U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ending June 30, 2004
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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Commission file number 33-58972
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URBAN TELEVISION NETWORK CORPORATION
-------------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
NEVADA 22-2800078
------------------------------- ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
2707 South Cooper, Suite 119, Arlington, TX 76015
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, ( 817 ) 303 - 7449
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Check whether the issuer (1)filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years.
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date:
62,603,509 shares of common stock, $0.0001 par value, as of August 5, 2004
Transitional Small Business Disclosure Format
(Check One) Yes No X
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................3
Balance Sheet (unaudited)............................................4
Statements of Operations (unaudited).................................5
Statements of Cash Flows (unaudited).................................6
Notes to Financial Statements........................................8
Item 2. Management's Discussion and Analysis of Plan
of Operation.......................................................17
Item 3. Controls and Procedures..............................................22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................22
Item 2. Changes in Securities and Use of Proceeds...........................22
Item 3. Defaults upon Senior Securities.....................................22
Item 4. Submission of Matters to a Vote
of Security Holders.................................................22
Item 5. Other Information...................................................23
Item 6. Exhibits and Reports on Form 8-K....................................23
Signatures....................................................................23
URBAN TELEVISION NETWORK CORPORATION
FORM 10-QSB
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements. (Unaudited)
As prescribed by Item 310 of Regulation S-B, the independent auditor has
reviewed these unaudited interim financial statements of the registrant for the
nine months ended June 30, 2004. The financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. The unaudited
financial statements of registrant for the nine months ended June 30, 2004,
follow.
3
PART I - FINANCIAL STATEMENTS
URBAN TELEVISION NETWORK CORPORATION
Consolidated Balance Sheet
June 30, September 30,
2004 2003
(Unaudited) (Audited)
------------- -------------
Assets
Currents assets
Cash and cash equivalents $ 12,017 $ 235,408
Accounts receivable 6,746 4,241
Deposits 5,000 --
------------- -------------
Total current assets 23,763 239,649
------------- -------------
Furniture, fixtures and equipment, net 149,289 29,938
------------- -------------
Other assets
Prepaid management services 2,000,000 --
Network assets, net 108,121 137,465
Organizational costs 360 360
------------- -------------
Total other assets $ 2,108,481 $ 137,825
------------- -------------
Total assets $ 2,281,533 $ 407,412
------------- -------------
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 84,696 $ 96,678
Due to stockholders -- 198,515
Notes payable to stockholder 12,200 132,200
Bridge loans payable -- 37,000
Note payable 5,000 --
Accrued compensation 115,000 --
Deferred revenue 91,750 --
Accrued interest payable 6,419 4,550
------------- -------------
Total current liabilities 315,065 468,943
------------- -------------
Stockholders' equity
Preferred stock, $1 par value, 500,000 shares authorized, none issued -- --
Common stock, $0.0001 par value, 200,000,000 shares authorized;
61,428,509 and 23,711,736 outstanding at June 30, 2004 and
September 30,2 003, respectively 6,143 2,371
Additional paid-in capital 22,765,586 8,058,311
Stock subscriptions receivable (6,800,000) (57,400)
Retained earnings (deficit) (14,005,261) (8,064,813)
------------- -------------
Total stockholders' equity 1,966,468 (61,531)
------------- -------------
Total liabilities and stockholders' equity $ 2,281,533 $ 407,412
------------- -------------
See notes to financial statements.
4
URBAN TELEVISION NETWORK CORPORATION
Consolidated Statement of Operations
(UNAUDITED)
Three months ended June 30, Nine months ended June 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues $ 71,842 $ 123,400 $ 129,009 $ 217,288
------------ ------------ ------------ ------------
Expenses:
Satellite and uplink services 80,174 71,366 266,194 372,938
Master control and production 57,923 50,655 273,579 87,711
Station operating costs 74,934 30,050 246,071 33,950
Technology expenses 147,260 87,662 203,108 220,196
Administration 4,484,054 883,889 5,018,787 1,128,090
Depreciation and amortization 22,937 31,450 58,697 91,100
------------ ------------ ------------ ------------
Total expenses 4,867,282 1,155,072 6,066,436 1,933,985
------------ ------------ ------------ ------------
Income (loss) from operations (4,795,440) (1,031,672) (5,937,427) (1,716,697)
Other (income) expense
Interest income -- -- 333 --
Interest (expense) -- (17,272) (3,354) (38,855)
------------ ------------ ------------ ------------
Net loss $ (4,795,440) $ (1,048,944) $ (5,940,448) $ (1,755,552)
------------ ------------ ------------ ------------
Earnings per share:
Net income (loss) $ (.09) $ (0.05) $ (0.13) $ (0.16)
Weighted average number of common
shares outstanding 55,352,099 20,372,969 44,007,166 11,176,612
See notes to financial statements.
5
URBAN TELEVISION NETWORK CORPORATION
Consolidated Statement of Stockholders' Equity
(UNAUDITED)
Common Stock Additional Stock Total
--------------------------- Paid-In Subscription Capital
Shares Amount Capital Receivable Deficit Deficit
------------ ------------ ------------ ------------ ------------ ------------
Balance at September 30, 2001 311,636 $ 31 $ 5,444,567 $ 0 $ (5,444,598) $ 0
Recapitalization of
private company 800,000 80 518,785 -- -- $ 518,865
Stock issued to Hispanic
Television Network 5,000 1 9,999 -- -- 10,000
Net income for year ended
September 30, 2002 -- -- -- -- (581,106) (581,106)
------------ ------------ ------------ ------------ ------------ ------------
Balance September 30, 2002 1,116,636 112 5,973,351 0 (6,025,704) (52,241)
Recapitalization of
private company 13,248,000 1,325 238,594 -- -- 239,919
Stock issued for services 7,275,000 727 810,523 -- -- 811,250
Stock issued for bridge
loan conversions 1,957,300 196 978,454 -- -- 978,650
Stock subscriptions 114,800 11 57,389 $ (57,400) -- --
Net loss for year ended
September 30, 2003 -- -- -- -- (2,039,109) (2,039,109)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 2003 23,711,736 2,371 8,058,311 (57,400) (8,064,813) (61,531)
Stock issued for services 15,667,000 1,567 3,915,183 -- -- 3,916,750
Stock subscription 14,000,000 1,400 6,998,600 (6,800,000) -- 200,000
Stock issued for management services 4,000,000 400 1,999,600 -- -- 2,000,000
Stock subscriptions received -- -- -- 57,400 -- 57,400
Stock issued for bridge loan
Conversions 3,914,773 392 1,760,155 -- -- 1,760,547
Stock issued for equipment 120,000 12 29,988 -- -- 30,000
Stock issued to vendor 15,000 1 3,749 -- -- 3,750
Net loss for nine months ended
June 30, 2004 -- -- -- -- (5,940,448) (5,940,448)
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2004 61,428,509 $ 6,143 $ 22,765,586 $ (6,800,000) $(14,005,261) $ 1,966,468
------------ ------------ ------------ ------------ ------------ ------------
See notes to financial statements.
