SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
Securities Exchange Act of 1934
for Quarterly Period Ended March 31, 2001
-OR-
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities And Exchange Act of 1934
for the transaction period from ___________ to _________
Commission File Number 0-14646
Entertainment International Ltd.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 06-1113228
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7380 Sand Lake Road, Suite 350, Orlando, FL 32819
--------------------------------------------------------------------------------
(Address of principal executive offices, Zip Code)
(407) 351-0011
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been
subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
The number of outstanding shares of the
registrant's common stock, par value $.01 as of May 15, 2001 is 69,597,282.
1
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2001 2000
(NOTE 1) (NOTE 1)
ASSETS
Assets held for sale $ 1,091,000 $ 1,091,000
Other assets 9,000 4,000
------------ ------------
$ 1,100,000 $ 1,095,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Bank overdraft -- 242,000
Accounts payable - trade 264,000 314,000
Customer payments on future services 200,000 200,000
Accrued expenses and other liabilities 47,000 45,000
Obligation under capital lease -- 231,000
Due to related parties 5,134,000 4,375,000
------------ ------------
Total liabilities 5,645,000 5,407,000
------------ ------------
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value:
Authorized - 110,000,000 shares
Issued and outstanding - 69,597,000 and
68,097,000 shares, respectively 696,000 696,000
Capital in excess of par value 50,987,000 50,987,000
Accumulated deficit (56,228,000) (55,995,000)
------------ ------------
Total stockholders' deficit (4,545,000) (4,312,000)
------------ ------------
$ 1,100,000 $ 1,095,000
============ ============
Unaudited -- See accompanying notes to condensed financial statements.
2
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
2001 2000
---- ----
AIRSHIP REVENUES $ 0 $ 0
------------ ------------
COSTS AND EXPENSES:
Selling, general & administrative 132,000 128,000
------------ ------------
132,000 128,000
------------ ------------
OPERATING LOSS (132,000) (128,000)
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (101,000) (85,000)
------------ ------------
(101,000) (85,000)
------------ ------------
NET LOSS $ (233,000) $ (213,000)
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 69,597,282 69,363,667
NET LOSS PER SHARE $ (.00) $ (.00)
============ ============
Unaudited -- See accompanying notes to condensed financial statements.
3
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(233,000) $(213,000)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation -- 16,000
Changes in operating assets and liabilities (295,000) (82,000)
--------- ---------
Net change in cash used for operating activities (528,000) (115,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in due from related parties 759,000 339,000
--------- ---------
Net cash flows provided by investing activities 759,000 339,000
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease and notes payable (231,000) (224,000)
--------- ---------
Net cash flows provided by financing activities (231,000) (224,000)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS -- --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- 1,000
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ 1,000
========= =========
SUPPLEMENTAL INFORMATION:
Conversion of debt into common stock $ -- $ 214,000
========= =========
Interest paid $ 13,000 $ 16,000
========= =========
Unaudited-See accompanying notes to condensed financial statements.
4
ENTERTAINMENT INTERNATIONAL LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete statements. Management believes that all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of such
financial statements, have been included. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. If such differences prove significant and material, Entertainment
International Ltd. (the "Company") will file an amendment to this report on Form
10-QSB.
5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERALL FINANCIAL CONDITION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate that Entertainment
International, Ltd. (the "Company") will continue as a going concern. For the
first three months of 2001, the Company incurred a loss of $233,000 and had
negative cash flows of $528,000 from operations. The accompanying financial
statements do not include any adjustments that might result from the Company's
current liquidity shortage. The increase in the Company's net loss from the same
period last year was $20,000. The primary reason for this increase was an
increase in interest from related party borrowings incurred by the Company in
the first three months of this year as compared to the first three months of
2000.
RESULTS OF OPERATIONS
The Company had no revenue from operations during the first three months of 2001
and 2000.
Selling, general and administrative costs for the three months ended March 31,
2001 were $132,000 as compared to $128,000 for the comparable period in 2000, an
increase of $4,000 or 4%. This increase is primarily attributable to increased
legal and travel expenses as the Company continues to pursue business
combinations.
Interest expense increased $16,000 or 19% to $101,000 for the three months ended
March 31, 2001 from $85,000 during the same period in 2000. The increase in
interest expense was directly attributable to the increase in loans from related
parties.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced negative cash flows from operations of $528,000 in the
three-month period ended March 31 2001. Proceeds of $759,000 from Trans
Continental Records and Trans Continental Airlines had a positive impact on cash
flow, however, this was offset by debt reduction of $231,000 under the Company's
capital lease obligation. The Company also had negative working capital of
$5,645,000 at March 31, 2001 compared with $5,407,000 at December 31, 2000.
