U.S SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549



                                   FORM 10-KSB


/X/      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
         OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1997

/  /     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
         ACT OF 1934 [NO FEE REQUIRED]

For the transition period from  January 1, 1997  to December 31, 1997

                         Commission file number 0-27256

                   ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.
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             DELAWARE                                13- 3858917
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 State or Other Jurisdiction of             (I.R.S. Employer Identification No.
 Incorporation or Organization)

200 East Palmetto Park Road, Suite 200, Boca Raton, Florida        33432
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(Address of Principal Executive Offices)                         (Zip Code)

                                 (561) 393-6685
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                (Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:
                                      None.

Securities registered under Section 12(g) of the Exchange Act:

                         COMMON STOCK, $.001 PAR VALUE
--------------------------------------------------------------------------------
                                (Title of Class)

         Check  whether  the issuer:  (1) has filed all  reports  required to be
filed by Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or
for such shorter  period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

                Yes   /  /     No / X/
                                                           (CONTINUED NEXT PAGE)
         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the best of the  Registrant's  knowledge,  in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
<PAGE>
         State  issuer's  revenues for its most recent fiscal year: The issuer's
revenues for the fiscal year ended December 31, 1997 were $ 4,416,790

         The  aggregate  market  value  at  March  31,  1998  of  shares  of the
registrant's  Common  Stock,  $.001 par value per share  (based upon the closing
price of $4.3125  per share of such stock on the  Nasdaq OTC  Bulletin  Board on
such  date),   held  by  non-affiliates  of  the  Registrant  was  approximately
$31,885,120.  Solely  for the  purposes  of  this  calculation,  shares  held by
directors and officers of the  Registrant  have been  excluded.  Such  exclusion
should not be deemed a determination or an admission by the Registrant that such
individuals are, in fact, affiliates of the Registrant.

         State the number of shares  outstanding of each of the issuer's classes
of common  equity,  as of the latest  practicable  date: At March 31, 1998 there
were outstanding  9,676,190 shares of the Registrant's  Common Stock,  $.001 par
value.

         Transitional Small Business Disclosure Format (check one):

                        Yes    /  /     No    /X/

<PAGE>
                                     PART I

ITEM 1.     DESCRIPTION OF BUSINESS.

GENERAL

         The  Company is making  this  statement  in order to satisfy  the "safe
harbor" provisions contained in the Private Securities  Litigation Reform Act of
1995.  This Annual  Report on Form 10-KSB  includes  forward-looking  statements
relating to the business of the Company.  Forward-looking  statements  contained
herein or in other statements made by the Company are made based on Management's
expectations and beliefs  concerning future events impacting the Company and are
subject to uncertainties  and factors  relating to the Company's  operations and
business  environment,  all of which are  difficult to predict and many of which
are beyond the control of the Company,  that could cause  actual  results of the
Company to differ  materially  from  those  matters  expressed  in or implied by
forward-looking  statements.  The Company  believes that the following  factors,
among others,  could affect its future  performance  and cause actual results of
the  Company  to  differ  materially  from  those  expressed  in or  implied  by
forward-looking  statements  made by or on behalf of the  Company;  (a)  general
economic,  business and market conditions;  (b) competition;  (c) the success of
advertising and promotional  efforts;  (d) trends within the Internet Gaming and
Internet  Supply  Provider  industries;  (e) the existence or absence of adverse
publicity; (f) changes in relationships with the Company's major customers or in
the  financial  condition  of  those  customers;  and  (g) the  adequacy  of the
Company's  financial  resources and the availability and terms of any additional
capital.  Such  forward-looking  statements  are based on  assumptions  that the
Company will  continue to design,  market and provide  successful  new services,
that  competitive  conditions  will not change  materially,  that demand for the
Company's  services will continue to grow,  that the Company will retain and add
qualified  personnel,  that the Company's  forecasts will accurately  anticipate
revenue growth and the costs of producing that growth, and that there will be no
material adverse change in the Company's  business.  In light of the significant
uncertainties inherent in the forward-looking  information included in this Form
10-KSB,   actual  results  could  differ  materially  from  the  forward-looking
information contained in this Annual Report on Form 10-KSB.

         Atlantic International Entertainment,  Ltd. (the "Company"), a Delaware
corporation,  develops  and markets  Interactive  products  and  services in the
Entertainment  and  Information   Technology   fields.  The  Company  (formerly,
Cine-Chrome  Laboratories,  Inc., Medco Health Care Services,  Inc., Cine-Chrome
Video Corp., Network 4, Inc. and CEEE Group Corporation) was 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.  The CEEE Group then sought new business  opportunities as a
development stage entity.

         In 1973 the Company changed its name to Cine-Chrome Laboratories,  Inc.
and operated a film-processing lab in California. From 1984 until June 1994, the
Company did not conduct any operations,  transactions or business activities. In
June 1994,  the Company  began acting as a corporate  advisory  operation  which
included acting as a "finder" with respect to U.S. public companies and

<PAGE>
providing advisory services concerning  corporate structure and raising capital.
Beginning  in  1996,  the  Company  has  concentrated  its  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,  the  Company  had no  operations  other  than
searching for a business  combination.  In July 1996, the Company  consummated a
share  exchange  pursuant  to  an  Exchange  of  Stock  Agreement  and  Plan  of
Reorganization with Atlantic  International Capital Ltd., a Delaware corporation
("Atlantic Capital") and the former stockholders of Atlantic Capital (the "Stock
Exchange Agreement").  As a result of the Stock Exchange Agreement, the business
of Atlantic Capital became the business of the Company.

