DEFINITION, LTD.
ANNUAL REPORT ON FORM 10-KSB FOR THE
YEAR ENDED 12/31/97 - PAGE 1U.S. SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
Form 10-KSB
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Fiscal
Year Ended December 31, 1997
[ ] 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 of
Small Business Issuer in its Charter)
NEVADA
75-2293489
(State or other jurisdiction of
(IRS Employer incorporation organization)
Identification No.)
1334 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
Name of Exchange on Which Registered
None 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
$205,798.
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 September 21, 1998, was
approximately $1,207,329.
The number of shares outstanding of the issuer's common equity
as of September 21, 1998, was 10,498,512 shares of common stock,
par value $.001.
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/Internet 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.
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 parties 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.
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
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
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 an 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.
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. During the 1998, the Company hired approximately five
employees and it does not expect to add
<PAGE>
more than five employees
during the remainder of 1998. 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 an 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, 1997.
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, 1996 and 1997, and the quarter ended March,
31, 1998 and June 30, 1998, as reported by the OTC Electronic
Bulletin Board, is set forth in the table below.
Quarter Ended High Low
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
<PAGE>
March 31, 1997 .50 .3125
June 30, 1997 .10 .11
September 30, 1997 .25 .31
December 31, 1997 .28 .31
March 31, 1998 .38 .41
June 30, 1998 .26 .29
On September 21, 1998, the last reported bid and asked prices
for the Company's Common Stock, as reported by the OTC
Electronic Bulletin Board, were $.11 and $.12 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 September 21, 1998 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.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(1) Results of Operations
The Company continues to operate its TV Station with revenues
for 1997 of $205,798 compared with revenues in 1996 of $24,995,
an increase of $180,803 or 723%. The increase was the result
of applied extensive research and development during 1996.
Also, the Company's General and Administrative costs increased
from $27,437 in 1996 to $230,930 in 1997, an increase of
$203,493, or 742%. The increase was due principally to an
increase in rent expense $37,288 and a write-off of
uncollectible accounts receivables of $82,071. The remainder of
the increase represents reclassifications of expenses to general
and administrative expenses in 1997 from research and
development in 1996. Consulting and other professional fees
decreased from $596,148 in 1996 to $360,725, a decrease of
$235,423, or 40%. The decrease was the result of the Company's
attempt to inquire into the possible acquisition or merger with
other similar businesses. Research and development expenses
decreased from $773,300 in 1996 to $0 in 1997. The decrease was
the result of the Company's shift from research and development
to operations.
(2) Liquidity
At December 31, 1997, the Company had a negative working capital
of $40,685, as compared to a positive working capital at
December 31, 1996 of $44,683. The decrease is related to the
decrease in accounts
<PAGE>
receivable as a result of the discontinued
operations of ISI. Management 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 ended December
31, 1997 and 1996. F-1 to F-17
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
None.
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
Charles Kiefner(1) 59
President, CEO and Secretary
Elmer J. Jones (2) 72 Vice-President,
Treasurer
No family relationships exist among the officers and directors
of the Company.
_____________________
(1) Has served in this capacity since August 14, 1997
(2) Has served in this capacity since April 15, 1998
Compensation of Directors
During the fiscal year ended December 31, 1997, 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.
<PAGE>
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
No executive of the Company received compensation, in total
salary or bonus, exceeding $100,000 during each of the last
three fiscal years.
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, 1997. The Company has never
granted any stock appreciation rights ("SARs"), nor does it
expect to grant any SARs in the foreseeable future.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information as of
September 21, 1998, 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 September
21, 1998, there were approximately 10,498,512 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 September 21, 1998 Percent of
Class(1)
Al Jones 49,737 *
661 Old Town Road
Port Jefferson, NY 11776
________________
All Officers and Directors
as a Group (2 persons) 49,737
_______________
(1) Based on 10,498,512 shares outstanding.
<PAGE>
Item 12. Certain Relationships and Related Transactions
The Company has engaged in no transaction required to be
described herein.