6
URBAN TELEVISION NETWORK CORPORATION
Consolidated Statement of Cash Flows
(UNAUDITED)
Three months ended June 30, Nine months ended June 30,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Operating Activities
Net (loss) $(4,795,440) $(1,048,944) $(5,940,448) $(1,755,552)
Adjustments to reconcile net income to net cash
oprovided by Operating activities:
Depreciation and amortization 22,937 31,450 58,697 91,100
Common stock issued for services 3,870,500 728,750 3,920,500 811,250
Changes in operating assets and liabilities:
Accounts receivable -- (7,775) (2,505) (13,300)
Prepaid expense (5,000) -- (5,000) (18,043)
Accounts payable (26,000) (14,143) (11,982) 167,747
Accrued interest expense 1,455 16,372 1,869 38,855
Accrued compensation 40,000 61,031 115,000 195,594
Deferred revenue 91,750 -- 91,750 --
----------- ----------- ----------- -----------
Net cash provided by operating activities (799,798) (233,259) (1,772,119) (482,349)
----------- ----------- ----------- -----------
Investing Activities
Capital expenditures (15,000) 9,088 (118,704) (18,011)
----------- ----------- ----------- -----------
Net cash (used in) investing activities (15,000) 9,088 (118,704) (18,011)
----------- ----------- ----------- -----------
Financing Activities
Proceeds from bridge loans 628,219 132,200 1,782,432 351,200
Proceeds from notes payable -- -- 25,000 255,272
Payments on notes payable (20,000) (52,043) (140,000) (52,043)
----------- ----------- ----------- -----------
Net cash provided by financing activities 608,219 80,157 1,667,432 554,429
----------- ----------- ----------- -----------
Increase (decrease) in cash (206,579) (144,014) (223,391) 54,069
Cash at beginning of period 218,596 198,083 235,408 --
----------- ----------- ----------- -----------
Cash at end of period $ 12,017 $ 54,069 $ 12,017 $ 54,069
----------- ----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for: $ -- $ -- $ -- $ --
Interest
Income taxes $ -- $ -- $ -- $ --
Non-cash transactions:
Common stock issued for services $ 3,870,500 $ -- $ 3,920,500 $ 82,500
See notes to financial statements.
7
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles generally accepted
in the United States of America have been omitted pursuant to such SEC
rules and regulations; however, in the opinion of management, the
accompanying unaudited consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the Company's financial position as of June 30, 2004 and
its results of operations and cash flows for the interim periods presented.
The accompanying consolidated financial statements and notes thereto should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Form 10_KSB for the year ended September
30, 2003, which was filed January 14, 2004. The results of operations for
the interim period are not necessarily indicative of the results for the
full year.
ACCOUNTING POLICIES:
There have been no changes in accounting policies used by the Company
during the quarter ended June 30, 2004.
2. Significant Accounting Policies
Description of Business
Urban Television Network Corporation (the "Company") formerly known as
Waste Conversion Systems, Inc. was incorporated under the laws of the state
of Nevada on October 21, 1986. The principal office of the corporation is
2707 South Cooper, Suite 119, Arlington, Texas 76015.
In January 2002, the Company underwent a change of control in connection
with Urban Television Network Corporation, a Texas corporation,
(Urban-Texas). The directors of the Company appointed Urban-Texas officers
as new officers of the Company, and at the same time resigned their board
positions and appointed the directors of Urban-Texas as the Company's new
board of directors.
On May 1, 2002, the Company entered into an agreement with Urban-Texas to
acquire the rights to the Urban-Texas affiliate network signal space which
included the assignment of the Urban-Texas broadcast television station
affiliates for 16,000,0000 shares of common stock, which became 800,000
after a 1 for 20 reverse stock split.
On February 7, 2003, the Company entered into a Stock Exchange Agreement
with the majority shareholders of Urban-Texas. Among other things, the
Agreement provided for the Company's purchase of approximately 90% of the
issued and outstanding capital stock of Urban-Texas (13,248,000 of
14,759,000 shares) in exchange for the Company's issuance of 13,248,000
shares of its authorized but unissued common stock, $.0001 par value (the
"Exchange Shares"), to the majority shareholders of Urban-Texas. In June of
2003, the remaining 10% of Urban-Texas common stock was contributed to the
Company.
Urban-Texas is considered the accounting acquirer, and the accompanying
financial statements include the operations of Urban-Texas from the
earliest period presented. The Company operated from May 1, 2002 to
February 7, 2003 as a 71% subsidiary of Urban-Texas, a predecessor entity
to the existing business. The May 1, 2002 and February 7, 2003 transactions
with the Company are presented as a recapitalization of Urban-Texas.
The Company is authorized to issue 200,000,000 shares of $.0001 par value
stock and 500,000 shares of $1.00 par value preferred stock.
8
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(UNAUDITED)
2. Significant Accounting Policies - continued
The Company is engaged in the business of supplying programming to
broadcast television stations and cable systems. The Company's programming
format is specifically focusing on the African American and English
speaking Hispanic demographic markets. Formerly the Company's business had
been the marketing of thermal burner systems that utilize industrial and
agricultural waste products as fuel to produce steam, which generates
electricity, air-conditioning or heat.
Accounting Method
The Company records income and expenses on the accrual method.
Revenue Recognition
The Company's sources of revenues includes sale of short-form national and
local spot advertising long-form program time slots. The Company's policy
is to recognize the revenue associated with these sources of revenue at the
time that it inserts the short-form advertising spots or airs the long-form
program at the network or local level.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiary. All material intercompany accounts and transactions are
eliminated. The Company owns 100% of Urban Television Network Corporation,
a Texas corporation and 100% of Waste Conversion Systems of Virginia, Inc.
Non Goodwill Intangible Assets
Intangible assets other than goodwill consist of network assets acquired by
purchase. They are being amortized over their expected lives of 5 years and
are reviewed for potential impairment whenever events or circumstances
indicate that carrying amounts may not be recoverable. No impairment loss
was recognized during the reporting periods. On January 1, 2002, the
Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Intangible Assets. This provides that a recognized intangible
shall be amortized over its useful life to the reporting entity unless that
life is determined to be indefinite. The amount of an intangible asset to
be amortized shall be the amount initially assigned to that asset less any
residual value.
Income (Loss) Per Share
Income (loss) per common share is calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share".
Basic Income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Diluted net
income (loss) per share is computed similar to basic net income (loss) per
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were
dilutive. Stock options and warrants are anti-dilutive, and accordingly,
are not included in the calculation of income (loss) per share.
Comprehensive Income
Comprehensive income (loss) and net income (loss) are the same for the
Company.
