U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Fiscal
Year Ended December 31, 1996
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Transition
Period from to .
Commission File No. 0-20598
Definition, Ltd.
(Name ofSmall Business Issuer in its Charter)
NEVADA
(State or other jurisdiction of incorporation organization)
75-2293489
(IRS Employer Identification No.)
334 South Killian Drive, Unit 4, Lake Park, Florida 3340
(Address of principle executive offices, including zip code)
(561) 844-7701
(Issuer's telephone number, including area code)
Securities Registered under Section 12(b) of the Exchange Act:
Title of Each Class None
Name of Exchange on Which Registered None
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value per share
(Title of Class)
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 of such
filing requirements for the past 90 days. Yes [ ] No [ X ]
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B outlined in this form, and no
disclosure will be contained, to the best of 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. [ ]
Registrant's revenues for its most recent fiscal year were
$24,995.
The aggregate market value of the voting stock held by
non-affiliates computed based on the average of the closing bid
and asked prices of such stock as of April 24, 1997, was
approximately $1,440,460.
The number of shares outstanding of the issuer's common equity
as of April 24, 1997, was 7,161,842 shares of common stock, par
value $.001.
Documents Incorporated by Reference: Current Report on Form 8-K,
filed on or about January 27, 1997.
Transitional Small Business Disclosure Format (check one): Yes [
] No [X]
<PAGE>
PART I
Item 1. Description of Business
History and Overview
History. Definition, Ltd. (the "Company) was incorporated in
1989 under the name "Stone Grill International, Inc.", under the
laws of the State of Nevada. Until 1994, the Company undertook
the development of a restaurant concept involving table-side
cooking on preheated rocks, and the franchising of such
restaurants. This line of endeavor was abandoned in late 1994,
and the Company commenced acquisition of assets and searching
for business opportunities in the interactive media and
communications fields. During this period, the Company acquired
programming, a broadcast film library, computers, video, studio,
broadcast and cable equipment, as well as prepaid air time for
television programs and advertising. The Company developed its
current plan of business in late 1994 and changed its name to
its current name in January 1995.
Overview. The Company currently engages in commerce through
enhanced communications. The Company intends to become a leader
in all phases of high technology communications media,
television, wireless telephone/fax/Intemet service, television
advertising, computer hardware and software, and travel
services. There is, of course, no assurance that the Company
will be successful in its business.
WINQ-TV. The Company, through its subsidiary, Definition
Technologies, Inc., a Texas corporation ("DTI"), operates a
community (low-power) television station in the West Palm Beach,
Florida, area. WINQ-TV also operates as a traditional
television station, deriving revenues through sales of
advertising time.
Parent Academy Network. The Company is a joint venturer in a
program known as the Parent Academy Network (the "Parent
Academy"). The Parent Academy provides interactive teaching
materials to member schools, based upon a video and computer
platform, utilizing educational materials, certain of which are,
or will be, produced by WINQ-TV. The Company is the exclusive
provider of computer hardware and technical support to the
Parent Academy.
Business Development
References to the "Company" include, WINQ-TV, DTI and the Parent
Academy, unless the context indicates otherwise.
WINQ-TV, Through is subsidiary, DTI, the Company operates a
community (low power) television station, transmitting from West
Palm Beach, Florida, WINQ-TV Channel 19. The transmitter has an
effective radius of approximately 25 miles, and a household
audience of approximately 260,000 homes in a population area
containing approximately 1,000,000 people. WINQ-TV operates
under a permit granted by the Federal Communications Commission.
WINQ-TV broadcasts 24 hours a day, offering a broad line of
programming, which includes catalog sales, infomercials, movies
and sitcoms. The Company's signal is carried by the local cable
operator. WINQ-TV sells television broadcast time and
advertising time, produces infomercials and arranges for their
production by third parties. Additionally, the Company makes
duplicates of, and edits, film from its film library for sale of
footage, documentaries, movies, newsreels and educational film.
<PAGE>
Industry History of Community Television. Community, or low
power, television is a relatively new broadcasting category
created by the FCC in the early 1980s. Community television
stations, with their narrow geographic coverage, usual
unaffiliated status and local programming focus, are becoming a
more important part of the current broadcasting mix. While able
to cover, on average, only between five and 20 miles with their
signals, community television stations have been able to expand
greatly their coverage by having their signals included in local
and regional cable systems. Entry into the community television
industry requires substantially less capital than entry into the
high-power television industry. There are currently
approximately 1,700 community television stations licensed by
the FCC, with approximately the same number of applications for
new licenses now pending with the FCC.
Community television stations may be either affiliated with one
of the national networks (ABC, NBC, CBS, FOX, UPN or WB) or may
be independent. The Company does not anticipate that its
community television station will become a network affiliate.
Programming. Lacking a national network affiliation,
independent community television stations, in general, depend
heavily on independent third patties for programming. Programs
obtained from independent sources consist primarily of
syndicated television shows, many of which have been shown
previously on a network, and syndicated feature films, which
were either made for network television or have been exhibited
previously in motion picture theaters (most of which films have
been shown previously on network and cable television).
Syndicated programs are sold to individual stations to be
broadcast one or more times. Independent television stations
generally have large numbers of syndication contracts; each
contract is a license for a particular series or program that
usually prohibits licensing the same programming to other
television stations in the same market. A single syndication
source may provide a number of different series or programs.
Licenses for syndicated programs are often offered for cash sale
or on a barter or cash-plus-barter basis to stations. In the
case of a cash sale, the station purchases the right to
broadcast the program or a series of programs, and sells
advertising time during the broadcast. The cash price of such
programming varies, depending on the perceived desirability of
the program and whether it comes with commercials that must be
broadcast (a cash-plus-barter basis). Bartered programming is
offered to stations without charge, but comes with a greater
number of commercials that must be broadcast, and, therefore,
with less time available for sale by the station. Recently, the
amount of bartered and cash-plus-barter programming broadcast
industry-wide has increased substantially.
WINQ-TV has, to date, relied on the use of its film library and
the use of a third party's film library free-of-charge, rather
than acquiring programming from third parties. It can be
expected that this method of programming will continue as the
Company's Internet Video Streaming business matures. It is
contemplated that WINQ-TV would, at some time in the future,
employ a broadcast format featuring segments of 5 to 15 minutes
in length, ranging from abridged movies to documentaries to
standard commercials to infomercials, some of which can be
expected to be produced by the Company and to promote products
being marketed by the Company.
Business Strategy. It is the Company's current intention for
WINQ-TV's programming to evolve over the next two years to meet
the needs of the Company's Internet Video Streaming business.
That is, the Company expects that WINQ-TV would, in the future,
employ a broadcast format featuring segments of 5 to 15 minutes
in length, ranging from abridged movies to documentaries to
standard commercials to infomercials, some of which can be
expected to be produced by the Company and to promote products
being marketed by the Company. WINQ-TV's programming format can
be expected to be adjusted at various times in the future to
meet the needs of the Company's Streaming Joint Ventures.
<PAGE>
Parent Academy Network. The Company is engaged as a joint
venturer with Academy Concepts of Baltimore, Maryland, in a
project known as the Parent Academy Network (the Parent
Academy). The program is designed to raise the educational
level of low income children in Baltimore, as well as in other
metropolitan areas. The Parent Academy is designed to provide
interactive teaching materials to member schools, based on a
video and computer platform, utilizing educational materials
from Academy Concepts and the Company's broadcast film and media
library. The Parent Academy attempts to bring parents, teachers
and students together in an educational partnership, all with a
view to increasing student attendance and parental involvement,
as well as reducing delinquency and crime in participating
schools and their respective communities. The Company is the
exclusive provider of technical assistance and acts as
consultant to the Parent Academy. The Company will provide all
computer hardware and software for the Parent Academy. The
Company's joint venture partner has expressed its intention to
attempt to expand, with the Company's assistance, the Parent
Academy concept to a network of 2,500 schools in major US cities
over the next five years. There is no assurance that such
expansion of the Parent Academy concept will occur. It is the
Company's intention to utilize its Internet Video Streaming
techniques to enhance the current educational program of the
Parent Academy.
Regulation
Internet. The Internet, or World Wide Web, is, from the
participants' standpoint, largely unregulated. The Company
expects no material regulation to affect its business activities
on the Internet. However, governments can impose burdensome
regulations at any time and without notice.
Community (Low Power) Television
General Television broadcasting operations are subject to the
jurisdiction of the FCC under the Communications Act. The
Communications Act empowers the FCC, among other things, to
issue, revoke or modify broadcast licenses, to assign
frequencies, to determine the locations of stations, to regulate
the broadcasting equipment used by stations, to establish areas
to be served, to adopt such regulations as may be necessary to
carry out the provisions of the Communications Act and to impose
certain penalties for violation of its regulations. The
Company's currently operating community television station, as
well as any future stations, is subject to a wide range of
technical, reporting and operational requirements imposed by the
Communications Act and by FCC rules and policies.
