UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
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(Mark one)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
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Commission File Number: 33-30608
DEFINITION, LTD.
(Exact name of small business issuer as specified in its charter)
Nevada 75-2293349
(State of incorporation) (IRS Employer ID Number)
1334 Killian Drive, Lake Park, Florida 33403
(Address of principal executive offices)
(407) 844-7701
(Issuer's telephone number)
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Check whether the issuer (1) 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
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
March 31, 1996: 4,891,842
Transitional Small Business Disclosure Format (check one): YES NO X
<PAGE>
DEFINITION, LTD.
Form 10-QSB for the Quarter ended March 31, 1996
Table of Contents
Part I - Financial Information
Item 1 Financial Statements
Consolidated Financial Statements
Item 2 Management's Discussion and Analysis
Part II - Other Information
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
<PAGE>
DEFINITION, LTD.
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
ASSETS
(unaudited) (audited)
March 31, December 31,
1996 1995
----------- -----------
Current assets:
Cash and cash equivalents $ 12,905 $ 177,450
Notes receivable 210,000 210,000
Accounts receivable - trade 4,914,346 3,129,480
Accounts receivable - other 10,520 10,520
----------- -----------
Total current assets 5,147,771 3,527,450
----------- -----------
Property and Equipment:
Broadcast resource library 3,015,536 2,985,536
Computer, production and broadcast equipment 819,785 814,896
Building and improvements 469,153 250,141
Other 887 887
----------- -----------
4,305,361 4,051,460
Accumulated depreciation (1,028,959) (878,390)
----------- -----------
Net property and equipment 3,276,402 3,173,070
----------- -----------
Other Assets:
Contracts and accounts receivable - long-term 1,725,268 1,876,430
Equity investment in joint venture and other
companies 402,293 330,602
----------- -----------
Total other assets 2,127,561 2,207,032
----------- -----------
TOTAL ASSETS $10,551,734 $8,907,552
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DEFINITION, LTD.
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
(unaudited) (audited)
March 31, December 31,
1996 1995
----------- -----------
Current liabilities:
Current portion of long-term debt $ 1,330 $ 1,330
Accounts payable - trade 2,164 28,735
Accounts payable - affiliates 1,033,261 641,879
Federal income tax payable 621,459 184,787
----------- -----------
Total current liabilities 1,658,214 856,731
Long-term debt 81,428 81,777
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Total liabilities 1,739,642 938,508
Shareholders' equity:
Common stock, $.001 par value, 100,000,000
shares authorized,4,891,842 shares issued
and outstanding,respectively 4,892 4,892
Additional paid-in capital 9,650,422 9,650,422
Retained earnings 909,900 66,852
---------- ----------
10,565,214 9,722,166
Deferred advertising and broadcast airtime
credits (1,753,122) (1,753,122)
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Total shareholders' equity 8,812,092 7,969,044
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,551,734 $8,907,552
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
DEFINITION, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
(unaudited) (audited)
Three months Three months
ended ended
March 31, 1996 March 31, 1995
-------------- --------------
Revenues $ 2,474,135 $ 358,000
Cost of revenues 899,546 161,381
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Gross Revenue 1,574,589 196,619
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Operating expenses:
General and administrative 68,452 27,519
Consulting and other
professional fees 76,294 2,020
Depreciation and amortization 150,569 67,285
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Total operating expenses 295,315 96,824
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Income from operations 1,279,274 99,795
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Other income (expenses):
Interest and other income 282 (411)
Interest expense (2,260) -
-------------- --------------
Total other income (expenses) (1,978) (411)
-------------- --------------
Income before income taxes 1,277,296 99,384
Provision for income taxes 434,247 -
-------------- --------------
Net Income $ 843,048 $ 99,384
============== ==============
The accompanying notes are an integral part of these financial statements.
<PAGE>
DEFINITION, LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31, 1996 and 1995
(unaudited) (audited)
Three months Three months
ended ended
March 31, 1996 March 31, 1995
-------------- --------------
Cash flows from operating activities:
Net income $ 843,048 $ 99,384
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 150,569 67,285
Net increase (decrease) in operating
assets and liabilities:
Accounts receivable (1,784,866) (218,000)
Contracts and long-term receivables 151,162 -
Accounts payable - trade (26,571) 16,361
Accounts payable - affiliates 391,382 64,786
Accrued federal income tax 436,672 -
-------------- --------------
Net cash provided by operating activities 161,396 29,816
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Cash flows from investing activities:
Investment in joint venture (71,691) -
Acquisition of property and equipment (253,901) -
-------------- --------------
Net cash used in investing activities (325,592) -
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Cash flow from financing activities:
Net change in bank overdraft - 8,704
Decrease on long-term debt (349) -
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Net cash provided by (used in)
financing activities (349) 8,704
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Net increase (decrease) in cash (164,545) 38,520
Cash at beginning of period 177,450 11,227
-------------- --------------
Cash at end of period $ 12,905 $ 49,747
============== ==============
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Purchase of office condominium and
improvements with long-term mortgage
payable and advances from affiliates $ 219,012 $ 105,000
============== ==============
Exchange of inventory and broadcast $ - $ 256,664
airtime credits for barter trade credits ============== ==============
The accompanying notes are an integral part of these financial statements.