Cash
For purposes of the statement of cash flows, the Company considers
unrestricted cash and all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash.
9
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(UNAUDITED)
2. Significant Accounting Policies - continued
Concentration of Credit Risk
The Company periodically maintains cash in excess of federally insured
limits. The amount in excess at June 30, 2004 was $-0-.
Advertising Costs
The Company expenses non-direct advertising costs as incurred. The Company
did not incur any direct response advertising costs for the nine months
ended June 30, 2004 and 2003.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statement and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Accounting Standards
The FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." The Statement
provides guidance for determining whether a transfer of financial assets
should be accounted for as a sale or a secured borrowing, and whether a
liability has been extinguished. The Statement is effective for recognition
and reclassification of collateral and for disclosures ending after
December 15, 2001. The Statement is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after
March 31, 2001. The initial application of SFAS No. 140 will have no impact
to the Company's results of operations and financial position.
In June, 2001 the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" and No. 142
"Goodwill and Other Intangible Assets." These statements prohibit
pooling-of -interest accounting for Transactions initiated after June 30,
2001, require the use of the purchase method of accounting for all
combinations after June 30, 2001, and establish new standards for
accounting for goodwill and other intangibles acquired in business
combinations. The Company does not expect these pronouncements to have a
material affect on its financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
This Statement establishes standards for classifying and measuring as
liabilities certain financial instruments that embody obligations of the
issuer and have characteristics of both liabilities and equity. SFAS No.
150 is effective at the beginning of the first interim period beginning
after June 15, 2003; including all financial instruments created or
modified after May 31, 2003. SFAS No. 150 currently has no impact on the
Company.
Stock Options
The Company accounts for non-employee stock options under SFAS 123, whereby
option costs are recorded at the fair value of the consideration received
or the fair value of the equity instrument issued, whichever is more
reliable measurement, in accordance with EITF 96-18 "Accounting for Equity"
instruments that are issued to other than employees for acquiring or in
conjunction with selling goods or services.
The Company adopted in February 1993 an employee stock option plan. There
are no options outstanding under this plan. This plan will be accounted for
under FAS 123 as described above.
10
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(UNAUDITED)
3. Accounts receivable
Accounts receivable consists of normal trade receivables. The Company
assesses the collectibility of its accounts receivable regularly. Based on
this assessment, an allowance for doubtful accounts is recorded. At June
30, 2004 and 2003 an allowance for doubtful accounts was not considered
necessary.
4. Network Assets - Amortization
Network assets consist of intangibles other than Goodwill. These assets
automatically renew every year unless either party terminates the agreement
by such notification to the other party. A useful life of five (5) years is
estimated for the assets. These agreements are not expected to be
terminated by either party prior to its useful life period. Total
amortization of these assets has been $87,507 and the amortization for the
nine months ended June 30, 2004 and 2003 was $29,344 and $14,520,
respectively.
Future amortization of the Network assets at June 30, 2004 will be $108,121
and on an annual basis be as follows:
Year ended September 30, 2004 $ 9,781
Year ended September 30, 2005 $39,125
Year ended September 30, 2006 $39,125
Year ended September 30, 2007 $20,090
5. Property, Plant and Equipment
The Company acquired equipment totaling $5,084 during the year ended
September 30, 2003 and $148,704 during the nine months ended June 30, 2004,
which included the issuance of 120,000 shares of the Company's common stock
valued at $30,000. Equipment is recorded at cost and depreciation is
calculated on a straight-line basis over three (3) to five (5) years. Total
depreciation of the equipment has been $42,207 and depreciation for the
nine months ended June 30, 2004 and 2003 was $29,353 and $10,383,
respectively.
6 Related Party Transactions
In May 2002, the Company issued 16,000,000 (800,000 after the 1 for 20
Reverse) shares to Urban Television Network Corporation, a Texas
corporation for asset purchase of network assets - See footnote 1.
The Company leased office space from one its shareholders and director for
$2,000 per month. The lease expired on March 31, 2004. The total rental
expense for the six months ended March 31, 2004 and 2003 was $12,000 and
$6,000, respectively. Amounts payable were $-0- and $24,000, respectively.
In year 2003, the Company began using the services of a company owned by
shareholders, one being a director of the Company, that provides the
Company with the equipment and master control services to put the Company's
programming on the satellite for the broadcast affiliates to receive and
rebroadcast to their local markets. During the nine months ended June 30,
2004 and 2003, the total expense paid out was $260,067 and $87,711,
respectively.
The Company uses the services of a company owned by shareholders to provide
it with technology services including Internet and affiliate relations.
During the nine months ended June 30, 2004 and 2003, the total expense paid
out for these services was $203,108 and $220,196, respectively.
During the periods ended September 30, 2003 and 2002, the Company executed
interest bearing notes with shareholders. The Company borrowed $298,127 and
$263,165 from the shareholders and made repayments of $164,177 and $66,400
during the years ended September 30, 2003 and 2002, respectively. At
September 30, 2003, $168,765 of the notes plus accrued interest of $29,750
were converted to a non-interest payable to the shareholder. In October
11
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(UNAUDITED)
6. Related Party Transactions - continued
2003, a shareholder agreed to reduce the Company payable by $198,515 to
apply towards the purchase of common stock by Wright Entertainment LLC.
The Company executed an interest bearing note with a shareholder of the
Company during the period ended September 30, 2003 to pay operating
expenses. During the period ended September 30, 2003 the amounts loaned
totaled $132,200. The balance on this loan was $12,200 at June 30, 2004.
On October 30, 2003, the Company completed a stock subscription agreement
with Wright Entertainment, LLC, a Nevada limited liability company, whose
owner and managing director is Lonnie G. Wright, Chairman and Chief
Executive Officer of the Company. Wright Entertainment, LLC entered into
the stock subscription agreement for Fourteen Million (14,000,000) common
shares for Seven Million ($7,000,000) Dollars or Fifty ($0.50) Cents per
share. The stock sale was structured as an installment stock sale.The terms
of the stock sale are as follows: $500,000 down, the $6,500,000 balance
payable on a promissory note at $875,000 Dollars quarterly, including 6%
interest on the declining balance. A portion ($200,000) of the $500,000
down payment was satisfied by one of the Company's lenders forgiving
$198,515 of advances due the lender and $1,485 of accrued interest on a
note payable to the lender. Subsequent to December 31, 2003, the
subscription agreement has been amended to set the first four quarterly
installments at $437,500, the first one being due and payable on April 30,
2004 and the next three being due and payable every three months thereafter
with the remaining quarterly installments in the amount of $875,000 each
payable every three months thereafter until the total subscription amount
has been paid including accrued interest. On April 27, 2004, the Company's
Board of Directors, with Lonnie G. Wright abstaining, accepted a
contribution of master control and uplinking assets from Wright
Entertainment, LLC in lieu of the April 30, 2004 and future payments due by
Wright Entertainment, LLC on its stock purchase agreement, depending on the
value of the assets as determined by an outside independent appraisal. All
of the shares have been pledged as security for the promissory note and
will be physically held by the Company. Additionally, the board of
directors authorized the issuance of Four Million (4,000,000) common shares
to Wright Entertainment for executive management services to be valued at
$2,000,000. These shares will be held by the Company and accounted for as
prepaid management services until the total subscription price has been
paid by Wright Entertainment. When the shares have been earned by Wright
Entertainment, the $2,000,000 will be amortized over four years.
