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, 2005
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
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(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:
132,928,379 shares of common stock, $0.0001 par value, as of August 3, 2005
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, 2005. 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, 2005,
follow.
3
PART I - FINANCIAL STATEMENTS
URBAN TELEVISION NETWORK CORPORATION
Consolidated Balance Sheet
June 30, September 30,
2005 2004
(Unaudited) (Audited)
------------- -------------
Assets
Currents assets
Cash and cash equivalents $ 2,536 $ 8,995
Accounts receivable 7,332 14,855
Deposits 5,795 --
------------- -------------
Total current assets 15,663 23,850
------------- -------------
Furniture, fixtures and equipment, net 113,674 136,133
------------- -------------
Other assets
Network assets, net 69,342 98,340
Organizational costs 360 360
------------- -------------
Total other assets $ 69,702 $ 98,700
------------- -------------
Total assets $ 199,039 $ 258,683
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Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 306,001 $ 334,403
Due to stockholders 85,500 750
Notes payable to stockholder 165,000 --
Bridge loans payable 400,657 402,657
Advances 665,000 --
Accrued compensation 268,377 150,000
Deferred revenue -- 67,400
Accrued interest payable 4,070 10,049
------------- -------------
Total current liabilities 1,894,605 964,859
------------- -------------
Stockholders' equity
Preferred stock, $1 par value, 500,000 shares authorized, none issued -- --
Common stock, $0.0001 par value, 200,000,000 shares authorized;
136,428,379 and 67,135,177 outstanding at June 30, 2005 and
September 30,2004, respectively 13,643 6,714
Additional paid-in capital 23,518,664 23,677,544
Stock subscriptions receivable (6,750,000) (8,000,000)
Retained earnings (deficit) (18,477,873) (15,590,434)
------------- -------------
Total stockholders' equity (1,695,566) (706,176)
------------- -------------
Total liabilities and stockholders' equity $ 199,039 $ 258,683
------------- -------------
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,
2005 2004 2005 2004
------------- ------------- ------------- -------------
Revenues $ 55,624 $ 71,842 $ 225,757 $ 129,009
------------- ------------- ------------- -------------
Expenses:
Satellite and uplink services 80,049 80,174 240,267 266,194
Master control and production 61,660 34,073 181,394 213,329
Affiliate relations 25,853 11,250 41,053 11,250
Programming 139,586 12,600 188,368 49,000
Station operating costs 71,231 74,934 255,255 246,071
Technology expenses 58,655 147,260 152,690 203,108
Administration 332,850 4,484,054 1,966,378 5,018,787
Depreciation and amortization 23,907 22,937 69,782 58,697
------------- ------------- ------------- -------------
Total expenses 793,791 4,867,282 3,095,187 6,066,436
------------- ------------- ------------- -------------
Income (loss) from operations (738,167) (4,795,440) (2,869,430) (5,937,427)
Other (income) expense
Interest income 9 -- 12 333
Interest (expense) (6,007) -- (18,021) (3,354)
------------- ------------- ------------- -------------
Net loss $ (744,165) $ (4,795,440) $ (2,887,439) $ (5,940,448)
------------- ------------- ------------- -------------
Earnings per share:
Net income (loss) $ (0.01) $ (0.09) $ (0.03) $ (0.13)
Weighted average number of common
shares outstanding 113,910,631 55,352,099 114,285,131 44,007,166
See notes to financial statements.
