DEFINITION, LTD.
ANNUAL REPORT ON FORM 10-KSB FOR THE
YEAR ENDED 12/31/98 - 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, 1998.
[ ] 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 as specified in its Charter)
NEVADA
75-2293489
(State or other jurisdiction of
(IRS Employer
incorporation organization)
Identification No.)
4625 W. Nevso Drive, Suite 2, Las Vegas,
NV 89103
(Address of principle e
executive offices, including zip code)
(702) 257-2367
(Registrant'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, traded on the OTC
Electronic Bulletin Board
Preferred Stock $.01 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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 ]
Indicate by check by mark if disclosure of delinquent filers in
response to Item 405 of Regulation S-K is not contained herein,
and will not 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
$234,373.
Aggregate market value of Common Stock, $0.001 par value, held
by non-affiliates of the registrant as of August 13, 1999:
$13,345,233. Number of shares of Common Stock, $0.001 par
value, outstanding as of August 13, 1999: 11,832,429.
Transitional Small Business Disclosure Format (check one): Yes [
] No [X]
PART I
Item 1. Description of Business
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.
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.
The Company has two subsidiaries: (1) Definition Technologies,
Inc., (DTI) a Texas corporation, operates a community
(low-power) television station transmitting from West Palm
Beach, Florida, WINQ-TV (WINQ) Channel 19. WINQ also operates
as a traditional television station, deriving revenues through
sales of advertising time; (2) Interactive Systems, Inc. (ISI)
(a Nevada Corporation), through which the Company owns a real
estate condo. No other activities are performed through this
subsidiary.
Business Development
References to the "Company" include, WINQ-TV, DTI and ISI,
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. 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.
Regulation
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 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.
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
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.
Employees
The Company employs approximately twenty persons at its
television station, and three persons at corporate headquarters,
all of whom are officers of the Company. Currently, the Company
contracts with outside parties for other services required to be
performed by the Company, as needed.
Risk Factors
Continued Control by Existing Management
The Company's management currently owns a substantial stake in
the Company's outstanding Common Stock. Accordingly, new
shareholders will lack an effective vote with respect to the
election of directors and other corporate matters.
Dependence on Executive Officers
The Company is highly dependent on the services of its officers.
Attracting and retaining qualified personnel is critical to the
Company's business plan. No assurances can be given that the
Company will be able to retain or attract such qualified
personnel or agents. Should the Company be unable to attract
and retain qualified personnel necessary, the ability of the
Company to implement its business plan successfully would be
limited.
Potential Fluctuations in Quarterly Results
The Company's operating results have varied on a quarterly basis
during its limited operating history, and the Company expects to
experience significant fluctuation in future quarterly operating
results. Such fluctuations have been and may in the future be
caused by numerous factors, many of which are outside of the
Company's control. The Company believes that period to period
comparisons of its results of operations will not necessarily be
meaningful and should not be relied upon as an indication of
future performance. Also, if is likely that in some future
quarter or quarters, the Company's operating results will be
below the expectations of public market analysts and investors.
In such an event, the price of the Company's Common Stock would
be materially and adversely affected.
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.
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 has a mortgage payable on a real estate condo
through ISI in Lake Park, Florida.
The Company 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.
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, 1998.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
(a) 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, 1997 and 1998, and the quarter ended March,
31, 1999 and June 30, 1999, as reported by the OTC Electronic
Bulletin Board, is set forth in the table below.
Quarter Ended High Low
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
September 30, 1998 .09 .10
December 31, 1998 .04 .05
March 31, 1999 1.125 1.18
June 30, 1999 1.06 1.34
On August 12, 1999, the last reported bid and asked prices for
the Company's Common Stock, as reported by the OTC Electronic
Bulletin Board, were $1.125 and $1.375 per share, respectively.
Such quotations reflect inter-dealer prices, without retail
markup, retail markdown or commission, and may not represent
actual transactions.
(b) Holders
As of August 12, 1999, there were approximately 1,200
stockholders of record of the Company's Common Stock.
