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, 1998

/ /         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, 1998 to December 31, 1998

                         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
     -----------------------------------------------------------------------
        (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   /X/     No / /

<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.

            State  issuer's  revenues  for its  most  recent  fiscal  year:  The
issuer's revenues for the fiscal year ended December 31, 1998 were $ 2,426,230.

            The  aggregate  market  value at March  31,  1999 of  shares  of the
registrant's  Common  Stock,  $.001 par value per share  (based upon the closing
price of $1.1875  per share of such stock on the  Nasdaq OTC  Bulletin  Board on
such  date),   held  by  non-affiliates  of  the  Registrant  was  approximately
$8,839,328.  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, 1999
there were outstanding 12,273,587 shares of the Registrant's Common Stock, $.001
par value.

            Transitional Small Business Disclosure Format (check one):

                        Yes    /X/     No    / /

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<PAGE>

                                     PART I

ITEM 1.     DESCRIPTION OF BUSINESS.

GENERAL

            We are 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; (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.

OVERVIEW

            We develop and market  interactive  gaming  products and services in
the entertainment and information technology fields. We were incorporated in the
state of Colorado in October 1939 under the name "Pacific Gold, Inc." to explore
and  develop  gold and silver ore  prospects  and to operate  mining and milling
facilities.  Pacific  Gold,  Inc.  conducted  limited  mining  activities  until
operations  ceased.  After we changed our name to The CEEE Group, we then sought
new business opportunities as a development stage entity.

            In 1973 we changed our name to  Cine-Chrome  Laboratories,  Inc. and
operated a film-processing lab in California.  From 1984 until June 1994, we did
not conduct any operations,  transactions or business activities.  In June 1994,
we began acting as a corporate  advisory  operation  which included  acting as a
"finder" with respect to U.S. 
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public companies and providing advisory services concerning  corporate structure
and raising  capital.  Beginning  in 1996,  we have  concentrated  our  business
operations  primarily  on  the  manufacturing,   marketing  and  development  of
interactive  gaming  products  and  services.  These  products  and services are
focused on two major industries;  interactive  gaming & wagering  products,  and
information technology services.

            Prior to July 16, 1996,  we had no operations  other than  searching
for a  business  combination.  In July 1996,  we  consummated  a share  exchange
pursuant to an  Exchange  of Stock  Agreement  and Plan of  Reorganization  with
Atlantic  International  Capital  Ltd.,  a Delaware  corporation  and the former
stockholders of Atlantic Capital.  As a result, the business of Atlantic Capital
became our business.

            On November 22, 1996, we merged with, and into, a wholly owned
Delaware subsidiary, Atlantic International Entertainment, Ltd. We, among other
things:

      o     changed our state of incorporation to Delaware
      o     increased our authorized  capital stock to 110,000,000  (100,000,000
            shares of common  stock,  $.001 per share (the  "common  stock") and
            10,000,000 shares of preferred stock, $.001 par value per share (the
            "Preferred stock"));
      o     Performed a 1 for 3-share exchange.

            We acquired the major assets of RAM  Associates,  Inc. in 1996.  The
RAM assets we acquired included

      o     COMMUNITY CASINO
      o     REALSPORTS(TM)

These products  formed a part of the  foundation of our current gaming  software
products. Other products acquired from RAM included

      o     HOTEL HOTLINKS(TM)
      o     CLUB INTERACTIVE.

            In March  1997,  we  acquired  the  Internet  service  provider  and
developer,  The EmiNet Domain, Inc. Through the EmiNet Domain, Inc. we based our
interactive  non-gaming and wagering  products and services.  The EmiNet Domain,
Inc. offers dial-up Internet  business and web hosting  development  services to
commercial markets. (See page 10 for sale of the Eminet Domain, Inc.)

            The  Company's  executive  offices are located at 200 East  Palmetto
Park Road,  Suite 200, Boca Raton,  Florida 33432.  The telephone  number of the
Company is (561) 393-6685.  The Company maintains a home page on the Internet at
http://www.aieltd.com.

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PRODUCTS AND SERVICES

INTERACTIVE GAMING, WAGERING, CHARITABLE AND FUND RAISING PRODUCTS

INTERACTIVE CASINO EXTENSION(TM)

            The  Company's   flagship   product  is  ICE   (Interactive   Casino
Extension).  In September of 1998, AIE introduced  Version 2.0 which is based on
industry standard  Microsoft(R) and Macromedia(R) tools. This version included a
more robust database and accounting back office, the support for junketeers, and
four games which utilized the Microsoft  crypto-API random number generator.  In
December of 1998, Version 2.1 was shipped which included three new games: Sic-Bo
(a popular Asian game), Baccarat, and Video Keno.  Additionally,  the ability to
download the Casino graphics to the player's  computer was introduced.  In March
of 1999,  Version 2.2 will be available  and will include:  Scratch-Off  lottery
cards, increased voice, a new roulette wheel design, and the ability to download
a game at a time  beside the  earlier  ability  to  download  the entire  Casino
graphics.

            The pricing for ICE(TM) allows the operator to receive new games for
this product with no additional fee. The fee includes  graphic  customization of
the Lobby, Game Lobbies,  card backs and coins.  There is a monthly  maintenance
fee, that entitles the operator to worldwide  customer  service twenty four (24)
hours per day, seven days per week. This includes  maintenance  updates and a 30
day warranty period.  Potential purchasers have a buy-out, option. New games are
made  available for a fee  depending on the cost of developing  the game and the
potential  increased  revenues to the  operator.  The  maintenance  fee is still
required for  maintenance  updates as long as the release is supported.  A third
option was requested  several times which  consisted of the back office purchase
and  games  purchased   individually.   This  option  also  requires  a  monthly
maintenance  fee  for  support  and  maintenance  updates  for  the  games  they
purchased. Hardware costs are excluded from the AIE fees.


WEBSPORTS(TM)

            The Company  licenses  webSports  to licensed  bookmakers.  In March
1998, AIE released Version 1.5 and Version 1.6 in the Fall. The release included
support for baseball and the introduction of Tax reporting, to support Australia
and South Africa, along with support for Australian Regulators. AIE is currently
developing  Version  2.0 of  webSports,  which will be  integrated  into the ICE
accounting  and  database  back  office,  taking  advantage  of the  development
completed  last year and running in the field since August of 1998.  Version 2.0
will be introduced with a focus on  International  Sports  Wagering,  supporting
such sports as:  Cricket,  Rugby,  Golf,  Football and others.  The taxation and
regulator items will be included. The product is targeted for July 1999, in time
to have all customers ready for the American Football season.

WebSports  is priced  allowing  the  operator  to  receive  all new  Sports  and
enhancements to the product, including a customized Lobby. A monthly maintenance
fee is required  which  provides for twenty four (24) hours per day seven days a
week worldwide support,  maintenance updates and a 

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30-day warranty period. As an alternative, a purchase price is available and new
sports will be made  available for a fee depending on the potential  revenue for
the client. The monthly  maintenance fee is required for support and maintenance
as long as the release is  supported.  Hardware  costs are excluded from the AIE
fees.

BINGO BLAST(TM)

            In the  late  fall of  1998,  AIE  entered  into an  agreement  with
Cybergames Inc.  (CYGA:OTC) where jointly they would provide a fund raising game
for the  First  Lady of  Costa  Rica.  The site  will be  called  "Bingo  of the
Americas" and will provide the U.S Red Cross,  and the American  Cancer Society,
with revenues. This agreement prompted the development of Bingo Blast which will
be released and  developed to the retail  market in the second  quarter of 1999.
Bingo Blast is a multi-player, pari-mutual progressive prize game. The design is
based on the ICE  platform,  lowering  development  time and cost.  Game play is
intended  to simulate  the actual  experience  in a Bingo Hall.  Each game has a
minimum prize that is increased based on the number of cards purchased and has a
progressive  prize that increases until a player calls Bingo in a certain number
of balls called.  There are thirty (30) different Bingo  patterns,  customizable
graphics  and one of the first AIE  products  to  introduce  rules and  customer
information in Spanish and English.

            Bingo  Blast is  priced  similar  to the  ICE(TM)product.  A monthly
maintenance  fee is required  which  provides for twenty four (24) hours per day
seven days a week worldwide support,  maintenance  updates and a 30-day warranty
period. Hardware is not included in the price.

LOTTO MAGIC(TM)

            Lotto Magic was  designed and started  into  development  in January
1999.  The product  utilizes the ICE  database,  accounting  back office and the
standard Microsoft tools and crypto-API. The product consists of Lotto whereby a
player selects six numbers from a field of 49 or can select Auto Pick. The dates
and  times of  drawings  are  posted  on the  site.  Sales  are  divided  into 4
configurable  pools:  those who match all 6 numbers,  those who match 5 numbers,
those who match 4 numbers.  The numbers can be entered after a live drawing,  or
can be randomly  generated.  The product also  includes  three  Instant  Scratch
Games:  Wheel of fortune (a key number game); High Card (a high score game); and
Match 3 (a three of six money match game).  These instant  Lottery  scratch game
tickets are created from a configurable size pool. Lotto Magic will be available
in April and is already  incurring a lot of interest.  This product is the first
that AIE will introduce that provides help and rules in Spanish and English.

            Lotto Magic is priced consistent with AIE's other products.  Support
is required and is priced at $1500 per month for new games and enhancements, and
a 30-day warranty period. Hardware is not included in the price.

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<PAGE>

            For  all  AIE  products,   AIE  provides  support  for  credit  card
processing through processing vendors such as: Secure Bank, E-Payment Solutions,
Cybersource(R)and Barclays. AIE also offers custom programming for a fee.

INDUSTRY OVERVIEW

            The internet is a global network of computers connecting millions of
individual computers and more than 70,000 business,  commercial,  government and
academic networks.  This interconnectivity  allows any one of these computers to
transmit  information to any other computer.  Management  believes that there is
tremendous  growth  potential  for  internet  products as consumer  and business
access  becomes  easier  and more cost  efficient.  We  estimate  that there are
already over 50 million  Internet users, and the number of users is growing at a
rate of 10% per month.