5
URBAN TELEVISION NETWORK CORPORATION
Consolidated Statement of Cash Flows
(UNAUDITED)
Three months ended June 30, Nine months ended June 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Operating Activities
Net (loss) $ (744,165) $(4,795,440) $(2,887,439) $(5,940,448)
Adjustments to reconcile net income to net cash
provided by Operating activities:
Depreciation and amortization 23,907 22,937 69,782 58,697
Common stock issued for services 267,500 3,870,500 1,139,500 3,920,500
Changes in operating assets and liabilities:
Accounts receivable 428 -- 7,523 (2,505)
Prepaid expense (2,195) (5,000) (5,795) (5,000)
Accounts payable (43,595) (26,000) (27,994) (11,982)
Accrued interest expense (3,993) 1,455 (5,979) 1,869
Accrued compensation 37,377 40,000 118,377 115,000
Advances from stockholders 85,500 -- 84,750 --
Advances from others 250,000 665,000 --
Deferred revenue (17,500) 91,750 (67,400) 91,750
----------- ----------- ----------- -----------
Net cash provided by operating activities (146,736) (799,798) (909,675) (1,772,119)
----------- ----------- ----------- -----------
Investing Activities
Capital expenditures (16,660) (15,000) (18,325) (118,704)
----------- ----------- ----------- -----------
Net cash (used in) investing activities (16,660) (15,000) (18,325) (118,704)
----------- ----------- ----------- -----------
Financing Activities
Proceeds from common stock sales -- 100,000 --
Proceeds from bridge loans -- 628,219 508,541 1,782,432
Proceeds from notes payable -- -- 240,000 25,000
Payments on notes payable (30,000) (20,000) (77,000) (140,000)
Collection on subscription receivable -- 150,000 --
----------- ----------- ----------- -----------
Net cash provided by financing activities (30,000 608,219 921,541 1,667,432
----------- ----------- ----------- -----------
Increase (decrease) in cash (193,396) (206,579) (6,459) (223,391)
Cash at beginning of period 195,932 218,596 8,995 235,408
----------- ----------- ----------- -----------
Cash at end of period $ 2,536 $ 12,017 $ 2,536 $ 12,017
----------- ----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for: $ -- $ -- $ -- $ --
Interest
Income taxes $ -- $ -- $ -- $ --
Non-cash transactions:
Common stock issued for services $ 267,500 $ 3,870,500 $ 1,139,500 $ 3,920,500
See notes to financial statements.
6
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited 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 have been omitted pursuant to such SEC rules and
regulations; nevertheless, the Company believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements and the notes hereto should be read in conjunction with the
financial statements and notes thereto included in the Company's Form
10-KSB for the year ended September 30, 2004, which was filed January 13,
2005. In the opinion of the Company, all adjustments, including normal
recurring adjustments necessary to present fairly the financial position of
Urban Television Network Corporation as of June 30, 2005 and the results of
its Operations and cash flows for the nine months then ended, have been
included. 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, 2005.
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.
7
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(UNAUDITED)
2. Significant Accounting Policies - continued
The Company is engaged in the business of supplying programming to
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.
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, Urban Records, Inc., a Nevada corporation and 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.
8
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(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, 2005 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, 2005 and 2004.
Stock Based Compensation
The Company accounts for equity instruments issued to employees for
services based on the fair value of the equity instruments issued and
accounts for equity instruments issued to other than employees based on the
fair value of the consideration received or the fair value of the equity
instruments, whichever is more reliably measurable. The determined value is
recognized as an expense in the accompanying consolidated statements of
operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Recent Accounting Standards
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.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an
amendment of ARB No. 43, Chapter 4." This Statement clarifies the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted materials. This Statement is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. The
initial application of SFAS No. 151 will have no impact on the Company's
financial statements.
In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67."
This Statement references the financial accounting and reporting guidance
for real estate time-sharing transactions that is provided in AICPA
Statement of Position 04-2, "Accounting for Real Estate Time-Sharing
Transactions." This Statement also states that the guidance for incidental
operations and costs incurred to sell real estate projects does not apply
to real estate time-sharing transactions. This Statement is effective for
financial statements for fiscal years beginning after June 15, 2005. The
initial application of SFAS No. 152 will have no impact on the Company's
financial statements.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29." This Statement eliminates the
exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has
9
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(UNAUDITED)
2. Significant Accounting Policies - continued
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. This Statement is
effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. The Company does not expect application of
SFAS No. 153 to have a material affect on its financial statements.
In December 2004, the FASB issued a revision to SFAS No. 123, "Share-Based
Payment." This Statement supercedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and its related implementation guidance. It
establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the entity's
equity instruments or that may be settled by the issuance of those equity
instruments. This Statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided
in Statement No. 123 as originally issued and EITF Issue No. 96-18. This
Statement is effective for public entities that file as small business
issuers as of the beginning of the first fiscal period that begins after
December 15, 2005. The Company has not yet determined the impact of SFAS
No. 123 (revised) on its financial statements.