7. Notes Payable
Notes payable consist of:
June 30, September 30,
2004 2003
------------- -------------
Notes payable to stockholders at 6%
interest payable on September 30, 2004 $ 12,200 $ 132,200
Note payable to individual at 0% interest
Payable on July 1, 2004 5,000 --
------------- -------------
$ 17,200 $ 132,200
------------- -------------
8. Convertible Bridge Loan
Convertible bridge loans consist of:
June 30, September 30,
2004 2003
------------- -------------
Convertible bridge loan payable to
individuals at 6% interest payable
on February 14, 2004 $ -- $ 37,000
------------- -------------
The convertible bridge loans are convertible into the Company's common
stock at the rate of two shares of common stock for each dollar of
convertible bridge loan plus accrued interest through the date of
conversion.
12
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(UNAUDITED)
9. Income Tax
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
standard requires, among other things, recognition of future tax
consequences, measured by enacted tax rates attributable to taxable and
deductible temporary differences between financial statement and income tax
bases of assets and liabilities. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the
change during the period in the deferred tax asset and liability.
Temporary differences between the financial statement carrying amounts and
tax basis of assets and liabilities did not give rise to significant
portions of deferred taxes at June 30, 2004 and 2003.
The (provision) benefit for income tax consist of the following:
June 30, June 30,
2004 2003
-------- --------
Current $ 0 $ 0
Deferred 0 0
-------- --------
$ 0 $ 0
======== ========
The Company's utilization of any tax loss carryforward available to it will
be significantly limited under Internal Revenue Code Section 382, if not
totally, by recent stock issuances and changes in control. The Company has
established a 100% valuation allowance until such time as it is decided
that any tax loss carryforwards might be available to it. The Company
accounts for income taxes pursuant to the Statement of Financial Accounting
Standards No.109. The Company has no current or Deferred income tax
component.
10. Capital Stock
In May 2002, the Company issued 16,000,000 (800,000 after the 1 for 20
reverse) shares to Urban Television Network Corporation, a Texas
corporation for asset purchase of network assets -See footnote 1.
In September 2002, the Company issued 100,000 (5,000 after the 1 for 20
reverse) shares to Hispanic Television Network, Inc. as part of the mutual
settlement agreement between the two companies to cancel the Satellite
Transponder Service Agreement and notes payable/receivable.
On November 21, 2002 the Company completed a 1:20 reverse stock split and
amended its Articles of Incorporation to increase its authorized common
shares to 200,000,000 and adjust its par value to $0.0001 per share.
In December 2002, the Company issued 300,000 shares of its common stock for
consulting and legal services, which the Company valued at $82,500.
On February 7, 2003, the Company entered into an Exchange Agreement with
the majority shareholders of Urban Television Network Corporation, a Texas
corporation (Urban-Texas). The Company acquired 90% of the issued and
outstanding capital stock of Urban-Texas in return for 13,248,000 shares of
the Company's common stock - See footnote 1.
In May 2003, the Company issued 5,075,000 shares of its common stock for
consulting Services, which the Company valued at $253,750.
In June 2003, the Company issued 1,900,000 of its common stock for employee
compensation, consulting services and legal services, which the Company
valued at $475,000 under the Plan.
13
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(UNAUDITED)
10. Capital Stock - continued
During the period ended September 30, 2003, the Company issued 1,957,300
shares of its common stock to Bridge Loan Lenders who elected to convert
$978,650 of bridge loans to common stock at the rate of 2 shares for each
dollar of bridge loan converted.
On October 30, 2003, the Company completed a stock subscription agreement
with Wright Entertainment, LLC, a Nevada limited liability company. The
Company sold Fourteen Million (14,000,000) common shares for Seven Million
($7,000,000) Dollars or Fifty ($0.50) Cents per share. The stock sale was
structured as an installment stock sale. The terms of the stock sale are as
follows: $500,000 down, the $6,500,000 balance payable on a promissory note
at $875,000 Dollars quarterly, including 6% interest on the declining
balance. A portion ($200,000) of the $500,000 down payment was achieved by
one of the Company's lenders forgiving $198,515 of advances due the lender
and $1,485 of accrued on a note payable to the lender. Subsequent to
December 31, 2003, the subscription agreement has been amended to set the
first four quarterly installments at $437,500 each beginning April 30, 2004
and the remaining quarterly installments remaining at $875,000 each until
the total subscription amounts has been paid including accrued interest. On
April 27, 2004, the Company's Board of Directors, with Lonnie G. Wright
abstaining, accepted a contribution of master control and uplinking assets
from Wright Entertainment LLC in lieu of the April 30, 2004 and future
payments due by Wright Entertainment, LLC on its stock purchase agreement,
depending on the value of the assets as determined by an outside
independent appraisal. All of the shares have been pledged as security for
the promissory note and will be physically held by the Company.
Additionally, the board of directors authorized the issuance of Four
Million (4,000,000) common shares to Wright Entertainment for executive
management services to be valued at $2,000,000. These shares will be held
and accounted for as prepaid management services by the Company until the
total subscription price has been paid by Wright Entertainment. When the
shares have been forwarded to Wright Entertainment, the $2,000,000 will be
amortized over four years.
In October 2003, the Company issued 100,000 shares of its common stock for
services rendered, which the Company valued at $25,000.
In October 2003, the Company issued 120,000 shares of its common stock as
part of the purchase of videoing and production equipment. The shares were
valued at $30,000 in the purchase.
In April 2004, the Company issued 8,300,000 shares of its common stock to
management, directors and advisory board members for management services,
which the Company valued at $2,075,000.
In April 2004, the Company issued 7,167,000 shares of its common stock for
legal services, strategic planning services, financial planning services
and technology consulting services, which the Company valued at $1,791,750.
In April 2004, the Company issued 15,000 shares of its common stock in lieu
Payments due on a television station lease agreement, which the Company
valued at $3,750.
During the nine months ended June 30, 2004, the Company issued 3,914,773
shares of its common stock to Bridge Loan Lenders who elected to convert
bridge loans to common stock at a conversion value of $1,760,547.