         On November 22, 1996, the Company merged with and into its wholly-owned
Delaware subsidiary,  Atlantic  International  Entertainment,  Ltd., whereby the
Company, among other things, (i) changed its state of incorporation to Delaware;
(ii) increased its 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");  and (iii)
effectuated  a 1 for 3 share  exchange.  All shares  referred to herein  (unless
specifically stated otherwise) refer to post split amounts.

         The Company  acquired the major assets of RAM Associates,  Inc. ("RAM")
pursuant to a Purchase and Sale  Agreement  dated April 15, 1996. The RAM assets
acquired by the Company included COMMUNITY CASINO and REALSPORTS(TM) that formed
a part of the  foundation of the Company's  current  gaming  software  products.
Other  products   acquired  from  RAM  included  HOTEL   HOTLINKS(TM)  and  CLUB
INTERACTIVE. The Company has significantly improved and expanded its operational
software  and the  software  products  developed  by the  Company.  The  Company
continues  to  perform  substantial  development  efforts  to adapt  to  current
technological advances.

         In March 1997, the Company  acquired the Internet  Service Provider and
developer The EmiNet Domain,  Inc.  Through the EmiNet Domain,  Inc. the Company
based it's Interactive non-gaming wagering products and services. In addition to
dial-up Internet business,  EmiNet,  offers web hosting and development services
to commercial markets. (See EmiNet Business, infra).

         The Company's  executive  offices are located at 200 East Palmetto Park
Rd., Suite 200, Boca Raton,  Florida 33432.  The telephone number of the Company
is (561) 393-6685. The Company maintains a home page HTTP://WWW.AIELTD.COM.

                                      -2-

<PAGE>
PRODUCTS AND SERVICES

INTERACTIVE GAMING AND WAGERING PRODUCTS

INTERNET CASINO EXTENSION(TM)

         The Company is a developer  and worldwide  marketer of private  network
and Interactive gaming and wagering products including its proprietary  flagship
product,  Internet Casino Extension(TM) or "ICE(TM)." The Company licenses 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.  The Company has added
other  variations  to ICE(TM)  aimed at a specific  market  including the Indian
Casino Extension(TM), Interactive Club Extension & Internet Charity Extension.

         The Company has entered  into eleven (11)  license  agreements  for the
ICE(TM) product. The ICE(TM) product is offered for license in either of two (2)
ways. The base License  Agreement calls for a fully  customized  package of four
(4) casino games,  hardware,  a complete  back-office  accounting  and marketing
program for $450,000. Additional games and customizations are at additional cost
to the customer.  Financing is currently available over a three-year period with
an 8.5%  interest  rate.  A deposit of  $150,000 is now  required  and is due at
installation.  The alternative  programs available offer all of the products and
services  developed by the Company  included for the duration of the  agreement.
This plan requires  $150,000 due at installation  and a monthly fee equal to 10%
of the  Net-Win  (money  players  wagered  versus paid out).  Additionally,  the
Company will receive a fee of $2,000 per month for technical support and product
upgrades.

WEBSPORTS(TM)

         The Company licenses 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 the Company products,  there is a back-end database,  accounting and
auditing features.

         The  Company  has entered  into seven (7)  license  agreements  for the
webSports(TM)  product.  There is  financial  option  presently  available.  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,  the
Company offers an international  version that offers U.S., European,  Australian
and South African style wagering for $225,000.  A minimum  deposit of fifty five
thousands dollars ($55,000) is required prior to installation. Additionally, the
Company will receive a monthly  maintenance and support  agreement in the amount
of $1,000.


                                      -3-
<PAGE>
NETWORK GAMING

         The Company offers  stand-alone  Bingo,  Keno and lottery  systems that
utilize the ICEtm and webSportstm gaming platforms.

INTERACTIVE CLUB EXTENSION

         The Company offers a system that  integrates  on-site  networked  touch
screen  kiosks  giving  players the  ability to games,  both at the venue and at
home.

HOTEL HOTLINKS(TM):

         The Company also actively markets the Hotel  HotLinks(TM)  system which
is a variation  and  expansion of ICE(TM) and  webSports(TM)  which has features
specific to hotel guests such 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, the Company has 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 smart cards for identification  and other purposes.  This same
hardware/smart  card  technology  will be  employed in other  products  that the
Company intends 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.  It is estimated 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:  (i) an increasing  demand for connection to the
Internet;  (ii) the Internet offers  significant  marketing  opportunities for a
variety of products  and  services;  and (iii)  providing  Internet  connections
requires minimum expertise and start-up costs.


                                      -4-
<PAGE>
         The Interactive Gaming & Wagering  marketplace has become the next step
in the gaming industry.  Revenues from the worldwide gaming market exceeds Fifty
Billion  Dollars  ($50,000,000,000).  Expert's  estimate  that  gaming  revenues
derived from just Internet  gaming revenues will exceed Eight Billion Dollars by
the year 2000.  The integrated  Interactive  gaming & 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 & wagering
products to it's player base.

GROWTH STRATEGY

         The  Company's  current  plan of  operations  is to expand its  current
worldwide  account  base by  offering a complete  Interactive  gaming & wagering
product line. The Company 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  the
Company's services and products will require  substantial  marketing efforts and
the expenditure of significant funds to create awareness and demand.

MARKETING

         Marketing  efforts are directed by the  Company's  President  and Chief
Executive  Officer.  The Company  currently employs a direct sales team directed
primarily to casino  operators and duly  licensed  sports books  throughout  the
Caribbean,  Central & South America and Europe. The Company is seeking to expand
direct sale  coverage  to the  Australian-Asian  and  African  markets by having
locally based operations in each region.

TRADEMARKS

         The Company markets its services  utilizing  various names. The Company
is 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).  The  Company  has no patents but claims
copyrights on its software products.