(c) Dividends
The Company has never paid a dividend and does not anticipate
paying any dividends in the foreseeable future. IT is the
present policy of the Board of Directors to retain the Company's
earnings, if any, for the development of the Company's business.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with the
financial statements and notes thereto included in Item 7 of
this Form 10-KSB. Except for the historical information
contained herein, the discussion in this annual report on Form
10-KSB contains certain forward-looking statements that involve
risk and uncertainties, such as statements of the Company's
plans, objectives, expectations and intentions. The cautionary
statements made in this document should be read as being
applicable to all related forward-looking statements wherever
they appear in this document. The Company's actual results
could differ materially from those discussed here. Factors that
could cause differences include those discussed below in "Risk
Factors", as well as discussed elsewhere herein.
(1) Results of Operations
The Company continues to operate its TV Station with revenues
for 1998 of $234,373 compared with revenues in 1997 of $205,798,
an increase of $28,575 or 14%. Revenues remain constant as
the Company continues to develop its business.
General and Administrative costs increased from $1,014,728 in
1997 to $2,150,980 in 1998, an increase of $1,136,252, or 112%.
Consulting and other professional fees increased from $360,725
in 1997 to $1,374,566, an increase of $1,013,841, or 281%. The
increase is primarily attributable to costs associated with
business development of advertising and marketing programs,
public relations, and legal and accounting services, resulting
from Company's attempt to inquire into the possible acquisition
or merger with other similar lines of business.
(2) Liquidity and Capital Resources
At December 31, 1998, the Company had a negative working capital
of $221,621, as compared to a negative working capital at
December 31, 1997 of $40,865. The increase is a result of an
increase in payables due to a lack of working capital and an
increase of sources of funds from related parties to help fund
the Company's ongoing expenses.
During 1998, the Company used $284,609 of net cash from
operating activities as compared to $22,716 in 1997 primarily to
fund ongoing operating expenses. The Company used $49,109 of
working capital funds during 1998 and $36,816 during 1997 to
purchase television, video, and related equipment to support its
television station operations. To raise money for ongoing
business development, the Company obtained $200,000 during 1998
from the sale of common stock and was advanced $164,383 from
related parties. Management intends to seek additional funding
from private or public equity investments to meet the increased
working capital needs in the next 12 months.
The Company's future funding requirements will depend upon
numerous factors, including the Company's ability to acquire and
successfully run newly acquired companies.
(3) Year 2000
The Year 2000 issue arose because many existing computer
programs use only the last two digits to refer to a year.
Therefore, these computer programs do not properly recognize a
year that begins with 20 instead of 19. If not corrected, many
computer applications could fail or create erroneous results.
Management is in the process of evaluating the Company's
exposure to date-sensitive computer software programs that may
not operate subsequent to 1999, in order to implement a course
of action to minimize costs and disruption of normal business
operations in the year 2000. However, because there is no
guarantee that all systems of outside vendors, or other entities
affecting the Company's operations, will be year 2000 compliant,
the Company is susceptible to consequences of the year 2000
issue.
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
Donna Anderson 61 President
and CEO
Charles Kiefner 60 Chairman
and Secretary
No family relationships exist among the officers and directors
of the Company.
Compensation of Directors
During the fiscal year ended December 31, 1998, 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
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, 1998. 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 August
12, 1999, 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 August
12, 1999, there were approximately 11,862,429 shares of Common
Stock issued and outstanding.
Number of Shares
Name and Address of of Common Stock
5% Beneficial Owners, Beneficially Owned
Officers and Directorss at August 12, 1999 Percent of
Class(1)
Charles Kiefner 5,489,500 46%
238 Wilshire Blvd., Ste 149
Casselberry, FL 32707
Elmer Jones 1,050,000 9%
238 Wilshire Blvd., Ste 149
Casselberry, FL 32707
Orville Baldridge 1,431,000 12%
238 Wilshire Blvd., Ste 149
Casselberry, FL 32707
William B. Turner 1,110,000 9%
429 Seaview Avenue
Palm Beach, FL 33480-4109
Donna Anderson 1,200,000 10%
4625 W. Nevso Drive, Suite 2
Las Vegas, NV 89103
_______________________
All Officers and Directors
as a Group (5 persons) 6,689,500
56%
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, 1998 and 1997
F-2 F-3
Consolidated Statement of Operations for the Years Ended
December 31, 1998 and 1997
F-4
Consolidated Statement of Stockholders' Equity
for the Years Ended December 31, 1998 and 1997
F-5 F-6
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998 and 1997
F-7 F-8
Notes to Financial Statements
F-9 F-14
(a)(2) Financial Data Schedule
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized on this 13th day of August, 1999.
