interest expense related to the shareholders notes totaled $7,525 and $1,302 for the years ended December 31, 1997 and 1996, respectively. [15] PROVISION FOR INCOME TAXES Income tax [benefit] expense consists of the following DECEMBER 31, ------------ 1 9 9 7 1 9 9 6 ------- ------- Current: Federal $610,061 $(77,215) State 29,123 -- -------- -------- Total Current 639,184 (77,215) -------- -------- Deferred: Federal 167,062 -- State 9,750 -- -------- -------- Total Deferred 176,812 -- -------- -------- TAX EXPENSE BENEFIT $462,372 $(77,215) ------------------- ======== ========= Income tax at the federal statutory rate reconciled to the Company's effective rate is as follows: DECEMBER 31, ------------ 1 9 9 7 1 9 9 6 ------- ------- Federal Statutory Rate 34.0% (34.0)% Non-Deductible Expenses -- (13.3) Benefit of Net Operating Loss (3.6) 52.8 State Income Taxes 3.6 (5.5) -------- ------ EFFECTIVE RATE 34.0% --% -------------- ======== ====== In 1996, the Company recognized the benefit of $77,215 from the utilization of an operating loss carryback which was filed in 1997. F-18 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #10 [15] PROVISION FOR INCOME TAXES [CONTINUED] The major components of deferred income tax assets and liabilities are as follows: DECEMBER 31, ------------ 1 9 9 7 1 9 9 6 ------- ------- Deferred Tax Liabilities Accelerated Depreciation $ -- $ (85,620) Deferred Tax Assets: Net Operating Loss -- 138,700 Allowance for Doubtful Accounts 176,812 -- --------- ------------ Net Deferred Tax Asset: Before Valuation Allowance 176,812 53,080 Valuation Allowance -- 53,080 --------- ------------ NET DEFERRED INCOME TAX ASSET $ 176,812 $ -- ----------------------------- ========= ============ The Company did not record a valuation allowance for the year ended December 31, 1997, because in managements judgement, the related deferred tax asset will be realized within the next year. Accordingly, the valuation allowance decreased $53,080 from December 31, 1996. [16] BUSINESS SEGMENT INFORMATION The Company's operations have been classified into four business segments: investment advisory services Internet software licensing, and medical products and equipment and Internet access and services. 1 9 9 7 1 9 9 6 ------- ------- Revenue: Investment Advisory Services $ -- $ 366,204 Internet Software Licensing 4,002,894 87,000 Medical Products and Equipment -- 1,452 Internet Access and Services 413,896 -- ----------- ---------- $ 4,416,790 $ 454,656 =========== ========== Income [Loss] From Operations: Investment Advisory Services $ -- $ 231,081 Internet Software Licensing 1,564,666 (659,056) Medical Products and Equipment -- -- Internet Access and Services (169,776) -- ----------- ---------- $ 1,394,890 $ (427,975) =========== ========== Total Assets: Investment Advisory Services $ -- $ 1,423 Internet Software Licensing 5,181,740 1,980,591 Medical Products and Equipment -- -- Internet Access and Services 1,724,259 -- ----------- ---------- $ 6,905,999 $1,982,014 =========== ========== F-19 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #11 [16] BUSINESS SEGMENT INFORMATION [CONTINUED] 1 9 9 7 1 9 9 6 ------- ------- Depreciation and Amortization: Investment Advisory Services $ -- $ 285 Internet Software Licensing 323,959 67,091 Medical Products and Equipment -- -- Internet Access and Services 98,579 -- --------- ------------- $ 422,538 $ 67,376 ========= ============= Capital Expenditures: Investment Advisory Services $ -- $ 1,423 Internet Software Licensing 490,594 1,490,395 Medical Products and Equipment -- -- Internet Access and Services 122,558 -- --------- ------------- $ 613,152 $ 1,491,818 ========= ============= [17] COMMITMENTS AND CONTINGENCIES [A] EMPLOYMENT AGREEMENTS - The Company has employment agreements with certain of its executives which commenced January 1, 1997 and expire on December 31, 2000. The aggregate annual commitment for future salaries at December 31, 1997 was $289,000. Also, included in the agreements are incentive bonus based upon net income and net cash flows. Bonuses totaling approximately $151,000 have been accrued at December 31, 1997. [B] On June 17, 1996, the Company entered into a three year consulting agreement with a well known personality to act as the Company's spokesman. The agreement calls for the issuance of 5,000 shares of common stock during each year of the three year term of the agreement. The shares are to be issued in quarterly installments commencing September 30, 1996. No shares have yet been issued but the Company has recorded a liability of $35,700 which represents the fair market value of the quarterly installments of shares to be issued through December 31, 1997. [C] On August 7, 1996, the Company's medical division signed an exclusive distribution agreement for world wide sales of medical testing devices for HIV, hepatitis, pregnancy, ovulation and other tests using the Internet as its means of sales and distribution. [D] On November 25, 1996, the Company signed and agreement with Telecommunication Information Services Systems, NV ["TISS"], a Curacao based company to provide international sports and entertainment information services. As of December 31, 1996, $11,625 was received as revenues. The agreement was terminated in February 1997 in contemplation of the consummation of the Company's sale of its foreign subsidiary [See Note 19]. [E] In August 1997, the Company entered into a joint effort agreement with OzEmail Limited ["OzEmail"]. The Company and OzEmail are jointly marketing and selling the Company's software and business applications to customers and prospective customers in Australia and Asia. The Agreement is for a term of one year and will continue until terminated by either party. [F] LITIGATION - The Company is party to litigation arising from the normal course of business. In managements' opinion, this litigation will not materially affect the Company's financial position, results