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 September 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. Employer Identification 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 October 17, 2001 is 36,532,333
PART I -- FINANCIAL INFORMATION
1
ITEM 1 -- FINANCIAL STATEMENTS
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2001 2000
(NOTE 1 and 2) (NOTE 1)
(Unaudited) (Audited)
ASSETS
Assets held for sale $ - $ 1,091,000
Other assets - 4,000
------------ ------------
$ - $ 1,095,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Bank overdraft $ - $ 242,000
Accounts payable - trade - 314,000
Customer payments on future services - 200,000
Accrued expenses and other liabilities - 45,000
Obligation under capital lease - 231,000
Due to related parties - 4,375,000
------------ ------------
Total liabilities - 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 (51,683,000) (55,995,000)
------------ ------------
Total stockholders' deficit - (4,312,000)
------------ ------------
$ - $ 1,095,000
============ ============
See accompanying notes to condensed financial statements.
2
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
---- ---- ---- ----
REVENUES $ - $ - $ - $ -
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Selling, general & administrative 115,000 129,000 279,000 360,000
----------- ----------- ----------- -----------
OPERATING LOSS (115,000) (129,000) (279,000) (360,000)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Gain on from discharge of
indebtedness (Note 2) 4,886,000 - 4,886,000 -
Interest expense (98,000) (81,000) (295,000) (246,000)
----------- ----------- ----------- -----------
4,788,000 (81,000) 4,591,000 (246,000)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 4,673,000 $ (210,000) $ 4,312,000 $ (606,000)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 69,597,000 69,597,000 69,597,000 69,526,000
NET INCOME (LOSS) PER SHARE $ 0.07 $ (0.01) $ 0.06 $ (0.01)
=========== =========== =========== ===========
Unaudited -- See accompanying notes to condensed financial statements.
3
ENTERTAINMENT INTERNATIONAL LTD.
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ 4,312,000 $ (606,000)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation - 49,000
Gain from discharge of indebtedness (4,886,000) -
Changes in operating assets and liabilities (69,000) (16,000)
---------- --------
Net change in cash used for operating activities (643,000) (573,000)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligation (231,000) (300,000)
Net change in due to related parties 1,116,000 872,000
---------- --------
Net cash flows provided by financing activities 885,000 572,000
---------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 242,000 (1,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD (242,000) 1,000
---------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ - $ -
========== ========
SUPPLEMENTAL INFORMATION:
Non-cash financing activity:
Conversion of debt into common stock $ - $214,000
========== =======
Cash paid for interest $ 13,000 $ 20,000
Unaudited-See accompanying notes to condensed financial statements.
4
ENTERTAINMENT INTERNATIONAL LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
[UNAUDITED]
NOTE 1-BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q 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-Q.
NOTE 2 - SUBSEQUENT EVENTS:
On October 17, 2001 the Company, through its wholly owned subsidiary
ENTI Acquisition Corp. ("ENTI" or "Registrant"), closed a transaction (the
"Transaction") providing for the acquisition of all of the issued and
outstanding shares of CSTI Hi-Tech, Ltd. ("CSTI") an Israeli corporation, in
exchange for approximately 31,052,483 shares of Registrant's unregistered
restricted common stock on a post-split basis (simultaneously with the closing
Registrant effectuated a one for twenty reverse stock split effective on October
18, 2001 of all of its issued and outstanding stock as approved by the
shareholders of the company on December 28, 2000.)
Following the closing of the transaction, the former shareholders of
CSTI controlled approximately 85 percent of ENTI's outstanding share capital
(36,532,333 shares). Mr. Jacob Lustgarten, the president of CSTI became the
Chairman and Chief Executive Officer of the Registrant. Mr. Louis J. Pearlman,
resigned as Chairman and Chief Executive Officer of Registrant, and will remain
on the Board of Directors. Meir Elazar, General Counsel for CSTI, will fill the
remaining vacancy on the Registrant's Board of Directors. Effective immediately
the activities of CSTI are to be conducted through Registrant. CSTI is
headquartered in Israel, 4 Ashlagan St., P.O. Box 8624, Kiryat Gat 82021, Israel
(011 972 8 660 2108).