DEFINITION, LTD.
By:
Donna Anderson
President
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
[ARTICLE] 5
[LEGEND]
This schedule contains summary financial information extracted
from 1998 Form 10KSB and is qualified in its entirety by
reference to such financial statements.[/LEGEND]
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[CASH] 31,144
[SECURITIES] 0
[RECEIVABLES] 0
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 31,144
[PP&E] 1,239,363
[DEPRECIATION] 529,654
[TOTAL-ASSETS] 1,416,757
[CURRENT-LIABILITIES] 252,765
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 25,099
[OTHER-SE] 1,062,166
[TOTAL-LIABILITY-AND-EQUITY] 1,416,757
[SALES] 234,373
[TOTAL-REVENUES] 234,373
[CGS] 224,415
[TOTAL-COSTS] 2,150,980
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 12,326
[INCOME-PRETAX] (2,153,348)
[INCOME-TAX] 0
[INCOME-CONTINUING] (2,153,348)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
<NET INCOME> (2,153,348)
[EPS-BASIC] (.17)
[EPS-DILUTED] (.17)
<PAGE>
<PAGE>
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheet at December 31, 1998 and 1997 . . . .
. . . . . . F-2 F-3
Consolidated Statement of Operations For the Years Ended
December 31, 1998 and 1997 . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Changes in Stockholders' Equity
For the Years Ended December 31, 1998 and 1997 . . . .
. . . . . . . . . . . . F-5 F-6
Consolidated Statement of Cash Flows For the Years Ended
December 31, 1998 and 1997 . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . F-7 F-8
Notes to the Consolidated Financial Statements . . . . . . . . .
. . . . . . . . . . . . . F-9 F-14
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or
notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Definition, Ltd.
Las Vegas, Nevada
We have audited the consolidated balance sheet of Definition,
Ltd. (the Company), as of December 31, 1998 and 1997, 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, 1998 and 1997, 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
August 9, 1999
<PAGE>
ASSETS
1998 1997
Current Assets
Cash and Cash Equivalents $ 31,144 $ 1,990
Property and Equipment (Note 2)
Broadcast Resource Library 2,985,536 2,985,536
Computer, Production and Broadcast Equipment
310,508 261,398
Building and Improvements 469,153 469,153
3,765,197 3,716,087
Less Accumulated Depreciation
(2,525,834) (1,996,179)
Property and Equipment, Net 1,239,363 1,719,908
Other Assets
Prepaid Airtime (Note 3) 146,250 0
Total Assets $ 1,416,757 $ 1,721,898
LIABILITIES AND
STOCKHOLDERS' EQUITY
1998 1997
Current Liabilities
Mortgage Payable, Current Portion (Note 4)
$ 1,847 $ 1,655
Accounts Payable, Trade
62,835 17,500
Payroll Tax Liabilities
23,700 23,700
Due to Related Party (Note 5) 164,383 0
Total Current Liabilities
252,765 42,855
Long-Term Liabilities
Mortgage Payable, Noncurrent Portion (Note 4) 76,777
78,480
Total Liabilities 329,542 121,335
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, 50,000,000 Shares;
Issued and Outstanding, 25,098,580 Shares and 7,773,512
Shares at December 31, 1998 and 1997 25,099 7,774
Additional Paid In Capital 12,713,205 11,090,530
Retained Earnings (Deficit) (11,651,089) (9,497,741)
Total Stockholders' Equity 1,087,215 1,600,563
Total Liabilities and Stockholders' Equity $ 1,416,757 $
1,721,898
<PAGE>
Year Ended December 31, 1998 Year Ended December 31, 1997
Revenues $ 234,373 $ 205,798
Cost of Revenues 224,415 63,441
Gross Profit 9,958 142,357
Operating Expenses
General and Administrative 2,150,980 1,014,728
Operating Loss (2,141,022) (872,371)
Other Expense
Write-Off, Investment in Joint Venture (Note 6) 0 (2,000,000)
Interest Expense (12,326) (6,614)
Total Other Expense (12,326) (2,006,614)