DEPENDENCE ON CUSTOMERS

         During  the  year  ended  December  31,  1997  the  Company's   largest
customers,   Australian  Advisors  Corporation.   ("Australian")  accounted  for
approximately  20%  of the  Company's  revenues.  The  Company  does  anticipate
revenues from this customer in the year ending December 31, 1998.


                                      -5-
<PAGE>
REGULATORY MATTERS

         The legality of gaming  through the use of the Internet is uncertain at
this point.  Since the sale of a foreign subsidiary which ran a sports book (see
Recent  Developments),  the Company does not operate virtual casinos or Internet
sports books.  However,  sales of the Company's 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 the Company  focuses its sales and marketing
efforts in jurisdictions that allow private network and Interactive gaming which
include Australian, Caribbean, African and American gaming markets, there can be
no assurance  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  adversely  affect the Company's  business,
financial condition,  results of operations or prospects will not be expanded or
imposed.

COMPETITION

         The Company  competes with other companies  involved in the development
and  marketing of gaming  related  entertainment  and  Information  products and
services.  The Company faces intense  competition in connection  with its gaming
operations.  The  Company  believes  that its  Internet  casino and sports  book
products  currently compete with four (4) companies and that its Hotel Hot-Links
product currently competes with two (2) companies. The Company continues 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.  The  Company  believes  that some of these
operators may decide to offer to sell their  software to other casino and sports
book operators in the future.  The Company's  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,  the Company's  marketing  approach is unique in
that the  major  marketing  & sales  focus is with the  established  gaming  and
wagering marketplace.

EMPLOYEES

         As of April 10, 1998, the Company had thirty (30)  full-time  employees
(three (3) employed by EmiNet), of whom two (2) were software engineers. None of
the Company's employees is covered by a collective  bargaining agreement or is a
member  of a  union.  The  Company  may  also  employ  full-time  and  part-time
consultants on an as-needed basis. The Company  considers its relationship  with
its employees to be satisfactory.


                                      -6-
<PAGE>
RECENT DEVELOPMENTS

         On December 15, 1996, the Company entered into an agreement to sell its
foreign subsidiary, known as Atlantic International  Entertainment,  N.V. ("AIE,
NV"), which ran a sportsbook operation.  The purchase price was $850,000 payable
as  follows:  (i) $2,000 was paid to the Company at closing and (ii) the balance
payable  beginning 60 days after closing based on 40% of net win before expenses
of the  casino in a minimum  monthly  amount of $3,000.  Interest  on the unpaid
balance  accrues at 8% per annum.  The effective  date of this  transaction  was
January 1, 1997, and the transaction closed in March 1997.

         In December 1997, the Company sold Australian  Advisers  100,000 shares
of  Common  Stock  of  the  Company  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 the Company.

         On April 3,  1998,  the  Company  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  Preferred  stock is  convertible  into the  Company's  common  stock at the
purchaser's  option.  Contemporaneously  with the  execution  of the  Securities
Purchase  Agreement  described above, the Company 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. The Company has agreed, not later than thirty days after the
closing of the transactions described above, to use its commercially  reasonable
best efforts to 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 such registration statement for the term of the
above Agreement.  The Company believes that,  during the period of effectiveness
of such  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,  the Company  entered  into a  Securities  Purchase
Agreement  with  Hosken   Consolidated   Investments,   Ltd.,  a  South  African
corporation for the purchase of 1,000,000  shares of the Company's  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 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.


                                      -7-
<PAGE>
         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 AUD
per share in the form of the Company's U.S. shares.

         The  Company  recently  added  three  new  directors  to its  Board  of
Directors.  In addition, the Company has recently begun discussions with various
individuals   regarding  the  formation  of  an  advisory  board.   The  Company
anticipates that the advisory board will be formed in the near future. Among the
employees  hired during  1997,  was Karen Welch,  as Senior Vice  President  for
Operations  and General  Manager.  Ms. Welch was formerly with IBM. On April 14,
1998, in anticipation of increased business activity,  the Company engaged Harry
Winderman as General Counsel. Mr. Winderman has degrees in law, tax and business
administration  and has practiced law for over twenty  years.  In addition,  Mr.
Winderman is an adjunct professor at Florida Atlantic University.



                                      -8-
<PAGE>
INFORMATION PRODUCTS & SERVICES

THE EMINET DOMAIN

         The  Company's  focus  outside of  Interactive  gaming & wagering is in
Information  Technologies  ("IT"). In March,  1997, The EmiNet Domain,  Inc. was
acquired as the Company's first IT asset.  All  non-Interactive  gaming projects
and activities  where placed under the  supervision  and direction of The EmiNet
Domain,  Inc.  EmiNet seeks to expand its current  product line and is exploring
Internet  Telephony  and Internet  financial  transaction  products to offer the
market in 1998.

REALSPORTS(TM)

         The  Eminet  Domain  offers an  information  service  on the Web called
"realSports(TM)."  This service provides real-time odds, scores and other sports
wagering  information  and is free of charge to users.  The Company  anticipates
generating  revenues from this service by selling advertising space to companies
wishing to target their  marketing to sports fans and  individuals  who wager on
sporting events.  The Company uses this service to promote visits to model sites
established for its ICE(TM), webSports(TM) and Internet related products.

         On January 31, 1997, the Company  entered into an agreement to purchase
all of the shares of The 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  shares of Common Stock 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 price 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.  Eminet provides  monthly
Internet service to approximately  1,000 subscribers.  The current equipment and
personnel are capable of handling up to 2,500 subscribers  without upgrades.  As
additional  profit  centers,  EmiNet hosts and programs web sites for businesses
and individuals,  provides networking design and services and sells computer and
networking equipment.