Item 13. Exhibits
(a)(1) Financial Statements
Independent Auditors' Report
F-1
Consolidated Balance at December 31, 1997 and 1996
F-2 F-3
Consolidated Statement of Operations for the Years Ended
December 31, 1997 and 1996
F-4 F-5
Consolidated Statement of Stockholders' Equity
for the Years Ended December 31, 1997 and 1996
F-6 F-7
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997 and 1996
F-8 F-9
Notes to Financial Statements
F-10 F-17
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:
Charles Kiefner
President and
Chief Executive Officer
Dated ___________________
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>
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheet at December 31, 1997 and 1996 . . . .
. . . . . . F-2 F-3
Consolidated Statement of Operations For the Years Ended
December 31, 1997 and 1996 . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . F-4 F-5
Consolidated Statement of Changes in Stockholders' Equity
For the Years Ended December 31, 1997 and 1996 . . . .
. . . . . . . . . . . . F-6 F-7
Consolidated Statement of Cash Flows For the Years Ended
December 31, 1997 and 1996 . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . F-8 F-9
Notes to the Financial Statements . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . F-10 F-17
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or
notes thereto.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Definition, Ltd. and Subsidiaries
Lake Park, Florida
We have audited the accompanying consolidated balance sheet of
Definition, Ltd. (the Company), as of December 31, 1997 and 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 financial statements present fairly, in all
material respects, the consolidated financial position of the
Company at December 31, 1997 and 1996, and the consolidated
results of their operations and their consolidated cash flows
for the years then ended, in conformity with generally accepted
accounting principles.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
September 21, 1998
DEFINITION, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
Current Assets
Cash and Cash Equivalents $ 1,990 $ 63,151
Accounts Receivable, Net of Allowance for Doubtful Accounts of
$0 and $25,000, at 1997 and 1996, Respectively 0
73,600
Accounts Receivable, Other 0 5,626
Total Current Assets 1,990 142,377
Property and Equipment
Broadcast Resource Library 2,985,536 2,985,536
Computer, Production and Broadcast Equipment
261,398 224,582
Building and Improvements 469,153 469,153
3,716,087 3,679,271
Less Accumulated Depreciation
(1,996,179) (1,519,136)
Property and Equipment, Net 1,719,908 2,160,135
Total Assets $ 1,721,898 $ 2,302,512
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
LIABILITIES AND
STOCKHOLDERS' EQUITY
1997 1996
Current Liabilities
Mortgage Payable, Current Portion (Note 8)
$ 1,655 $ 1,484
Accounts Payable, Trade
17,500 72,500
Payroll Tax Liabilities
23,700 23,700
Total Current Liabilities
42,855 97,684
Long-Term Liabilities
Mortgage Payable, Noncurrent Portion (Note 8) 78,480 80,280
Notes Payable
0 27,000
Total Long-Term Liabilities 78,480 107,280
Total Liabilities 121,335 204,964
Stockholders' Equity
Preferred Stock: Authorized $0.01 Par Value, 5,000,000
Shares; Issued and Outstanding, None None None
Common Stock: Authorized $0.001 Par Value, 75,000,000 Shares;
Issued and Outstanding, 7,773,512 Shares and 5,203,512
Shares at December 31, 1997 and 1996 7,774
5,204
Additional Paid In Capital 11,090,530 8,711,100
Retained Earnings (Deficit) (9,497,741) (6,618,756)
Total Stockholders' Equity 1,600,563 2,097,548
Total Liabilities and Stockholders' Equity $ 1,721,898 $
2,302,512
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Revenues $ 205,798 $ 24,995
Cost of Revenues 9,471 0
Gross Profit 196,327 24,995
Operating Expenses
General and Administrative 230,930 27,437
Consulting and Other Professional Fees 360,725 596,148
Research and Development 0 773,300
Depreciation and Amortization 477,043 867,724
Total Operating Expenses
1,068,698 2,264,609
Loss From Operations (872,371) (2,239,614)
Other Expense
Write-Off, Investment in Joint Venture
(2,000,000) 0
Interest Expense (6,614) (6,460)
Total Other Expense (2,006,614) (6,460)
Loss Before Income Taxes and Discontinued
Operations (2,878,985) (2,246,074)
Provision for Income Taxes 0 0
Loss From Continuing Operations
(2,878,985) (2,246,074)
Discontinued Operations
Disposal of Segment of a Business 0 (4,439,534)
Net Loss $ (2,878,985) $ (6,685,608)