Net Loss Available to Common Stockholders $ (2,153,348) $
(2,878,985)
Basic Loss Per Common Share $ (0.17) $
(0.38)
Basic Weighted Average Common Shares Outstanding 12,801,913
7,601,011
<PAGE>
Preferred Shares Stock Amount Common Shares
Stock Amount Additional Paid In Capital
Retained Earnings (Deficit) Total
Balance, December 31, 1996 0 $ 0 5,203,512 $
5,204 $ 8,711,100 $ (6,618,756) $ 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
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 0 0 7,773,512 7,774 11,090,530
(9,497,741) 1,600,563
Issuance of Common Stock For Cash, March 5, 1998
20,000 20 19,980 20,000
Cancellation of Shares Issued For Legal Services on
September 3, 1997 (300,000) (300) (59,700) (60,000)
Issuance of Common Stock For Legal Services Rendered,
April 1, 1998 600,000 600 209,400 210,000
Issuance of Common Stock For Legal Services Rendered,
April 14, 1998 900,000 900 314,100 315,000
Preferred Shares Stock Amount Common Shares
Stock Amount Additional Paid In Capital
Retained Earnings (Deficit) Total
Issuance of Common Stock For Services Rendered, May 5,
1998 325,000 325 194,675 195,000
Issuance of Common Stock For Cash, May 15, 1998
30,000 30 29,970 30,000
Issuance of Common Stock For Services Rendered, July 16, 1998
1,000,000 1,000 49,000 50,000
Issuance of Common Stock For Cash, July 30, 1998
50,000 50 49,950 50,000
Issuance of Common Stock For Cash, September 9, 1998
50,000 50 49,950 50,000
Issuance of Common Stock For Cash, September July 30
,1998 50,000 50 49,950 50,000
Issuance of Common Stock For Services Rendered, October 15,
1998 11,500,000 11,500 563,500 575,000
Issuance of Common Stock For Services Rendered, November 9,
1998 100,000 100 4,900 5,000
Issuance of Common Stock For Services Rendered, November 23,
1998 3,000,000 3,000 147,000 150,000
Fractional Shares 68
Loss, Year Ended December 31, 1998
(2,153,348) (2,153,348)
Balance, December 31, 1998 0 $ 0 25,098,580 $
25,099 $ 12,713,205 $ (11,651,089) $ 1,087,215
<PAGE>
Year Ended December 31, 1998 Year Ended December 31, 1997
Cash Flows From Operating Activities
Net Loss $ (2,153,348) $ (2,878,985)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities
Depreciation and Amortization 529,654 477,043
Other Noncash Items 48,750
Common Stock Issued for Services 1,245,000 382,000
Write-off, Investment/Loss From Joint Venture 0
2,000,000
Bad Debt Expense 0 46,600
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable, Other 0
5,626
Increase (Decrease) in Accounts Payable, Trade
45,335 (55,000)
Total Adjustments 1,868,739 2,856,269
Net Cash Used In Operating Activities (284,609) (22,716)
Cash Flows From Investing Activities
Purchase of Property and Equipment
(49,109) (36,816)
Net Cash Flows Used In Investing Activities (49,109) (36,816)
Cash Flows From Financing Activities
Principal Payment on Mortgage Payable (1,511) (1,629)
Proceeds From the Issuance of Common Stock 200,000
0
Advances From Related Party 164,383 0
Net Cash Provided By (Used In) Financing Activities 362,872 (
1,629)
Increase (Decrease) in Cash and Cash Equivalents
29,154 (61,161)
Cash and Cash Equivalents at Beginning of Year 1,990 63,151
Cash and Cash Equivalents at End of Year $ 31,144 $
1,990
Year Ended December 31, 1998 Year Ended December 31, 1997
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest $ 11,242 $ 6,614
Income taxes $ 0 $ 0
Supplemental Schedule of Noncash Investing and
Financing Activities:
Issuance of Common Stock for Services Rendered $ 1,245,000 $
382,000
Exchange of Common Stock for Investment in Joint Venture
$ 0 $ 2,000,000
Issuance of Common Stock for Prepaid Airtime $ 195,000 $
0
<PAGE>
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.