Non-Qualified Stock Grant and Option Plan
The Company is authorized to issue up to 2,000,000 shares of common stock
under its 2003 Non-Qualified Stock Grant and Option Plan (the "Plan")
through an S-8 registration. This Plan is intended to serve as an incentive
to and to encourage stock ownership by certain directors, officers,
employees of and certain persons rendering service to the Company, so that
they may acquire or increase their proprietary interest in the success of
the Company, and to encourage them to remain in the Company's service.
During the period ended September 30, 2003, the Company had distributed
1,900,000 of the shares through grants. The remaining 100,000 shares were
issued in October 2003 as a stock grant.
14
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(UNAUDITED)
11. Preferred Stock
The Articles of Incorporation of the Company authorize issuance of a
maximum of 500,000 shares of nonvoting preferred stock with a par value of
$1.00 per share. The Articles of Incorporation grant the Board of Directors
of the Company authority to determine the designations, preferences, and
relative participating, optional or other special rights of any preferred
stock issued.
No preferred shares had been issued as of June 30, 2004.
12. Commitments and Contingencies
Satellite Transponder Lease
The Company entered into a Satellite space segment service agreement with
Loral Skynet(now Intelsat, Inc.) on November 20, 2002 for 6 MHz of
satellite bandwidth on Telstar 5 (now Intelsat 5) for a period of three
year ending on November 21, 2005. For the nine months ended June 30, 2004
and 2003, the amounts expensed were $162,387 and $126,301, respectively.
Future lease payments due during the term of the lease ending on November
21, 2005 will equal $306,731 and be due as follows:
Year ended September 30, 2004 $ 54,129
Year ended September 30, 2005 $216,516
Year ended September 30, 2006 $ 36,086
Signal Uplink Lease
The Company entered into a Full Time Broadcast Agreement with Verestar,
Inc. on November 21, 2002 for a full time redundant 6 MHz digital C-band
uplink service for a period of three years ending on November 21, 2005. For
the nine months ended June 30, 2004 and 2003, the amounts expensed for
uplink services were $72,000 and $56,000, respectively.
Future lease payments due during the term of the lease ending on November
21, 2005 will equal $136,000 and be due as follows:
Year ended September 30, 2004 $24,000
Year ended September 30, 2005 $96,000
Year ended September 30, 2006 $16,000
Facilities Space Lease
The Company entered into a lease for office space on March 15, 2002 for a
period of three years ending on March 31, 2005. For periods ended September
30, 2003 and 2002, the amount expensed for office space lease was $14,000
and $24,000. For the nine months ended June 30, 2004 and 2003, the amounts
expensed for office space were $12,000 and $18,000, respectively. This
lease was terminated by mutual agreement on March 31, 2004.
The Company entered into a lease for office space on March 8, 2004 for a
period of one year ending on February 28, 2005. For the period beginning
March 8, 2004 and ended June 30, 2004 the amount expensed for office space
was $6,990.
Future lease payments due during the term of the lease ending on February
28, 2005 will equal $18,640.
Employment Agreements
Mr. Randy Moseley is employed pursuant to a five-year employment agreement
that commenced on October 2, 2002. The agreement provides for a base annual
salary equal to $200,000 and a possible annual cash bonus as determined by
the Board of Directors and/or the Compensation Committee.
15
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(UNAUDITED)
12. Commitments and Contingencies - continued
In October 2003, the employment agreement of Randy Moseley was amended to
allow for the naming of a new President and Chief Executive Officer for the
Company. Mr. Moseley accepted the officer position of Executive Vice
President and Chief Financial Officer and agreed to defer the payment of
salary for the period from October 2, 2002 to September 30, 2003 with this
deferred year being added to the end of the original term to make the term
of the contract end on September 30, 2008. During the nine months ended
June 30, 2004, $115,000 of Mr. Moseley's compensation was accrued as a
payable.
Mr. Stanley Woods is employed pursuant to a three-year employment Agreement
that commenced on October 2, 2002. The agreement provides for a base annual
salary equal to $50,000 and a possible annual cash bonus as determined by
the Board of Directors and/or the Compensation Committee. Mr. Woods was
issued 200,000 shares of common stock in 2003 in lieu of his annual salary
for the period ended September 30, 2003.
Contingencies
The Company is involved in various legal actions arising in the normal
course of business. Management is of the opinion that any judgment or
settlement resulting from pending or threatened litigation would not have a
material adverse effect on the financial position or results of operations
of the Company.
13. Going Concern
The Company has suffered recurring losses from operations. In order for the
Company to sustain operations and execute its television broadcast and
programming business plan , capital will need to be raised to support
operations as the company executes its business plan. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern.
The Company may raise additional capital through the sale of its equity
securities, or debt securities. Subsequent to year end the Company has
raised additional capital of approximately $1,442,108 from $1,142,108 in
bridge loans and $300,000 in cash from the Wright Entertainment LLC
subscription agreement.
14. Subsequent Events
On July 10, 2004, the Company received a certificate from Nevada Minority
Business Council, an affiliate of the National Minority Supplier
Development Council, indicating that the Company qualifies as a Minority
Owned and Managed Company, which has met the certification criteria
established by the National Minority Supplier Development Council.
16
Item 2. Management's Discussion and Analysis or Plan of Operation.
Background
Urban Television Network Corporation (the "Company") formerly known as Waste
Conversion Systems, Inc. was incorporated under the laws of the state of Nevada
On October 21, 1986. The principal office of the corporation is 2707 S. Cooper,
Suite 119, Arlington, Texas 76015.
In January 2002, the Company underwent a change of control with the directors of
the Company appointing the directors and officers of Urban Television Network
Corporation, a Texas corporation, (Urban-Texas) as the new directors and
officers of the Company, and at the same time resigning their board positions.
On May 1, 2002, the Company entered into an agreement with Urban-Texas to
acquire the rights to the Urban-Texas affiliate network signal space which
included the assignment of the Urban-Texas broadcast television station
affiliates for 16,000,0000 shares of common stock, which became 800,000 shares
after the 1 for 20 reverse split in November 2002.
On February 7, 2003, the Company entered into a Stock Exchange Agreement with
the majority shareholders of Urban-Texas to acquire approximately 90% of the
issued and outstanding capital stock of Urban-Texas (13,248,000 of 14,759,000
shares) in exchange for the Company's issuance of 13,248,000 shares of its
authorized but unissued common stock, $.0001 par value (the "Exchange Shares"),
to the majority shareholders of Urban-Texas. The remaining 10% was contributed
to the Company in June of 2003.
Urban-Texas is considered the accounting acquirer, and the accompanying
financial statements include the operations of Urban-Texas from the earliest
period presented. The May 2002 and February 2003 transactions with the Company
are presented as a recapitalization of Urban-Texas.
The consideration exchanged in Stock Exchange Agreement was negotiated between
the Company and Urban-Texas in a transaction with management. The management of
the Company and Urban-Texas, were the same individuals. The transaction did not
represent an arms-length transaction.