         The EmiNet Domain  ("EmiNet") is a wholly owned  subsidiary of Atlantic
International  Entertainment,  Ltd. With its offices in Boca Raton.  On December
31, 1997 EmiNet had approximately 10 employees. At present, EmiNet is one of the
leading  South  Florida   Internet  Service  Provider  ("ISP")  with  a  network
infrastructure  comprised of a leased high speed fiber optic backbone,  computer
hardware  and  software,  and points of presence  ("POPs")  in 18 South  Florida
cities  providing  access  availability  to thousands of customers from Miami to
Northern  West Palm Beach  cities.  EmiNet was recently  ranked  number three in
South Florida by the South Florida Business Journal. EmiNet outranked all of the
Ft. Lauderdale  (Broward County) ISP's.  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,  fractional T1's (transmissions  speed up to 1.54 megabits per
second),


                                      -9-
<PAGE>
Flex 56 (enhanced speed modem services),  and other Internet related services to
businesses and  individuals  including  World Wide Web ("Web")  services,  which
includes Web  design/development  and a significant amount of Web hosting,  data
services and network frame relay services.  EmiNet attempts  offering  exemplary
customer   service  at  competitive   prices.   EmiNet's  high  speed,   digital
telecommunications  network provides  subscribers with direct access to the full
range of Internet  applications  and resources in E-Mail,  World Wide Web sites,
USENET  newsgroups  and FTP  software.  EmiNet is one of only a handful of ISP's
that offer  co-location  services.  EmiNet  continues  to  experience  growth in
various areas of its subscriber base.

MEDICAL PRODUCTS

         In February 1998, the Company entered into an agreement with ELG Health
Management  Services  to  market  the  Atlantic  International  Medical  ("AIM")
products &  services.  Atlantic is  currently  focused on  Interactive  gaming &
wagering and  Information  Technology.  The  agreement  with ELG will enable the
Company  to  benefit  from  earlier  efforts  while  not  allocating  additional
resources  in a non-core  business.  ELG will  provide  Atlantic  40% of the net
profits from the sale and distribution of medical products.  ELG is developing a
global  distribution  network for medical testing devices (e.g., HIV, pregnancy,
drug abuse, hepatitis, etc.) and other medical products.

         ELG, through AIM, markets  distributorships for American  manufacturers
of medical testing and diagnostic kits and other medical products throughout the
world. AIM acts as a broker between the manufacturer and distribution  companies
located in foreign countries. AIM does not resell products but simply collects a
commission for taking an order from the  distributor  and placing the order with
the  manufacturer.  This approach limits the risks associated with inventory and
product liability and keeps overhead and direct costs to a minimum.


                                      -10-
<PAGE>
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 faster 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:

            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, such 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 LANS AND WANS - Corporate,  government, and educational
            local area  networks  ("LANs") and wide area  networks  ("WANs") 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 LANs and WANs greatly exceeds the number of connection points.

            EXTRANET - Businesses  can set up a  proprietary  Network or Virtual
            Private  Network  ("VPN") using the Internet.  A VPN is a secure and
            cost effective means of data communication.


                                      -11-
<PAGE>
            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  Americas 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  such 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.

EMINET STRATEGY

         EmiNet  is   implementing   a  strategy   to  become  a  full   service
telecommunications   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  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  ("E  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 E Commerce solution 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  such 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


                                      -12-
<PAGE>
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.

         IP Telephony is an anticipated source of potential revenue  enhancement
for EmiNet.  It will become more  prevalent in its use for  companies and people
who want a low cost solution to long distance  telephone  communication.  EmiNet
has been evaluating the WebPhone product by a local company Netspeak.

         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.

EMINET SERVICES TODAY & TOMORROW

         Today,  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


                                      -13-
<PAGE>

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.

TOMORROW - EMINET WILL OFFER

         As EmiNet  expands  its product  offerings,  EmiNet will focus on seven
core areas:

         1. Dedicated high-speed large bandwidth service to the small and medium
size business user, such as ISDN & T1's, Fractional T1's and DS3's.

         2. Dial up access service to the residential community, focused on easy
user interface and access to information on the World Wide Web.

         3. E commerce with expansions in the current offerings specifically ATM
for the small, medium and large businesses.

         4.   Traditional   long  distance  service  with  all  the  enhancement
              customers  generally are looking for such as private line services
              to the small and medium size business,  Frame Relay, VPN and other
              traditional private line services.

         5.  Web  Services,   including  production,   hosting,   marketing  and
Co-Location services.

         6.  Integration,  Technology  and  Engineering  Services  for small and
medium business  including fire wall  installations,  security analysis and when
requested, remote administration of the firewall.

         7.  Document  Imaging on demand.  This will  include  services  such as
setting up the  customer's  database  and scanning in the  documents  for a fee.
Additionally,  the  revenues  are based on a per- page per year fee,  leading to
reoccurring revenues with very little additional marketing.

         In addition, EmiNet has established itself as a provider's provider for
Internet Transportation services. EmiNet facilitates and enables businesses that
want to provide Internet  transportation  services,  such as Hypertext  Transfer
Protocol  ("HTTP") for Web,  Simple Mail  Transfer  Protocol  ("SMTP") for mail,
Network News Transfer Protocol ("NNTP") for news, File Transfer Protocol ("FTP")
for file transfer,  as well as taking on Web contracting  design and development
from other providers.


                                      -14-
<PAGE>
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 operates Ten (10) PRI circuits and Three
T-1 lines that simultaneously  supports Frame Relay, Integrated Services Digital
Network ("ISDN"),  and Asynchronous  Transfer Mode ("ATM") on a single platform.
EmiNet  installed these PRI's in various  locations in the cities of Palm Beach,
Boca Raton, Ft. Lauderdale and Miami.  These PRI's are interconnected via an ICI
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 the Company's  network,  but also allows
EmiNet to make this facility available to those clients that want the ability to
collocate  their Web  servers  in the data  center and pay EmiNet for use of the
facility and gain high bandwidth access to the Internet.