            The  commodity  pricing  of  powerful  computers  and the  wealth of
information  available on the internet have all contributed to the creation of a
vast market of consumers and business  buyers.  During the last three years, the
number of internet  service  providers  ("ISP's") in the United States alone has
grown from roughly zero to over 3,000. Management attributes the influx of ISP's
to several factors which include

            o     an increasing demand for connection to the internet
            o     the internet offers significant marketing  opportunities for a
                  variety of products and services providing internet
            o     connections requires minimum expertise and start-up costs

            The interactive gaming and wagering  marketplace has become the next
step in the gaming  industry.  Revenues from the worldwide gaming market exceeds
$50,000,000,000.  We estimate  that gaming  revenues  derived from just internet
gaming  revenues will exceed  $8,000,000,000  by the year 2000.  The  integrated
interactive gaming and wagering (network gaming terminals,  lotteries, internet,
telephone) revenues will far exceed that amount.

            The existing customer base from the established  gaming and wagering
marketplace  will be where the vast  majority of these new revenues are derived.
Building upon the gaming  industry's high customer  loyalty level,  the existing
gaming  operators will be able to launch a new generation of gaming and wagering
products to it's player base.

GROWTH STRATEGY

            Our current plan of  operations  is to expand its current  worldwide
account base by offering a complete  interactive gaming & wagering product line.
We will also seek to expand upon  current  information  technology  products and
services  in the form of  international  acquisition  or mergers  into  existing
operations.  Achieving  market  acceptance  for our services  and products  will
require  substantial  marketing efforts and the expenditure of significant funds
to create awareness and demand.


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<PAGE>
MARKETING

            Our marketing  department  has grown to seven  employees in the last
year.  The  focus  is  to  market  to  established  casino  operators,  licensed
sportsbook  and the cruise line  industry.  We initially  sold in the  Caribbean
basin 1998; at present we have expanded the focus to South  America,  Australia,
Europe and the Asian-African markets.

            A Director of Lotteries  was hired in the fourth  quarter of 1998 to
focus on the lottery, charity and fund raising sectors. Effective March 31, 1999
a Vice President of Marketing and Sales will be added to the management team.

TRADEMARKS AND PATENTS

            We currently provide the market place with four products,  all under
names that are trade marked:  Bingo  Blast(TM),  Interactive  Casino  Extensions
(TM),  Lotto  Magic(TM)  and webSports  (TM).  All software  contains  copyright
notices  identifying  the year and  confidentiality.  We are in the  process  of
submitting  10  disclosures  for  patents  covering  the  game  engines,   money
management and back office architectures and functions.

COMPETITION

            All of the major companies operate as service bureaus installing and
running  the gaming  products  on their own  servers  and  charging  substantial
service bureau fees of upwards to 40%.

            We sell our  product to owners and expect  them to own and run their
business.  We take a minimal royalty and provide all new games and  enhancements
at no additional fee. We also focus our marketing efforts on established  gaming
entities  such as cruise  ships,  licensed  book  makers,  respected  charitable
organizations and land based casinos. We sell the ability to expand and retain a
current customer base.

            Service is provided  twenty four hours per day,  seven days per week
along with the ability to remotely  diagnose  and fix all  problems  and provide
upgrades.  A standard business practice is on-site  installation and a full week
of training of all personell at no additional fee.


EMPLOYEES

            As of March 31, 1999, we had thirty one (31) full-time  employees in
the Boca Raton,  Florida  office.  We may also employ  full-time  and  part-time
consultants  on an  as-needed  basis.  We  consider  our  relationship  with our
employees to be satisfactory.


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<PAGE>
RECENT DEVELOPMENTS

            On April 3, 1998,  we entered into a Securities  Purchase  Agreement
with The Shaar Fund, an Israeli  venture  fund,  for the sale of 5,000 shares of
the  Convertible  Preferred  stock for $500,000.  The Agreement  also grants the
purchaser the right to purchase up to an additional $2,500,000.00 in Convertible
Preferred  stock, at the same price as the initial 5,000 shares,  of Convertible
Preferred stock by April 2, 2000. The Convertible Preferred stock is convertible
into our common stock at The Shaar Fund's option.  When the Securities  Purchase
Agreement  was  signed,  we  entered  into an  agreement  with The Shaar Fund to
register all of the shares of the purchased securities and the common stock that
may be issued upon the exercise of the The Shaar Fund's  conversion  rights.  We
filed a registration  statement with the Securities and Exchange  Commission for
the registration of the shares of the Convertible Preferred stock and the shares
of common stock  issuable upon exercise of The Shaar Fund's  conversion  rights.
The   registration   statement   became  effective  and  we  will  maintain  the
effectiveness of registration statement for the term of the above Agreement.

            On April 30, 1998, Hosken  Consolidated  Investments,  Ltd., a South
African corporation, purchased 1,250,000 shares of our common stock at $3.20 per
share. We issued the shares to Hosken Consolidated Industries to fund operations
in South Africa and to obtain additional working capital.

            On June 2, 1998 The Shaar Fund advanced  $500,000 of the  additional
$2,500,000  and received an  additional  5,000 shares of  Convertible  Preferred
stock  pursuant  to the above  agreement.  The  parties  also  amended the above
agreement to eliminate the floor amount of $1.50 for the conversion price.

            On August 24, 1998, our  wholly-owned  subsidiary,  AIE,  Australia,
Ltd. submitted an offer for the acquisition of the stock of an Australian listed
company,  Coms21. We offered Coms21  shareholders the equivalent of $.70 AUD per
share in the form of our  U.S.  shares.  We  eventually  accepted  approximately
12,000,000  shares of Coms21,  or approximately  10% of Coms21,  in exchange for
approximately  1,200,000 shares of our common stock and thereafter  withdrew our
offer for the rest of the Coms21 stock.

            On February 18, 1999 - the Company  announced  its intention to make
an application to the Australian Stock Exchange ("ASX"). AIE wishes to provide a
market in Australia  for AIE Shares,  particularly  for the  convenience  of its
approximately  500 Australian  resident  shareholders.  AIE has had  preliminary
discussions  with  representatives  from ASX and believes it  satisfies  the ASX
requirements regarding net tangible assets and spread of shareholders.  Prior to
listing on ASX, AIE will need to ensure, among other things, that:

o     Its  constituent  documents are  consistent  with the listing rules of ASX
      and, as far as possible, with the Law;


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o     Its financial  information is in accordance  with standards  acceptable to
      ASX;
o     Its clearing and settlement procedures are appropriate.

            To help  facilitate a timely  listing,  AIE has engaged the Brisbane
based law firm,  McCullough  Robertson  and the  Brisbane  offices of  Macquarie
Nevitts Stock Brokers.

            On March 11, 1999 the Company  entered into an agreement to sell its
wholly owned subsidiary, The Eminet Domain, Inc. to Centerline Associates,  Inc.
The agreement called for the sale of 81% of its interest in Eminet Domain,  Inc.
for $2,500,000,  payable $100,000 in cash and $2,400,000 promissory note payable
two years from closing. The closing date of the transaction was March 31, 1999.


INTERNET INDUSTRY OVERVIEW

            The  internet  had its origins in 1969 as a project of the  Advanced
Research Project Agency ("ARPA") of the U.S. Department of Defense.  The network
established  by ARPA was  designed  to  provide  efficient  connections  between
different types of computers separated by large geographic areas and to function
even  if  part  of  the  network  became  inoperative.   Historically,  academic
institutions and  governmental  agencies for remote access to host computers and
electronic mail communications used the  infrastructure.  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  faster and as
many as 62 million Americans now have Internet access.

            Improving  Performance  - There  have  been  significant  bandwidth,
communications,  and  price/performance  improvements in communications over the
Internet. These developments make the Internet an increasingly attractive medium
for conducting business, adding convenience, and attracting more users.

            High Speed Modems - As the installed  personal  computer ("PC") base
has  grown,  it has  become  increasingly  common  for those PCs to have a modem
connection. Many new computers now have higher speed, pre-installed modems, as a
K56 Flex, allowing connections to be made even more easily.

            Expansion of Local Area Networks and Wide Area Networks - Corporate,
government,  and educational local area networks, and wide area networks used by
businesses,  are expanding and these installed networks enable multiple users to
be connected to the internet through a single point of contact.  Therefore,  the
actual number of internet users connected through these networks greatly exceeds
the number of connection points.



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            Extranet - Businesses  can set up a  proprietary  network or Virtual
Private  network using the Internet.  A Virtual  Private network is a secure and
cost effective means of data communication.

            Expectations  for  Electronic  Commerce over the Internet - With the
increased recognition of the Internet's potential, as a medium for marketing and
purchasing,  a growing number of companies are initiating or expanding their use
of the  Internet  for  commercial  purposes.  The United  States  Department  of
Commerce stated that 10 million North Americans made purchases over the Internet
by the end of 1997.

ITEM 2.  DESCRIPTION OF PROPERTY.

            We lease  approximately  5,150  square feet of office  space in Boca
Raton,   Florida  expiring  on  September  30,  2002  with  a  monthly  rent  of
approximately  $9,100. We believe that our existing  facilities are adequate for
our  current  needs  and that  additional  facilities  in its  service  area are
available  to meet future  needs.  

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  6,  1998,  the  Company  held its  Annual  Meeting  of
Shareholders  to, among other things,  vote on a board of directors.  There were
16,228,641  shares voted for the proposal  with 690 shares  abstaining  from the
vote.


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                                     PART II

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

            Since November,  1996, our common stock has traded on the electronic
bulletin board under the trading symbol AIEE. The following table sets forth the
average range of bid and ask  quotations for our common stock as reported by the
electronic  bulletin  board for each full  quarterly  period within the two most
recent fiscal years and subsequent interim periods.