The Company is engaged in the business of supplying programming to independent
broadcast television stations and cable systems. Formerly the Company's business
had been the marketing of thermal burner systems that utilize industrial and
agricultural waste products as fuel to produce steam, which generates
electricity, air-conditioning or heat.
The Company acquired a general market television network affiliate base from
Hispanic Television Network, Inc. This television network was rebranded to focus
on the minority markets, primarily the African American and Hispanic markets,
across the United States. The network presently includes approximately 72
broadcast television station affiliates in various parts of the country.
We are targeting the minority markets, primarily the African American and
Hispanic Markets, because we believe that they present vast marketing
opportunities and that are currently under-served by our competition. The
African American market, composes approximately 13% of the U.S. population with
a spending power in excess of $500 billion. The Hispanic population is also
approximately 13% of the U.S. total with a spending power also in the $500+
billion range. With few competitors in broadcast television that are exclusively
devoted to programming to the minority markets, we feel that there are
attractive opportunities to provide a quality broadcasting service to the
African American and Hispanic (especially bi-lingual and English speaking
Hispanic programming) populations that together make up in excess of 25% of the
U.S. population.
On July 10, 2004, the Company received a certificate from Nevada Minority
Business Council, an affiliate of the National Minority Supplier Development
Council, indicating that the Company qualifies as a Minority Owned and Managed
Company, which has met the certification criteria established by the National
Minority Supplier Development Council.
Our financial results depend on a number of factors, including the strength of
the national economy and the local economies served by our affiliate stations,
total advertising dollars dedicated to the markets served by our affiliate
stations, advertising dollars dedicated to the African American and Hispanic
consumers in the markets served by our affiliate stations, our affiliate
stations' audience ratings, our ability to provide interesting minority focused
17
programming, local market competition from other television stations and other
media, and government regulations and policies, such as the multiple ownership
rules, the ability of Class A affiliate stations to be considered must carry for
cable systems to increase their distribution and the deadlines for television
stations converting to digital signals.
Management is implementing a revenue generation plan that includes local
advertising sales, for company operated stations, securing network advertising
at the best available rate, uplinking other parties signals to the satellite,
plus implementing a Technology plan to assist its affiliates with sale of their
local advertising time. Management intends to increase rates as affiliate
stations are added to the network. The implementation of this comprehensive plan
is expected to have a positive affect upon sales revenues. In addition, the
Company has added a focus to secure carriage agreements with cable and digital
distribution companies.
OPERATIONS. The Company had revenues of $71,842 and $123,400 for the three
months ended June 30, 2004 and 2003, respectively and $129,009 and $217,288 for
nine months ended June 30, 2004 and 2003, respectively. Currently most of our
network advertising has been sold to direct response and per inquiry
advertisers. The decrease in the nine month period and quarter ending June 30,
2004 compared to 2003 is due to the Company continuing to be in the development
stages and relying on per inquiry advertising and periodic paid programming
rather than having an established advertising client base. Going forward, we
plan to deploy a network advertising team consisting of account executives that
will solicit advertising directly from national advertisers as well as
soliciting advertising from national advertising agencies. Locally managed
stations will also have account executives that will solicit local and national
advertising directly from advertisers and from advertising agencies in the local
markets.
The operations are still in the development stages and the Company is dependent
upon working capital derived from management, significant shareholders and
private investors to provide sufficient working capital. There is no assurance,
however, that the Company will be able to generate the necessary working capital
needs from these sources.
OPERATING RESULTS. For the three months ended June 30, 2004 and 2003 the Company
had operating cost of $360,291 and $239,733, respectively. For the nine months
ended June 30, 2004 and 2003, the Company had operating cost of $988,952 and
$714,795, respectively. The major components of cost of operations for the three
months and nine months periods ended June 30, 2004 and 2003 were as follows:
Three months ended Nine months ended
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Satellite and uplink services $ 80,174 $ 71,366 $266,194 $372,938
Master control and production 57,923 50,655 273,579 87,711
Operations of stations 74,934 30,050 246,071 33,950
Technology expenses 147,260 87,662 203,108 220,196
-------- -------- -------- --------
Total $360,291 $239,733 $988,952 $714,795
-------- -------- -------- --------
In November of 2002, the Company terminated an arrangement with a company in
Florida that provided satellite space, uplinking of the satellite signal to the
satellite, master control, and tape editing/formatting. At that time the Company
secured its own satellite space on Intel5 from Intelsat (formerly Loral Skynet)
and uplinking services from Verestar, Inc. in Dallas, Texas and is working with
a group of the Company's shareholders who are providing digital compression
equipment, tape editing and master control tape playback 24 hours per day, 7
days per week. The Company expects this new arrangement to save it approximately
$10,000 per month and give it more flexibility in taking live feeds and changing
programming and advertising insertions.
The costs of operations for stations increased by $44,884 in three months ended
June 30, 2004 as compared to 2003 primarily due to increase cost of $61,884 in
operating a television station in Dallas, Texas the Company did not have until
June of 2003.
The costs of operations for stations increased by $212,121 in the nine months
ended June 30, 2004 as compared to 2003 primarily due to increased cost of
$191,592 in operating a station in Dallas, Texas that the Company did not have
until June 2003 and a $20,529 increase in the cost of a station in Oklahoma
City.
The technology expenses increased by $59,598 for the three months ended June 30,
2004 as compared to 2003 due primarily to a $125,000 charge for common stock
issued for services rendered and a decrease of $65,402 in cost of system
software development.
18
The technology expenses decreased by $17,088 for the nine months ended June 30,
2004 as compared to 2003 due primarily to a decrease in a $47,500 decrease in
charges for commons stock issued for services.
Administration expenses of $4,462,553 for the three months ended June 30, 2004
increased by $3,600,165 or 407% over the administrative expenses of $883,889 for
the three months ended June 30, 2003.
Administration expenses of $5,018,787 for the nine months ended June 30, 2004
increased by $3,890,697 or 345% over the administrative expenses of $1,128,090
for the nine months ended June 30, 2003.
Following is a comparative of the major expense categories for the three months
ended June 30, 2004 and 2003 and the nine months ended June 30, 2004 and 2003.
Three months ended Nine months ended
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Administration cost $ 66,500 $ 61,031 $ 191,500 $ 195,594
Stock based compensation 3,666,750 678,750 3,716,750 706,250
Consulting 578,279 27,303 638,168 28,561
Travel, conventions 33,154 7,599 115,694 13,570
Legal fees 10,150 5,000 54,650 5,000
Commissions 21,400 18,000 27,194 20,000
Accounting fees 357 3,000 12,658 14,500
Public relations costs -- -- 10,230 --
Transfer Agent, permit fees 6,847 8,605 24,696 11,415
Rent expenses 40,239 12,000 64,115 18,000
Internet costs 4,016 9,000 17,067 12,000
Supplies - digital operations 16,963 -- 44,772 --
Supplies 1,737 33,209 28,204 42,288
Telephone 6,958 9,924 20,533 27,391
Postage and shipping 2,174 1,381 6,845 8,837
Marketing,printing,promotions 1,700 -- 12,782 --
Other 26,830 9,087 32,929 24,684
---------- ---------- ---------- ----------
TOTAL $4,484,054 $ 883,889 $5,018,787 $1,128,090
---------- ---------- ---------- ----------
The increase in stock based compensation is due primarily to the Company's
adding additional management and directors as the result of the acquisition of a
majority interest in the Company's common stock by Wright Entertainment, LLC
The increase in consulting fees is due the Company incurring limited consulting
expenses during the nine months ended June 30, 2003. In 2004 the company has
brought in additional financial and strategic consultants to assist the Company
in its continued growth.