The Communications Act provides that a license may be granted to
any applicant if the public interest, convenience and necessity
will be served thereby, subject to certain limitations,
including the requirement that the FCC allocate licenses,
frequencies, hours of operation and power in a manner that will
provide a fair, efficient and equitable distribution of service
throughout the United States. Television licenses generally are
issued for five-year terms. Upon application, and in the
absence of a conflicting application that would require the FCC
to hold a hearing, or questions as to the licensee's
qualifications, television licenses have usually been renewed
for additional ten-ns without a hearing by the FCC. An existing
license automatically continues in effect once a timely renewal
application has been filed until a final FCC decision is issued.
<PAGE>
Under existing FCC regulations governing multiple ownership of
broadcast stations, a license to operate a television or radio
station generally will not be granted to any party (or parties
under common control) if such party directly or indirectly owns,
operates, controls or has an attributable interest in another
television or radio station serving the same market or area. The
FCC, however, is favorably disposed to grant waivers of this
rule for certain radio station-television station combinations
in the top 25 television markets, in which there will be at
least 30 separately owned, operated and controlled broadcast
licenses, and in certain other circumstances.
FCC regulations further provide that a broadcast license will
not be granted if that grant would result in a concentration of
control of radio and television broadcasting in a manner
inconsistent with the public interest, convenience or necessity.
FCC rules generally deem such concentration of control to exist
if any party, or any of its officers, directors or shareholders,
directly or indirectly, owns, operates, controls or has an
attributable interest in more than 12 television stations, or in
television stations capable of reaching, in the aggregate, a
maximum of 25% of the national audience. This percentage is
determined by the DMA market ranking of the percentage of the
nation's television households considered within each market.
Because of certain limitations of the UHF signal, however, the
FCC will attribute only 50% of a market's DMA reach to owners of
UHF stations for the purpose of calculating the audience reach
limits. The Company will not approach such limits for the
foreseeable future. To facilitate minority group participation
in radio and television broadcasting, the FCC will allow
entities with attributable ownership interests in stations
controlled by minority group members to exceed the ownership
limits.
The FCC's multiple ownership rules require the attribution of
the licenses held by a broadcasting company to its officers,
directors and certain of its shareholders, so there would
ordinarily be a violation of FCC regulations where an officer,
director or such a shareholder and a television broadcasting
company together hold interests in more than the permitted
number of stations or more than one station that serves the same
area. In the case of a corporation controlling or operating
television stations, such as the Company, there is attribution
only to shareholders who own 5% or more of the voting stock,
except for institutional investors, including mutual funds,
insurance companies and banks acting in a fiduciary capacity,
which may own up to 10% of the voting stock without being
subject to such attribution, provided that such entities
exercise no control over the management or policies of the
broadcasting company.
The FCC has recently begun a proceeding to consider
liberalization of the various TV ownership restrictions
described above, as well as changes (not all of which would be
liberalizing in effect) in the rules for attributing the
licenses held by an enterprise to various parties. The Company
is unable to predict the outcome of these proceedings.
The Communications Act and FCC regulations prohibit the holder
of an attributable interest in a television station from having
an attributable interest in a cable television system located
within the coverage area of that station. FCC regulations also
prohibit the holder of an attributable interest in a television
station from having an attributable interest in a daily
newspaper located within the predicted coverage area of that
station.
<PAGE>
The Communications Act limits the amount of capital stock that
aliens may own in a television station licensee or any
corporation directly or indirectly controlling such licensee. No
more than 20% of a licensee's capital stock and, if the FCC so
determines, no more than 25% of the capital stock of a company
controlling a licensee, may be owned or voted by aliens or their
representatives. Should alien ownership exceed this limit, the
FCC may revoke or refuse to grant or renew a television station
license or approve the assignment or transfer of such license.
The Communications Act prohibits the assignment of a broadcast
license or the transfer of control of a licensee without the
prior approval of the FCC. Legislation was introduced in the
past that would impose a transfer fee on sales of broadcast
properties. Although that legislation was not adopted, similar
proposals, or a general spectrum licensing fee, may be advanced
and adopted in the future. Recent legislation has imposed
annual regulatory fees applicable to the Company.
The foregoing does not purport to be a complete summary of all
of the provisions of the Communications Act or regulations and
policies of the FCC thereunder. Reference is made to the
Communications Act, such regulations and the public notices
promulgated by the FCC.
Other Regulations. The Federal Trade Commission, among other
regulatory agencies, imposes a variety of requirements that
affect the business and operations of broadcast stations. From
time to time, proposals for additional or revised requirements
are considered by the FCC, numerous other Federal agencies and
Congress. The Company is unable to predict future Federal
requirements or what impact, if any, any such requirements may
have on the Company's television station.
Competition
Internet Video Streaming Activities. The Internet is a "work in
progress." Each day, innumerable businesses and individuals
construct an Internet site, or home page, to which they attempt
to attract Internet users, or "surfers". The rapid increase in
the number of Internet sites to which users can be drawn reduces
the likelihood that an Internet site of any variety will be
visited by Internet users. The Company believes that its
position as the first real time television broadcast on the
Internet, through the use of an Internet Video Streaming
technology, will, at first as a novelty, attract a substantial
number of Internet users, which will support the sale of
advertising by each of the Internet Video Streaming joint
ventures, if any. There is no assurance that the Company will
be able to attract Internet users to its Video Streaming sites.
Community (Low Power) Television. Community television stations
compete for advertising revenue in their respective markets,
primarily with other broadcast television stations and cable
television channels, and compete with other advertising media,
as well. Such competition is intense. In addition, competition
for programming and management personnel is severe. The Company
expects that WINQ-TV will continue to be able to operate
successfully in such environment, although there is no assurance
that such will be the case.
Parent Academy. The Parent Academy competes for public and
private sector funding with which to operate and, if possible,
expand. The competition among entities similar to the Parent
Academy for such funding is intense, There is no assurance that
the Parent Academy will be able to attract funding for its
continuing operations or any planned expansion.
<PAGE>
Employees
The Company employs three persons, all of whom are officers of
the Company. Currently, the Company contracts with outside
parties for all services required to be performed by the
Company. The Company does not expect to add more than five
employees during the remainder of 1997, and, without additional
funding, the Company cannot be expected to add any additional
employees.
Risk Factors
Risks Concerning Video Streaming Business.
Competition. The Internet is a "work in progress." Each day,
innumerable businesses and individuals construct an Internet
site, or home page, to which they attempt to attract Internet
users, or "surfers". The rapid increase in the number of
Internet sites to which users can be drawn reduces the
likelihood that an Internet site of any variety will be visited
by Internet users. The Company believes that its position as
the first real time television broadcast on the Internet,
through the use of an Internet Video Streaming technology, will,
at first as a novelty, attract a substantial number of Internet
users, which will support the sale of advertising by each of the
Internet Video Streaming joint ventures, if any. There is no
assurance that the Company will be able to attract Internet
users to its Video Streaming sites and, therefore, that any
advertising sales revenue will be realized.
New Product, Potential Lack of Consumer Acceptance. As with any
new product, such as the Internet Video Streaming, there is no
assurance that any of the Company's Internet Video Streaming
joint ventures, once formed, will be successful in attracting
sufficient Internet users to its Internet sites. Should this be
the case, the Company would derive no benefit from any of its
Internet Video Steaming activities.
Risks Concerning Community (Low Power) Television
Competition. Community (low power) television stations compete
for advertising revenue in their respective markets, primarily
with other broadcast television stations and cable television
channels, and compete with other advertising media, as well.
Such competition is intense. In addition, competition for
programming and management personnel is severe. Nevertheless,
the Company expects that WINQ-TV will continue to be able to
operate successfully in such environment, although there is no
assurance that such will be the case.
Government Regulation. Television broadcasting operations are
subject to the jurisdiction of the FCC under the Communications
Act. The Communications Act empowers the FCC to issue, revoke
or modify broadcast licenses, to assign frequencies, to
determine the locations of stations, to regulate the
broadcasting equipment used by stations, to establish areas to
be served, to adopt such regulations as may be necessary to
carry out the provisions of the Communications Act and to impose
certain penalties for violation of its regulations. The
Company's television station is subject to a wide range of
technical reporting and operational requirements. There is no
assurance that the Company will be able to comply with such
requirements in the future. Similarly, the FTC, among other
regulatory agencies, imposes a variety of requirements that
affect the business and operations of broadcast stations.
Proposals for additional or revised requirements are considered
from to time by the FCC, other regulatory agencies and Congress.
The Company is unable to predict what new or revised Federal
requirements may result from such consideration or what impact,
if any, such requirements might have upon the operation of a
television station operated by the Company.
<PAGE>
Item 2. Description of Property
The Company's properties are functionally grouped. It holds,
through DTI, significant properties in the form of television
equipment, cameras, sets, recorders, transmitters, receivers,
microwave dishes, monitors, splicers, film and film libraries.