FISCAL YEAR ENDED DECEMBER 31, 1997

BY QUARTER                                             COMMON STOCK
----------                                             ------------

            QUARTER        DATE                      HIGH         LOW
            -------        ----                      ----         ---
            1st        March 31, 1997               $10.25       $1.50

            2nd        June 30, 1997                $ 8.50       $1.469

            3rd        September 30,1997            $ 5.25       $3.25

            4th        December 30, 1997            $ 5.25       $2.75


FISCAL YEAR ENDING DECEMBER 31, 1998

BY QUARTER                                              COMMON STOCK
----------                                              ------------

            QUARTER        DATE                      HIGH         LOW
            -------        ----                      ----         ---
                   
            1st        March 31, 1998               $4.80        $3.00

            2nd        June 30,1998                 $4.125       $3.625
            3rd        September 30, 1998           $4.375       $2.990

            4th        December 31, 1998            $3.00        $1.313


FISCAL YEAR ENDING DECEMBER 31, 1999

BY QUARTER                                              COMMON STOCK
----------                                              ------------

            QUARTER        DATE                       HIGH          LOW
            -------        ----                       ----          ---
                    
            1st        March 31, 1999                $3.00        $1.1875

            Trading transactions in our securities occur in the over-the-counter
electronic bulletin board market. All prices indicated herein are as reported to
us by broker-dealer(s)  making a market in our securities.  The quotes indicated
above  reflect  inter-dealer  prices,  without  retail  mark-up,   mark-down  or
commission, and may not necessarily represent actual transactions.



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<PAGE>

            As of December 31,  1998,  there were  approximately  827 Holders of
Record of our Common Stock,  including brokerage firms,  clearinghouses,  and/or
depository firms holding our securities for their respective clients.  The exact
number of beneficial owners of our securities is not known.

            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.

OVERVIEW

            During 1998, the Company focused its business efforts in Interactive
Gaming & Wagering.  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  whereby 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.

RESULTS OF OPERATIONS

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

                                          YEAR ENDED DECEMBER 31,
STATEMENTS OF CONTINUING
OPERATIONS DATA:                      1998                     1997
------------------------------        ----                     ----

Revenue                            $ 2,426,230             $ 3,991,041
[Loss] Income from Operations       (2,401,793)              1,546,929
Net [Loss] Income                   (1,332,400)              1,067,796
Basic and Diluted Net
[Loss] Income Per Common Share     $     (0.15)            $      0.11

BALANCE SHEET DATA
- CONTINUING OPERATIONS:   DECEMBER 31, 1998         DECEMBER 31, 1997
-------------------        -----------------         -----------------

Working Capital               $ 4,667,465             $  447,813
Total Assets                   10,406,587              5,181,740
Total Liabilities               1,427,969              1,685,345
Stockholders' Equity            8,978,618              3,496,395


                                       13
<PAGE>

STATEMENTS OF DISCONTINUED
OPERATIONS DATA:           DECEMBER 31, 1998         DECEMBER 31, 1997
-------------------        -----------------         -----------------

Revenue                       $   544,057               $  413,896
[Loss] Income from Operations    (371,448)                (165,458)
Net [Loss] Income                (371,448)                (165,458)
Basic and Diluted Net [Loss]
Income per Common Share       $     (0.04)              $     --


BALANCE SHEET DATA -
DISCONTINUED OPERATIONS:   DECEMBER 31, 1998         DECEMBER 31, 1997
-------------------        -----------------         -----------------

Working Capital               $  (65,845)               $  (95,254)
Total Assets                   1,546,350                 1,724,259
Total Liabilities                195,078                   274,035
Stockholders' Equity           1,351,272                 1,450,224



OUTLOOK

RESULTS OF OPERATIONS

            The  Company's  net loss for  1998 was  ($1,332,400)compared  to net
income of  $1,067,793  for 1997.  The  substantial  decrease  was due to several
factors. Net revenues for the Company for 1998 compared to 1997 decreased by 39%
or $1,564,811. The decrease in revenues was the result of the development of the
new product  version.  The Company stopped  promotion of the old version and did
not allocate  large  resources to sales and  marketing.  The Company  intends to
allocate large resources to sales and marketing for 1999 and expects revenues to
substantially increase.

            Cost of sales and operating  expenses increased by 69% or $1,343,928
in 1998  compared  with 1997.  The increase was largely due to global  expansion
efforts, expenses related to product development, increased support staffing and
amortization  of  capitalized  product  development.  Cost  of  revenues  is not
directly related to revenues.  Provision for doubtful accounts increased by 261%
or  $1,037,936  in 1998  compared to 1997.  The increase  resulted  from a major
customer  forced to cease  operations due to non-industry  and software  related
matters and management taking a conservative approach in recording its provision
for doubtful  accounts.  The Company  currently  expects that the  provision for
doubtful accounts will not increase at the same rate going forward.

            The  Internet  access and  services  segments  net loss for 1998 was
$371,448 (1997 - $165,458). This discontinued operation will not have a material
impact on the results of operations for the future.

                                       14
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

            At December 31, 1998 the Company had working  capital of  $4,667,465
compared with $447,813 at December 31, 1997. The increase on working capital was
primarily  due to cash  proceeds  from the sale of common  stock for  $2,300,000
pursuant to registration statement S-8, sale of common stock of a foreign public
traded company in a proposed  takeover of the foreign company for $3,486,139 and
issuance  of 10,000  shares of  convertible  preferred  stock for  approximately
$900,000.  The  increase  was  offset  by  negative  cash  flow  from  operating
activities  of  approximately   $745,000  for  1998,  capital   expenditures  of
$1,241,840  for property and  equipment  necessary  for the Internet and private
network development and purchase of treasury stock for $278,697.

            Management   believes  that  existing  cash,  cash  equivalents  and
marketable  securities  will be sufficient  to satisfy the  Company's  currently
anticipated cash requirements.

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.]


                                       15
<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.


                                       16
<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       64     Chairman of the Board, Secretary 
                                        and Treasurer

          Richard A. Iamunno     41     President, Chief Executive 
                                        Officer and Director

          Martin V. McCarthy     43     Director

          Marcel Golding         39     Director

          Jeffrey L. Hurwitz     43     Director

          Dr. Leonard Haimes     71     Director

          Peter H. Lawson        51     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 as
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.
Currently, Mr. Iamunno is a Director of Atlantic International Capital Holdings,
Ltd., a Bermuda based  Investment  Company.  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.

                                       17
<PAGE>

            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  $370,000,000.  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.  Since 1985,  Dr.  Haimes has been the  Medical  Director at the Haimes
Centre  Clinic  in Boca  Raton,  Florida.  As an expert  in  alternative  care &
medicine, Dr. Haimes is an often featured media speaker in the United States and
Internationally. Dr. Haimes was formally the Chief of Staff of the Nevada Clinic
of Preventative Medicine. Dr. Haimes has a medical degree from Hahnemann Medical
College in Philadelphia, PA.

            MARCEL GOLDING was appointed Director of the Company in August of
1998. Mr. Golding is Chairman of Hosken Consolidated Investments (HCI) and
Softline Holdings, as well as being a director of JCI and Global Capital which
are all listed companies on the Johannesburg Stock Exchange. In addition, he was
the founding chairman of the Mineworkers Investment Company (linked to the
National Union of Mineworkers), one of the two pioneering trade union investment
companies in South Africa (the other being the SACTWU investment Group linked to
the clothing and textile workers union). Mr. Golding holds a post graduate
degree from the University of Cape Town where he tutored and lectured for a
brief period, before joining the National Union of Mineworkers in the mid 80s.
He was elected the first Deputy General Secretary of the union in 1987 at the
age of 26, and was re-elected on three additional occasions to this post of the
Country's largest trade union organization. While a unionist he served on
various Cosatu executive and committee structures, and was also a member of both
the Miners International Federation and the Southern African Miners Federation
executive committees.

            Lending up to the 1994  General  elections in South  Africa,  he was
part of ANC's election strategy team, which coordinated the elections  campaign.
In  addition,  he was one of 20 national  candidates  elected by the trade union
federation, Cosatu, to be a Member of Parliament.


                                       18

<PAGE>

            From  1994 to 1997 he served  as a Member  of  Parliament,  where he
chaired  the  Minerals  and Energy  Committee  and the Audited  Commission,  the
overseeing committee of the office of the Auditor-General.

            He resigned from parliament to head the only trade union  controlled
listed company on the  Johannesburg  Stock Exchange in 1997, the  culmination of
two years of work in the investment field for the trade union linked  investment
companies of the miners and the clothing and textile unions.

            PETER  H.  LAWSON  is   currently   a  Director  of  an   Australian
Stockbroking  House.  Prior to this  appointment  he worked in the  Banking  and
Finance  Industry for over 15 years.  The last 10 years was spent with  Barclays
Bank in Australia where he held various senior  management  positions.  First as
Branch  Manager  in  Townsville  with a staff of 15 and then a state  manager in
South  Australia  with a staff of 25. In 1994 he was elected to be  Executive in
Resident in the commerce  faculty at the  University of Queensland in Australia,
where he lectured and held  seminars  for pre and post  graduate  students.  His
expertise is in the area of Corporate  Advice,  mergers,  acquisitions,  initial
public offerings and equity raisings, especially in the small company sector. He
has worked with, and advised,  many small  companies from start up situations to
more the  mature  over the past 13 years.  He has  extensive  experience  in the
Australian Equity Markets,  with connections  within the brokerage  community as
well as the institutional market. During that time he was also a director of two
publicly  listed  Australian  companies.  He is  currently  a  director  of  the
Australian  subsidiary  of Atlantic and has advised the company for the past two
years.  Mr.  Lawson holds a degree in commerce  from  Queensland  University  in
Australia  and is a  Certified  Practicing  Accountant  and  holds  postgraduate
qualified in finance from the Securities Institute in Australia.

MEETINGS AND COMMITTEES

            The Board held four (4) meetings  during the year ended December 31,
1998. 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.


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        $144,000               --
  President and Chief           1997        $125,000               --
  Executive Officer             1996        $ 63,000(2)            --
  Norman J. Hoskin              1998        $144,000               --
  Chairman of the Board/
    Seretary                    1997        $125,000               --
(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. 