of operations or cash flows. F-20 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #12 [18] INCENTIVE STOCK OPTION PLAN On January 1, 1997, the Company adopted an Incentive Stock Option Plan for Employees, Directors, Consultants and Advisors [the "Plan"]. The Plan will expire December 31, 2006 unless further extended by appropriate action of the Board of Directors. Employees, directors, consultants and advisors of the Company, or any of its subsidiary corporations, are eligible for participation in the Plan. The Plan provides for stock to be issued pursuant to options granted and shall be limited to 250,000 shares of Common Stock, $.001 par value. The shares have been reserved for issuance in accordance with the terms of the Plan. The exercise of these options may be for all or any portion of the option and any portion not exercised will remain with the holder until the expiration of the option period. The options expire on December 23, 2002. A summary of the changes in outstanding Common Stock options for all outstanding plans is as follows: WEIGHTED-AVERAGE SHARES EXERCISE PRICE OUTSTANDING AT DECEMBER 31, 1995 -- -- Granted -- -- Exercised -- -- ------- -------- Canceled OUTSTANDING AT DECEMBER 31, 1996 -- -- Granted 175,000 3.25 Exercised -- -- Canceled -- -- ------- ------- OUTSTANDING AT DECEMBER 31, 1997 175,000 3.25 ======== ======= EXERCISABLE AT DECEMBER 31, 1997 175,000 3.25 ======== ======= The following table summarizes information about stock options at December 31, 1997:
EXERCISABLE OUTSTANDING STOCK OPTIONS STOCK OPTIONS ------------------------- ------------- WEIGHTED-AVERAGE RANGE OF REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE - --------------- ------ ---------------- -------------- ------ -------------- $3.25 175,000 5.0 $3.25 175,000 $ 3.25
The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, for stock options issued to employees in accounting for its stock option plans. The exercise price of certain options issued during 1997 was the market price at the date of grant. Accordingly, no compensation expense has been recognized for the Company's stock-based compensation plans for fiscal year 1997. F-21 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #13 [18] INCENTIVE STOCK OPTION PLAN [CONTINUED] The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The weighted average fair value of stock options granted to employees used in determining pro forma amounts is estimated at $2.63, and $-0- during 1997 and 1996, respectively. Pro forma information regarding net loss and net loss per share has been determined as if the Company had accounted for its employee stock options under the fair value method prescribed under SFAS No. 123, Accounting for Stock Based Compensation. The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model for the pro forma amounts with the following weighted average assumptions: DECEMBER 31, ------------ 1 9 9 7 1 9 9 6 ------- ------- Risk-Free Interest Rate 5.7% --% Expected Life 2.0% --% Expected Volatility 181.0% --% Expected Dividends --% --% The pro forma amounts are indicated below [in thousands, except per share amounts]:
YEARS ENDED DECEMBER 31, 1 9 9 7 1 9 9 6 ------- ------- Net Income [Loss]: As Reported $1,047,317 $ -- Pro Forma $ 586,367 $ -- Basic Net Income [Loss] Per Share of Common Stock: As Reported $ .11 $ -- Pro Forma $ .06 $ -- Diluted Net Income [Loss] Per Share of Common Stock: As Reported $ .11 $ -- Pro Forma $ .06 $ --
[19] DISCONTINUED OPERATIONS On December 15, 1996, the Company adopted a plan to discontinue and sell its foreign subsidiary, known as Atlantic International, N.V. ["AIE, NV"], which operated a Sportsbook operation. The sales price was $850,000, $2,000 payable at closing and beginning 60 days after closing, 40% of net win before expenses on a minimum of $3,000 monthly, until the balance is paid. Interest on the unpaid balance shall be accrued at 8% per annum. The effective date of this transaction is January 1, 1997. The foreign subsidiary was reported as a discontinued operation for the year ended December 31, 1996. The closing date of the sale was March 26, 1997. Revenues for the discontinued operation totaled approximately $14,000. For the year ended December 31, 1997, the gain on disposal of "AIE, NV" was approximately $220,000 [$144,982 net of tax] and the loss from operations was approximately $70,000 [$45,890 net of tax benefit]. F-22 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #14 [20] SUBSEQUENT EVENTS In February 1998, the Company entered into an agreement with ELG Health Management Services ["ELG"] to market the Atlantic International Medical ["AIM"] products and services. ELG will provide the Company 40% of the net profits from the sale and distribution of medical products. In February 1998, the Company entered into a Development Service Agreement with International Transaction Systems Corp. ["ITS"]. The Company's responsibilities under the agreement include engaging in the development activity required to host ITS on the Company's software and selling debt card processing ["DCP"]. ITS' responsibilities include development activity required to develop the DCP, test methodology and/or test cases so that the Company may validate correct operation of the DCP and provide service support. Under the Agreement, the Company paid $20,000 to acquire access to DCP through ITS for the purpose and exclusive application in the Company's software. Transaction fees earned by customers will be distributed 75% and 25% to the Company and ITS, respectively. The initial term of the agreement is 10 years, and automatically renews in 5 year consecutive periods, unless terminated by either party. On April 3, 1998, the Company entered into a Securities Purchase Agreement for the sale of $500,000 of a newly created 5% Convertible Preferred Stock. The Agreement also grants the purchaser the right to purchase up to an additional $2,500,000 in said class of