Such assets are located at 1334 South Killian Drive, Unit 4,
Lake Park, Florida. DTI owns the facilities it occupies,
consisting of approximately 6,500 square feet of office space,
television station infrastructure and storage areas, including a
sound stage utilized in making infomercials and live and
recorded television programming. It owns its office furniture,
fixtures, computer system and internal telephone network.
The Company also owns a significant film library of 104 one-hour
programs and 350 half-hour programs, consisting of certain
copyrighted programs, documentaries, music blocks, educational
programming and other productions and film footage.
The properties of the Company devoted to the Parent Academy
consist of computer hardware and software leased to various
units of the Baltimore, Maryland, public school system.
Item 3. Legal Proceedings
The Company is not currently engaged in any legal proceeding,
nor, to the Company's knowledge, is any suit or other legal
action pending or threatened.
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to a vote of the Company's security
holders during the fourth quarter of the fiscal year ended
December 31, 1996.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
The Common Stock of the Company is traded on the OTC Electronic
Bulletin Board under the symbol "DFNL"'. The range of high and
low bid quotations for each quarterly period during the years
ended December 31, 1995 and 1996, and the quarter ended March,
31, 1997, as reported by the OTC Electronic Bulletin Board, is
set forth in the table below.
Quarter Ended High Low
March 31, 1995 .045 .010
June 30, 1995 1.8125 .020
September 30, 1995 5.625 1.6875
December 31, 1995 5.00 2.25
March 31, 1996 5.125 3.125
June 30, 1996 3.75 2.625
September 30, 1996 2.625 .625
December 31, 1996 .75 .3125
March 31, 1997 .50 .3125
On April 24, 1997, the last reported bid and asked prices for
the Company's Common Stock, as reported by the OTC Electronic
Bulletin Board, were $.1875 and $.28125 per share, respectively.
Such quotations reflect inter-dealer prices, without retail
markup, retail markdown or commission, and may not represent
actual transactions.
Holders
The approximate number of record holders of the Company's Common
Stock as of April 24, 1997 was 1,200.
Dividends
The Company has never paid cash dividends on its Common Stock.
The Company anticipates that any future earnings, of which there
is no assurance, will be retained for development of the
Company's businesses, and, therefore, it can be expected that no
dividends on the Company's Common Stock will be declared in the
foreseeable future.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(1) Results of Operations
During the year ended December 31, 1996, the operations of its
major operating subsidiary, Interactive Systems, Inc., were
discontinued, resulting in a loss from discontinued operations
of $(4,439,534), as a result of a change in management. The
Company continues to operate its TV Station with revenues for
1996 of $24,995, as compared with 1995 sales of $303,315, a
decrease of $278,320 or 92%. The decrease was the result of a
reduction in commercials, informercials and interactive
programming. As a result of extensive research and development
during 1996, the Company expects revenues to increase
substantially during 1997.
Also, the Company's General and Administrative costs decreased
from $180,443 in 1995 to $27,437 in 1996, a decrease of $153,006
or 85%. The decrease was due principally to a reduction in
general overhead as a result of the discontinued operations.
Consulting and other professional fees increased from $196,998
in 1995 to $596,148, a increase of $399,150 or 66%. The
increase was the result of the Company's attempt to inquire into
the possible acquisition or merger with other similar
businesses. Research and development expenses increased from $0
in 1995 to $773,300 in 1996. The increase was the result of the
Company's commitment to further develop and expand its
television services.
(2) Liquidity
At December 31, 1996, the Company had a positive working capital
of $44,693, as compared to working capital at December 31, 1995
of $2,670,700. The decrease is related to the decrease in
accounts receivable as a result of the discontinued operations
of ISI. Management intends to intends to seek additional funding
from private or public equity investments to meet the increased
working capital needs in the next 12 months.
Item 7. Financial Statements
Consolidated Financial Statements for the years December 31,
1996 and 1995. F-1 to F-27
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
On December 10, 1997, the Company's independent auditor contract
was terminated by mutual agreement. During the registrant's two
most recent years and subsequent interim period up to the date
of change of accountants, there were no disagreements with the
former accountant on any matter of accounting principal or
practices, financial statement disclosure, or auditing scope or
procedure.
On December 15, 1997, the Company reached an agreement with
Clancy and Co., P.L.L.C. whereby Clancy and Co., P.L.L.C. was
engaged to act as the Company's auditors commencing with the
Company's audits for the years ending December 31, 1996 and 1997.
<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 following table sets forth the names of the current officers
and directors of the Company.
Name Age Position
Gerald L. Beeson(1) 62 Chairman of the Board, Chief
Executive Officer and
Assistant Secretary
David L. Holt(1) 52 Secretary and Director
Miguel O. Coindreau(2) 37 Executive Vice President
Michael DeLuise(1) 46 Director
David W. Dean(3) 42 Director
______________
(1) Has served in the capacity, or capacities, indicated during
the entire fiscal year ended December 3 1, 1996.
(2) Has served in such capacity since April 14, 1997.
(3) Has served in such capacity since January 28, 1997.
No family relationships exist among the officers and directors
of the Company.
Compensation of Directors
During the fiscal year ended December 31, 1996, the Company had
no standard or other arrangement pursuant to which directors of
the Company were compensated for any services as a director or
for committee participation or special assignments.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's officers and directors and persons who
beneficially 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. Officers, directors and greater-than-ten-percent
shareholders are required by regulation of the Securities and
Exchange Commission to furnish the Company with copies of all
Section 16(a) forms which they file.
The Company believes that none of the reports required to be
made under Section 16(a) have been filed by the persons required
to file such reports. The Company has received assurances from
the persons required to file such reports that all required
reports will be filed as soon as possible.
Item 10. Executive Compensation
The following table sets forth in summary form the compensation
received during each of the Company's last three completed
fiscal years by the Chief Executive Officer of the Company and
each executive officer of the Company who received total salary
and bonus exceeding $100,000 during any of the last three fiscal
years.
<PAGE>
Summary Compensation Table
Annual Compensation
Long-Term
Annual
Compen
Other
sation
Name
Annual All
other
and Compen- Awards of Compen
Principal Salary Bonus sation
Stock Options sation
Position Year (S) ($) ($) (#) ($)
Gerald L. Beeson 1996 20,000 -0- -0-
-0- -0
CEO/Asst. Sec. 1995 14,000 -0- -0- -0-
-0
1994 -0- -0- -0- -0- -0
Employment Contracts and Termination of Employment and
Change-in-Control Agreements
The Company does not have any written employment contracts with
respect to any of its executive officers. The Company has no
compensatory plan or arrangement that results or will result
from the resignation, retirement or any other termination of an
executive officer's employment with the Company and its
subsidiaries or from a change in control of the Company or a
change in an executive officer's responsibilities following a
change-in-control.
Option/SAR Grants in Last Fiscal Year
The Company did not grant any options to any person during the
fiscal year ended December 31, 1996. The Company has never
granted any stock appreciation rights ("SARs"), nor does it
expect to grant any SARs in the foreseeable future.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information as of April
24, 1997, with respect to the beneficial ownership of the
Company's Common Stock (1) by the Company's officers and
directors, (2) by shareholders known to the Company to own five
percent or more of the Company's Common Stock and (3) by all
officers and directors of the Company, as a group. On April 24,
1997, there were approximately 7,411,842 shares of Common Stock
issued and outstanding.
Number of Shares
Name and Address of of Common Stock
5% Beneficial Owners, Beneficially Owned
Officers and Directors at April 24, 1997 Percent of
Class(1)
Gerald L. Beeson 31,400 *
1400 Turtle Creek Drive
Dallas, Texas 75207
David L. Holt --- *
1400 Turtle Creek Drive
Dallas, Texas 75207
Miguel 0. Coindreau --
1400 Turtle Creek Drive
Dallas, Texas 75207
Michael DeLuise 40,000 *
565 Caledonia Road
Dix Hills, New York 11 746
All Officers and Directors
as a Group (5 persons) 71,400
_______________
(1) Based on 7,411,842 shares outstanding.
Item 12. Certain Relationships and Related Transactions
The Company has engaged in no transaction required to be
described herein.
Item 13. Exhibits and Reports on Form 8-K
(a)(1) Financial Statements
Independent Auditors' Report
F-1
Independent Auditors' Report
F-2
Consolidated Balance at December 31, 1996 and 1995
F-3 F-4
Consolidated Statement of Operations for the Years Ended
December 31, 1996 and 1995
F-5 F-6
Consolidated Statement of Stockholders' Equity
for the Years Ended December 31, 1996 and 1995
F-7 F-8
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1996 and 1995
F-9 F-11
Notes to Financial Statements
F-12 F-27
<PAGE>
a)(2) Exhibits
Exhibit Description
10.1 Consulting and Legal Services Agreement,
dated April 17, 1997, between the
Company and Newlan & Newlan, Attorneys at Law.
(b) Reports on Form 8-K
During the quarter ended December 31, 1996, the Company file a
Current Report on Form 8-K,
regarding a change in accountants.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DEFINITION, LTD.