                                       19
<PAGE>
Directors  receive  $1,500 per meeting  and are  reimbursed  for their  expenses
incurred in attending meetings of the Board of Directors.

LONG-TERM INCENTIVE AND PENSION PLANS

            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.

                                       20
<PAGE>

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

            The following  table sets forth,  as of March 31, 1999,  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, 1999,  there were  outstanding  12,273,587  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                                  1,111,935           8.68%

Richard A. Iamunno                                1,133,270           8.85%

Martin V. McCarthy                                  125,000           0.98%

Marcel Golding                                    1,250,000           9.76%

Jeffrey L. Hurwitz                                      N/A             N/A

Dr. Leonard Haimes                                    8,333           0.06%

The AWIXA Trust                                     514,536           4.01%
C/o Mello, Hollis, Jones & Martin
31 Church Street
Hamilton, Bermuda

The Kunni Lemmel Trust                              686,868           5.36%
C/o Mello, Hollis, Jones & Martin
31 Church Street
Hamilton, Bermuda

All Officers and Directors as a Group             4,829,942          37.70%
(8 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.


ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            The Company has a receivable due from an affiliated  company,  whose
shareholders are also shareholders of the Company. The balance of the receivable
at December 31, 1998 is $55,240.  During the year ended December 31, 1998, there
were no additional advances or repayments. The original advance accrued interest
at a rate of 6% per annum and is due on demand.

            The  company  has notes  payable to two  officers  in the  aggregate
amount of $150,000 at December  31,  1998.  The notes are demand notes and incur
interest at 8% per annum.  Interest  expense related to the  shareholders  notes
totaled  $8,855 and  $7,525  for the years  ended  December  31,  1998 and 1997,
respectively.


                                       21
<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.
          10.6    -    Stock  Purchase  Agreement  dated  March 10,  1999 by and
                       between Atlantic  International  Entertainment,  Ltd. and
                       Centerline Associates, Inc.
          10.7*   -    Stock  Option  and  Incentive  Plan  adopted  by Board of
                       Directors on March 25, 1999.


                                       22
<PAGE>

          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.

                       On May 29, 1998 the Company  filed with the  Commission a
                       Form  8-K  date  May 27,  1998  disclosing  the  offer to
                       purchase Coms21 shares.

                                       23
<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 6, 1999                         /S/ Norman 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 Hoskin              Chairman of the Board, Secretary,     May 6, 1999
--------------------           and Treasurer
  Norman J. Hoskin

/s/ Richard Iamunno            President, Chief Executive Officer    May 6, 1999
--------------------           and Director
  Richard A. Iamunno

/s/ Trevor A. Klein            Chief Financial Officer               May 6, 1999
--------------------
    Trevor A. Klein

/s/                            Director                              May 6, 1999
----------------------
    Martin V. McCarthy


/s/ Marcel Golding             Director                              May 6, 1999
----------------------
    Marcel Golding


/s/ Jeffrey Hurwitz            Director                              May 6, 1999
----------------------
    Jeffrey Hurwitz


/s/ Dr. Leonard Haimes         Director                              May 6, 1999
----------------------
    Dr. Leonard Haimes


/s/                            Director                              May 6, 1999
----------------------
    Peter H. Lawson


                                      -24-

<PAGE>

ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================

INDEX TO FINANCIAL STATEMENTS
================================================================================


                                                                         PAGE

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

Consolidated Balance Sheet as of December 31, 1998...................F-3....F-4

Consolidated Statements of Operations and Comprehensive 
Income for the years ended December 31, 1998 and 1997................F-5....F-6

Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1998 and 1997...............................F-7....

Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997...........................................F-8....F-9

Notes to Consolidated Financial Statements ..........................F-10...F-24







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

                                      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,  1998,   and  the  related   consolidated   statements  of  operations   and
comprehensive  income,  changes in stockholders' equity, and cash flows for each
of the two years in the period  ended  December  31,  1998.  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, 1998, and the consolidated results of their operations and their
cash flows for each of the two years in the period ended  December 31, 1998,  in
conformity with generally accepted accounting principles.




                                  /s/ Moore Stephens, P.C.
MOORE STEPHENS, P.C.
                                  Certified Public Accountants.


Cranford, New Jersey
February 6, 1999

                                      F-2
<PAGE>



ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998.
================================================================================


ASSETS:
CURRENT ASSETS:
   Cash and Cash Equivalents                                    $       67,535
   Investments                                                       2,516,004
   Due from Broker                                                   2,497,298
   Accounts Receivable [Net of Allowance for 
     Doubtful Accounts $19,600]                                         22,400
   Notes Receivable                                                    746,302
   Refundable Income Taxes                                              77,215
   Prepaid Expenses                                                     11,257
   Due from Related Parties                                             55,240
   Other Current Assets                                                 25,300
                                                                --------------

   TOTAL CURRENT ASSETS                                              6,018,551
                                                                --------------

PROPERTY AND EQUIPMENT - NET                                           396,387
                                                                --------------

EQUIPMENT UNDER CAPITALIZED LEASE - NET                                 89,456
                                                                --------------

SOFTWARE [NET OF ACCUMULATED AMORTIZATION OF $696,679]               1,932,855
                                                                --------------

NET ASSETS OF DISCONTINUED OPERATIONS                                1,351,272
                                                                --------------

OTHER ASSETS:
   Other Assets                                                        111,687
   Notes Receivable                                                    506,379
                                                                --------------

   TOTAL OTHER ASSETS                                                  618,066
                                                                --------------

   TOTAL ASSETS                                                 $   10,406,587
                                                                ==============


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, 1998.
================================================================================


LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
   Accounts Payable and Accrued Expenses                           $  1,074,981
   Notes Payable - Officers                                             150,000
   Current Portion of Long-Term Debt                                    100,000
   Current Portion of Capital Lease Obligations                          26,105
                                                                   ------------

   TOTAL CURRENT LIABILITIES                                          1,351,086

CAPITAL LEASE OBLIGATIONS                                                76,883
                                                                   ------------

   TOTAL LIABILITIES                                                  1,427,969
                                                                   ------------

STOCKHOLDERS' EQUITY:
   Convertible Preferred Stock - Par Value $.001 Per Share;
      Authorized 10,000,000 Shares, Issued and Outstanding,
      7,260 shares [Liquidation Preference $726,000]                          7

   Common Stock - Par Value $.001 Per Share;
      Authorized 100,000,000 Shares, Issued - 12,410,939 Shares          12,410

   Additional Paid-in Capital                                        12,329,161

   Treasury Stock, 145,500 Common Shares - At Cost                     (278,697)
   Accumulated Other Comprehensive [Loss]                               (95,858)
   Accumulated [Deficit]                                             (1,143,405)

   Deferred Acquisition Costs                                          (400,000)
                                                                   ------------

   Total                                                             10,423,618
   Less:  Subscriptions Receivable                                   (1,445,000)
                                                                   ------------

   TOTAL STOCKHOLDERS' EQUITY                                         8,978,618
                                                                   ------------

   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $ 10,406,587
                                                                   ============


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 AND COMPREHENSIVE INCOME
================================================================================
<TABLE>
<CAPTION>
                                                                                YEARS ENDED
                                                                                DECEMBER 31,
                                                                         1 9 9 8         1 9 9 7
                                                                         -------         -------
<S>                                                                    <C>           <C>        
REVENUE                                                                $ 2,426,230   $ 3,991,041

COST OF SALES                                                              792,789       519,844
                                                                       -----------   -----------

GROSS PROFIT                                                             1,633,441     3,471,197
                                                                       -----------   -----------
OPERATING EXPENSES:
   General and Administrative                                            2,510,484     1,439,501
   Provision for Doubtful Accounts and Notes                             1,435,040       397,104
   Depreciation and Amortization                                            89,710        87,663
                                                                       -----------   -----------

   TOTAL OPERATING EXPENSES                                              4,035,234     1,924,268
                                                                       -----------   -----------

   [LOSS] INCOME FROM OPERATIONS                                        (2,401,793)    1,546,929
                                                                       -----------   -----------

OTHER [EXPENSES] INCOME:
   Interest Income                                                          81,390        17,331
   Interest Expense                                                         (2,211)      (10,477)
   Interest Expense - Related Party                                         (8,855)       (7,525)
   Other Income [Expense]                                                  538,387       (15,897)
                                                                       -----------   -----------

   OTHER [EXPENSES] INCOME - NET                                           608,711       (16,568)
                                                                       -----------   -----------

[LOSS] INCOME FROM CONTINUING OPERATIONS BEFORE
   INCOME TAX [BENEFIT] EXPENSE                                         (1,793,082)    1,530,361

INCOME TAX [BENEFIT] EXPENSE                                              (460,682)      462,568
                                                                       -----------   -----------

   [LOSS] INCOME FROM CONTINUING OPERATIONS                             (1,332,400)    1,067,793

DISCONTINUED OPERATIONS:
   [Loss] from Operations of Discontinued Foreign
      Subsidiary [Net of Income Tax [Benefit] of $(23,641)]                   --         (45,890)
   Gain on the Disposal of Discontinued Foreign
      Subsidiary [Net of Income Taxes of $74,688]                             --         144,982
   [Loss] from Operations of Discontinued Business
      Segment [Net of Income Tax [Benefit] of $-0- and $(51,243),
      for the years ended December 31, 1998 and 1997, Respectively]       (321,448)     (119,568)
   [Loss] on Disposal of Business Segment, including
      Provision of $50,000 for Operating Loss During
      Phase Out Period [Net of Income Tax [Benefit] of $-0-]               (50,000)         --
                                                                       -----------   -----------

   NET [LOSS] INCOME                                                    (1,703,848)    1,047,317
                                                                       -----------   -----------
OTHER COMPREHENSIVE LOSS:
   Unrealized Holding Loss arising during period                          (104,611)      (42,763)
   Less:  Reclassification Adjustment for Loss Included in Net Income       51,516          --
                                                                       -----------   -----------

                                                                           (53,095)      (42,763)
                                                                       -----------   -----------

   TOTAL OTHER COMPREHENSIVE [LOSS] INCOME                             $(1,756,943)  $ 1,004,554
                                                                       ===========   ===========
</TABLE>
The  Accompanying  Notes are an Integral  Part of these  Consolidated  Financial
Statements.