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Earnings Per Common Share and Common Stock Equivalents:
Loss Per Weighted Average Share of Common Stock
Primary
From Operations $ (0.38) $ (0.14)
From Discontinued Operations 0 (1.20)
Total Primary Earnings Per Share $ (0.38) $
(1.34)
Fully Diluted
From Operations $ (0.38) $ (0.14)
From Discontinued Operations 0 (1.20)
Total Fully Diluted Earnings Per Share $ (0.38) $
(1.34)
Weighted Average Number of Common Shares Outstanding:
Primary 7,601,011 5,002,398
Fully Diluted 7,601,011 5,002,398
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Common Shares Stock Amount Additional Paid
In Capital Retained Earnings
(Deficit) Deferred Advertising
Credits Total
Balance, December 31, 1995 4,891,842 4,892 9,650,422
66,852 (1,753,122) 7,969,044
Issuance of Common Stock For Consulting Services
Rendered, July 1, 1996 190,000
190
534,185 534,375
Issuance of Common Stock 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, Year Ended December 31, 1996
(6,685,608)
(6,685,608)
Balance, December 31, 1996 5,203,512 5,204 8,711,100
(6,618,756) 0 2,097,548
Issuance of Common Stock For Consulting Services
Rendered, February 3, 1997 640,000 640
255,360 256,000
Issuance of Common Stock For Investment in Joint
Venture, February 3, 1997 1,340,000 1,340 1,998,660
2,000,000
Issuance of Common Stock For Services Rendered,
February 28, 1997 40,000 40 15,960 16,000
Issuance of Common Stock For Legal Services
Rendered, June 3, 1997 250,000 250 49,750 50,000
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Common Shares Stock Amount Additional Paid
In Capital Retained Earnings
(Deficit) Deferred Advertising
Credits Total
Issuance of Common Stock For Legal Services
Rendered, September 3, 1997 300,000 300
59,700 60,000
Net Loss, Year Ended December 31, 1997
(2,878,985)
(2,878,985)
Balance, December 31, 1997 7,773,512 $ 7,774 $ 11,090,530 $
(9,497,741) $ 0 $ 1,600,563
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Cash Flows from Operating Activities
Net Loss $ (2,878,985) $(6,685,608)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities
Depreciation and Amortization 477,043 1,001,074
Common Stock Issued for Services 382,000 535,375
Loss on Disposal of Fixed Assets 0 333,441
Write-off, Investment/Loss From Joint Venture 2,000,000
330,602
Bad Debt Expense 46,600 0
Write-off of Assets 0 1,876,430
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable 0
3,270,774
(Increase) Decrease in Accounts Receivable, Other 5,626
0
Increase (Decrease) in Accounts Payable, Trade
(55,000) 43,765
Increase (Decrease) in Accounts
Payable-Affiliates 0 (641,879)
Increase (Decrease) in Payroll Tax Liabilities
0 23,700
Total Adjustments 2,856,269 6,773,282
Net Cash Provided by Operating Activities
(22,716) 87,674
Cash Flows From Investing Activities
Purchase of Property and Equipment
(36,816) (321,580)
Net Cash flows Used in Investing Activities (36,816) (321,580)
Cash Flows from Financing Activities
Principal Payment on Mortgage Payable (1,629) (1,343)
Proceeds (Repayments) From Long Term Debt 0 27,000
Proceeds From the Issuance of Common Stock 0
93,950
Net Cash Provided by (Used in) Financing Activities ( 1,629)
119,607
Decrease in Cash and Cash Equivalents
(61,161) (114,299)
Cash and Cash Equivalents at Beginning of Year 63,151
177,450
Cash and Cash Equivalents at End of Year $ 1,990 $
63,151
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest $ 6,614 $ 6,460
Income taxes $ 0 $ 0
Supplemental Schedule of NonCash Investing and
Financing Activities:
Exchange of Non-Affiliated Broadcast Airtime Credits for
Affiliated Broadcast Airtime Credits and
Cancellation in 1996 $ 0 $(1,568,335)
Issuance of Common Stock for Services Rendered $ 382,000 $
535,375
Exchange of Common Stock for Investment in Joint Venture
$ 2,000,000 $ 0
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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. The authorized capital stock of the
Corporation consists of 50,000,000 shares of Common Stock,
$0.001 par value per share and 5,000,000 shares of Preferred
Stock, $0.01 par value per share. 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
airtime 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. Effective March
31, 1995, the Company reversed split on a 25-for-1 basis, such
that for every twenty five (25) shares of common stock
outstanding, there remained one (1) share of common stock
outstanding. The authorized number of shares of common stock
did not change.