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


                                      -15-
<PAGE>

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.



                                      -16-
<PAGE>
ITEM 2.  DESCRIPTION OF PROPERTY.

         The Company,  including EmiNet,  leases approximately 5,150 square feet
of office space in Boca Raton, Florida pursuant to a lease expiring on September
30, 2002 with a monthly rent of  approximately  $8,757.10.  The Company believes
that its  existing  facilities  are  adequate  for its  current  needs  and that
additional facilities in its service area are available to meet future needs.

ITEM 3.  LEGAL PROCEEDINGS.

         The  Company is a party to pending or  threatened  litigation,  both as
plaintiff and defendant. However, the Company believes that said litigation will
not materially affect the Company's operations or financial condition.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

         On  November  18,  1996,   the  Company  held  a  Special   Meeting  of
Shareholders  to, among other things,  vote on a proposal to  reincorporate  the
Company under the laws of Delaware.  There were  7,062,238  shares voted for the
proposal,  700 shares voted against the proposal and 105 shares  abstaining from
the vote. There were no matters submitted to the Shareholders in 1997.



                                      -17-
<PAGE>
                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The  Company's  Common Stock has been quoted on the Nasdaq OTC Bulletin
Board since July 25, 1996. Prior to July 25, 1996, the Company believes that its
Common Stock last traded in a public market in approximately 1987. The Company's
current symbol is "AIEE."

         The following table sets forth, for the periods indicated,  the highest
and  lowest  bid prices for the  Common  Stock,  as  reported  by the Nasdaq OTC
Bulletin Board. The prices reported reflect inter-dealer prices,  without retail
mark-up,  markdown or commission,  and may not reflect actual transactions.  The
prices have been  adjusted to reflect a 3 for 1 reverse  split of the  Company's
Common Stock in November 1996.


CALENDAR 1997                            HIGH                  LOW
-------------                            ----                  ---

First Quarter                            10                   1.5
Second Quarter                           8.25                 1.468
Third Quarter                            5.25                 3.25
Fourth Quarter                           5.25                 2.75

CALENDAR 1998                            HIGH                 LOW
-------------                            ----                 ---
First Quarter                            4.87                 3.0

         At April 10, 1998,  there were  approximately  340 holders of record of
the Company's Common Stock. This number does not include an indeterminate number
of shareholders whose shares are held by brokers in "street name."

         The Company has not paid any cash  dividends on the Common Stock in the
past and the Board of Directors does not anticipate declaring any cash dividends
on the Common Stock in the foreseeable  future. The Company currently intends to
utilize any  earnings it may achieve for the  development  of its  business  and
working capital purposes.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

         THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION CONTAINS
FORWARD-LOOKING  STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.  THE COMPANY'S
ACTUAL  RESULTS  COULD  DIFFER   MATERIALLY  FROM  THOSE  ANTICIPATED  IN  THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED  TO, THE  COMPANY'S  EXPANSION  INTO NEW  MARKETS,  COMPETITION,
TECHNOLOGICAL ADVANCES AND AVAILABILITY OF MANAGERIAL PERSONNEL.


                                      -18-
<PAGE>
OVERVIEW

         During 1997,  the Company  focused its  business  efforts in two areas,
Interactive Gaming & 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  whereas  the  Company has
entered into 18 license  agreements.  The Company  expects to expand its account
base with its existing product line for the foreseeable future. .

         At this  time  efforts  in the  Information  Technologies  area  mainly
consists of the operations of The EmiNet Domain,  an Internet  service  provider
and  developer.   The  Company  plans  to  increase  its  current  base  through
acquisition and merger in 1998.

RESULTS OF OPERATIONS

         The following is a summary of the Company's  consolidated financial and
operating data:

<TABLE>
<CAPTION>

                                                              YEAR ENDED DECEMBER 31,
STATEMENTS OF OPERATIONS DATA:                             1997                     1996
------------------------------                             ----                     ----
<S>                                                     <C>                    <C>       
Revenue                                                 $4,416,790             $  454,656
Income [Loss] from Operations                            1,394,890               (427,975)
Net Income [Loss]                                        1,047,317               (376,270)
Basic and Diluted Net Income [Loss] Per Common Share
                                                              $.11                  $(.04)
</TABLE>

<TABLE>
<CAPTION>

BALANCE SHEET DATA:                                DECEMBER 31, 1997         DECEMBER 31, 1996
-------------------                                -----------------         -----------------
<S>                                                     <C>                    <C>       
Working Capital                                         $  352,559             $  199,893
Total Assets                                             6,828,784              1,982,014
Total Liabilities                                        1,882,165                302,879
Stockholders' Equity                                     4,946,619              1,679,135
</TABLE>



                                      -19-
<PAGE>
         The following is a summary of the Company's  financial data broken into
business segments:
<TABLE>
<CAPTION>