By: (s) Charles Kiefner
Charles Kiefner
President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Definition, Ltd.
Lake Park, Florida
We have audited the accompanying consolidated balance sheet of
Definition, Ltd. (the Company), as of December 31, 1996 and the
related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the
Company at December 31, 1996 and the results of its operations
and its cash flows for the period then ended in conformity with
generally accepted accounting principles.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
February 7, 1998
<PAGE>
March 3, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by Definition, Ltd. and
Subsidiaries (copy attached), which we understand will be filed
with the Commission, pursuant to Item 4 of the Form 8-K, as part
of the Company's Form 8-K report for the month of March, 1998.
We agree with
the statements concerning our Firm in such Form 8-K.
Yours very truly,
Smith, Dance, and Company, P.C.
<PAGE>
DEFINITION, LTD.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
Current Assets
Cash and Cash Equivalents $ 63,151 $ 177,450
Notes Receivable (Note 6)
0 210,000
Accounts Receivable-net of allowance for doubtful accounts of
$0 and $25,000, at 1996 and 1995, respectively (Note 1)
73,600 3,129,480
Accounts Receivable-Other 5,626 10,520
Total Current Assets 142,377 3,527,450
Property and Equipment (Note1 and 11)
Broadcast Resource Library 2,985,536 2,985,536
Computer, Production and Broadcast Equipment
329,582 814,896
Building and Improvements 364,153 250,141
Other 0 887
3,679,271 4,051,460
Less Accumulated Depreciation
(1,519,136) (878,390)
Net Property and Equipment
2,160,135 3,173,070
Other Assets
Contracts and Accounts Receivable-Long-Term portion, net of
deferred revenue of $0 and $1,184,670, at 1996 and 1995,
respectively (Note 5)
0 1,876,430
Equity Investment in Joint Venture and Other Companies (Note 8)
0 330,602
Total Other Assets
0 2,207,032
Total Assets $ 2,302,512 $ 8,907,552
<PAGE>
DEFINITION, LTD.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
LIABILITIES AND
STOCKHOLDERS' EQUITY
1996 1995
Current Liabilities
Current Portion of Long-Term Debt (Note 10)
$
1,484 $ 1,330
Accounts Payable-Trade
72,500 28,735
Accounts Payable-Affiliates (Note 12)
0 641,879
Payroll Tax Liabilities
23,700
Federal Income Tax Payable (Note 9)
0 184,787
Total Current Liabilities
97,684 856,731
Long-Term Liabilities
Noncurrent Portion of Long-Term Debt (Note 10) 80,280 81,777
Notes Payable
27,000 0
Total Long-Term Liabilities 107,280 81,777
Total Liabilities
204,964
938,508
Stockholders' Equity
Common Stock: Authorized $0.001 Par Value, 100,000,000 Shares;
Issued and Outstanding, 5,203,512 Shares and 4,891,842 Shares
at December 31, 1996 and 1995
5,204 4,892
Additional Paid In Capital 8,711,100 9,650,422
Retained Earnings (Deficit) (6,618,756) 66,852
Deferred Advertising and Broadcast Airtime Credits (Notes 1, 4
and 5) 0 (1,753,122)
Total Stockholders' Equity 2,097,548 7,969,044
Total Liabilities and Stockholders' Equity $ 2,302,952 $
8,907,552
<PAGE>
DEFINITION, LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1996 AND 1995
1996 1995
Revenues $ 24,995 $ 4,159,821
Cost of Revenues 0 1,390,579
Gross Profit 24,995 2,769,242
Operating Expenses
General and Administrative 27,437 180,443
Consulting and Other Professional Fees 596,148 196,998
Research and Development 773,300
Depreciation and Amortization 867,724 822,047
Total Operating Expenses
(2,264,609) 1,199,488
Income (Loss) From Operations (2,239,614) 1,569,754
Other Income (Expense)
Interest and Other Income
0 1,222
Loss From Joint Venture
0 (48,705)
Interest Expense (6,460) (5,290)
Loss on Sale of Assets 0 (22,966)
Loss on Write Down of Airtime Credits From an
Affiliate 0
(405,211)
Total Other Income (Expense) (6,460) (480,950)
Income (Loss) Before Income Taxes and Discontinued
Operations (2,246,074) 1,088,804
Provision for Income Taxes 0 176,292
Income (Loss) From Continuing Operations
(2,246,074) 912,512
Discontinued Operations
Disposal of Segment of a Business (4,439,534)
137,596
<PAGE>
DEFINITION, LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1996 AND 1995
1996 1995
Net Income (Loss) $ (6,685,608) $ 1,050,108
Earnings Per Common Share and Common Stock
Equivalents-Note 1:
Income (Loss) Per Weighted-Average Share of
Common Stock Outstanding
Primary
From Operations $ (0.14) $ 0.19
From Discontinued Operations (1.20)
0.03
Total Primary Earnings Per Share $ (1.34) $
0.22
Fully Diluted
From Operations $ (0.14) $ 0.19
From Discontinued Operations (1.20)
0.03
Total Fully Diluted Earnings Per Share $ (1.34) $
0.22
Weighted Average Number of Common Shares Outstanding:
Primary 5,002,398 4,891,842
Fully Diluted 5,002,398 4,891,842
<PAGE>
DEFINTION, LTD.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE PERIOD ENDED DECEMBER 31, 1996 AND 1995
Preferred Shares Stock Amount
Common Shares Stock Amount Additional Paid In Capital
Retained Earnings (Deficit)
Deferred Advertising Credits
Total
Stockholder's Equity at December 31,
1994 290,614
$ 2,906
4,019,695
$ 4,020
$ 9,648,388
$ (983,256) $ 8,672,058
Conversion of Preferred Stock to Common Stock
(290,614)
(2,906)
872,147
872
2,034
0
Prior Period Adjustment for Write off of
Prepaid Advertising Credits in
1995
(1,753,122)
(1,753,122)
Net Income for the Year Ended December 31, 1995
1,050,108
1,050,108
Balance, December 31, 1995
0 0
4,891,842 4,892
9,650,422
66,852
(1,753,122) 7,969,044
Issuance of Common Stock as
Compensation for Consulting Services
Rendered, July 1, 1996
190,000
190
534,185
534,375
Preferred Shares Stock Amount
Common Shares Stock Amount Additional Paid In Capital
Retained Earnings (Deficit)
Deferred Advertising Credits
Total
Issuance of Common Stock as Compensation
for Legal Services Rendered,
December 22, 1996
100,000
100
900
1,000
Private Placement September 30,
1996
21,670 22
93,928
93,950
Net Tax Effect of Prior Period Adjustment in
1995
184,787 184,787
Correction of Error in Prior Period in
Connection with Discontinued Operations
(1,568,335) 1,568,335) 0
Net Loss for the Year Ended December 31,
1996
(6,685,608)
(6,685,608)
Balance, December 31, 1996
0 $ 0
5,203,512
$ 5,204
$ 8,711.100
($ 6,618,756) $
0 $ 2,097,548
<PAGE>
DEFINITION, LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 1996 AND 1995
1996 1995
Cash Flows from Operating Activities
Net Income $(6,685,608) $ 1,050,108
Adjustments to Reconcile Net Income(Loss) to Net
Cash Provided by (Used in) Operating Activities
Depreciation and Amortization 1,001,074 822,047
Common Stock Issued for Services 535,375 0
Loss on Disposal of Fixed Assets 333,441 0
Minority Interest in Loss of Subsidiary 0 (137,596)
Loss from Joint Venture 330,602 48,705
Write-off of Assets 1,876,430 21,362
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable
3,270,774 (3,127,518)
Increase (Decrease) in Accounts Payable-Trade
43,765 (212,421)
Increase (Decrease) in Accounts
Payable-Affiliates (641,879)
(21,595)
Increase ( Decrease) Accrued Interest-Affiliates
0 (2,383)
Increase (Decrease) in Accrued Federal Income Tax 0
184,787
Increase (Decrease) in Deferred Revenue 0 1,746,878
Increase (Decrease) in Payroll Tax Liabilities
23,700 0
Total Adjustments 6,773,282 (677,734)
Net Cash Provided by Operating Activities 87,674
372,374
Cash Flows From Investing Activities
Investment in Joint Venture 0
(156,107)
Purchase of Property and Equipment (321,580)
(47,472)
Net Cash flows Used in Investing Activities (321,580)
(203,534)
Cash Flows from Financing Activities
Net Change in Bank Overdraft 0 (2,617)
Principal Payment on Mortgage Payable (1,343)
0
Proceeds From Long Term Debt 27,000 0
DEFINITION, LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 1996 AND 1995
1996 1995
Proceeds From the Issuance of Common Stock
93,950 0
Net Cash Provided by (Used in) Financing Activities
119,607 ( 2,617)
Increase (Decrease) in Cash and Cash Equivalents
(114,299) 166,223
Cash and Cash Equivalents at Beginning of Year 177,450
11,227
Cash and Cash Equivalents at End of Year $ 63,151 $
177,450
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest $ 6,460 $ 7,673
Income taxes $ 0 $ 0
Supplemental Schedule of NonCash Investing and
Financing Activities:
Reclassification and Offset of Accounts Receivable
and Accounts Payable to Affiliates and Other Related
Parties $ 91,223
Exchange of Inventory, License Agreement and
Broadcast Airtime Credits for Barter Trade Credits $
232,966
Exchange of Barter Trade Credits for a Note
Receivable $ 201,000
Conversion of Preferred Stock for Common Stock $ 2,906
Purchase of Office Condominium with Long-Term
Mortgage Payable and Advances from Affiliates $ 105,000
Exchange of Non-Affiliated Broadcast Airtime Credits
for Affiliated Broadcast Airtime Credits and
Canellation in 1996 $(1,568,335) $ 1,575,000
Reclassification of Accounts Receivable to
Investment in Other Companies $ 213,000
Sale of Deferred Broadcast Airtime Credits in
Exchange for Long-Term Contract $ 2,916,667
1996 1995
Exchange of Common Stock for Services Rendered $ 535,375
<PAGE>
DEFINITION LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - ORGANIZATION
Definition, Ltd. (the "Company") was incorporated in 1989 under
the name "Stone Grill International, Inc.", under the laws of
the State of Nevada. Until 1994, the Company undertook the
development of a restaurant concept involving table-side cooking
on preheated rocks, and the franchising of such restaurants.