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

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
================================================================================

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED
                                                                                 DECEMBER 31,
                                                                           1 9 9 8          1 9 9 7
                                                                           -------          -------

<S>                                                                   <C>                <C>         
Net [Loss] Income                                                     $ (1,703,848)      $  1,047,317
Deduct:  Imputed Non-cash Preferred Stock Dividend                         269,443               --
               Preferred Stock Dividend in Arrears                          33,333               --
                                                                      ------------       ------------
                                                                                       
   NET [LOSS] INCOME AVAILABLE TO COMMON STOCKHOLDERS                 $ (2,006,624)      $  1,047,317
                                                                      ============       ============
                                                                                       
[LOSS] INCOME PER COMMON SHARE:                                                        
   Continuing Operations                                              $       (.15)      $       0.11
   Discontinued Operations                                                    (.04)              --
   Disposal of Discontinued Subsidiary                                        --                 --
                                                                      ------------       ------------
                                                                                       
   BASIC AND DILUTED NET [LOSS] INCOME PER SHARE OF COMMON STOCK      $       (.19)      $       0.11
                                                                      ============       ============
                                                                                       
   WEIGHED AVERAGE SHARES OF COMMON STOCK OUTSTANDING                   10,771,563          9,452,992
                                                                      ============       ============
</TABLE>



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



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

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

                                                                                                                     ACCUMULATED 
                                                                                   ADDITIONAL                           OTHER    
                                    PREFERRED STOCK           COMMON STOCK          PAID-IN       TREASURY STOCKCOMPREHENSIVE    
                                  SHARES        AMOUNT    SHARES        AMOUNT      CAPITAL     SHARES        AMOUNT     [LOSS]  
                                  ------        ------    ------        ------      -------     ------        ------      ----   

<S>                                <C>     <C>          <C>          <C>         <C>           <C>        <C>            <C>     
BALANCE - DECEMBER 31, 1996           --   $     --      9,190,184   $   9,190   $  1,887,376        --   $      --           -- 

Sale of Common Stock                  --         --         75,000          75        350,175        --          --           -- 
Sale of Common Stock                  --         --         25,000          25             --        --          --           -- 
Asset Acquisition                     --         --        200,000         200      1,598,880        --          --           -- 
Conversion of Debt to Equity          --         --             --          --        313,475        --          --           -- 
Issuance of Shares in Escrow          --         --        100,000         100             --        --          --           -- 
Unrealized Holding Loss on
   Marketable Securities              --         --             --          --             --        --          --      (42,763)
Income from Continuing
   Operations                         --         --            ---          --             --        --          --           -- 
Loss from Discontinued
   Operations                         --         --             --          --             --        --          --           -- 
                                 -------   --------   ------------   ---------   ------------  --------   ---------    --------- 

BALANCE - DECEMBER 31, 1997           --         --      9,590,184       9,590      4,149,906        --          --      (42,763)

Sale of Escrow Common Stock           --         --             --          --        299,900        --          --           -- 
Unrealized Holding [Loss]
   on Marketable Securities           --         --             --          --             --        --          --      (53,095)
Sale of Common Stock                  --         --      1,250,000       1,250      3,998,750        --          --           -- 
Issuance of Common Stock              --         --      9,700,000       9,700             --        --          --           -- 
Cancellation of Common Stock          --         --     (9,700,000)     (9,700)            --        --          --           -- 
Sale of Common Stock                  --         --      1,217,647       1,217      2,285,921        --          --           -- 
Purchase of Treasury Stock            --         --             --          --             --  (145,500)   (278,697)          -- 
Sale of Preferred Stock           10,000         10             --          --        906,840        --          --           -- 
Cancellation of Common Stock          --         --        (25,000)        (25)            25        --          --           -- 
Issuance of Common Stock              --         --         31,106          31         18,720        --          --           -- 
Conversion of Preferred Stock     (2,740)        (3)       147,002         147           (144)       --          --           -- 
Contingent Acquisition                --         --        200,000         200        399,800        --          --           -- 
Imputed non-cash Series A
   Convertible Preferred Stock
    Dividend                          --         --             --          --        269,443        --          --           -- 
[Loss] From Continuing
   Operations                         --         --             --          --             --        --          --           -- 
[Loss] From Discontinued
   Operations                         --         --             --          --             --        --          --           -- 
                                 -------   --------   ------------   ---------   ------------  --------   ---------    --------- 

BALANCE - DECEMBER 31, 1998        7,260   $      7     12,410,939   $  12,410   $ 12,329,161  (145,500)  $(278,697)     (95,858)
                                 =======   ========   ============   =========   ============  ========   =========    ========= 
</TABLE>


<TABLE>
<CAPTION>
                                                                                                   
                                                   DEFERRED                              TOTAL     
                                    ACCUMULATED   ACQUISITION     SUBSCRIPTION      SHAREHOLDERS'  
                                    [DEFICIT]        COSTS        RECEIVABLE            EQUITY     
                                    ---------        -----        ----------            ------     
                                                                                                   
<S>                              <C>             <C>           <C>              <C>                
BALANCE - DECEMBER 31, 1996      $   (217,431)   $        --   $          --    $     1,679,135    
                                                                                                   
Sale of Common Stock                       --             --              --            350,250    
Sale of Common Stock                       --             --              --                 25    
Asset Acquisition                          --             --              --          1,599,080    
Conversion of Debt to Equity               --             --              --            313,475    
Issuance of Shares in Escrow               --             --              --                100    
Unrealized Holding Loss on                                                                         
   Marketable Securities                   --             --              --            (42,763)   
Income from Continuing                                                                             
   Operations                       1,067,793             --              --            948,225    
Loss from Discontinued                                                                             
   Operations                         (20,476)            --              --             99,092    
                                 ------------    -----------   -------------    ---------------    
                                                                                                   
BALANCE - DECEMBER 31, 1997           829,886             --              --          4,946,619    
                                                                                                   
Sale of Escrow Common Stock                --             --              --            299,900    
Unrealized Holding [Loss]                                                                          
   on Marketable Securities                --             --              --            (53,095)   
Sale of Common Stock                       --             --      (1,445,000)         2,555,000    
Issuance of Common Stock                   --             --              --              9,700    
Cancellation of Common Stock               --             --              --             (9,700)   
Sale of Common Stock                       --             --              --          2,287,138    
Purchase of Treasury Stock                 --             --              --           (278,697)   
Sale of Preferred Stock                    --             --              --            906,850    
Cancellation of Common Stock               --             --              --                 --    
Issuance of Common Stock                   --             --              --             18,751    
Conversion of Preferred Stock              --             --              --                 --    
Contingent Acquisition                     --       (400,000)             --                 --    
Imputed non-cash Series A                                                                          
   Convertible Preferred Stock                                                                     
    Dividend                         (269,443)            --              --                 --    
[Loss] From Continuing                                                                             
   Operations                      (1,332,400)            --              --         (1,332,400)   
[Loss] From Discontinued                                                                           
   Operations                        (371,448)            --              --           (371,448)   
                                 ------------    -----------   -------------    ---------------    
                                                                                                   
BALANCE - DECEMBER 31, 1998      $ (1,143,405)   $  (400,000)  $  (1,445,000)   $     8,978,618    
                                 ============    ===========   =============    ===============    
</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 8                1 9 9 7
                                                                                  -------                -------
<S>                                                                            <C>                    <C>        

OPERATING ACTIVITIES:
   [Loss] Income from Continuing Operations                                    $(1,332,400)           $ 1,104,668
   Adjustments to Reconcile Net [Loss] Income to
      Net Cash [Used for] Operating Activities:
      Depreciation and Amortization                                                473,209                323,959
      Deferred Tax Asset                                                           176,812               (176,812)
      Provision for Doubtful Accounts                                            1,435,040                397,104
      Loss on Sale of Assets                                                           950                   --
      Realized Loss on Carrying Value of Investments                                51,516                   --

   Changes in Assets and Liabilities:
      [Increase] Decrease in:
         Accounts Receivable                                                       (93,938)               (24,278)
         Prepaid Expenses                                                             (494)                 2,184
         Notes Receivable                                                         (747,062)            (3,677,476)
         Other Assets                                                             (103,199)               (17,271)

      Increase [Decrease] in:
         Accounts Payable and Accrued Expenses                                     391,033                627,278
         Income Taxes Payable                                                     (634,336)               634,336
         Other Current Liabilities                                                 (24,917)                25,316
         Due to Customer                                                           (20,721)                (7,558)
                                                                               -----------            -----------

      NET CASH - CONTINUING OPERATIONS                                            (428,507)              (788,550)
                                                                               -----------            -----------

DISCONTINUED OPERATIONS:
   [Loss] from Discontinued Operations                                            (371,448)              (124,040)
   Adjustments to Reconcile Net [Loss] to Net Cash Operations:
      Depreciation and Amortization                                                144,748                 99,945
      Provision for Doubtful Accounts                                               27,424                 15,594
      Loss on Sale of Assets                                                            50                   --
      Gain on Disposal of Foreign Subsidiary                                          --                 (144,982)
      Changes in Net Assets and Liabilities                                       (117,751)                41,470
                                                                               -----------            -----------

   NET CASH - DISCONTINUED OPERATIONS                                             (316,977)              (112,013)
                                                                               -----------            -----------

   NET CASH - OPERATING ACTIVITIES - FORWARD                                      (745,484)              (900,563)
                                                                               -----------            -----------

INVESTING ACTIVITIES - CONTINUING OPERATIONS:
   Increase in Due from Related Parties                                             (5,385)                (1,582)
   Purchase of Investments                                                      (6,451,459)              (109,418)
   Purchase of Property, Equipment, and Capitalized Software                    (1,241,840)              (368,197)
   Purchase of EmiNet - Net of Cash Acquired                                          --                  (18,268)
   Sale of Investments                                                           1,245,728                 35,671
                                                                               -----------            -----------

   NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
      FORWARD                                                                  $(6,452,956)           $  (461,794)
</TABLE>

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

                                      F-8
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
================================================================================

CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
                                                                                                  YEARS ENDED
                                                                                                 DECEMBER 31,
                                                                                        1 9 9 8                1 9 9 7
                                                                                        -------                -------

<S>                                                                                    <C>                  <C>         
   NET CASH - OPERATING ACTIVITIES - FORWARDED                                         $  (745,484)         $  (900,563)
                                                                                       -----------          -----------

   NET CASH - INVESTING ACTIVITIES - CONTINUING OPERATIONS -
      FORWARDED                                                                         (6,452,956)            (461,794)
                                                                                       -----------          -----------

INVESTING ACTIVITIES - DISCONTINUED OPERATIONS:
   Purchase of Property and Equipment                                                       (6,419)             (57,665)
   Disposition Gain on Sale of Discontinued Operations                                        --                158,082
                                                                                       -----------          -----------

   NET CASH INVESTING ACTIVITIES - DISCONTINUED OPERATIONS                                  (6,419)             100,417
                                                                                       -----------          -----------

FINANCING ACTIVITIES - CONTINUING OPERATIONS:
   Proceeds from Conversion of Debt to Equity                                                 --                313,475
   Proceeds from Issuance of Common Stock                                                6,597,047              350,250
   Proceeds from Issuance of Preferred Stock                                               906,850                 --
   Purchase of Treasury Stock                                                             (278,697)                --
   [Decrease] Increase in Loan Payable to Shareholder                                      (16,636)             144,981
   Proceeds from Long-Term Debt                                                            153,100               45,000
   Payment from Notes Receivable                                                              --                   --
   Payment of Notes Payable                                                                (84,660)                --
   Payment of Lease Payable                                                                (11,286)              (9,926)
                                                                                       -----------          -----------

   NET CASH - FINANCING ACTIVITIES - CONTINUING OPERATIONS                               7,265,718              843,780
                                                                                       -----------          -----------

FINANCING ACTIVITIES - DISCONTINUED OPERATIONS:
   Proceeds from Long-Term Debt                                                             40,400               24,391
   Payment of Note Payable                                                                  (6,000)              (4,500)
   Payment of Lease Payable                                                                (38,984)             (11,659)
                                                                                       -----------          -----------

   NET CASH B FINANCING ACTIVITIES B DISCONTINUED OPERATIONS                                (4,584)               8,232
                                                                                       -----------          -----------

NET INCREASE [DECREASE] IN CASH AND CASH EQUIVALENTS                                        56,275             (409,928)

CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS                                              11,260              421,188
                                                                                       -----------          -----------

   CASH AND CASH EQUIVALENTS - END OF YEARS                                            $    67,535          $    11,260
                                                                                       ===========          ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the years for:
      Interest                                                                         $    16,694          $     5,903
      Income Taxes                                                                     $      --            $      --

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Conversion of Preferred Stock into Common Stock                                     $       147          $      --
   Stock Issued in Exchange for Contingent Acquisition                                 $   400,000          $      --
   Purchase of Assets under Capital Lease Financing                                    $    91,401          $      --
</TABLE>

      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. As
part of the acquisition of EmiNet Domain, Inc, capital lease obligations of
approximately $106,000 were incurred for the purchase of equipment.

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

                                      F-9
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


[1] ORGANIZATION

NATURE OF BUSINESS - The Company is located in  Southern  Florida and  develops,
sells and services  interactive  products which are offered and operated via the
Internet and World Wide Web.

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 Notes 12 and 13]

[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, 1998, the Company did not have any cash equivalents.

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.

REVENUE  RECOGNITION - Revenue from computer  software  licensing  agreements is
recognized  when products are delivered and accepted by the customer and the fee
is fixed or  determinable,  and  collectibility  is probable.  If the fee is not
fixed or determinable revenue is accounted for as payments from customers become
due. Revenue from software maintenance contracts are recognized ratably over the
life of the contract.

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 5].


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


[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]

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 expense for the years ended  December 31, 1998 and
1997 amounted to approximately $29,000 and $122,000, 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, 1998 and 1997,  have been  calculated
in  accordance  with SFAS No.  128.  Potential  common  shares are  included  if
dilutive.

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  should 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.  Securities  that could  potentially  dilute earnings per share in the
future are disclosed in Notes 12 and 17.

                                      F-11
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]

NET INCOME PER SHARE [CONTINUED] - Earnings per share amounts for 1997 have been
restated for the Company's  discontinued  operations  whose plan of disposal was
adopted by the Company in March 1999. The effect of the  restatement on earnings
per share from continuing operations was an increase of $.01 per share for 1997.

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 1998.  The  Company  applies the
provisions of SFAS No. 123,  "Accounting  for Stock-Based  Compensation"  to any
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 $384,144 and
$236,296  for the years  ended  December  31, 1998 and 1997,  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
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  discounted  cash flows
from related operations. Management also reevaluates the periods of amortization
to  determine  whether  subsequent  events  and  circumstances  warrant  revised
estimates of useful  lives.  As of December 31, 1998,  management  expects these
assets to be fully recoverable.

BENEFICIAL  CONVERSION  FEATURES - The Company has issued convertible  preferred
stock with a beneficial conversion feature. The beneficial conversion feature is
analogous  to a  dividend  and  is  recognized  as a  return  to  the  preferred
shareholders  over the minimum  period in which the preferred  shareholders  can
realize  that  return.  The  resulting  discount is  allocated  from the date of
issuance through the date the security was first convertible.

RECLASSIFICATION  - Certain prior year amounts have been reclassified to conform
to current year's financial statement presentation.

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

[3] SIGNIFICANT RISKS AND UNCERTAINTIES

[A]  CONCENTRATIONS  OF CREDIT RISK - 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  occurring from its
normal  business  activities.  The Company places its cash and cash  equivalents
with high credit quality institutions to limit its credit exposure.  At December
31, 1998, the Company did not have any amounts in a financial  institution  that
is subject to normal credit risk beyond insured amounts.  The Company  routinely
assesses the credit  worthiness of its  customers  before a sale takes place and
believes its credit risk  exposure on accounts and notes  receivable is limited.
The Company  performs  ongoing credit  evaluations of its customers but does not
require   collateral  on  accounts  and  notes  receivable  or  other  financial
instruments. The Company maintains allowances for potential credit losses.

[B] OTHER  CONCENTRATION  - 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 1998 totaling $2,145,000 which is
approximately  88% of total  revenues.  In 1997 the Company had a portion of its
revenues from six customers  totaling  $3,095,000 which is approximately  78% of
total revenues. Sales derived from major customers are tabulated.

                                                                REVENUES
                                                               YEAR ENDED
                                                              DECEMBER 31,
CUSTOMERS                                              1 9 9 8           1 9 9 7
---------                                              -------           -------
                                                
Customer A (Software Sales)                         $  675,000        $     --
Customer B (Software Sales)                            220,000              --
Customer C (Software Sales)                            350,000              --
Customer D (Software Sales)                            450,000              --
Customer E (Software Sales)                            450,000              --
Customer F (Software Sales)                               --             600,000
Customer G (Software Sales)                               --             450,000
Customer H (Software Sales)                               --             600,000
Customer I (Software Sales)                               --             410,000
Customer J (Software Sales)                               --             450,000
Customer K (Software Sales)                               --             585,000
                                                    ----------        ----------

   TOTALS                                           $2,145,000        $3,095,000
--------------------------------------------        ==========        ==========

GEOGRAPHIC INFORMATION

Canada                                              $  450,000        $     --
Caribbean                                            1,695,000         1,500,000
Bahamas                                                   --             600,000
Vanuatu                                                   --             410,000
South Africa                                              --             585,000
                                                    ----------        ----------

   TOTALS                                           $2,145,000        $3,095,000
                                                    ==========        ==========

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.


                                      F-13
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


[4] NOTES RECEIVABLE

<TABLE>
<CAPTION>
<S>                                                                            <C>        
Notes receivable at December 31, 1998 consist of the following:

Australian Advisors, Ltd., varying monthly payments based on a percentage of
   the net win of the system or a minimum of $3,000 per month                  $   150,000

Casinos of the South Pacific, monthly principal payments of $10,000
   through August 2000; non-interest bearing                                       225,600

Intercoin AVV, monthly principal payment of $9,722, through
   November 2000, non-interest bearing                                             345,000

Luck's Casino, Inc., varying monthly payments based on a percentage
   of the net win of the system                                                    430,000

Carib Design, Inc., monthly equal payments of $4,791 through
   September 2000, non-interest bearing                                            115,000

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, 1998]                                                    357,400
                                                                               -----------

Total Notes Receivable                                                           1,623,000
Less:  Reserve for Uncollectible Notes                                            (303,549)
          Discounts for Non-Interest Bearing Notes [8%]                            (66,770)
                                                                               -----------

Total                                                                            1,252,681
Less:  Amounts Shown as Current                                                   (746,302)
                                                                               -----------

   NOTES RECEIVABLE - NON-CURRENT PORTION                                      $   506,379
   --------------------------------------                                      ===========
</TABLE>

At December 31, 1998, scheduled maturities of notes receivable approximated the
following:

YEAR ENDING
DECEMBER 31,
   1999                                  $    577,056
   2000                                       562,672
   2001                                       371,272
   2002                                       106,000
   2003                                         6,000
   Thereafter                                      --
                                         ------------

   TOTAL                                 $  1,623,000
   -----                                 ============

The Company  supplies the activation codes 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.

                                      F-14

<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

[5]  INVESTMENTS IN EQUITY SECURITIES

The  Company  has  investment  securities  available  for sale with of a cost of
$2,873,562 and a fair value at December 31, 1998 of $2,516,005.

Gross proceeds from the sale of available for sale securities was $853,856,  and
$35,671  and gross  realized  loss was  $51,516  and $20,859 for the years ended
December 31, 1998 and 1997,  respectively.  For the year ended December 31, 1998
unrealized  holding  gains and  losses for  available  for the  securities  were
$115,498 and  $(211,356),  respectively.  For the year ended  December 31, 1997,
unrealized gains and losses were $-0- and $(42,763), respectively.