The increase in travel and conventions is related to the Company's travel
related cost associated with the minority Las Vegas, Nevada group that purchased
majority control of the Company and also to increased attendance at national
television and cable conventions.
The increase in legal expense in 2004 is attributed primarily to legal expenses
related to the Company's becoming majority owned by a minority group and related
to a law suit involving a former employee and stockholder in which the Company
was granted a permanent injunction and significant judgment.
The increase in public relations is due to an increase in expenses for public
functions, announcements and support for minority groups.
The increase in transfer agent expenses is related primarily to the cost
incurred in the bridge loan investors converting their bridge loans to common
stock of the company.
The increase in rent expense is due the Company incurring additional space for
sales offices and studio production facilities.
Internet cost increased during the nine months ended June 30, 2004 due the
Company installing its own high speed Internet line at the corporate offices.
19
The increase in the supplies for digital operations is due to the Company's
conversion from a tape to digital server based master control program retention
and insertion operation. This will give the Company the ability to deliver a
consistent television signal to its affiliates and save on tape and labor costs
in the future.
The increase in marketing, printing and promotions increased in 2004 due the
Company developing marketing brochures and sponsoring events to promote the
network.
The Company had operating losses for the three months ended June 30, 2004 and
2003 of $4,795,440 and $1,031,672, respectively. The increase of $3,763,768 from
2004 to 2003 is due primarily to $3,600,165 increase in administrative expenses
of which $2,988,000 was attributable to an increase in stock based compensation
and $550,976 was attributable to an increase in consulting expenses.
The Company had operating losses for the nine months ended June 30, 2004 and
2003 of $5,937,427 and $1,716,697, respectively. The increase of $4,220,730 from
2004 to 2003 is due primarily to $3,890,697 increase in administrative expenses
of which $3,010,500 was attributable to an increase in stock based compensation;
and $609,607 was attributable to an increase in consulting expenses.
EARNINGS PER SHARE OF COMMON STOCK. Income (loss) per common share is calculated
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." Basic Income (loss) per share is computed by dividing the
net income (loss) by the weighted average number of common shares outstanding.
Diluted net income (loss) per share is computed similar to basic net income
(loss) per share, except that the denominator is increased to include the number
of additional common shares that would have outstanding if the potential common
shares had been issued and if the additional common shares were dilutive. Stock
options and warrants are anti-dilutive, and accordingly, are not included in the
calculation of income (loss) per share. The basic and diluted net loss per share
of common stock was $0.09 and $0.04 for the three months June 30, 2004 and 2003,
respectively. The basic and diluted net loss per share of common stock was $0.13
and $0.13 for the nine months June 30, 2004 and 2003, respectively.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations through a combination of loans from
stockholders, proceeds from convertible promissory notes and to a much lesser
extent revenues generated from operations. The Company has incurred cumulative
losses of $14,005,261 from the inception of the Company through June 30, 2004.
Current assets at June 30, 2004 were $23,763 which were exceeded by current
liabilities of $315,065 by $291,302. The Company's cash position at June 30,
2004 was $12,017, a decrease of $223,391 from the position at September 30,
2003. As discussed below, the Company's ability to continue its growth will
require additional funds from various sources. If adequate funds are not
available on acceptable terms, our business, results of operations and financial
condition could be materially adversely affected. In a worse case scenario, we
would have to scale back or cease operations, and we might not be able to remain
a viable entity. Prepaid management services are the result of the issuance of
Four Million (4,000,000) common shares to Wright Entertainment for executive
management services to be valued at $2,000,000. These shares will be held by the
Company and accounted for as prepaid management services until the total
subscription price has been paid by Wright Entertainment. When the shares have
been earned by Wright Entertainment, the $2,000,000 will be amortized over four
years. Amounts due to stockholders decreased from $330,715 at September 30,2003
to $12,200 at June 30, 2004 as the result of $198,515 being contributed towards
the stock subscription of Wright Entertainment, LLC and $120,000 being repaid.
accrued compensation is the result of management deferring until the Company has
funds available a portion of the amount for services rendered. Deferred income
is the result of the Company receiving full payment for a year contract to air
programming, which amount is being amortized on a monthly basis as the
programming is aired.
Our growth will require additional funds that may come from a variety of
sources, including shareholder loans, equity or debt issuances, bank borrowings
and capital lease financings. We currently intend to use any funds raised
through these sources to fund various aspects of our growth, including funding
our working capital needs, performing digital upgrades, funding key programming
acquisitions, performing station capital upgrades, securing cable connections,
funding master control/network equipment upgrades, acquisition of new stations
and making strategic investments.
20
We had net losses $4,795,440 and $1,048,944 for the three months ended June 30,
2004 and 2003, respectively and $5,940,448 and $1,755,552 for the nine months
ended June 30, 2004 and 2003, respectively. We expect these losses to continue
as we incur operating expenses in the growth of the Company's television network
and its affiliate base and convert them to an African-American format. We
currently anticipate that our revenues as well as cash from financings and
equity sales will be sufficient to satisfy operating expenses by the end of
fiscal 2004, although we can offer no assurance in this regard. We may need to
raise additional funds, however. If adequate funds are not available on
acceptable terms, our business, results of operations and financial condition
could be materially adversely affected. In a worse case scenario, we would have
to scale back or cease operations, and we might not be able to remain a viable
entity.
Financing activities for the three months ended June 30, 2004 include:
Bridge loan subscriptions of $628,219 for the second $1,500,000 Convertible
Bridge loan agreement with interest at the rate of six percent (6%) per annum
with a consortium of private investors, established in October 2003. The bridge
loan lenders have the option to convert their loans before the maturity date of
one year from the date of the bridge loan agreement into common stock of the
Company at the rate of two shares of common stock for every dollar invested.
During the three months ended June 30, 2004 bridge loan lenders of converted
bridge loans for 2,256,545 shares of common stock valued at $931,433.
In addition common stock may also be issued for conversion or settlement of debt
and/or payables for equity, future obligations which may be satisfied by the
issuance of common shares, and other transactions and agreements which may in
the future result in the issuance of additional common shares. The common shares
that the Company may issue in the future could significantly increase the number
of shares outstanding and could be extremely dilutive.