securities at market prices. The preferred stock is convertible into the Company's common stock at the purchaser's option based upon a formula included in the Securities Purchase Agreement. [21] SUBSEQUENT EVENTS [Unaudited] On April 30, 1998, the Company entered into a Securities Purchase Agreement with Hosken Consolidated Investments, Ltd. ["HCI"], where HCI purchased one million shares of the Company's common stock for $4,000,000 pursuant to Regulation D. In a simultaneous transaction, HCI has subscribed for 25% of the Company's South African subsidiary, Atlantic International Entertainment, Ltd. South Africa. HCI received its equity in consideration for its services to be rendered related to introducing the Company to the South African gaming and wagering community. In May 1998, the Company's wholly-owned subsidiary, AIE, Australia, Ltd. intends to submit an acquisition bid for an Australian listed company, Coms21. The Company will offer Coms21 shareholders the equivalent of $.70 Australian dollars [$.44 US dollars] per share in the form of the Company's U.S. shares. [22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ["FASB"] issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in the financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. The Company is in the process of determining its preferred format. The adoption of SFAS No. 130 will have no impact on the Company's consolidated results of operations, financial position or cash flows. F-23 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #15 [22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS [CONTINUED] In June 1997, the FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. SFAS No. 131 is effective for financial statements for fiscal years beginning after December 15, 1997. Financial statement disclosures for prior periods are required to be restated. The Company is in the process of evaluating the disclosure requirements. The adoption of SFAS No. 131 will have no impact on the Company's consolidated results of operations; financial position or cash flows. In October 1997, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants, after clearance by the FASB, issued Statement of Position (SOP) 97-2, Software Revenue Recognition. This SOP supersedes SOP 91-1 of the same name and provides the most recent guidance on applying generally accepted accounting principles in recognizing revenue on software transactions. SOP 97-2 is effective for transactions entered into in fiscal years beginning after December 15, 1997. SOP 97-2 requires that in arrangements to deliver software or a software system that does not require significant production, modification, or customization, revenue should be recognized when there is persuasive evidence that an arrangement does in fact exist; delivery has occurred; the fee is fixed or determinable; and collectibility is probable. If the software or software system selling contract arrangement, either alone or together with other products or services, requires significant production, modification or customization construction type/production type contract accounting should be used for the entire arrangement. Such accounting would recognize revenues and costs on a contract arrangement as it progresses toward completion, rather than deferred recognition of these items until persuasive evidence of delivery has occurred. In software or software system selling arrangements that consist of multiple elements (that is, additional software products, upgrades/enhancements, rights to exchange or return software, postcontract customer support, or services), and contract accounting does not apply, the fee must be allocated to the various elements based on vendor-specific objective evidence of fair values. In general, if sufficient vendor-specific objective evidence of fair values does not exist, all revenue from the arrangement should be deferred until such sufficient evidence exists, or until all elements have been delivered. The principle difference between SOP 97-2 and its predecessor SOP 91-1 is in the accounting for multiple-element arrangements based on vendor-specific objective evidence of fair values. Management does not believe that SOP 97-2 will materially affect the way the Company recognizes revenue. . . . . . . . . . . . F-24 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF SEPTEMBER 30, 1998
SEPTEMBER 30, 1998 ------------------ (Unaudited) ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 96,024 Accounts Receivable [Net of Allowance for Doubtful Accounts of $ 37,180] 52,720 Notes Receivable 534,763 Refundable Income Tax 77,215 Deferred Tax Asset 51,000 Prepaid Expenses 12,940 Investment 3,770,000 Other Current Assets 96,570 --------------- TOTAL CURRENT ASSETS: 4,691,232 --------------- Furniture, Fixtures and Equipment - (Net of Accumulated Depreciation of $ 184,830) 545,158 Software (Net of Accumulated Amortization of $ 579,422) 1,773,569 Cost in Excess of Net Assets of Business Acquired (Net of Accumulated Amortization of $ 155,296) 1,387,985 OTHER ASSETS Due From Related Parties 77,879 Other Assets 17,756 Investments 4,777,892 Notes Receivable (Net of Discounts and Reserve) 1,791,754 --------------- TOTAL OTHER ASSETS 6,665,281 --------------- TOTAL ASSETS $ 15,063,225 ===============
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements F-25 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED) (Continued) AS OF SEPTEMBER 30, 1998
