SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
Securities Exchange Act of 1934
for Quarterly Period Ended June 30, 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.
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(Exact name of registrant as specified in its charter)
New York 06-1113228
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(State or other jurisdiction of (I.R.S. EmployerIdentification Number)
incorporation or organization)
7380 Sand Lake Road, Suite 350, Orlando, FL 32819
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(Address of principal executive offices, Zip Code)
(407) 351-0011
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been
subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
The number of outstanding shares of the
registrant's common stock, par value $.01 as of
June 30, 2001 is 69,597,000
1
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2001 2000
(NOTE 1) (NOTE 1)
(Unaudited) (Audited)
ASSETS
Assets held for sale $ 1,091,000 $ 1,091,000
Other assets 12,000 4,000
------------ ------------
$ 1,103,000 $ 1,095,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Bank overdraft $ 2,000 $ 242,000
Accounts payable - trade 250,000 314,000
Customer payments on future services 200,000 200,000
Accrued expenses and other liabilities 38,000 45,000
Obligation under capital lease - 231,000
Due to related parties 5,286,000 4,375,000
------------ ------------
Total liabilities 5,776,000 5,407,000
------------ ------------
STOCKHOLDERS' DEFICIT
Common stock 696,000 696,000
Capital in excess of par value 50,987,000 50,987,000
Accumulated deficit (56,356,000) (55,995,000)
------------ -------------
Total stockholders' deficit (4,673,000) (4,312,000)
------------ -------------
$ 1,103,000 $ 1,095,000
============ =============
See accompanying notes to condensed financial statements.
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ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
---- ---- ---- ----
REVENUES $ - $ - $ - $ -
----------- ---------- ---------- ----------
COSTS AND EXPENSES:
Selling, general & administrative 32,000 103,000 164,000 231,000
----------- ---------- ---------- ----------
OPERATING LOSS (32,000) (103,000) (164,000) (231,000)
----------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (96,000) (80,000) (197,000) (165,000)
----------- ---------- ---------- ----------
NET LOSS $ (128,000) $ (183,000) $ (361,000) $ (396,000)
========== ========== =========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 69,597,000 69,597,000 69,597,000 69,490,000
NET LOSS PER SHARE $ - $ - $ (0.01) $ (0.01)
========== =========== =========== ==========
Unaudited -- See accompanying notes to condensed financial
statements.
3
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (361,000) $ (396,000)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation - 33,000
Changes in operating assets and liabilities (79,000) (71,000)
---------- ----------
Net change in cash used for operating activities (440,000) (434,000)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligation (231,000) (149,000)
Net change in due to related parties 911,000 582,000
---------- -----------
Net cash flows provided by financing activities 680,000 433,000
---------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 240,000 (1,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD (242,000) 1,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ (2,000) $ -
============ ============
SUPPLEMENTAL INFORMATION:
Non-cash financing activity:
Conversion of debt into common stock $ - $ 214,000
=========== ============
Cash paid for interest $ 13,000 $ 11,000
=========== ============
Unaudited-See accompanying notes to condensed financial
statements.
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ENTERTAINMENT INTERNATIONAL LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete statements. Management believes that all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of such
financial statements, have been included. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. If such differences prove significant and material, Entertainment
International Ltd. (the "Company") will file an amendment to this report on Form
10-QSB.
NOTE 2 - PROPOSED ACQUISITIONS (ACQUISITION):
The Company has discontinued its pursuit of the acquisition of WeBeCD.com Inc.
The Company is negotiating the acquisition of CS Technologies, Ltd. ("CS
Technologies"), and has entered into a letter of intent on June 28th to acquire
100% of the capital stock. The proposed agreement is contemplating that such
number of shares of the Company's common stock will be issued in exchange for
shares of CS Technologies' common stock so that CS Technologies will have
acquired complete control of the Company. At the closing of such transaction,
the Company will effect a "one-for-twenty" reverse stock split previously
authorized by shareholders of the Company in December 2000. It is intended that
the Stock Purchase Agreement will be signed in August 2001. As part of the
transaction, Trans Continental Records, Trans Continental Airlines, and Mr.
Pearlman will waive all debt that is owed to them (approximately $5,286,000 in
the aggregate) and assume all the remaining liabilities on the balance sheet
(approximately $490,000) in exchange for the remaining assets (approximately
$1,103,000).
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERALL FINANCIAL CONDITION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate that Entertainment
International, Ltd. (the "Company") will continue as a going concern. For the
first six months of 2001, the Company incurred a loss of $361,000 and had
negative cash flows of $440,000 from operations. The accompanying financial
statements do not include any adjustments that might result from the Company's
current liquidity shortage. The decrease in the Company's net loss from the same
period last year was $35,000. The primary reason for this decrease was a
reduction in operating expenses incurred by the Company in the first six months
of this year as compared to the first six months of 2000. The Company is also
experiencing a liquidity shortage.
RESULTS OF OPERATIONS
The Company had no revenue from operations during the first six months of 2001
and 2000.
Selling, general and administrative costs for the six months and three months
ended June 30, 2001 were $164,000 and $32,000, respectively, as compared to
$231,000 and $103,000, respectively, for the comparable periods in 2000. These
amounts represent decreases of $67,000 and $71,000, respectively. This decrease
is primarily attributable to decreased officer salary and legal expense.
Interest expense increased $32,000 or 19% to $197,000 for the six months ended
June 30, 2001 from $165,000 during the same period during 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 flow from operations of $440,000 in the
six-month period ended June 30, 2001. Proceeds of $911,000 primarily from TCR
had a positive impact on cash flow, however, this was offset by debt reduction
under the Company's capital lease obligation. The Company also had negative
working capital of $5,776,000 at June 30, 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 TCR, a related party, TCA, a related party, Louis
Pearlman, the Company's president and principal stockholder, and other
affiliated companies of which Mr. Pearlman is the Chairman, President, and
shareholder. There can be no assurance that TCR, TCA, Mr. Pearlman, and
affiliates will make additional loans, cash advances, and guarantees on an
ongoing basis. At June 30, 2001, the Company owed $5,286,000 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: (i) continued arrangements with companies related through common
directorship and ownership, to provide funding on a monthly basis; and (ii)
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 CS Technologies, and has entered
into a letter of intent on June 28th to acquire 100% of the capital stock. The
proposed agreement is contemplating that such number of shares of the Company's
common stock will be issued in exchange for shares of CS Technologies' common
stock so that CS Technologies will have acquired complete control of the
Company. At the closing of such transaction, the Company will effect a
"one-for-twenty" reverse stock split previously authorized by shareholders of
the Company in December 2000. It is intended that the Stock Purchase Agreement
will be signed in August 2001. As part of the transaction, TCR, TCA, and Mr.
Pearlman will waive all debt that is owed to them (approximately $5,286,000 in
the aggregate) and assume all the remaining liabilities on the balance sheet
(approximately $490,000) in exchange for the remaining assets (approximately
$1,103,000).
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Other
The Company has approximately $47,197,000 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 fiscal year.
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 in this report are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The Company
wished to advise readers that actual results may differ substantially from such
forward-looking statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those
expressed on or implied by the statements, including, but not limited to, the
following: the ability of the Company to successfully meet its cash and working
capital needs, the ability of the Company to successfully market its product,
and other risks detailed in the Company's periodic report filings with the
Securities and Exchange Commission.
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
(a) The following exhibit is filed herewith:
Exhibit 27.1 Financial Data Schedule
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: August 17, 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)
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