This line of endeavor was abandoned in late 1994, and the
Company commenced acquisition of assets and searching for
business opportunities in the interactive media and
communications fields. During this period, the Company acquired
programming, a broadcast film library, computers, video, studio,
broadcast and cable equipment, as well as prepaid air time for
television programming and advertising. The Company developed
its current plan of business in late 1994 and changed its name
to its current name in January 1995.
The Company currently engages in commerce through enhanced
communications. The Company intends to become a leader in all
phases of high technology communications media, television,
wireless telephone/fax/Intemet service, television advertising,
computer hardware and software, and travel services. There is,
of course, no assurance that the Company will be successful in
its business.
The Company, through its subsidiary, Definition Technologies,
Inc., (DTI) a Texas corporation, operates a community
(low-power) television station transmitting from West Palm
Beach, Florida, WINQ Channel 19. The transmitter has an
effective radius of approximately 25 miles, and a household
audience of approximately 260,000 homes in a population area
containing approximately 1,000,000 people. WINQ-TV operates
under a permit granted by the Federal Communications Commission
(FCC). Community, or low power, television is a relatively new
broadcasting category created by the FCC in the early 1980s.
Community television stations, with their narrow geographic
coverage, usual unaffiliated status and local programming focus,
are becoming a more important part of the current broadcasting
mix. While able to cover, on average, only between five and
twenty miles with their signals, community television stations
have been able to expand greatly their coverage by having their
signals included in local and regional cable systems. Entry
into the community television industry requires substantially
less capital than entry into the high-power television industry.
There are currently approximately 1,700 community television
stations licensed by the FCC, with approximately the same number
of applications for new licenses now pending with the FCC.
Community television stations may be either affiliated with one
of the national networks (ABC, NBC, CBS, FOX, UPN or WB) or may
be independent. The Company does not anticipate that its
community television station will become a network affiliate.
WINQ-TV broadcasts 24 hours a day, offering a broad line of
programming, which includes catalog sales, infomercials, movies
and sitcoms. The Company's signal is carried by the local cable
operator. WINQ-TV sells television broadcast time and
advertising time, produces infomercials and arranges for their
production by third parties. Additionally, the Company
<PAGE>
NOTE 1 - ORGANIZATION (CONTINUED)
makes duplicates of, and edits, film from its film library for
sale of footage, documentaries, movies, newsreels and
educational film.
Lacking a national network affiliation, independent community
television stations, in general, depend heavily on independent
third patties for programming. Programs obtained from
independent sources consist primarily of syndicated television
shows, many of which have been shown previously on a network,
and syndicated feature films, which were either made for network
television or have been exhibited previously in motion picture
theaters (most of which films have been previously on network
and cable television). Syndicated programs are sold to
individual stations to be broadcast one or more times.
Independent television stations generally have large numbers of
syndication contracts; each contract is a license for a
particular series or program that usually prohibits licensing
the same programming to other television stations in the same
market. A single syndication source may provide a number of
different series or programs.
Licenses for syndicated programs are often offered for cash sale
or on a barter or cash-plus-barter basis to stations. In the
case of a cash sale, the station purchases the right to
broadcast the program or a series of programs, and sells
advertising time during the broadcast. The cash price of such
programming varies, depending on the perceived desirability of
the program and whether it comes with commercials that must be
broadcast (a cash-plus-barter basis). Bartered programming is
offered to stations without charge, but comes with a greater
number of commercials that must be broadcast, and, therefore,
with less time available for sale by the station. Recently, the
amount of bartered and cash-plus-barter programming broadcast
industry-wide has increased substantially.
WINQ-TV has, to date, relied on the use of its film library and
the use of a third party's film library free-of-charge, rather
than acquiring programming from third parties. It can be
expected that this method of programming will continue as the
Company's Internet Video Streaming business matures. It is
contemplated that WINQ-TV would, at some time in the future,
employ a broadcast format featuring segments of 5 to 15 minutes
in length, ranging from abridged movies to documentaries to
standard commercials to infomercials, some of which can be
expected to be produced by the Company and to promote products
being marketed by the Company. WINQ-TV's programming format
can be expected to be adjusted at various times in the future to
meet the needs of the Company's Streaming Joint Ventures.
The Company is engaged as a joint venturer with Academy Concepts
of Baltimore, Maryland, in a project known as the Parent Academy
Network (the "Parent Academy"). The program is designed to
raise the educational level of low income children in Baltimore,
as well as other metropolitan areas. The program provides
interactive teaching materials to member schools, based upon a
video and computer platform, utilizing educational materials,
certain of which are, or will be, produced by WINQ-TV. The
Company is the exclusive provider of computer hardware and
technical support to the Parent Academy. The Parent Academy
attempts to bring parents, teachers and students together in an
educational partnership, all with a view to increasing
<PAGE>
NOTE I - ORGANIZATION (CONTINUED)
student attendance and parental involvement, as well as reducing
delinquency and crime in participating schools and their
respective communities. The Company is the exclusive provider
of technical assistance and acts as consultant to the Parent
Academy. The Company's joint venture partner has expressed its
intention to attempt to expand, with the Company's assistance,
the Parent Academy concept to a network of 2,500 schools in
major U.S. cities over the next five years. There is no
assurance that such expansion of the Parent Academy concept will
occur. It is the Company's intention to utilize its Internet
Video Streaming techniques to enhance the current educational
program of the Parent Academy. The Internet, or World Wide Web,
is, from the participants' standpoint, largely unregulated. The
Company expects no material regulation to affect its business
activities on the Internet. However, governments can impose
burdensome regulations at any time and without notice.
Television broadcasting operations are subject to the
jurisdiction of the FCC under the Communications Act. The
Communications Act empowers the FCC, among other things, to
issue, revoke or modify broadcast licenses, to assign
frequencies, to determine the locations of stations, to regulate
the broadcasting equipment used by stations, to establish areas
to be served, to adopt such regulations as may be necessary to
carry out the provisions of the Communications Act and to impose
certain penalties for violation of its regulations. The
Company's currently operating community television station, as
well as any future stations, is subject to a wide range of
technical, reporting and operational requirements imposed by the
Communications Act and by FCC rules and policies.
The Communications Act provides that a license may be granted to
any applicant if the public interest, convenience and necessity
will be served thereby, subject to certain limitations,
including the requirement that the FCC allocate licenses,
frequencies, hours of operation and power in a manner that will
provide a fair, efficient and equitable distribution of service
throughout the United States. Television licenses generally are
issued for five-year terms. Upon application, and in the
absence of a conflicting application that would require the FCC
to hold a hearing, or questions as to the licensee's
qualifications, television licenses have usually been renewed
for additional terms without a hearing by the FCC. An existing
license automatically continues in effect once a timely renewal
application has been filed until a final FCC decision is issued.
Under existing FCC regulations governing multiple ownership of
broadcast stations, a license to operate a television or radio
station generally will not be granted to any party (or parties
under common control) if such party directly or indirectly owns,
operates, controls or has an attributable interest in another
television or radio station serving the same market or area.
The FCC, however, is favorably disposed to grant waivers of this
rule for certain radio station-television station combinations
in the top 25 television markets, in which there will be at
least 30 separately owned, operated and controlled broadcast
licenses, and in certain other circumstances.
<PAGE>
NOTE 1 - ORGANIZATION (CONTINUED)
FCC regulations further provide that a broadcast license will
not be granted if that grant would result in a concentration of
control of radio and television broadcasting in a manner
inconsistent with the public interest, convenience or necessity.