September 30, 1998 ------------- (Unaudited) LIABILITIES AND STOCKHOLDERS'EQUITY: CURRENT LIABILITIES Accounts Payable and Accrued Expenses $ 775,509 Notes Payable - Officers 49,795 Current Portion of Long-Term Debt 100,828 Current Portion of Capital Lease Obligations 30,905 Income Taxes Payable - Federal 535,884 Income Taxes Payable - State 20,014 Other Current Liabilities 39,250 ------------- TOTAL CURRENT LIABILITIES 1,552,185 Long-Term Debt - Capital Lease Obligations 28,250 ------------- TOTAL LIABILITIES 1,580,435 ------------- STOCKHOLDERS' EQUITY: Preferred Stock - Par Value $.001 Per Share, Authorized 10,000 Shares, Issued and Outstanding 9 Common Stock - Par Value $.001 Per Share; Authorized 100,000,000 Shares, Issued and Outstanding 12,039,149 Shares 12,039 Additional Paid - in - Capital 13,365,359 Unrealized Holding Loss on Marketable Securities (38,859) Retained Earnings 144,242 ------------- Total Stockholders' Equity 13,482,790 ------------- Total Liabilities and Stockholders' Equity $ 15,063,225 =============
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements. F-26 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------ 1998 1997 ------------------------------------------------ REVENUE $ 3,497,281 $ 4,070,440 Cost of Sales 489,817 288,306 General and Administrative 1,783,615 1,155,276 Provision for Doubtful Accounts 1,213,349 Depreciation and Amortization 433,220 316,228 Other Losses and (Gains) (77,920) 22,484 -------------- ------------ Income (Loss) from Continuing Operations Before Income Tax Expense (344,800) 2,288,146 Income Tax Benefit (Expense) (47,374) (119,068) ------------ ------------ Income (Loss) From Continuing Operations (392,174) 2,169,078 Discontinued Operations Loss from Discontinued Operations - (69,531) Gain on Sale of Discontinued Operations - 120,895 ------------ ------------ NET INCOME (LOSS) (392,174) 2,220,442 Unrealized Holding Loss Arising During Period (52,309) - ------------ ------------ Comprehensive Income (Loss) $ (444,483) $ 2,220,442 ------------ ------------ Income (Loss) Per Common Share Continuing Operations $ (0.04) $ 0.23 Discontinued Operations - - ------------ ------------ Basic Net Income Per Share of Common Stock $ (0.04) $ 0.23 ------------ ------------ Fully Diluted Net Income Per Share of Common Stock $ (0.04) $ 0.23 -------------- ------------ Weighted Average Shares of Common Stock Outstanding 10,312,479 9,429,434 -------------- ------------ Weighted Average Fully Diluted Shares Of Common Stock Outstanding 10,312,479 9,429,434 -------------- ------------
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements F-27 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1 9 9 8 1 9 9 7 ------- ------- OPERATING ACTIVITIES: Income [Loss] Income from Continuing Operations $ (444,483) $ 2,169,078 Adjustments to Reconcile Net Income [Loss] to Net Cash Provided by [Used for] Operating Activities: Depreciation and Amortization 433,220 316,228 Deferred Taxes 125,812 -- Provision for Doubtful Accounts 1,213,349 -- Gain on Sale of Assets (48,726) -- Gain (Loss) on Sale of Investments -- (20,784) Regulated Loss on Carrying Value of Investments 47,385 -- Unregulated Loss on Carrying Value of Investments (3,904) -- Changes in Assets and Liabilities: [Increase] Decrease in: Accounts Receivable (88,546) (3,726,296) Prepaid Expenses (6,376) 70,323 Security Deposits -- (23,831) Investments -- (52,962) Refundable Income Tax -- 77,215 Notes Receivable (110,982) -- Deferred Income Taxes -- (548,400) Other Assets (2,097,341) (552) Increase [Decrease] in: Accounts Payable and Accrued Expenses (176,083) 292,280 Income Taxes Payable (78,438) -- Other Current Liabilities (10,457) 76,754 Due to Customer (20,721) 64,026 Loans payable - stockholders -- (9,709) Deferred Income Taxes -- 585,405 ----------- ----------- NET CASH - CONTINUING OPERATIONS (1,266,291) (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 ----------- ----------- -- 52,730 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 -- 11,089 ----------- ----------- NET CASH - OPERATING ACTIVITIES - FORWARD (1,266,291) (720,136) ----------- ----------- INVESTING ACTIVITIES - CONTINUING OPERATIONS: Increase in Due from Related Parties (28,024) -- Purchase of Investments (6,766,623) (73,746) Purchase of Property and Equipment (929,070) (322,870) Sale of Investments 177,371 -- Sale (Purchase) of Subsidiary -- (1,620,000) ----------- ----------- NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS - $(7,546,346) $(2,016,616) FORWARD
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements F-28 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1 9 9 8 1 9 9 7 ------- ------- NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS: - $(7,546,346) $(2,016,616) FORWARD INVESTING ACTIVITIES - DISCONTINUING OPERATIONS Disposition of Property and Equipment -- 11,110 ----------- ----------- NET CASH INVESTING ACTIVITIES (7,546,346) (2,005,506) NET CASH - OPERATING ACTIVITIES - FORWARDED (1,266,291) (720,136) ----------- ----------- FINANCING ACTIVITIES - CONTINUING OPERATIONS: Proceeds from the Conversion of Debt to Equity -- -- Proceeds from Issuance of Common Stock 12,110 1,949,330 Proceeds from Issuance of Preferred Stock 10 Decrease in Loan Payable to Shareholder (116,841) (9,709) Proceeds from Long-Term Debt 123,500 155,000 Line of Credit -- -- Payment of Notes Payable (89,160) -- Payment of Lease Payable (6,548) -- Additional Paid In Capital 8,974,330 27,713 Increase in equipment loans -- 95,557 Principal payments on capitalized lease and not borrowing -- (10,565) ----------- ----------- NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS 8,897,401 2,207,326 Financing - Activities - Discontinued Operations Additions to Paid In Capital -- 98,775 ----------- ----------- NET CASH - FINANCING ACTIVITIES 8,897,401 2,306,101 ----------- ----------- NET INCREASE DECREASE IN CASH AND CASH EQUIVALENTS 84,764 (419,541) CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 11,260 421,188 ----------- ----------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 96,024 $ 1,647 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the years for: Interest $ 14,616 $ 5,441 Income Taxes $ -- $ 77,215 Income Tax Refund (Applied) $ -- $ 119,068