The  Company  sold  stock with a cost of  $2,287,138  for  $3,486,139,  of which
$2,497,298 remains outstanding and is classified as due from broker.

[6] OTHER COMPREHENSIVE LOSS

Unrealized  holding loss on investments  net of income tax benefit of $-0- is as
follows:

                                                                   1 9 9 8
                                                                   -------

Beginning Balance                                              $    (42,763)
Current Year - Other Comprehensive Loss                             (53,095)
                                                               ------------

   TOTAL                                                       $    (95,858)
   -----                                                       ============

[7] PROPERTY AND EQUIPMENT

The following details the composition of property and equipment:

                                                       ACCUMULATED
                                              COST     DEPRECIATION    NET

Computer Hardware                           $451,130    $141,879      $309,251
Equipment, Office Fixtures and Furnishings    85,850      18,644        67,206
Leasehold Improvements                        23,374       3,444        19,930
                                            --------    --------      --------
                                                                    
   TOTALS                                   $560,354    $163,967      $396,387
   ------                                   ========    ========      ========
                                                                
Depreciation expense for the years ended December 31, 1998 and 1997 was $ 87,069
and $77,529, respectively.

OTHER  ASSETS - Included in other assets is an  investment  at cost in a Limited
Liability Corporation for $100,000.  The Company produces films and is currently
in the  process  of  preparing  the  negative  print of the film for  theatrical
release. As at December 31, 1998, there is no income to date.

[8] DEFERRED ACQUISITION COSTS

In October of 1998,  the Company  entered into a Stock  Purchase  Agreement with
Axxsys  International,  Inc.,  [Seller]  to  purchase  the  assets of Axxsys for
$400,000.00.  Under the agreement  200,000 shares of the Company's  common stock
was delivered and is held in an escrow account for a period of 12 months.

The  purchase  price is  contingent  upon the  current  customers  of the seller
continuing to provide average monthly  revenues to the purchaser during the said
12 months of an amount  agreed  between the  parties.  In the event this average
monthly revenue is less than the agreed amount then the shares  delivered to the
seller shall be reduced by a ratio of the actual  monthly  average  revenues and
the  agreed  amounts.  As the  200,000  shares  are  released,  the  cost of the
Company's  acquisition  will be the  fair  value of the  shares  on the date the
contingency  is met.  Since  the  Company  acquired  is a part  of  discontinued
operations,  the  cost of the  acquisitions  will  be  charged  to  discontinued
operations.

                                      F-15
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

[9] LEASES

CAPITAL  LEASES - The Company is the lessee of office  equipment  under  capital
leases  expiring in various years through  December 2002. 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,  totaling  $1,996,  is included in
depreciation expense.

Following is a summary of property held under capital leases:

Office Equipment                                      $    91,452
Less: Accumulated Amortization                              1,996
                                                      -----------

   TOTAL                                              $    89,456
   -----                                              ===========

Minimum future lease payments under capital leases for each of the next five
years and in the aggregate are:

1999                                                  $    46,511
2000                                                       46,511
2001                                                       42,480
2002                                                       10,063
Thereafter                                                     --
                                                      -----------

Net Minimum Lease Payments                                145,565
Less:  Amount Representing Interest                        42,577
                                                      -----------

Present Value of Net Minimum Lease Payments               102,988
Less:  Current Portion                                     26,105
                                                      -----------

   LONG-TERM PORTION                                  $    76,883
   -----------------                                  ===========

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, 1998.

YEAR ENDING                                             OPERATING
DECEMBER 31,                                             LEASES
   1999                                               $   115,593 
   2000                                                   120,142
   2001                                                   123,384
   2002                                                    81,885
   2003                                                        --
   Thereafter                                                  --
                                                      -----------

   TOTAL                                              $   441,004
   -----                                              ===========

Rent  expense  for the years  ended  December  31, 1998 and 1997 was $91,690 and
$91,525, respectively.


                                      F-16
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

[10] FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company adopted  statement of Financial  Accounting  Standards  ["SFAS'] No.
107,  "Disclosure  About Fair Value of  Financial  Instruments"  which  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.

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.

[11] LONG-TERM DEBT

At December 31, 1998, long-term debt consisted of the following:

Note payable - consultant, non-secured demand notes due January 5, 1999.
   The notes accrue interest at 6% per annum.               $     100,000
Less:  Current Portion                                           (100,000)
                                                            -------------

   TOTAL                                                    $          --
   -----                                                    =============

[12] CAPITAL STOCK

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 were 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 13].

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 S8.

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.  

In the second quarter of 1998, the Company sold 1,250,000  shares for a total of
$4,000,000  pursuant to Regulation D. The Company received $2,000,000 and a note
receivable in foreign currency for the balance.  The note receivable is shown in
the equity section classified as a subscription  receivable.  Subsequently,  the
note has devalued due to foreign currency  exchange.  A foreign currency loss of
$600,000 is included in other income [expense] [See Note 18].

                                      F-17
<PAGE>

ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

[12] CAPITAL STOCK [CONTINUED]

Also in the second quarter of 1998, 9,700,000 shares of common stock were issued
to Atlantic International Entertainment Australia, a wholly owned subsidiary for
use in a proposed  takeover of the Australian  Company,  Coms21. As the proposed
takeover did not happen, the 9,700,000 shares issued were cancelled.

In the second quarter of 1998, 10,000 shares of 5% Convertible  Preferred Stock,
$.001 par value,  were issued for cash.  Each share is  convertible  into common
stock by virtue of a formula contained in the Purchase Agreement which is 78% of
the three day average  closing bid price for the  corporations  common stock for
the  twenty  five (25)  trading  days  prior to the  delivery  of the  notice of
redemption.  The  amount of such  non-cash  discounts  which is  analogous  to a
dividend is $269,443.  Holders of the Series A preferred  stock are entitled to;
(i) quarterly  cumulative  dividends at the rate of 5% per annum of the original
issue price of the Series A preferred stock, (ii) a liquidation preference equal
to the sum of $100 for each outstanding share of Series A preferred stock.

In August  1998,  5,000  shares of the  Company's  common stock were issued to a
consultant for services performed.

The aggregate amount of arrearages in cumulative  preferred dividends is $33,333
and is less than $.01 per share.

In the third quarter of 1998,  1,217,647  shares were exchanged to an Australian
listed company for 12,176,470 shares of the Australian  company in a one for ten
stock swap.

In September  1998,  26,098 shares of the Company's  common stock were issued to
adjust  the  issuance  of  shares  to  certain  individuals  at the  time of the
Company's reverse merger in 1996.

During  the  third and  fourth  quarter  of 1998,  2,740  shares of  convertible
preferred  stock valued at $274,000 was converted  into 147,002 shares of common
stock by virtue of a formula  contained in the Purchase  Agreement which relates
to the average price per share of common stock within the conversion period.

[13] DISCONTINUED OPERATIONS

On December 15, 1996,  the Company  adopted a plan to  discontinue  and sell its
foreign subsidiary, known as Atlantic International  Entertainment,  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 foreign
subsidiary is reported as a  discontinued  operation for the year ended December
31, 1997.

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].

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.  The  transaction,  effective
April 1, 1997 was accounted for as a purchase.  As a result of the  acquisition,
cost in excess of net assets of approximately  $1,440,000 was recorded. On March
11, 1999, the Company adopted a plan to discontinue EmiNet [See Note 21].

Operating results of EmiNet Domain including net sales of approximately $544,000
and  $414,000  are  included in  discontinued  operations  in the  statement  of
operations for the year ended December 31, 1998 and 1997, respectively.

                                      F-18
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

[13] DISCONTINUED OPERATIONS [CONTINUED]

Assets and liabilities to be disposed of consisted of the following at December
31, 1998.

Cash                                           $   20,640
Accounts Receivable - Net                           5,272
Property Plant and Equipment - Net                155,917
Intangible Assets - Net                         1,362,264
Other Assets                                        2,257
                                                ---------
                                            
Total Assets                                    1,546,350
                                                ---------
                                   
Accounts Payable and Accrued Expenses              91,757
Notes Payable and Lines of Credit                 103,321
                                                ---------
                                               
Total Liabilities                                 195,078
                                                ---------
                                      
   NET ASSETS TO BE DISPOSED OF                $1,351,272
   ----------------------------                ==========

Assets are shown at their expected net  realizable  values and  liabilities  are
shown at their face amounts.  Net assets to be disposed of at their expected net
realizable values, have been separately  classified in the accompanying  balance
sheet at December 31, 1998.

[14] RELATED PARTY TRANSACTIONS

The Company has a receivable due from an affiliated company,  whose shareholders
are also shareholders of the Company.  The balance of the receivable at December
31, 1998 is $55,240.  During the year ended  December  31,  1998,  there were no
additional  advances or repayments.  The original  advance accrued interest at a
rate of 6% per annum and is due on demand.

The  Company  has notes  payable to two  officers  in the  aggregate  amounts of
$150,000 at December 31, 1998.  The notes are demand notes and incur interest at
8% per annum.  Interest expense related to the shareholders notes totaled $8,855
and $7,525 for the years ended December 31, 1998 and 1997, respectively.

[15] PROVISION FOR INCOME TAXES

Income tax [benefit] expense from continuing operations consists of the
following:

                                                      DECEMBER 31,
                                                      ------------
                                                  1 9 9 8      1 9 9 7
                                                  -------      -------
Current:
   Federal                                        $(443,371)  $ 615,723
   State                                            (17,311)     23,657
                                                  ---------   ---------

   Total Current                                   (460,682)    639,380
                                                  ---------   ---------

Deferred:
   Federal                                             --       167,062
   State                                               --         9,750
                                                  ---------   ---------

   Total Deferred                                      --       176,812
                                                  ---------   ---------

   TAX EXPENSE [BENEFIT] - CONTINUING OPERATIONS  $(460,682)  $ 462,568
   ---------------------------------------------  =========   =========


                                      F-19

<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

[15] PROVISION FOR INCOME TAXES [CONTINUED]

Income tax from continuing operations at the federal statutory rate reconciled
to the Company's effective rate is as follows:

                                                       DECEMBER 31,
                                                       ------------
                                              1 9 9 8           1 9 9 7
                                              -------           -------

Federal Statutory Rate                            34.0%          34.0%
Non-Deductible Expenses                           --             --
Benefit of Net Operating Loss                     --             (3.6)
State Income Taxes                                 2.0            3.6
Other                                             --             (4.0)
                                                ------         ------

   EFFECTIVE RATE                                 36.0%          30.0%
   --------------                               ======         ======

In 1996, the Company  recognized the benefit of $77,215 from the  utilization of
an operating loss carryback which was filed in 1997.