                                                    DECEMBER 31, 1997        DECEMBER 31, 1996
                                                    -----------------        -----------------
Net Sales:
<S>                                                <C>                        <C>        
 Investment Advisory Services                             -0-                     366,204
 Internet Software and Services                     4,002,894                      87,000
 Medical Products and Equipment                           -0-                         -0-
 Internet Access and Services                         413,896                       1,452
                                                   ----------                 -----------
                                                   $4,416,790                 $   454,656
Operating Income:
 Investment Advisory Services                             -0-                     231,081
 Internet Software                                  1,564,666                    (659,056)
 Medical Products and Equipment                            -0-                        -0-
 Internet Access and Services                        (169,776)                        -0-
                                                   ----------                 -----------
                                                   $1,394,890                 $  (427,975)
Total Assets:
 Investment Advisory Services                             -0-                       1,423
 Internet Software                                  5,104,525                   1,980,591
 Medical Products and Equipment                           -0-                         -0-
 Internet Access and Services                       1,724,259                         -0-
                                                   ----------                 -----------
                                                   $6,828,784                 $ 1,982,014
Depreciation and Amortization:
 Investment Advisory Services                             -0-                         285
 Internet Software and Services                       323,959                      67,091
 Medical Products and Equipment                           -0-                         -0-
 Internet Access and Services                          98,579                         -0-
                                                   ----------                 -----------
                                                   $  422,538                 $    67,376
Capital Expenditures:
 Investment Advisory Services                             -0-                       1,423
 Internet Software                                    490,590                   1,490,395
 Medical Products and Equipment                           -0-                         -0-
 Internet Access and Services                         200,585                         -0-
                                                   ----------                 -----------
                                                   $  691,179                 $ 1,491,818
</TABLE>

         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
the Company's product recognition.  In the first quarter of 1997, AIE(TM) NV and
its operations were sold as an operating Internet sports book. The net operating
loss from this discontinued  business segment totaled ($69,531) pre tax benefit.

         In 1997 the Company  continued its 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 $2,162,049.  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.


                                      -20-
<PAGE>
OUTLOOK

         The Interactive Gaming & 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.  The Company  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. The Company expects to continue sales of these products
for the  foreseeable  future.  The Company 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  through  Eminet or newly  acquired or merged  entities  to  contribute
significantly   to  profits  in  1998  due  to  new   contracts   and  expanding
opportunities  in the IT  markets.  The  Company is  considering  expanding  its
portfolio of Information Technology companies and is looking for Internationally
based  companies to bring into the United  States  marketplace.

LIQUIDITY AND CAPITAL RESOURCES

         WORKING CAPITAL. At December 31, 1997 the Company had a working capital
of $352,559. At December 31, 1996, the Company had working capital of $199,893.

         CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES. During the years ended
December 31, 1996 and 1997, net cash provided (used) by operating activities was
($193,975) and ($811,628)  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, 1996 and 1997,  the Company  made net capital  expenditures  of $308,859 and
$425,862,  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,  1996 and 1997,  cash flows from  financing  activities  were  $723,425  and
$852,012  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 the Company's  Common Stock which raised
proceeds to the Company of  approximately  $350,250 with an additional cash flow
from the conversion of Debt to Equity in 1997 of $313,475.


                                      -21-
<PAGE>
         The  Company  believes  that cash  from  operating  activities  will be
sufficient  to fund proposed  operations  for at least the next 12 months at its
current rate of growth.

INFLATION

         In the opinion of management,  inflation has not had a material adverse
effect on its results of operations.

ITEM 7.  FINANCIAL STATEMENTS.

            [See page F-1.]


                                      -22-
<PAGE>
ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE.

         On January 30, 1997,  the Board of  Directors of the Company  dismissed
Buchbinder Tunick & Company LLP as independent accountants to the Company and on
March 5, 1997 appointed Moore Stephens,  P.C. as the new independent accountants
to the Company.  Buchbinder  Tunick & Company LLP has not reported on any of the
Company's  financial  statements.  Since,  December  19, 1996 (the date on which
Buchbinder was engaged as the Company's independent accountants),  there were no
disagreements  between the Company  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.

ITEM 9.  RELATED PARTY TRANSACTIONS.

         The Company made  advances to the  affiliated  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.



                                      -23-
<PAGE>
                                    PART III

ITEM 9.  DIRECTORS,   EXECUTIVE   OFFICERS,   PROMOTERS  AND  CONTROL   PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

         The directors and executive officers of the Company and their positions
with the Company 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 and
                                        Director

          David Halaburda        45     Chief Financial Officer

          Steven D. Brown        51     Director

          Martin V. McCarthy     42     Director

          Jeffrey L. Hurwitz     42     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,  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 the Company,  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.  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.

         DAVID HALABURDA was appointed Chief Financial  Officer in June of 1997.
Mr. Halaburda has acted as the Company  Certified  Public  Accountant since it's
inception.  Prior to Atlantic,  Mr.  Halaburda


                                      -24-
<PAGE>

was with the  regional  accounting  firm of  Buchbinder  Tunick & Co.  LLP.  Mr.
Halaburda earned both CPA & CFP  designations and has held various  positions in
both professional and civic organizations.  Mr. Halaburda earned his Bachelor of
Science degree from Monmouth University in New Jersey.

         STEVEN D. BROWN was  appointed  a Director  of the  Company 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 of the Company in March of
1998.  Mr.  McCarthy  was the  President  and CEO of IDD  Enterprises,  L.P. The
Company 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.

         JEFFREY L. HURWITZ was  appointed a Director of the Company in March of
1998. Mr.  Hurwitz had been the Managing  Director of South African based Clinic
Holdings since 1987. While at Clinic Holdings,  the Company grew to 26 Hospitals
with annual  turnover of over  $370,00,000.  In November  1997 Mr.  Hurwitz left
Clinic  Holdings  under the terms of Agreement of Sale of the Company.  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.

         DR. LEONARD HAIMES was appointed  Director of the Company in October of
1997.  Since1985,  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.

MEETINGS AND COMMITTEES

         The Board held four (4)  meetings  during the year ended  December  31,
1997. In addition,  from time to time during such year, the members of the Board
acted  by  unanimous  written  consent.  The  Company  has  elected  a  standing
compensation and audit  committees.  The entire Board of Directors  performs the
typical functions of such committees.