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/Internet 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.
In August 1993, the Company created a new wholly-owned
subsidiary, Interactive Systems, Inc., (ISI) (a Nevada
Corporation) which porduced and sold informercial and commercial
demonstration videos for unrelated third party corporate
customers. Other subsidiaries and divisions continue to produce
and sell these products. In December 1996, the Company
discontinued the operations of this subsidiary. See Note 11.
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. WINQ-TV also operates as a
traditional television station, deriving revenues through sales
of advertising time.
Through the Company's wholly-owned subsidiary ISI, the Company
entered into a joint venture in February 1995 with Academy
Concepts of Baltimore, Maryland, in a project 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.
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
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE I - ORGANIZATION (CONTINUED)
performed by the Company. In 1998, the Company has hired
approximatley ten 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 subsidiaries,
Definition Technologies, Inc. And Interactive Systems Inc. All
significant intercompany transactions and balances have been
eliminated in consolidation. The purchase method of accounting
is used for joint ventures. (Note 6)
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 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.
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.
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
Depreciation expense charged to operations for 1997 and 1996 was
$477,043 and $636,699, respectively.
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.
I. Deferred Advertising and Broadcast Airtime Credits
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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.
K. 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.
L. 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.
M. Pending Accounting Pronouncements
It is anticipated that current accounting pronouncements will
not have an adverse impact on the financial statements of the
Company.
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
N. Financial Statement Presentation
Due to the change in classification of some accounts, the
financial statements may be presented slightly different than in
the previous year.
NOTE 3 - DEFERRED ADVERTISING CREDITS
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 11)
NOTE 4 - 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 5).
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 5 - 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 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.
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 5 - LICENSE AGREEMENT (CONTINUED)
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 4)
NOTE 6 - INVESTMENTS IN JOINT VENTURES
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.
On February 3, 1997, the Company issued 1,340,000 shares of
common stock for a total value of $2,000,000 in exchange for an
investment in a joint venture. The contract, dated December
31, 1996, was for the acquisition of a 49% interest in World
WideR Internet
Business Centres, J.V. The Company exchanged 1,340,000 shares
of the $0.001 par value common stock valued at $2,000,000. The
joint venture was formed to develop,
establish and operate twenty-six, or more, business operations
to be known as "World WideR Internet Business Centres". On
December 31, 1997, the Company had abandoned its efforts with
the joint venture and wrote off the investment of $2,000,000.
NOTE 7 - INCOME TAXES
Income taxes are accounted for in accordance with SFAS 109,
"Accounting for Income Taxes". For the years ended December
31, 1997 and 1996, there were no differences between book and
tax loss. The losses incurred of $2,878,985 and $6,685,608, at
December 31, 1997 and 1996, are available for carryforward and
will expire in the years 2011 and 2012 if not utilized.
NOTE 8 - 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 the Company.
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 8 - MORTGAGE PAYABLE (CONTINUED)
Future maturities of mortgages payable are as follows:
Year Ending December 31,
1998 $ 1,655
1999 $ 1,847
2000 $ 2,061
2001 $ 2,299
2002 and thereafter $ 72,273
NOTE 9 - RELATED PARTY TRANSACTIONS
In 1995, as a result of the acquisition of broadcast airtime
from WINQ-TV 19, a company (broadcast station) controlled by a
shareholder of the Company, 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 $303,315 of revenues and costs, respectively, in
1996.
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 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.
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
<PAGE>
DEFINITION, LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 11 - 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:
Total Assets $ 0
Other Liabilities 641,879
Net Assets $ (641,879)
Sales $ 41,821
Costs and Expenses 5,966,048
Net Loss $ (5,924,227)
<PAGE>