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCIAL ACTIVITIES: During the third quarter of 1998, $105,000 worth of convertible preferred stock was converted into 38,965 shares of common stock. The Accompanying Notes are an Integral Part of these Consolidated Financial Statements F-29 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. Notes to Consolidated Financial Statements (Uunaudited) September 30, 1998 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 for the three-month period ended September 30, 1998, are not necessarily indicative of the results of operations to be reported for the full year ending December 31, 1998. Note 2 - 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 of acquisition onward. 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 acquired assets and amortized over the remaining life of the assets. The following unaudited pro forma consolidated results of operations for the year ended December 31, 1997 is presented as if the EmiNet acquisition has been made at the beginning of the period presented. The EmiNet Domain, Inc. operated as an S Corporation prior to acquisition. Included in the expenses to arrive at Net Earnings are reclassifications of Shareholders' Draw to Officers Salaries and Income Tax Expense in the amount of $86,000 for 1997. 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. Year ended December 31 1997 ---- Net Sales $ 4,593,078 Net Earnings Income (Loss) $ 1,096,976 Basic Net Income (Loss) per common share $ .12 Diluted Net Income (Loss) per common share $ .12 F-30 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Uunaudited) (Continued) September 30, 1998 Note 3 - MAJOR CUSTOMERS Income fees derived from major customers are tabulated as follow:
NINE MONTHS ENDED SEPTEMBER 30, 1997 1998 (UNAUDITED) ------------------------------- Customer A (Software System) 375,000 -- Customer B (Software System) 600,000 -- Customer C (Software System) 450,000 -- Customer D (Software System) 150,000 -- Customer E (Software System) 600,000 -- Customer F (Software System) 410,000 -- Customer G (Software System) 450,000 -- Customer H (Software System) 150,000 -- Customer I (Software System) 585,000 -- Customer J (Software System) -- -- Customer K (Software System) -- 450,000 Customer L (Software System) -- 220,000 Customer M (Software System) -- 350,000 Customer N (Software System) -- 615,000 Customer O (Software System) -- 675,000 Customer P (Software System) -- 450,000 Customer Q (Software System) -- 175,000
Note 4 - CAPITAL STOCK ------------- On September 18, 1996 and October 31, 1996, the Company issued 521,500 and 365,200 shares, respectively of common stock in a private placement of its securities. The Company received net proceeds of approximately $826,881. On January 16, 1997, the Company entered into a stock purchase agreement with Brindenberg Securities, A/S under Regulation S of the Securities and Exchange Commission. A total of 75,000 shares were issued under the agreement for $525,000 net of offering costs and expenses of approximately $175,000. In February 1997, the Company issued 25,000 shares of its common stock to an outside consultant for services to be rendered. The consultant never performed the required services and therefore, the common shares issued will be returned in 1998. In March 1997, the Company issued 200,000 shares of the Company's common stock as part of the acquisition of EmiNet Domain, Inc. [See Note 2]. F-31 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Uunaudited) (Continued) September 30, 1998 Note 4 - CAPITAL STOCK - CONTINUED ------------------------- In December of 1997, the Company sold 100,000 shares of the Company's common stock to Australian Advisors for a total of $300,000 pursuant to the Registration Statement S-8. Also in December 1997, the Company converted debt totaling $313,475 to equity. The shares related to the conversion were unissued at December 31, 1997 and the conversion ratio has been set at $4.00 per share. In the second quarter of 1998, the Company sold 1,000,000 shares for a total of $4,000,000 pursuant to Regulation D. Also in the second quarter of 1998, 9,700,000 shares of common stock were issued to Atlantic International Entertainment Australia, a wholly owned subsidiary for use in a proposed takeover of the Australian Company, Coms21. In the third quarter of 1998, 1,160,000 shares of the above 9,700,000 shares were issued to the accepting COMS21 stockholders pursuant to the company's offer for Coms21 stock and the balance of 9,700,000 shares issued were cancelled. In the second quarter of 1998, 10,000 shares of 5% Convertible Preferred Stock, $.001 par value, were issued for cash. Each share is convertible into common stock by virtue of a formula contained in the Purchase Agreement which relates to the average price per share of common stock within the conversion period. During the third quarter of 1998, $105,000 worth of convertible preferred stock was converted into 38,965 shares of common stock by virtue of a formula contained in the purchase agreement which relates to the average price per share of common stock within the conversion period. 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. The diluted net income per share is based upon the options issued and outstanding as well as the assumed conversion of the Company's issued and outstanding preferred stock. Note 6 - INCENTIVE STOCK OPTION PLAN On January 1, 1997, the Company adopted an Incentive Stock Option Plan for Employees, Directors, Consultants and Advisors [the "Plan"]. The Plan will expire December 31, 2006 unless further extended by appropriate action of the Board of Directors. F-32 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Uunaudited) (Continued) September 30, 1998 Note 6 - INCENTIVE STOCK OPTION PLAN (CONTINUED) Employees, directors, consultants and advisors of the Company, or any of its subsidiary corporations, are eligible for participation in the Plan. The Plan provides for stock to be issued pursuant to options granted and shall be limited to 250,000 shares of Common Stock, $.001 par value. The shares have been reserved for issuance in accordance