CSTI has offices in Germany and Italy and is engaged in the business of
the planning, production and installation of ultra-high purity systems for
transporting highly pure gases and chemicals. These highly pure products are
used in the production of products ranging from micro-electronics, optical
fibers and metal blades to pharmaceutical and bio-technology items. CSTI
currently has 140 employees and its customers include Sapio Gas Company (Italy),
Hydrogas (Scandanavia), Pirelli Optic Fibres (Italy), Teva (Israel) and Intel
(Israel) among others.
Summary information with regard to CSTI as of September 30, 2001 is
as follows:
September 30,
2001
----
(Unaudited)
(in 000's)
Cash and Cash Equivalents $ 102
Trade Receivables 1,973
Other Receivables 823
Inventory 1,664
-------------
Total Current Assets 4,562
Property, Plant and Equipment (Net of Accumulated Depreciation of $805) 1,656
Deferred Taxes 17
-------------
Total Assets $ 6,235
=============
Current Liabilities:
Short-Term Credit $ 2,001
Trade Payables 1,666
Other Payables 1,125
-------------
4,792
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Long-Term Liabilities:
Shareholders' loans 14
Severance liability, net of amount funded 71
-------------
85
-------------
Contingencies and Commitments
5
Shareholders' Equity:
Share capital 1
Additional paid in capital 738
Retained earnings 619
-------------
1,358
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$ 6,235
=============
For the Period ended
September 30,
2001
----
(unaudited)
Sales $ 10,123
Cost of Sales 6,347
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Gross Profit 3,776
General Expenses and Administrative 1,786
-------------
Operating Income 1,990
Interest Income - net 67
Other Income 6
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Income Before Income Taxes 2,063
Income Taxes 83
-------------
Net Income $ 1,980
=============
As a part of the Transaction, Louis Pearlman, TransCon Airlines and
TransCon Records (Transcon Airlines and Transcon Records collectively referred
to as "TransCon") entered into a separate cancellation and discharge agreement
with CSTI whereby, Pearlman and TransCon agreed to cancel and discharge all
indebtedness of the Company owed to Pearlman and TransCon. Pearlman and TransCon
also jointly and severally assumed all remaining debts and liabilities
owned by the Company. The Company also transferred, to Pearlman and TransCon
all of the remaining airship assets owned by the Company. The financial
statements as of and for the period ended September 30, 2001, reflect this
agreement. As a result, such financial statements disclose a gain from
discharge from indebtedness of $4,886,000.
6
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 nine months of 2001, the Company had net income of $4,312,000 and had
negative cash flows of $643,000 from operations. The accompanying financial
statements do not include any adjustments that might result from the Company's
current liquidity shortage. The Company experienced a net loss of $606,000 from
the same period last year. This change is due to a $4.9 million gain on disposal
of discontinued operations occurring in the third quarter of this year.
RESULTS OF OPERATIONS
The Company had no revenue from operations during the first nine months of 2001
and 2000.
Selling, general and administrative costs for the nine months and three months
ended September 30, 2001 were $279,000 and $115,000, respectively as compared to
$360,000 and $129,000, respectively, for the comparable periods in 2000. These
amounts represent decreases of $ 81,000 and $14,000, respectively. This decrease
is primarily attributable to decreased officer and administrative salaries, and
legal expense.
Interest expense increased $51,000 or 20.7% to $297,000 for the nine months
ended September 30, 2001 from $246,000 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 $643,000 in the
nine-month period ended September 30, 2001. Proceeds of $1.1 million primarily
from Trans Continental Records ("TCR") had a positive impact on cash flow,
however, this was offset by debt reduction under the Company's capital lease
obligation. As a result of the transactions described in Note 2 to the
financial statements, the Company had no assets or liabilities at
September 30, 2001 compared with negative working capital of $5,407,000
at December 31, 2000.
Other
The Company has approximately $42,548,000 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.
7
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.
8
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:
None
9
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: November 19, 2001 By: /s/ Jacob Lustgarten
--------------------------
Jacob Lustgarten
Chairman of the Board of
Directors, and Chief
Executive Officer
10