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.
The Company has two subsidiaries: (1) Definition Technologies,
Inc., (DTI) a Texas corporation, operates a community
(low-power) television station transmitting from West Palm
Beach, Florida, WINQ-TV (WINQ) Channel 19. WINQ also operates
as a traditional television station, deriving revenues through
sales of advertising time; (2) Interactive Systems, Inc. (ISI)
(a Nevada Corporation), through which the Company owns a real
estate condo. No other activities are performed through this
subsidiary.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation
The Company consolidates its wholly owned subsidiaries DTI and
ISI. All significant intercompany transactions and balances
have been eliminated in consolidation. The purchase method of
accounting is used for joint ventures. (Note 5)
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 instruments with a
maturity of three months or less when acquired to be cash and
cash equivalents.
D. Revenue Recognition
Revenues are recognized as services are performed.
E. Property and Equipment
The cost of property, plant and equipment, stated at cost, is
depreciated over the estimated useful lives of the assets,
ranging from five to thirty-nine years. Depreciation
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
expense charged to operations during 1998 and 1997 was $529,654
and $477,043, respectively.
Expenditures for repairs and maintenance are charged to the
expense as incurred.
F. Earnings/Loss Per Share of Common Stock
Basic earnings or loss per share has been computed based on the
weighted average number of common shares. All earnings or loss
per share amounts in these financial
statements are basic earnings or loss per share as defined by
SFAS No. 128, "Earnings Per Share." Diluted weighted average
shares outstanding exclude the potential common shares from
warrants and stock options because to do so would have been
antidilutive.
G. Use of Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance 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 revenues and expenses.
Actual results could vary from the estimates that were assumed
in preparing the financial statements.
H. Income Taxes
The Company accounts for income taxes under the provisions of
SFAS No. 109, "Accounting for Income Taxes." Under SFAS No.
109, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of
assets and liabilities, using enacted tax rates in effect for
the year in which the differences are expected to reverse. See
Note 6.
I. Capital Structure
The Company has implemented SFAS No. 129, "Disclosure of
Information about Capital Structure," effective January 1,
1998, which established standards for disclosing information
about an entity's capital structure. The implementation of SFAS
No. 129 had no effect on the Company's financial statements
J. Comprehensive Income
The Company has implemented SFAS No. 130, "Reporting
Comprehensive Income," effective January 1, 1998, which requires
companies to classify items of other comprehensive income by
their nature in a financial statement and display the
accumulated balance of other comprehensive income separately
from retained earnings and additional
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
paid in capital in the equity section of a statement of
financial position. The implementation of SFAS No. 130 had no
effect on the Company's financial statements.
K. Business Segment Information
The Company implemented SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," on January
1, 1998. The Company operates in one industry segment, that
being the television and media industry. The Company does not
have any significant customers or concentration of credit risk.
L. Presentation
Certain accounts from prior years have been reclassified to
conform with the current year's presentation.
M. Pending Accounting Pronouncements
It is anticipated that current pending accounting pronouncements
will not have an adverse impact on the
financial statements of the Company.
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 - PREPAID AIRTIME
On May 6, 1998, the Company issued 325,000 shares of common
stock at $0.60 per share, or $195,000, to Omni-Lingual
Broadcasting Corp. in exchange for airtime of The Ed Taxin Show
for the period from October 1, 1997 to February 26, 1999. As of
December 31, 1998, 15/60 of the airtime has elapsed. The
balance represents prepaid airtime at December 31, 1998 of
$146,250. See Note 8.