with the terms of the Plan. The exercise of these options may be for all or any portion of the option and any portion not exercised will remain with the holder until the expiration of the option period. The options expire on December 23, 2002. In addition, options were granted to the Board of Directors on April 2, 1998 for an aggregate amount of 700,000 options. A summary of the changes in outstanding Common Stock options for all outstanding plans is as follows: Weighted-average ---------------- Shares Exercise Price ------ -------------- OUTSTANDING AT DECEMBER 31, 1995 -- -- Granted -- -- Exercised -- -- Canceled -- -- OUTSTANDING AT DECEMBER 31, 1996 -- -- Granted 175,000 3.25 Exercised -- -- Canceled -- -- ------- ----- OUTSTANDING AT DECEMBER 31, 1997 175,000 3.25 ------- ----- EXERCISABLE AT DECEMBER 31, 1997 175,000 3.25 ------- ----- GRANTED AT APRIL 2, 1998 700,000 4.125 ------- ----- GRANTED AT SEPTEMBER 30, 1998 88,000 2.50 ------- ----- OUTSTANDING AT SEPTEMBER 30, 1998 963,000 3.83 ------- ----- F-33 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Uunaudited) (Continued) September 30, 1998 Note 6 - INCENTIVE STOCK OPTION PLAN (CONTINUED) The following table summarizes information about stock options at September 30, 1998:
Exercisable Outstanding Stock Options Stock Options Weighted-average Range Of Remaining Weighted-average Weighted Average - -------- ----------------------------------- ---------------- Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price - --------------- ------ --------------------------- ----- ------ -------------- $ 3.25 175,000 4.50 $ 3.25 175,000 $ 3.25 $ 4.125 700,000 4.75 $ 4.75 700,000 $ 4.75 $ 2.50 88,000 5.00 $ 2.50 88,000 $ 2.50
The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, for stock options issued to employees in accounting for its stock option plans. The exercise price of certain options issued during 1997 and 1998 was the market price at the date of grant. Accordingly, no compensation expense has been recognized for the Company's stock-based compensation plans for fiscal year 1997 and 1998. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The weighted average fair value of stock options granted to employees used in determining pro forma amounts is estimated at $4.13 and $2.50 during the nine and three months ended September 30, 1998. Pro forma information regarding net loss and net loss per share has been determined as if the Company has accounted for its employee stock options under the fair value method prescribed under SFAS No. 123, Accounting for Stock Based Compensation. The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model for the pro forma amounts with the following weighted average assumptions: Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 ------------------- ------------------ Risk-Free Interest Rate 5.6% -- 5.6% -- Expected Life 5 years -- 5 years -- Expected Volatility 153.0% -- 153.0% -- Expected Dividends -- -- -- -- F-34 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Uunaudited) (Continued) September 30, 1998 Note 6 - INCENTIVE STOCK OPTION PLAN (CONTINUED) The pro forma amounts are indicated below (in thousands, except per share amounts):
Three Months Ended Nine Months Ended September 30, September 30, 1998 1998 ---- ---- Net Income (Loss): As Reported (935,140) (392,174) Pro Forma (1,180,950) (3,306,665) Basic Net Income (Loss) Per Share of Common Stock: As Reported (.09) (.04) Pro Forma (.11) (.32) Diluted Net Income (Loss) Per Share of Common Stock: As Reported (.09) (.04) Pro Forma (.11) (.32)
Note 7 - BUSINESS AGREEMENTS In February 1998, the Company entered into an agreement with ELG Health Management Services ["ELG"] to market the Atlantic International Medical ["AIM"] products and services. ELG will provide the Company 40% of the net profits from the sale and distribution of medical products. In February 1998, the Company entered into a Development Service Agreement with International Transaction System Corp. ["ITS']. The Company's responsibilities under the agreement include engaging in the development activity required to host ITS on the Company's software and selling debt card processing [`DCP']. ITS' responsibilities include development activity required to develop the DCP test methodology and/or test cases so that the Company may validate correct operation of the DCP and provide service support. Under the Agreement, the Company paid $20,000 to acquire access to DCP through ITS for the purpose and exclusive application in the Company's software. Transaction fees earned by customers will be distributed 75% and 25% to the Company and ITS, respectively. The initial term of the agreement is 10 years, and automatically renews in 5 year consecutive periods, unless terminated by either party. F-35 ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Uunaudited) (Continued) September 30, 1998 Note 7 - BUSINESS AGREEMENTS CONTINUED On September 28, 1998, the Company entered into and closed on an agreement of purchase and sale with Cybergames, Inc. for the purchase of several of the company's licensees and the exchange of the company's accounts receivable from said licensees. The total purchase price was $ 3,147,000 payable $ 227,000 in cash and $2,920,000 in stock of Cybergames, Inc. (730,000 shares). Note 8 - LEGAL PROCEEDING On September 3, 1998, Graeme Allan Green, a former director of COMS21 and Felscot PTY LTD., a company in which Mr. Green has a substantial interest ("Green Group), filed an application against the Company, COMS21 and the directors of COMS21 in the Australian Federal Court. In addition, the Green Group has made its own offer to purchase the COMS21 stock. The Company has accepted approximately 11,160,000 shares of COMS21 stock in exchange for 1,160,000 shares of the Company stock. Counsel believes that the above action is without merit and will not materially affect the Company's results of operation and cash flow. The Company