                                      -25-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

         The following table sets forth the total compensation for the Company's
chief executive  officer during the year ended December 31, 1997, 1996 and 1995.
No other  executive  officer's  salary and bonus exceeded  $100,000 for services
rendered to the Company during such years.

                           SUMMARY COMPENSATION TABLE

        NAME AND
    PRINCIPAL POSITION          YEAR        SALARY($)            BONUS($)
    ------------------          ----        ---------            --------

Richard A. Iamunno              1998        $125,000               --
  President and Chief           1997        $ 91,000               --
  Executive Officer             1996        $ 63,000(2)            --

(1)      The   columns   for  "Other   Annual   Compensation"   and   "Long-term
         Compensation" have been omitted as there is no compensation required to
         be reported in such 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.

(2)      Represents  salary  paid  for  services  rendered  as an  executive  of
         Atlantic International Capital, Ltd., a wholly-owned  subsidiary of the
         Company.

BOARD OF DIRECTORS COMPENSATION

         The Company does compensate  directors who are also executive  officers
of the Company 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.


                                      -26-
<PAGE>
LONG-TERM INCENTIVE AND PENSION PLANS

         The Company does 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 a party  adverse  to the  Company  or has a  material
interest adverse to the Company.


EMPLOYMENT AGREEMENTS

         The Company currently has employment agreements with Messrs.  Iamunno &
Hoskin pursuant to which they will continue to serve as the Company's  President
and Chief  Executive  Officer,  Chairman of the Board,  Secretary  and Treasurer
respectively.  It is anticipated  that as compensation  for their services,  the
Company 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,  the Company has not entered into any other
employment  agreement  with any of its officers,  directors or any other persons
and no such agreements are anticipated in the immediate future.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires the Company's officers and directors, and persons who own more than ten
percent  of a  registered  class of the  Company's  equity  securities,  to file
reports of ownership and changes in ownership  with the  Securities and Exchange
Commission (the "Commission").  Officers, directors and greater than ten percent
shareholders are required by the Commission's regulations to furnish the Company
with copies of all Section 16(a) forms they file.


                                      -27-
<PAGE>
ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The  following  table sets  forth,  as of March 31,  1998,  information
regarding the beneficial  ownership of the Company's Common Stock by each person
known by the Company 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 March 31, 1998,  there were  outstanding  9,676,190  shares of the
Common Stock of the Company.

Name and Address of Beneficial Owner(2)          Amount of          
                                                 Beneficial         Percent of 
                                                 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%

David  Halaburda                                      N/A

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%
(5 persons)

(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 the Company's office
         at 200 East Palmetto Park Rd., Suite 200, Boca Raton, Florida 33432.


                                      -28-
<PAGE>
ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                        None.



                                      -29-
<PAGE>
ITEM 13.  EXHIBITS, LIST AND REPORTS ON FORM 10KSB.

          (a)    Exhibits:

           3.1     -     Certificate   of    Incorporation   of   the   Company,
                         incorporated   by  reference  to  Exhibit  3.1  to  the
                         Company's   Form  10-KSB  for  the  fiscal  year  ended
                         December 31, 1996.

           3.2     -     Bylaws of the  Company,  incorporated  by  reference to
                         Exhibit 3.2 to the Company's Form 10-KSB for the fiscal
                         year ended December 31, 1996.

           4.1     -     Specimen  Common  Stock  Certificate,  incorporated  by
                         reference to Exhibit 4.1 to the  Company's  Form 10-KSB
                         for the fiscal year ended December 31, 1996.

          10.1     -     Incentive  Stock Option Plan for Employees,  Directors,
                         Consultants and Advisers,  incorporated by reference to
                         Exhibit  10.1  to the  Company's  Form  10-KSB  for the
                         fiscal year ended December 31, 1996.

         10.2      -     Agreement  for  Purchase  and Sale of Stock dated as of
                         January  31, 1997 by and between the Company and Eminet
                         Domain,   Inc.,   incorporated   by  reference  to  the
                         Company's Form 8K dated March 7, 1997.

        *10.3      -     Securities  Purchase  Agreement  dated April 3, 1998 by
                         and  between  the  Company  and The Shaar  Fund,  which
                         includes  (i)  the   Certificate  of   Designations  of
                         Convertible  Preferred  Stock  as Annex I, and (ii) the
                         form of Registration  Rights Agreement as Annex IV. The
                         Company agrees to furnish the disclosure  schedules and
                         other  Annexes,  which  have  been  omitted  from  this
                         filing, to the Commission upon request.

        *10.4      -     Employment  Agreement  dated as of May 1, 1997  between
                         the Company and Richard Iamunno.

        *10.5      -     Employment  Agreement  dated as of May 1, 1997  between
                         the Company and Norman Hoskin.

        *11.1      -     Statement of Computation of Per Share Earnings

        *21.1      -     Subsidiaries of the Company

        *23.1      -     Consent  to  the  incorporation  by  reference  in  the
                         Company's  Registration  Statement  on Form  S-8 of the
                         report of Moore Stephens, P.C. included herein.

        *23.2      -     Consent  to  the  incorporation  by  reference  of the
                         report of Moore Stephens, P.C. included herein.


        *27        -     Financial Data Schedule.

--------------------------
*  Included herein.

          (b)  Reports on Form 8-K

               On  February 6, 1997,  the Company  filed two reports on Form 8-K
dated  December  19, 1996 and  January  30,  1997,  respectively.  Such  reports
disclosed changes in the Company's independent accountants.

               On April 14, 1997,  the Company filed with the  Commission a Form
8-K dated March 7, 1997 disclosing the acquisition of The EmiNet Domain, Inc.