The major  components of deferred  income tax assets and liabilities at December
31, 1998 is as follows:

Deferred Tax Assets [Liability] - Current:
   Accrual to Cash Adjustments                               $     (76,089)
   Foreign Currency Transaction Loss                               216,000
   Discontinued Operations                                          18,000
   Valuation Allowance                                            (157,911)
                                                             -------------

   CURRENT DEFERRED TAX ASSET                                $          --
   --------------------------                                =============

Deferred Tax Assets [Liability] - Long-Term:
   Net Operating Loss Carryforward                           $     279,642
   Depreciation                                                    (95,040)
   Valuation Allowance                                            (184,602)
                                                             -------------

   LONG-TERM DEFERRED TAX LIABILITY                          $          --
   --------------------------------                          =============

At December 31, 1998,  the Company had  approximately  $777,000 of operating tax
loss carryforwards expiring in 2012.

The Company's valuation  allowance  increased by approximately  $343,000 for the
year ended December 31, 1998.

[16] 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, 1998
was $289,000.  Also, included in the agreements are incentive bonuses based upon
net income and net cash flows.  No bonuses  have been  accrued at  December  31,
1998, due to net losses and negative cash flow.

[B]  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
================================================================================

[17] 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. In addition,  the
Board of Directors  approved a motion that  officers and board  members  receive
100,000 stock options each,  resulting in 700,000 shares of the Company's common
stock being granted.  An additional 263,000 stock options were also approved and
granted to employees of the Company  pursuant to the terms of  individual  offer
letters.

The  following is a summary of  transactions,  including  the options  issued to
employees of the Company.

                                                            WEIGHTED-AVERAGE
                                                SHARES       EXERCISE PRICE

OUTSTANDING AT DECEMBER 31, 1996                   --          $--
   Granted                                      175,000            3.25
   Exercised                                       --           --
   Canceled                                        --           --
                                                -------        --------

OUTSTANDING AT DECEMBER 31, 1997                175,000            3.25
                                                -------        --------

EXERCISABLE AT DECEMBER 31, 1997                175,000            3.25
                                                -------        --------
   Granted                                      788,000            3.94
   Exercised                                       --           --
   Canceled                                        --           --
                                                -------        --------

OUTSTANDING AT DECEMBER 31, 1998                963,000            3.83
                                                -------        --------

EXERCISABLE AT DECEMBER 31, 1998                963,000        $   3.83
                                                -------        --------

The following table summarizes  information  about stock options at December 31,
1998:

<TABLE>
<CAPTION>
                                                                                Exercisable
                                 Outstanding Stock Options                     Stock Options
                                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        4.00              $3.25           175,000       $3.25
      $4.13       700,000        4.25              $4.13           700,000       $4.13
      $2.50        88,000        4.75              $2.50            88,000       $2.50

</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 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 1998 and 1997.

                                      F-21
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

[17] 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 vested  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 $3.70 and $2.63,  during 1998 and
1997, 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 8          1 9 9 7
                                             -------          -------

Risk-Free Interest Rate                       5.6  %           5.7  %
Expected Life                                 5 years           2 years
Expected Volatility                         153.0  %         181.0  %
Expected Dividends                           --    %          --    %

The pro forma amounts are indicated below:
<TABLE>
<CAPTION>
                                                                                                 YEARS ENDED
                                                                                                 DECEMBER 31,
                                                                                        1 9 9 8                 1 9 9 7
                                                                                        -------                 -------
<S>                                                                                  <C>                     <C>       
Net [Loss] Income - Continuing Operations:
   As Reported                                                                       $  (1,332,400)          $1,190,036
   Pro Forma                                                                         $  (4,246,891)          $  729,086
Basic Net Income [Loss] Per Share of Common Stock - Continuing Operations:                                  
   As Reported                                                                       $        (.15)         $       .13
   Pro Forma                                                                         $        (.39)         $       .08
Diluted Net Income [Loss] Per Share of Common Stock - Continuing Operations:                                
   As Reported                                                                       $        (.15)         $       .11
   Pro Forma                                                                         $        (.39)         $       .08
</TABLE>

[18] OTHER INCOME [EXPENSE]

Included in other  income  [expense] is a gain on the sale of an  investment  of
$1,199,001  and a  foreign  currency  loss  for  $600,000  arising  from  a note
receivable issued by the foreign entity for sale of the Company's capital stock.

[19] FOURTH QUARTER YEAR ENDED ADJUSTMENTS

The aggregate  effect of year-end  adjustments  which are material to the fourth
quarter results, total approximately $1,635,000 and consist principally of write
offs of  receivables  of  ($330,000).  Reversal of revenues  of  ($705,000)  and
foreign currency loss of ($600,000).

[20] SUBSEQUENT EVENTS

On January 20, 1999, the Company paid $250,000 to Pencom, a software development
company in full and final settlement of a $420,000  payable.  This resulted in a
$170,000 extraordinary gain.

                                      F-22
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

[21] SUBSEQUENT EVENTS [UNAUDITED]

On March 11, 1999 the Company  announced  that it has entered  into an agreement
with a shareholder to sell a majority  interest in its wholly owned  subsidiary,
EmiNet Domain Inc., ["EmiNet"] for $2,500,000.  The agreement calls for the sale
of 81% of its  interest  in the  EmiNet.  The  purchase  price  is to be paid as
follows:  (i) $10,000  payable upon execution of the agreement,  (ii) $90,000 in
cash payable at the rate of $14,000 per month  commencing  on April 15, 1999 and
$2,400,000 by the delivery of a promissory note  collateralized by shares of the
Company's  common stock with interest at the annual rate of six (6%) percent and
payable two years from the closing date.  Any gain  realized on the  transaction
will be reflected in paid-in  capital.  The closing date of the  transaction was
March 31, 1999.

[22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial  Accounting Standards Board ["FASB"] issued SFAS No.
133,  "Accounting for Derivative  Instruments and Hedging  Activities." SFAS No.
133 establishes  accounting and reporting standards for derivative  instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging  activities.  SFAS  No.  133  requires  that  an  entity  recognize  all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative  depends on the intended use of the derivative
and how it is designated, for example, gains or losses related to changes in the
fair value of a derivative not designated as a hedging  instrument is recognized
in earnings in the period of the change,  while  certain  types of hedges may be
initially  reported  as a  component  of  other  comprehensive  income  [outside
earnings] until the consummation of the underlying transaction.

SFAS No. 133 is  effective  for all fiscal  quarters of fiscal  years  beginning
after June 15,  1999.  Initial  application  of SFAS No. 133 should be as of the
beginning  of a fiscal  quarter;  on that date,  hedging  relationships  must be
designated  anew and  documented  pursuant  to the  provisions  of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged,  but
it is permitted only as of the beginning of any fiscal quarter.  SFAS No. 133 is
not to be applied  retroactively to financial  statements of prior periods.  The
Company does not currently have any derivative  instruments and is not currently
engaged in any hedging activities.

On March 31, 1999,  the FASB  released a proposal for public  comment that would
resolve certain practice issues raised when accounting for stock options.  Since
the  issuance of APB Opinion 25,  "Accounting  for Stock  Issued to  Employees,"
questions  have surfaced  about its  application  and differing  practices  have
developed.  The FASB's broad  reconsideration  of the stock  compensation  issue
culminated  in the  issuance  of  SFAS  No.  123,  "Accounting  for  Stock-Based
Compensation,"  in 1995.  SFAS No. 123 permits the continued  application of APB
Opinion 25 for employees. However, questions remain about the proper application
of  APB  Opinion  25  in  a  number  of   circumstances.   The  FASB's  proposed
Interpretation would clarify how to apply APB Opinion 25 in certain situations.


                                      F-23
<PAGE>
ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

[22] NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS [CONTINUED]

The proposed Interpretation includes the following conclusions:

o   Once an option is repriced,  that option must be accounted for as a variable
    plan from the time it is repriced to the time it is exercised. Consequently,
    the final  measurement  of  compensation  expense would occur at the date of
    exercise.

o   Employees  would be defined as they are under  common  law for  purposes  of
    applying APB Opinion 25.

o   APB Opinion 25 does not apply to outside directors  because,  by definition,
    an outside director cannot be an employee.  Accordingly, the cost of issuing
    stock  options to outside board members will have to be determined on a fair
    value basis in  accordance  with SFAS No. 123, and recorded as an expense in
    the period of the grant [the service period could be prospective, however].

o   Since APB Opinion 25 was issued in 1972, the terms of many "section 423" tax
    plans have changed from those in existence at the time.  Many of those plans
    now provide that employees can purchase an employer's stock at the lesser of
    85  percent  of the stock  price at the date of grant or 85  percent  of the
    price  at  the  date  of  exercise.  This  provision  is  referred  to  as a
    "look-back"  option.  The FASB decided that plans with a look-back option do
    not, in and of themselves, create a compensatory plan.

o   A subsidiary  may account for parent  company  stock issued to its employees
    under  APB  Opinion  25 in their  separately  issued  financial  statements,
    provided  the  subsidiary  is part of the  parent's  consolidated  financial
    statements.

The FASB's proposed  Interpretation  would be effective upon issuance,  which is
expected  in  September   1999,  but  generally  would  cover  plan  grants  and
modifications that occur after December 15, 1998.


                               . . . . . . . . . .

                                      F-24