believes that it can still complete the acquisition of the majority of the COMS21 stock. Note 9 - INVESTMENT In the third quarter of 1998, the Company invested $2,000,000 in a 5% convertible debenture note from a South African company, Atlantic International Entertainment, Ltd. South Africa. The debenture is convertible into common stock by December 31, 2000 or the listing of the South African Company, whichever comes first. F-36 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 27. Indemnification of Directors and Officers. Section 102 of the Delaware General Corporation Law, as amended, allows a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his or her duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. The Registrant has limited the liability of its directors for money damages in Article VIII of its Amended and Restated Certificate of Incorporation (its "Charter"), which reads as follows: No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except liability for (i) any breach of the director's duty of loyalty to the Corporation or its stockholders; (ii) any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the General Corporation Law; or (iv) any transaction from which the director derived any improper personal benefit. The foregoing sentence notwithstanding, if the General Corporation Law is hereafter amended to authorize further elimination or a limitation on the liability of a director of a corporation, then the liability of a director of this Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law, as so amended. Any repeal or modification of this Article VIII by (i) the stockholders of the Corporation or (ii) amendment to the General Corporation Law of Delaware (unless statutory amendment specifically provides to the contrary) shall not adversely affect any right or protection, existing immediately prior to the effectiveness of repeal or modification with respect to any acts or omissions occurring either before or after repeal or modification, of a person serving as a director at the time of repeal or modification. Section 145 of the Delaware General Corporation Law, as amended, provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at its request in capacity in another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The Registrant has provided for indemnification of directors, officers, employees and agents in Article VII of its Charter, which reads as follows: II-1 The Corporation shall indemnify, and advance expenses to, its directors, officers, employees and agents, and all persons who at any time served as directors, officers, employees or agents of the Corporation, to the maximum extent permitted, and in the manner provided by, Section 145 of the Delaware General Corporation Law, as amended, or any successor provisions, and shall have power to make any other or further indemnity permitted under the laws of the State of Delaware. The indemnification provided for herein shall not be deemed exclusive of any other right to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of a person. Any repeal or modification of this Article VIII by (i) the stockholders of the Corporation or (ii) amendment to the General Corporation Law of Delaware (unless statutory amendment specifically provides to the contrary) shall not adversely affect any right or protection, existing immediately prior to the effectiveness of repeal or modification with respect to any acts or omissions occurring either before or after repeal or modification, of a person serving as a director at the time of repeal or modification. In addition, Section 5 of Article VII of the Bylaws of the Registrant, as amended, provides as follows: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of issue. Item 25. Other Expenses Of Issuance And Distribution The following table sets forth an itemization of all estimated expenses in connection with the issuance and distribution of the securities being registered, none of which are payable by the selling stockholders: registration statement Filing Fee $ 9,724.21 Legal Fees and Expenses 5,000.00 Accounting fees and expenses 3,000.00 Miscellaneous 1,000.00 ---------- Total $18,724.21 ========== II-2 Item 26. Recent Sales of Unregistered Securities During the past three years, the following securities were sold by us without registration under the Securities Act. Except as otherwise indicated, the securities were sold by in reliance upon the exemption provided by Section 4 (2) of the Securities Act, among others, on the basis that transactions did not involve any public offering and the purchasers were sophisticated with access to the kind of information registration would provide: Shaar Fund 10,000 shares of 5% Convertible Preferred stock. Hoskin Consolidated Industries 1,000,000 shares of common stock COMS 21, Ltd. 1,216,667 shares of common stock In December 1997, we sold Australian Advisers 100,000 shares of common stock pursuant to the completion of its S-8 registration statement for $3.00 per share, these shares were issued and held in escrow until the closing in January 1998. Australian Advisors continues to render valuable consulting services to us. On April 3, 1998, we entered into a Securities Purchase Agreement for the sale of $500,000.00 of a newly created 5% Convertible Preferred stock. The Agreement also grants the purchaser the right to purchase up to an additional $2,500,000.00 in said class of securities at market prices. The Convertible Preferred stock is convertible into our common stock at the purchaser's option. When the Securities Purchase Agreement was signed, we entered into an agreement with the Purchaser to register all of the shares of the purchased securities and the common stock that may be issued pursuant to the exercise of the Purchaser's conversion rights. We agreed to and did file a registration statement with the Securities and Exchange Commission for the registration of the shares of above securities