                                      -30-
<PAGE>
                          INDEX TO FINANCIAL STATEMENTS

                                                                            PAGE


Independent Auditor's Report ...............................................F-2

Consolidated Balance Sheet as of December 31, 1997 ....................F-3..F-4

Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996..................................................F-5

Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1997 and 1996......................................F-6

Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996..................................................F-7

Notes to Consolidated Financial Statements .................................F-9






                             . . . . . . . . . . . .




                                      F-1
<PAGE>

                          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

<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.

<TABLE>
<CAPTION>

ASSETS:
CURRENT ASSETS:
<S>                                                                               <C>
   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
                                                                                  ==========
</TABLE>


The  Accompanying  Notes are an Integral  Part of these  Consolidated  Financial
Statements.

                                      F-3
<PAGE>
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

<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                          YEARS ENDED
                                                                                          DECEMBER 31,
                                                                                          ------------
                                                                                   1 9 9 7             1 9 9 6
                                                                                   -------             -------

<S>                                                                             <C>                <C>        
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
                                                                                ===========        ===========
</TABLE>

The  Accompanying  Notes are an Integral  Part of these  Consolidated  Financial
Statements.

                                      F-5
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                     COMMON STOCK                          UNREALIZED
                                                ---------------------      ADDITIONAL       LOSS ON     RETAINED         TOTAL
                                  PREFERRED     NUMBER OF                   PAID-IN        MARKETABLE   EARNINGS     STOCKHOLDERS'
                                  ---------     ---------                   -------        ----------   --------     -------------
                                    STOCK        SHARES         AMOUNT      CAPITAL        SECURITIES  (DEFICIT)       EQUITY
                                    -----        ------         ------      -------        ----------  ---------       ------

<S>                              <C>           <C>          <C>          <C>             <C>          <C>           <C>        
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
                                 =======   =============    =========    =============   ==========   ===========   ===========
</TABLE>


The  Accompanying  Notes are an Integral  Part of these  Consolidated  Financial
Statements.

                                      F-6
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                                            YEARS ENDED
                                                                                                            DECEMBER 31,
                                                                                                    1 9 9 7               1 9 9 6
                                                                                                    -------               -------
OPERATING ACTIVITIES:
<S>                                                                                              <C>                    <C>         
   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)
</TABLE>


The  Accompanying  Notes are an Integral  Part of these  Consolidated  Financial
Statements.

                                      F-7
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                       YEARS ENDED
                                                                                        DECEMBER 31,
                                                                              1 9 9 7                 1 9 9 6
                                                                              -------                 -------

<S>                                                                        <C>                     <C>         
   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
</TABLE>

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
<PAGE>
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
<PAGE>
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.


                                      F-10
<PAGE>
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
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #3


[3] SIGNIFICANT RISKS AND UNCERTAINTIES

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.

[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:

<TABLE>
<CAPTION>

<S>                                                                              <C>
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
</TABLE>


                                      F-12
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #4

[4] NOTES RECEIVABLE [CONTINUED]
<TABLE>
<CAPTION>

<S>                                                                              <C>
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
   --------------------------------------                                       ===========
</TABLE>

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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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  [10.75%  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:
<TABLE>
<CAPTION>

<S>                                                                                 <C>
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
   -----                                                                            ==========
</TABLE>


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
<PAGE>
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  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
<PAGE>
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 of
$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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>

                                                                                                 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
---------------      ------         ----------------          --------------      ------        --------------

<S>                 <C>                    <C>                    <C>            <C>             <C>   
  $3.25             175,000                5.0                    $3.25          175,000         $ 3.25
</TABLE>

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
<PAGE>
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]:
<TABLE>
<CAPTION>

                                                                           YEARS ENDED
                                                                           DECEMBER 31,
                                                                 1 9 9 7               1 9 9 6
                                                                 -------               -------

Net Income [Loss]:
<S>                                                            <C>                 <C>        
   As Reported                                                 $1,047,317          $ (376,270)
   Pro Forma                                                   $  586,367          $ (376,270)
Basic Net Income [Loss] Per Share of Common Stock:
   As Reported                                                 $      .11          $     (.04)
   Pro Forma                                                   $      .06          $     (.04)
Diluted Net Income [Loss] Per Share of Common Stock:
   As Reported                                                 $      .11          $     (.04)
   Pro Forma                                                   $      .06          $     (.04)
</TABLE>

[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
<PAGE>
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.

[21]  SUBSEQUENT EVENTS [Unaudited]

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.

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
<PAGE>
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
<PAGE>
                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                                ATLANTIC INTERNATIONAL
                                                ENTERTAINMENT, LTD.

Dated:  May 20, 1998                            /S/    NORMAN J. HOSKIN
                                                ------------------------------
                                                Norman J. Hoskin,
                                                Chairman of the Board

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  Registrant in the  capacities and on
the dates indicated.



        SIGNATURE                     TITLE                          DATE


/S/   NORMAN J. HOSKIN            Chairman of the Board,           May 20, 1998
-----------------------------     Secretary, and Treasurer
      Norman J. Hoskin

/S/   RICHARD A. IAMUNNO          President, Chief Executive       May 20, 1998
-----------------------------     Officer and Director
      Richard A. Iamunno

/S/   DAVID HALABURDA             Chief Financial Officer          May 20, 1998
-----------------------------     (principal accounting officer)
      David Halaburda

/S/   STEVEN D. BROWN             Director                         May 20, 1998
-----------------------------
      Steven D. Brown

/S/   JEFFREY HURWITZ             Director                         May 20, 1998
-----------------------------
      Jeffrey Hurwitz

/S/   DR. LEONARD HAIMES          Director                         May 20, 1998
-----------------------------
      Dr. Leonard Haimes


/S/   MARTIN V. MCCARTHY          Director                         May 20, 1998
-----------------------------
      Martin V. McCarthy