FCC rules generally deem such concentration of control to exist
if any party, or any of its officers, directors or shareholders,
directly or indirectly, owns, operates, controls or has an
attributable interest in more than 12 television stations, or in
television stations capable of reaching, in the aggregate, a
maximum of 25% of the national audience. This percentage is
determined by the DMA market ranking of the percentage of the
nation's television households considered within each market.
Because of certain limitations of the UHF signal, however, the
FCC will attribute only 50% of a market's DMA reach to owners of
UHF stations for the purpose of calculating the audience reach
limits. The Company will not approach such limits for the
foreseeable future. To facilitate minority group participation
in radio and television broadcasting, the FCC will allow
entities with attributable ownership interests in stations
controlled by minority group members to exceed the ownership
limits.
The FCC's multiple ownership rules require the attribution of
the licenses held by a broadcasting company to its officers,
directors and certain of its shareholders, so there would
ordinarily be a violation of FCC regulations where an officer,
director or such a shareholder and a television broadcasting
company together hold interests in more than the permitted
number of stations or more than one station that serves the same
area. In the case of a corporation controlling or operating
television stations, such as the Company, there is attribution
only to shareholders who own 5% or more of the voting stock,
except for institutional investors, including mutual funds,
insurance companies and banks acting in a fiduciary capacity,
which may own up to 10% of the voting stock without being
subject to such attribution, provided that such entities
exercise no control over the management or policies of the
broadcasting company.
The FCC has recently begun a proceeding to consider
liberalization of the various TV ownership restrictions
described above, as well as changes (not all of which would be
liberalizing in effect) in the rules for attributing the
licenses held by an enterprise to various parties. The Company
is unable to predict the outcome of these proceedings.
The Communications Act and FCC regulations prohibit the holder
of an attributable interest in a television station from having
an attributable interest in a cable television system located
within the coverage area of that station. FCC regulations also
prohibit the holder of an attributable interest in a television
station from having an attributable interest in a daily
newspaper located within the predicted coverage area of that
station.
The Communications Act limits the amount of capital stock that
aliens may own in a television station licensee or any
corporation directly or indirectly controlling such licensee.
No more than 20% of a licensee's capital stock and, if the FCC
so determines, no more than 25% of the capital stock of a
company controlling a licensee, may be owned or voted by aliens
or their
<PAGE>
NOTE 1 - ORGANIZATION (CONTINUED)
representatives. Should alien ownership exceed this limit, the
FCC may revoke or refuse to grant or renew a television station
license or approve the assignment or transfer of such license.
The Communications Act prohibits the assignment of a broadcast
license or the transfer of control of a licensee without the
prior approval of the FCC. Legislation was introduced in the
past that would impose a transfer fee on sales of broadcast
properties. Although that legislation was not adopted, similar
proposals, or a general spectrum licensing fee, may be advanced
and adopted in the future. Recent legislation has imposed
annual regulatory fees applicable to the Company.
The foregoing does not purport to be a complete summary of all
of the provisions of the Communications Act or regulations and
policies of the FCC thereunder. Reference is made to the
Communications Act, such regulations and the public notices
promulgated by the FCC.
The Federal Trade Commission, among other regulatory agencies,
imposes a variety of requirements that affect the business and
operations of broadcast stations. From time to time, proposals
for additional or revised requirements are considered by the
FCC, numerous other Federal agencies and Congress. The Company
is unable to predict future Federal requirements or what impact,
if any, any such requirements may have on the Company's
television station.
The Internet is a "work in progress'. Each day, innumerable
businesses and individuals construct an Internet site, or home
page, to which they attempt to attract Internet users, or
"surfers". The rapid increase in the number of Internet sites
to which users can be drawn reduces the likelihood that an
Internet site of any variety will be visited by Internet users.
The Company believes that its position as the first real time
television broadcast on the Internet, through the use of an
Internet Video Streaming technology, will, at first as a
novelty, attract a substantial number of Internet users, which
will support the sale of advertising by each of the Internet
Video Streaming joint ventures, if any. There is no assurance
that the Company will be able to attract Internet users to its
Video Streaming sites and, therefore, that any advertising sales
revenue will be realized.
Community television stations compete for advertising revenue in
their respective markets, primarily with other broadcast
television stations and cable television channels, and compete
with other advertising media, as well. Such competition is
intense. In addition, competition for programming and
management personnel is severe. The Company expects that
WINQ-TV will continue to be able to operate successfully in such
environment, although there is no assurance that such will be
the case.
The Parent Academy competes for public and private sector
funding with which to operate and, if possible, expand. The
competition among entities similar to the Parent Academy for
such funding is intense, There is no assurance that the Parent
Academy will be able to attract funding for its continuing
operations or any planned expansion.
<PAGE>
NOTE 1 - ORGANIZATION (CONTINUED)
The Company employs three persons, all of whom are officers of
the Company. Currently, the Company contracts with outside
parties for all services required to be performed by the
Company. The Company does not expect to add more than five
employees during the remainder of 1997, and, without additional
funding, the Company cannot be expected to add any additional
employees.
References to the "Company" include, WINQ-TV, DTI and the Parent
Academy, unless the context indicates otherwise.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
Definition consolidates its wholly-owned subsidiary, Interactive
Systems Inc., and all significant intercompany transactions and
balances have been eliminated in consolidation. The equity
method of accounting is used for joint ventures. (Note 8)
B. Accounting Method
The Company's financial statements are prepared using the
accrual method of accounting.
C. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a
maturity of three months or less
to be cash and cash equivalents.
D. Accounts Receivable and Allowance for Doubtful Accounts
In the normal course of business, the Company sells the
production of infomercials, commercial demonstration videos and
mixed media titles from the Company's programming library to
unrelated third party customers located primarily in the United
States and Italy on unsecured credit terms with extended
payment terms up to twelve months. All associated revenues have
been recognized currently.
Through periodic charges to expense, the Company maintains an
allowance for losses expected to arise from uncollectible
accounts and contracts receivable. Such allowance balance is
maintained based on the Company's past experience of
actual net uncollectible account losses (accounts
identified and charged off) and the periodic evaluations of
individual accounts. As individual customer accounts
become doubtful as to collections, the balances are charged to
the allowance for uncollectible accounts.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. Revenue Recognition
Deferred gains and/or revenues represent amounts due the Company
for sales of goods and services, and related interest thereon,
for which the ultimate realization is uncertain. Deferred
gains are also provided as an allowance to investment
securities received in exchange for goods and services where
the ultimate profit realization is contingent upon future events
which may or may not occur. Ultimate realization of deferred
gains from these transactions will be recognized at such time
as realization is reasonable certain. In connection with
advertising credits sold in prior years, revenue will be
recognized when payment is reasonably assured and noncancelable
contracts are executed between the respective broadcast
station and the advertiser.
F. Long-Lived Assets
In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operation when indicators of
impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets'
carrying amount.
Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. No material effect
on the financial statements resulted from the adoption of this
standard.
G. Property and Equipment
The cost of property, plant and equipment is depreciated over
the useful lives of the related assets. Estimated
lives of assets are as follows:
Computer, production and broadcast equipment 5-7 years
Buildings
39 years
Building improvements 7 years
Expenditures for repairs and maintenance are charged to the
expense as incurred.
H. Television Production Costs
The Company amortizes television production costs and the
related broadcast rights and development costs using the
anticipated revenue stream on each show over the contracted
number of shows to be produced. In the event that a show
or production concept is determined to not be economically
feasible, all related capitalized costs are charged against
operations at that time.
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I. Deferred Advertising and Broadcast Airtime Credits
The Company had acquired advertising and broadcast airtime
credits from various affiliates and non affiliates. In prior
years, approximately $2,750,000 (face value) in deferred
advertising credits were acquired from non affiliates
in exchange for restricted, unregistered common stock of the
Company. These credits were recorded at a discounted value of
approximately $1,575,000 to allow for estimated nonspecific
contingencies.
Broadcast airtime credits acquired from an affiliate are being
amortized over the ten year life of the acquisition
agreement. Credits which expire unused by the Company are
amortized as a reduction of additional paid-in capital
due to the related party nature of the transaction. Utilized
airtime, either used directly by the Company or sold to third
parties, is amortized as a component of cost of revenues.
J. License Agreement
The license agreement (Note 7) is being amortized over the ten
year life of the agreement using
the straight-line method. Amortization expense related to the
agreement for the years ended
December 31, 1996, and 1995 was $0.
K. Earnings (Loss) Per Share
The computations of income or loss per share of common stock are
based on the weighted
average number of shares outstanding at the date of the
financial statements. The Company's
Preferred Stock is convertible at the rate of three (3) shares
of common stock for each share of
preferred stock. Therefore, primary weighted average of common
stock includes the conversion
to common stock as if it was converted at the beginning of the
year.
L. Income Taxes
The Company has adopted the provisions of Statement of Financial
Accounting Standards No.
109 "Accounting for Income Taxes" which requires the asset and
liability method of accounting
for income taxes rather than the deferred method previously
used, effective January 1, 1993. No
material effect on the financial statements resulted from the
adoption of this standard.