Because of the continued negative cash flow, working capital and existing
encumbrances on assets, the Company has relied on loans, cash advances, and
guarantees from Louis Pearlman, the Company's president and principal
stockholder, TransContinental Airlines ("TCA"), a related party,
TransContinental Records, ("TCR"), a related party, and other affiliated
companies of which Mr. Pearlman is the Chairman, President, and shareholder.
There can be no assurance that Mr. Pearlman, TCA, TCR and affiliates will make
additional loans, cash advances, and guarantees on an ongoing basis. At March
31, 2001, the Company owed $5,134,000 to related parties. Repayment of such
amounts has been deferred for an indefinite period. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans to improve the financial position of the Company, with the
goal of sustaining the Company's operations for the current year and beyond
include: (1) establishing continued arrangements with TCA and TCR, companies
related through common directorship and ownership, to provide funding on a
monthly basis, and (2) establishing goals for the acquisition of assets and
operations of one or more entities, with the expectation that such business
combinations, if completed, would provide additional cash flow and net income.
The Company is negotiating the acquisition of WeBeCD.com, Inc. ("WeBeCD"), and
has entered into a letter of intent to acquire 100% of the capital stock,
including options and warrants of WeBeCD. If all agreement terms are met, shares
of the Company's common stock will be issued in exchange for shares of WeBeCD's
common stock. On January 12, 2001 the Company also signed a stock purchase
agreement to purchase all the outstanding shares of European Multimedia Group AB
("EMG"), including options and warrants convertible into common stock, for a
negotiated number of shares of the Company's common stock for each one share of
EMG stock owned. The agreement called for the issuance of up to 4,000,000 shares
of the Company's common stock based on achieving certain levels of revenue of up
to $23.5 million for the fiscal year ended December 31, 2001. On March 16, 2001,
the Company terminated its proposed acquisition of EMG due to EMG's failure to
meet in a timely fashion in accordance with the terms of the stock purchase
agreement various conditions of closing, including among others, to provide the
required financial statements, opinions of counsel, good standing certificates
and agreements with various third parties, all as specified in the stock
purchase agreement.
6
Other
The Company has approximately $47,093,000 in losses for income tax purposes
available to reduce future taxable income which will begin to expire in 2005. We
have no commitments for capital expenditures of a material nature in the near
future.
Inflation
The Company believes that there has not been a significant impact from inflation
on the Company's operations during the past three fiscal years.
Additional Factors That May Affect Future Results
Future Operating Results - Future operating results may be impacted by a number
of factors that could cause actual results to differ materially from those
stated herein, which reflect management's current expectations. These factors
include worldwide economic and political conditions, industry specific factors,
the Company's ability to maintain access to external financing sources and its
financial liquidity, the acceptance of the Company by small and mid-sized
businesses, and the Company's ability to manage expense levels.
Stock Price Fluctuations - The Company's participation in a highly competitive
industry often results in significant volatility in the Company's common stock
price. This volatility in the stock price is a significant risk investors should
consider.
Forward Looking Statements - This report contains certain forward-looking
statements that are based on current expectations. In light of the important
factors that can materially affect results, including those set forth above and
elsewhere in this report, the inclusion of forward-looking information herein
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved. The Company may
encounter competitive, technological, financial and business challenges making
it more difficult than expected to continue to market its products and services;
competitive conditions within the industry may change adversely; the Company may
be unable to retain existing key management personnel; the Company's forecasts
may not accurately anticipate market demand; and there may be other material
adverse changes in the Company's operations or business. Certain important
factors affecting the forward looking statements made herein include, but are
not limited to (i) accurately forecasting capital expenditures and (ii)
obtaining new sources of external financing. Assumptions relating to budgeting,
marketing, product development and other management decisions are subjective in
many respects and thus susceptible to interpretations and periodic revisions
based on actual experience and business developments, the impact of which may
cause the Company to alter its capital expenditure or other budgets, which may
in turn affect the Company's financial position and results of operations.
7
Part II
ITEM 1 - LEGAL PROCEEDINGS
Not applicable.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 - OTHER INFORMATION
Not applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
8
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
ENTERTAINMENT INTERNATIONAL LTD.
Dated: May 21, 2001 By: /s/ Louis J. Pearlman
--------------------------
Louis J. Pearlman
Chairman of the Board of
Directors, President and
Treasurer (duly authorized
officer of the registrant and
principal financial officer
of the registrant)
9