<PAGE>
DEFINITION, LTD.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 1996 and 1995
(Unaudited)
Note 1. Interim consolidated financial statements.
In the opinion of management, the accompanying consolidated financial
statements for the three months ended March 31, 1996 and 1995, reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial condition, results of operation, and cash flows of
Definition, Ltd., and subsidiaries (the "Company") and include the accounts of
the Company and all of its subsidiaries. All material intercompany transactions
and balances are eliminated.
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these unaudited financial statements be read
in conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB filed with the Securities and Exchange
Commission for the year ended December 31, 1995. Certain reclassifications and
adjustments may have been made to the financial statements for the comparative
period of the prior fiscal year to conform with 1995 presentation. The results
of operations for the interim periods are not necessarily indicative of the
results to be obtained for the entire year.
<PAGE>
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(1) Results of Operations
The three-month period ended March 31, 1996 shows an increase in the
operations of its major operating subsidiary, Interactive Systems, Inc. The
three months ended March 31, 1996 generated revenues of approximately $2,474,135
compared to revenues of approximately $358,000 for the same period ended March
31, 1995. The 1996 revenues were primarily a result of the design and production
of commercials, "infomercials" and interactive programming for both domestic and
international distribution. The principal reason contributing to the increase in
revenue is the acquisition and utilization of the broadcast resource library
that was acquired to produce commercials, infomercials and programming for the
various activities of the company. The additional media, resources along with
the sales of airtime, have enhanced the Companys ability to attract customers,
especially foreign customers, for production and sale of commercials, movies and
other programming developed from the broadcast resource library now owned by the
Company.
The cost of sales for the three months ended March 31, 1996 increased to
approximately $899,500, as compared to approximately $161,400 for the same
period in 1995. This increase is directly related to the costs of airtime and
the production, development and editing of the programming indicated above.
Also, the Company increased general and administrative costs by
approximately $40,900 from approximately $27,500 for the three months ended
March 31, 1995 to approximately $68,400 for the comparable period in 1996. The
reason for the increase was an increase in sales and production activity for the
period. Due to the fact that the Company contracts out the production and
development of the commercials, infomercials and programming, the administrative
costs have been maintained at lower levels. The Company believes that the
increased sales will not cause a proportional increase in future general and
administrative costs of the Company. Depreciation and amortization also
increased significantly due to the placement in service of significant assets
purchased to be utilized in the development of the "infomercials" and
interactive programming. Depreciation for the first three months of 1996
increased over the first three months of 1995 by approximately $83,300.
Earnings per share from operations increased by $0.15 per share from $0.02
per share for the three months ended March 31, 1995, to $0.17 per share for the
three months ended March 31, 1996.
(2) Liquidity
As of March 31, 1996, the Company had a positive working capital of
approximately $3,490,600 as compared to working capital as of December 31, 1995
of approximately $2,670,700. The improvement in the working capital position is
related to the increase in trade accounts receivable and a lesser increase in
the accounts payable.
Management anticipates that the payment term structure of trade accounts
receivable will be sufficient to support the cash flow needs of the Companys
operations and debt service on the mortgage note related to the office
condominium purchase in January 1995.
<PAGE>
(3) Capital requirements
The Company acquired an office condominium during January 1995 and does not
anticipate further significant acquisition of corporate capital assets during
Calendar 1996. Management is of the opinion that any future capital asset
acquisitions will be directly related to the implementation of the interactive
computer-based television network (the Parent Academy Network), which is
anticipated to provide programming into various schools and educational
facilities located in the eastern United States. These acquisitions will be
directly funded as a component of future contracts, if any, with the purchaser
of the Company's services.
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None during the reporting period
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DEFINITION, LTD.
June 12, 1996
/ss/Gerald Beeson
Gerald Beeson, Executive Vice President,
Chief Executive Officer
and Chief Accounting Officer
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