M. Use of Estimates
Management uses estimates and assumptions in preparing financial
statements in conformity
with generally accepted accounting principles. Those estimates
and assumptions affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and
the reported amounts of revenues and expenses. Actual results
may vary from the estimates that
were assumed in preparing the financial statements.
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
N. Pending Accounting Pronouncements
It is anticipated that current accounting pronouncements will
not have an adverse impact on the
financial statements of the Company.
O. Financial Statement Presentation
Due to the change in classification of some accounts, the
financial statements may be presented
slightly differently than in the previous year.
NOTE 3 - TELEVISION BROADCAST RIGHTS AND DEVELOPMENT COSTS
On October 6, 1993, UPM acquired all broadcast rights,
production graphics, pilot episodes, "in-the-can" produced
shows, music and scripts to four (4) separate television shows,
either currently in production or in various development phases,
from entities and individuals affiliated with the Company for a
long-term note payable in the amount of $2,000,000. This
acquisition cost approximates both fair market value for the
programming and the previous owner's founder's costs, including
additional production costs incurred by the Company. These
rights were subsequently sold to NAPI, as discussed in Note 1.
NOTE 4 - DEFERRED ADVERTISING CREDITS
In the second quarter of 1994, Hollywood Broadcasting, Inc. (a
FCMI affiliate) filed a lawsuit against UPM, NAPI and the
original sellers of the television broadcast rights (Note 1)
challenging the ownership and transference of the properties as
it relates to FCMI's bankruptcy filing. The Presiding Court has
issued an injunction against UPM and NAPI whereby all revenues,
etc. related to the properties in question are to be held in an
escrow account maintained by Hollywood Broadcasting, Inc., and
may not be utilized or distributed to any party until completion
of the pending litigation. Effective June 1, 1994, the
acquisition transaction was rescinded and the related television
properties were returned to the sellers. The Company recognized
a loss of approximately $250,000 on the recision transaction.
The Company has acquired deferred advertising credits, primarily
in exchange for common stock, from unrelated parties
aggregating $1,575,000. The advertising credits were recorded
at net realizable value, based upon the seller's published rate
cards at the date of acquisition or the historical founder's
cost as it relates to related party transactions. The balance
was written off as of December 31, 1996 in connection with the
discontinued operations of ISI. (Notes 1 and 12)
Approximately $2,000,000 of credits were sold to a publicly held
corporation during 1992, for 590,000 shares of the purchaser's
stock or $156,000, which approximated 50% of the purchasing
company's bid price on the transaction date with a corresponding
cost basis in the deferred advertising credits or approximately
$0. The gain from the sale of the advertising credits was
recognized during 1994, upon the expiration of the related
advertising credits.
NOTE 5 - BROADCAST AIRTIME CREDITS
On December 1, 1994, the Company acquired 18 of the available 24
hours of daily broadcast airtime transmitted by a television
station controlled by a shareholder of the Company for a ten
year period. The Company executed a convertible note of
$3,500,000 payable to the selling television station in
consideration for the transaction. The note was for a term of
five (5) years and bore interest at 8.0% per annum.
Approximately $3,250,000 and accrued but unpaid interest
(aggregating $3,269,616) was converted into 79,825 shares of
Series A Preferred Stock and 243,750 post-split unregistered,
restricted shares of Common Stock, per the terms of the note
agreement, on December 30, 1994. In 1995, the Company acquired
the remaining 6 of the available 24 hours of daily broadcast
airtime for a fifteen year period. (Note 12)
During the quarter ended September 30, 1995, the Company sold 15
of the 24 hours to an unrelated third party for $120,000 cash
and a contractual obligation payable in the amount of $4,000,000
payable quarterly over a 5 year period in quarterly
installments. The profit has been deferred, reported net
against the receivable, and will be recognized over the life of
the contract. Due to the fixed term of the agreement, the
credits are amortized pro-rata over the term of the contract
using the straight-line method. Utilized airtime, either used
directly by the Company or sold to third parties, is amortized
as a component of cost of revenue.
NOTE 6 - NOTES RECEIVABLE
On January 16, 1995, the Company entered into a sales agreement
with an unrelated third party to sell 100% of its inventory and
restaurant equipment, reacquired on December 13, 1994, as a
result of a breach of contract on a previous sale transaction,
and 112 one-half hour segments of broadcast airtime for barter
trade credits having a face value of $258,000. The transaction
was recorded at $233,000, representing the Company's founders
cost in the inventory and equipment (approximately $57,000), the
broadcast airtime value (approximately $3,000) and the
unamortized cost of a license agreement (approximately $173,000)
(Note 7).
In December 1995, the barter trade credits were exchanged for a
note receivable in the amount of
$210,000. The note bears interest at 8% and is payable in three
installments of $70,000 with final
payment due December 31, 1996. The note is secured by the stone
grills and related accessories.
During 1996, the note and related interest were written off by
the Company.
NOTE 7 - LICENSE AGREEMENT
The Company acquired the exclusive licensing rights to a
proprietary food service method,
including design and operational protocol methods, and marketing
rights to patented material
through June 1, 1997. These rights extend to all of North
America, excluding Phoenix and
Tucson, Arizona. This license was acquired in 1989 in exchange
for $650,000 in convertible
promissory notes. In October 1989, $400,000 of these notes were
converted to 8,000,000
unregistered, restricted common stock of the company. In 1990,
the balance of these notes were
<PAGE>
NOTE 7 - LICENSE AGREEMENT (CONTINUED)
acquired by Main Street TV, Inc. (MSTV), an affiliate of the
Company. Additionally, in 1989,
the license agreement was restated to equal the predecessor's
historical cost basis of $331,000.
In January 1995, concurrent with the Company's sale of inventory
and restaurant equipment, the
unamortized amount, approximately $173,000, was recast as a
component of the consideration
received in the transaction. (Note 6)
NOTE 8 - INVESTMENTS IN JOINT VENTURES AND OTHER COMPANIES
Investments in other companies consist of the following at
December 31, 1996 and 1995:
1996
1995
All of the above securities are of companies which are publicly
owned and traded. These shares were obtained during 1992,
subject to Rule 144 of the Securities and Exchange Commission,
which severely restricts the public trading of these shares. As
of December 31, 1994, the appropriate holding periods
restricting the sale of these securities had expired. (Note 1)
Investment in the joint venture, The Parent Academy Network,
consists of the amounts contributed by the Company to the
formation and operations of this joint venture through December
31, 1995.
For federal Number of Shares Cost Basis Cost Basis
Teleconics, Inc. 590,000 $ 156,350 $ 156,350
Classic Video Theatre, Inc. 10,000 50,000 50,000
Future Communications, Inc. 27,010 207,608 207,608
413,958 413,958
Permanent Impairment of Carrying Value (413,958) (413,758)
Carrying Value, Which Approximates Fair Market Value 0
200
The Parent Academy Network 0 330,402
Total $ 0 $ 330,602
income tax purposes, one-third (33%) of the joint venture
taxable income (loss) are included in the Company consolidated
financial statements.
NOTE 9 - INCOME TAXES
Income taxes are accounted for in accordance with SFAS 109,
"Accounting for Income Taxes".
The following is a reconciliation between financial income and
income reported for federal tax purposes at December 31, 1996
and 1995.
1996 1995
Financial Income or Loss Before Taxes $ (6,685,608) $
1,227,228
Book Bad Debt Expense in Excess of Tax Bad Debt Expense Due to
the Specific Write-Off of Accounts for Tax Purposes and
the Reserve Method for Financial Reporting
28,000
Other Differences 221
1,255,509
Net Operating Losses Utilized ( 770, 574)
Federal Taxable Income or (Loss) $ (6,685,608) $ 484,935
A reconciliation between the federal statutory income tax rate
to the Company's effective tax rate is shown below:
Statutory tax rate 35.0%
Net operating losses utilized (21.0%)
Effective Tax Rate 14.0%
NOTE 10 - MORTGAGE PAYABLE
On January 29, 1995, ISI purchased an office condominium located
in Lake Park, Florida, for $105,000. The consideration given
was approximately $21,000 cash and a note payable to a
financial institution for $84,000. The note is payable in
monthly installments of approximately $867, including interest
at an initial rate of 11%. The interest rate is adjustable on
March 1, 2000 and is calculated using the Average Weekly Yield
of United States Treasury Securities adjusted to a constant
maturity of one year plus 3.5%. The minimum interest rate for
the life of the loan will be 11% and the maximum interest rate
for the life of the loan will be 17.0%.
Additionally, the lender has a call option during a 30-day
period commencing on the tenth anniversary of the loan whereby
the entire unpaid balance can be called as due and payable
within 90 days of the date that the lender exercises the call
option. The loan is secured by the office condominium and the
guarantee of Definition.