NOTE 4 - MORTGAGE PAYABLE
On January 29, 1995, ISI purchased an office condominium located
in Lake Park, Florida, which it purchased 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
NOTE 4 - MORTGAGE PAYABLE (CONTINUED)
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.
Future maturities of mortgages payable for the year ended
December 31 follows:
1999 $ 1,847
2000 $ 2,061
2001 $ 2,299
2002 $ 2,565
2003 and thereafter $ 69,852
NOTE 5 - RELATED PARTY TRANSACTIONS
From time to time, certain related parties advance monies to
fund the operating expenses of the Company as needed. At
December 31, 1998, the Company was indebted to certain related
parties in the amount of $164,383, bearing no interest, and due
on demand.
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 6 - INVESTMENTS IN JOINT VENTURES
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
The deferred tax consequences of temporary differences in
reporting items for financial statement and income tax purposes
are recognized, as appropriate. Realization of the future tax
benefits related to the deferred tax assets is dependent on many
factors, including the Company's ability to generate taxable
income within the net operating loss carryforward period.
Management has considered these factors in reaching its
conclusion as to the valuation allowance for financial reporting
purposes. The income tax effect of temporary differences
comprising the deferred tax assets and deferred tax liabilities
on the accompanying balance sheet is a result of the following:
Deferred Tax Asset 1998 1997
Net Operating Loss Carryforwards $ 1,722,467
$ 994,520
Valuation Allowance (1,722,467)
(994,520)
Net Deferred Tax Asset $ 0
$ 0
At December 31, 1998, the Company has available net operating
loss carryforwards of approximately $5,200,00 for tax purposes
to offset future taxable income, which expire principally in the
year 2012.
Pursuant to the Tax Reform Act of 1986, annual utilization of
the Company's net operating loss carryforwards may be limited if
a cumulative change in ownership of more
than 50% is deemed to occur within any three-year period.
NOTE 8 - SUBSEQUENT EVENTS
1) Common Shares Outstanding - On January 8, 1999, the Board of
Directors approved a 20:1 reverse stock split at $0.001 par
value (no affect to par value) reducing the outstanding shares
at December 31, 1998, of 25,098,580 to 1,254,929. As of the
date of issuance of these financial statements, the Company has
issued a total of 10,607,500 additional shares of common stock,
increasing the total outstanding number of common shares to
11,862,429.
2) Mediation Settlement - On January 13, 1999, the Company went
to mediation in the case of Robert Crawford vs. Definition, Ltd.
And Charles Kiefner, President, filed in U.S. District Court,
Eastern District of Missouri, suing for damages in excess of
$400,000 relating to a purchase of stock under an agreement made
with the Company's former president. An agreement was reached
whereby the Company agreed to issue 30,000 shares of restricted
common stock and pay $20,000 cash, by March 30, 1999. The
Company has satisfied the requirements in full.
3) Prepaid Airtime - On February 23, 1999, Omni-Lingual
Broadcasting Corp. (Omni) and the Company mutually agreed to
cancel the airtime agreement. Omni agreed to return the
original 325,000 shares of common stock issued and the Company
agreed to issue
NOTE 8 - SUBSEQUENT EVENTS (CONTINUED)
92,083.34 shares of common stock representing 17/60 of the
airtime used. Issuance of the shares is scheduled to take place
after August 12, 1999.
4) Letter of Intent - On June 10, 1999, the Company signed a
letter of intent with "Golden Leaf Tobacco," a Pennsylvania
corporation, a celebrity driven Internet entertainment product
site and a cigar and accessory distribution operation importing
and serving approximately 500 stores in the northeast United
States, for the purchase of all of its assets. Closing shall
take place upon the completion of an Asset Acquisition Agreement
or sixty days, whichever comes first.
5) Disposal of Subsidiary - Effective July 1, 1999, the Company
has sold its television subsidiary operations, Definition
Technologies, Inc., to one of its stockholders, due to the
financial drain on the parent Company. Lack of capital has
precluded efforts to move the station and purchase a new antenna
and other necessary equipment to position the station as planned.
6) Corporate Headquarters Relocation - On June 30, 1999, the
Company relocated its headquarters to Las Vegas, Nevada.