Impact of Inflation
Management does not believe that general inflation has had or will have a
material effect on operations.
Other Events
On May 18, 2004, the Board of Directors elected Clayton Wilkinson to fill the
vacancy on the board created by the resignation of Anthony K. Campbell to pursue
other interest. Mr. Wilkinson is presently President of R. J. Halden Holdings,
Inc. In 1994, Mr. Wilkinson co-founded TEAMeffort Ministries, a youth missions
organization in Tampa, Florida, and was Executive Director until 2004.
Previously, Mr. Wilkinson was the Founder and President of Camp Eagle Christian
Retreat Center in the Texas Hill Country. Prior to Camp Eagle, Mr. Wilkinson was
the Pastor of Westchester Community Church in Grand Prairie, Texas. Mr.
Wilkinson has also served as a Regional Event Volunteer Coordinator and speaker
for Promise Keepers. Prior to going into full-time ministry Mr. Wilkinson was
Vice-President - Real Estate for the First National Bank of Kerrville, Texas.
Mr. Wilkinson holds a Master of Biblical Counseling degree from Colorado
Christian University, a Bachelor of Commerce degree from Schreiner College and
is a graduate of the National Commercial Lending School at the University of
Oklahoma.
This Form 10-QSB contains statements that constitute "forward-looking
statements." These forward-looking statements can be identified by the use of
predictive, future-tense or forward-looking terminology, such as "believes,"
"anticipates," "expects," "estimates," "plans," "may," "will," or similar terms.
These statements appear in a number of places in this report and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things: (i) trends
affecting the Company's financial condition or results of operations for its
limited history; (ii) the Company's business and growth strategies; (iii) the
Internet and Internet commerce; and, (iv) the Company's financing plans.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may differ materially from those
projected in the forward- looking statements as a result of various factors.
Factors that could adversely affect actual results and performance include,
21
among others, the Company's limited operating history, dependence on key
management, financing requirements, government regulation, technological change
and competition. Consequently, all of the forward-looking statements made in
this Form 10-QSB are qualified by these cautionary statements and there can be
no assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequence to or effects on the Company or its business or operations.
The Company assumes no obligations to update any such forward-looking
statements.
Item 3. Controls and Procedures.
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer of the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15 (e) and
15d-15(e) under the Securities Exchange Act of 1934 as amended (the "Exchange
Act")). Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures as of the end of the fiscal quarter covered by this Quarterly Report
on Form 10-QSB are effective to ensure that information required to be disclosed
by the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. Management of the Company
has also evaluated, with the participation of the Chief Executive Officer and
Chief Financial Officer of the Company, any change in the Company's internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) that occurred during the fiscal quarter covered by this
Quarterly Report on Form 10QSB. There was no change in the Company's internal
control over financial reporting during the Company's most recent completed
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
However, due to the limited number of Company employees engaged in the
authorization, recording, processing and reporting of transactions, there is
inherently a lack of segregation of duties. The Company periodically assesses
the cost versus benefit of adding the resources that would remedy or mitigate
this situation and currently, does not consider the benefits to outweigh the
costs of adding additional staff in light of the limited number of transactions
related to the Company's operations.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a party to various legal actions and claims arising in the
ordinary course of its business. In the Company's opinion, the Company has
adequate legal defenses for each of the actions and claims, and believes that
their ultimate disposition will not have a material adverse effect on the
Company's consolidated financial position, results of operations and liquidity.
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
During the quarter ending June 30, the Company offered and sold the
following securities pursuant to securities transaction exemption from the
registration requirements of the Securities Act of 1933, as amended.
In April 2004, the Company issued 8,300,000 shares of its common stock
to ten persons for management services, which the company valued at $2,075,000.
In April 2004, the Company issued 7,167,000 shares of its common stock
to seven persons for consulting services, which the Company valued at
$1,791,750.
In April 2004, the Company issued 15,000 shares of its common stock in
lieu Of payments due on a television station lease agreement, which the Company
valued At $3,750.
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On February 14, 2003, we entered into a $1,500,000 Loan Agreement
between certain lenders and our Company. This Agreement was increased by
$1,500,000 in October 2003. The Loan Agreement provides for the periodic advance
of monies with interest payable at the rate of six (6%) percent per annum.
During the quarter ended June 30, 2004, a total of $192,532 was advanced on the
agreement. The lenders may convert their loans, including accrued interest, to
our common stock at the rate of two (2) shares for each dollar loaned, at any
time prior to maturity on the Bridge Loan agreement. During the quarter ended
June 30, 2004, a total of $289,094 in bridge loans were converted to 578,188
shares of the Company's common stock.
These securities that have been and will be issued above were issued in
a private transaction pursuant to Section 4(2) of the Securities Act of 1933, as
amended, (the "Securities Act"). These convertible securities are considered
restricted securities and may not be publicly resold unless registered for
resale with appropriate governmental agencies or unless exempt from any
applicable registration requirements.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders, through the solicitation
of proxies or Otherwise, during the second quarter of the fiscal year covered by
this report.
Item 5. Other Information
On May 18, 2004, the Board of Directors elected Clayton Wilkinson to
fill the vacancy on the board created by the resignation of Anthony K. Campbell.
Mr. Wilkinson is presently President of R. J. Halden Holdings, Inc. In 1994, Mr.
Wilkinson co-founded TEAMeffort Ministries, a youth missions organization in
Tampa, Florida, and was Executive Director until 2004. Previously, Mr. Wilkinson
was the Founder and President of Camp Eagle Christian Retreat Center in the
Texas Hill Country. Prior to Camp Eagle, Mr. Wilkinson was the Pastor of
Westchester Community Church in Grand Prairie, Texas. Mr. Wilkinson has also
served as a Regional Event Volunteer Coordinator and speaker for Promise
Keepers. Prior to going into full-time ministry Mr. Wilkinson was Vice-President
- Real Estate for the First National Bank of Kerrville, Texas. Mr. Wilkinson
holds a Master of Biblical Counseling degree from Colorado Christian University,
a Bachelor of Commerce degree from Schreiner College and is a graduate of the
National Commercial Lending School at the University of Oklahoma.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description and Method of Filing
---------- --------------------------------
10.01* Amended Subscription Agreement with Wright Entertainment, LLC.
31.10 Certification by Chief Executive Officer, pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.
31.20 Certification by Chief Financial Officer, pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.
32.10 Certification by Chief Executive Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.20 Certification by Chief Financial Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Filed with previous filing
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(b) Reports on Form 8-K.
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: August 13, 2004
Urban Television Network Corporation
By: /s/ Lonnie G. Wright By: /s/ Randy Moseley
------------------ ------------------
Lonnie G. Wright Randy Moseley
Title: Chief Executive Officer Title: Executive Vice President/CFO
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