<PAGE>
NOTE 10 - MORTGAGE PAYABLE (CONTINUED)
Future maturities of mortgages payable are as follows:
Year Ending December 31,
1996 1995
1996
$ $ 1,330
1997
1,484 1,484
1998
1,655 1,655
1999
1,847 1,847
2000
2,061 2,061
2001
2,299 2,299
Thereafter
72,418 72,431
Total
$ 81,764 $ 83,107
NOTE 11 - EQUITY SECURITY TRANSACTIONS
Reverse Split - In December 1994, pursuant to actions approved
at a Shareholder's meeting, Definition approved a one-for-25
reverse stock split, effective March 31, 1995. All outstanding
shares and per share amounts shown in the accompanying financial
statements reflect the effects of this reverse stock split.
Preferred Stock - On December 17, 1994, the Company's Board of
Directors allocated 500,000 shares from its authorized Preferred
Stock to establish Series A Convertible Preferred Stock. The
Series A Convertible Preferred Stock has a liquidation value of
$10.00 per share and is convertible at any time after the date
of issuance at the option of the Holder. The Preferred shares
are convertible to three (3) shares of the Company's common
stock.
During the quarter ended September 30, 1995, the preferred
shareholders of the Company converted their holdings into common
stock according to the provisions of the agreements wherein the
preferred stock was acquired.
Property and Equipment Acquisitions
On August 18, 1994, the Company acquired certain television
programs, film footage (including, but not limited to,
copyrighted programs), documentaries, music blocks, educational
and other productions and films from an unrelated third party
for a convertible note payable of
$5,250,000. The note was for a term of five (5) years and bore
interest at 8.0% per annum. The
note and accrued but unpaid interest (aggregating $5,301,781)
was converted into 165,789
shares of Series A Preferred Stock and 262,500 post-split
unregistered, restricted shares of
Common Stock, per the terms of the note agreement, on October 3,
1994.
On August 18, 1994, the Company acquired certain cable, radio
and television broadcast equipment from WAQ-TV 19, Inc., a
company controlled by a shareholder of the Company, for a
convertible note payable of $750,000. The note was for a term
of five (5) years and bore interest at 8% per annum. The note
and accrued but unpaid interest (aggregating $757,397)
<PAGE>
NOTE 11 - EQUITY SECURITY TRANSACTIONS (CONTINUED)
was converted into 197,360 shares of Series A Preferred Stock
and 93,750 post-split unregistered, restricted shares of common
stock, per the terms of the note agreement, on October 3, 1994.
On December 1, 1994, the company acquired certain production
studio equipment and leasehold improvements from an unrelated
third party for a convertible note payable of $250,000. The
note was for a term of five (5) years and bore interest at 8%
per annum. The note and accrued but unpaid interest
(aggregating $251,589) was converted into 7,018 shares of Series
A Preferred Stock and 12,500 post-split unregistered, restricted
shares of common stock, per the terms of the note agreement, on
December 30, 1994.
On December 1, 1994, the Company acquired certain films, movies,
selected short subjects, computer equipment, cable TV and other
broadcast equipment, facilities and related assets (exclusive of
the FCC broadcast license) from Royal Lane Studios, Inc., a
company controlled by a stockholder of the Company, for a
convertible note of $650,000 (which approximates the seller's
founders cost and estimated fair market value). The note was for
a term of five (5) years and bore interest at 8.0% per annum.
The note and accrued but unpaid interest (aggregating $653,916)
was converted into 18,246 shares of Series A Preferred Stock and
32,500 post-split unregistered, restricted shares of common
stock, per the terms of the note agreement, on December 30,
1994.
Additionally, on December 1, 1994, the Company acquired
approximately 24 of the available 24 hours of daily broadcast
airtime transmitted under the FCC broadcast license mentioned in
the preceding paragraph for an unspecified future period to be
subsequently negotiated from WAQ-TV 19, Inc., a company
controlled by a stockholder of the Company, for a convertible
note of $3,500,000. The note was for a term of five (5) years
and bore interest at 8.0% per annum. Approximately $3,250,000
and accrued but unpaid interest, (aggregating $3,269,616) was
converted into 79,825 shares of Series A Preferred Stock and
243,750 post-split unregistered, restricted shares of common
stock, per the terms of the note agreement, on December 30,
1994.
NOTE 12 - RELATED PARTY TRANSACTIONS
In August and December 1994, the Company acquired certain
broadcast assets and airtime from companies controlled by a
shareholder of the Company. The transactions are more fully
discussed in Note 10.
Accounts Payable - affiliates includes noninterest bearing,
demand advances made to the Company or expenses paid on behalf
of the Company by individuals and other companies affiliated
with the Company and/or its shareholders, including related
family members. The payable amounts are $0 and $641,879 at
December 31, 1996 and 1995, respectively.
In 1995, as a result of the acquisition of broadcast airtime
from WINQ-TV 19, a company
<PAGE>
NOTE 12 - RELATED PARTY TRANSACTIONS (CONTINUED)
(broadcast station) controlled by a shareholder of the Company
(Note 11), the Company uses the broadcast station as an agent
for the sale of the purchased airtime. The broadcast station
also acts as the collection agent for the Company and is paid a
commission of 15% of gross sales
generated by the broadcast station. Additionally, the Company
pays certain operating expenses on behalf of the broadcast
station. The financial statements include revenue from WINQ-TV
19 of $24,995 and $13,689 in 1996 and revenues of $303,315 and
cost of sales of $366,000 in 1995.
The Company had acquired $1,575,000 in deferred advertising
credits from an unrelated third party for common stock. In an
unrelated matter to the Company, a stockholder/consultant to the
Company acquired these shares of stock in a civil lawsuit. As
this third party was not performing under the terms of the
agreement, it was negotiated with the stockholder/consultant to
either transfer the stock back to the Company or provide the
equivalent in airtime. As a result, the Company received an
additional six (6) hours of airtime from WINQ-TV 19 for a period
of fifteen years. This transaction provided the Company with
the entire 24 hours of airtime of WINQ-TV 19. Accordingly, all
advertising revenues are now paid to the Company and the
commission agreement mentioned earlier is no longer valid.
The Company pays CHM Satellite Inc., a company sharing common
management with the Company, for consulting and professional
services. At December 31, 1996, the Company paid no fees nor
collected any revenues, however, at December 31, 1995, the
Company paid this affiliate approximately $103,215 for
consulting and professional fees and also recognized revenues in
the amount of $32,000 from this affiliate at December 31, 1995.
The Company utilizes the video production services of Royal Lane
Studios, Inc., a company controlled by a shareholder of the
Company. At December 31, 1996, the Company paid $657,434 for
services, prior to the discontinuance of operations. At December
31, 1995, the Company paid or accrued approximately $493,390 for
video production services as a component of cost of sales.
Also, the Company paid this affiliate $34,000 in consulting fees
for the year ended December 31, 1995.
During the periods ended December 31, 1996 and 1995, the Company
has paid or accrued approximately $535,375 and $40,110 for
legal, accounting and consulting services to three individuals
who are either direct shareholders of the Company or affiliated
with corporate shareholders of the Company.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
In August 1994, the Company entered into an agreement with an
unrelated third party corporation to provide investment banking
and financial consulting services. The agreement
<PAGE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
requires monthly fees of approximately $3,500, which is deferred
until such time that capital is raised for the Company as a
direct result of the agreement, payment of all direct
out-of-pocket expenses and the payment of a separately
negotiated "success" fee upon the consummation of a transaction
introduced by the consultant. Further, the agreement grants the
consultant a five-year option to acquire 4,000,000 (160,000
post-split) shares of the Company's common stock at a price of
$.02 per share. The shares will have a one-time registration
right at the Company's expense and will have "piggyback" rights
in the event of any other registration of Company securities.
This agreement was terminated in 1995.
In October 1995, the Company entered into a three year agreement
with an unrelated third party corporation to provide investment
banking and financial consulting services. The agreement
requires an initial payment of $36,000 in 1995 and a payment of
$3,000 per month during the second and third years of the
agreement. Further, the agreement grants the consultant
warrants to acquire 200,000 shares of the Company's common stock
at a price of $3.0625 per share within five years.
In November 1995, the Company entered into a one year agreement
with an unrelated third party corporation to provide investment
banking and financial consulting services. The agreement grants
the consultant a five year option to acquire 100,000 shares of
the Company's common stock at a price of $3.0625 per share.
NOTE 14 - DISCONTINUED OPERATIONS
On December 20, 1996, the Company discontinued the operations of
its subsidiary, Interactive Systems, Inc., which produced and
sold infomercial and commercial demonstration videos for
unrelated third party corporate customers. Other subsidiaries
and divisions continue to produce and sell these products. The
discontinuation resulted in a loss of $ 4,439,534.
Following is a summary of net assets and results of operations
of Interactive Systems, Inc., as of December 31, 1996
Assets
$ 0
Total Assets
Other Liabilities
641,879
Net Assets $ (641,879)
Sales $ 41,821
Costs and Expenses
5,966,048
Net Loss
$ (6,007,869)
<PAGE>