and the shares of common stock issuable upon exercise of the Purchaser's conversion rights and to maintain the effectiveness of registration statement for the term of the above Agreement. We believe that, during the period of effectiveness of the above registration statement, the Purchaser may convert the securities to common stock and sell all or any of the shares of common stock without restriction. On April 30, 1998, we entered into a Securities Purchase Agreement with Hosken Consolidated Investments, Ltd., a South African corporation for the purchase of 1,000,000 shares of our common stock at $4.00 per share. Hosken is engaged in the technology industry, including cellular, telecommunications, video gaming and media. In a simultaneous transaction, HCI has subscribed for 25% of our South African subsidiary, Atlantic International Entertainment, Ltd. South Africa. HCI received its equity in consideration for its services to be rendered related to introducing us to the South African gaming and wagering community. On August 24, 1998, our wholly-owned subsidiary, AIE, Australia, Ltd. submitted an offer for the acquisition of an Australian listed company, Coms21. We will offer Coms21 shareholders the equivalent of $.70 AUD per share in the form of our U.S. shares. We eventually accepted approximately 12,000,000 shares of Coms21 in exchange for approximately 1,200,000 shares of our common stock and therafter withdrew our offer for the rest of the Coms21 stock. II-3 Item 27. Exhibits and Financial Statement Schedules. (a) Exhibits: *3.1 -- Certificate of Incorporation of Atlantic International Entertainment, Ltd.(including Certificate of Designation) *3.2 -- Bylaws of Atlantic International Entertainment, Ltd.. *4.1 -- Specimen common stock Certificate. *10.1 -- Incentive stock Option Plan for Employees, Directors, Consultants and Advisers. *10.2 -- Exchange of stock Agreement and Plan of Reorganization dated July 16, 1996 by and between Atlantic International Entertainment, Ltd. (formerly known as CEEE Group Corporation), Edward Cowle, Deworth Williams, Atlantic International Capital, Ltd., and each of the former stockholders of Atlantic International Capital, Ltd. listed on Schedule I thereto. *10.3 -- Amendment No. 1 to Exchange of stock Agreement and Plan of Reorganization dated September 5, 1996 by and between Atlantic International Entertainment, Ltd. (formerly known as CEEE Group Corporation), Edward Cowle, Deworth Williams, Atlantic International Capital, Ltd., and each of the former stockholders of Atlantic International Capital, Ltd. listed on Schedule I thereto. *10.4 -- Agreement and Plan of Merger dated as of November 18, 1996, between Atlantic International Entertainment, Ltd., a Delaware corporation and CEEE Group Corporation, Ltd., a Colorado corporation. 10.5 -- Purchase and Sale Agreement dated as of April 15, 1996 by and between we, RAM Associates and James A Dougherty. *10.6 -- Agreement for Purchase and Sale of stock dated as of December 15, 1996 by and between we, Atlantic International Entertainment, NV and Australian Advisers, Ltd. *10.7 -- Agreement for Purchase and Sale of stock dated as of January 31, 1997 by and between Atlantic International Entertainment, Ltd. and Eminet Domain, Inc. *10.8 -- Securities Purchase Agreement dated April 3, 1998 by and between Atlantic International Entertainment, Ltd. and The Shaar Fund *10.9 -- Addendum to Securities Purchase Agreement dated June 3, 1998 by and between Atlantic International Entertainment, Ltd. and The Shaar Fund II-4 *10.10 -- Employment Agreements with Richard Iamunno and Norman Hoskin *23.1 -- Consent of Moore Stephens, P.C. *23.2 -- Consent of Harry Winderman, Esq. *25.0 -- Power of Attorney, included on the signature page to this registration statement * Previously filed Item 28. Undertakings. ------------- The undersigned registrant undertakes: (1) To file, during any period in which it offers or sales securities, a post-effective amendment to this registration statement to; (2) To include any prospectus required by Section 10 (a) (3) of the Securities Act of 1993; (3) To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; (4) To include any additional or changed material information on the plan of distribution. (5) For determining liability under the Securities Act of 1933, treat each post-effective amendment as a new registration statement of the securities offered, and in the offering of securities at that time to be the initial bona fide offering. (6) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against liabilities (other than the payment by the small business issuer of expense incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of issue. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in Boca Raton, Florida, on the 25th day of March, 1999. ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. By: /s/ Richard Iamunno -------------------------- Richard Iamunno, President POWER OF ATTORNEY Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- * Chairman of the Board, March 25, 1999 - -------------------------------------- Secretary, and Treasurer Norman J. Hoskin /s/ Richard Iamunno President, Chief Executive Officer, March 25, 1999 - -------------------------------------- Chief Financial Richard A. Iamunno Officer and Director * Principal Accounting Officer March 25, 1999 - -------------------------------------- Trevor Klein * Director March 25, 1999 - -------------------------------------- Steven D. Brown Director March 25, 1999 - -------------------------------------- Jeffrey Hurwitz * Director March 25, 1999 - -------------------------------------- Martin McCarthy Director March 25, 1999 - -------------------------------------- Marcel Golding Director March 25, 1999 - -------------------------------------- Dr. Leonard Haimes * By /s/ Richard Iamunno ------------------- Richard A. Iamunno Attorney-in-Fact
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