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.
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, 2005 and September 30, 2004 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 $126,286 and the amortization for the
nine months ended June 30, 2005 and 2004 was $25,552 and $29,344,
respectively.
Future amortization of the Network assets at June 30, 2005 will be $69,342
and on an annual basis be as follows:
Year ended September 30, 2005 $10,127
Year ended September 30, 2006 $39,125
Year ended September 30, 2007 $20,090
10
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(UNAUDITED)
5. Property, Plant and Equipment
Furniture, fixtures and equipment, their estimated useful lives, and
related accumulated depreciation are summarized as follows:
Range of
Lives in June 30, September 30,
Years 2005 2004
--------- ------------- -------------
Master Control, Editing Equipment 3-5 $ 86,074 $ 67,749
Studio and Production Equipment 3-5 60,500 60,500
Production Van 5 45,000 45,000
Affiliated Receiver Equipment 5 18,247 18,247
------------- -------------
209,821 191,496
Less: Accumulated Depreciation (96,147) (55,363)
------------- -------------
$ 113,674 $ 136,133
============= =============
The Company acquired equipment totaling $18,325 and $148,704 during the
nine months ended June 30, 2005 and 2004, respectively. The 2004 amount
included the issuance of 120,000 shares of the Company's common stock
valued at $30,000. Total depreciation expense for the nine months ended
June 30, 2005 and 2004 was $40,784 and $29,353, 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 nine months ended June 30, 2004 was 30,000.
In 2003 and the first six months of fiscal 2004, the Company used the
services of a company owned by shareholders, one being a director of the
Company, that provided 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 the amount paid was $260,067.
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, 2005 and 2004, the total expense paid
out for these services was $152,690 and $260,067, respectively.
During the periods ended September 30, 2003, the Company executed an
interest bearing notes a shareholder. 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
2003, a shareholder agreed to reduce the Company payable by $198,515 to
apply towards the purchase of common stock by Wright Entertainment LLC
during the period ended September 30, 2004 and was brought back onto the
Company's books as part of the termination of the Wright Entertainment LLC
stock subscription agreement
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 $-0- 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, President 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
11
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(UNAUDITED)
6. Related Party Transactions - continued
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
interest on a note payable to the lender. In December 2004, this
subscription agreement was terminated by mutual agreement between the
Company and Wright Entertainment LLC as well as the termination of
4,000,000 shares that has been issued to Wright Entertainment and were to
be vested to Wright Entertainment upon the full payment of the subscription
agreement.
On December 13, 2004, we entered into a definitive agreement with World One
Media Group, Inc., a Nevada corporation. The definitive agreement called
for World One to purchase 70,000,000 restricted common shares for
$7,000,000. The subscription agreement signed on December 23, 2004 set the
terms of the installment purchase at $100,000 being paid on December 23,
2004 and with a promissory note bearing no interest being executed for the
remaining $6,900,000 and being paid at the rate of $150,000 every 45 days
beginning on January 31, 2005 until promissory note has been paid in full.
All the shares are pledged as collateral for the promissory note and will
be physically held by the Company. Additionally, World One will be issued
warrants for 30,000,000 (reduced by mutual agreement from the original
80,000,000 warrants) shares of common stock that can be exercised for $.01
per share at any time after the Company's stock price has maintained a $10
bid price for 20 consecutive trading days. The total warrants exercisable
will be subject the available authorized and unissued shares of the Company
at the time of exercise. See Note 13 - Subsequent Event for discussion of
change in ownership.
As part of the definitive agreement, Wright Entertainment LLC which had
previously entered into a stock subscription agreement for 14,000,000
shares agreed to the termination and cancellation of that agreement by the
Company and further agreed to the termination and cancellation of 4,000,000
shares that had been issued in Wright Entertainment LLC's name and were to
be vested when Wright Entertainment LLC completed the payment for its
subscription agreement. The definitive agreement calls for the Company to
pay Wright Entertainment LLC, owned by Lonnie G. Wright, $300,000 ($60,000
at the signing and $15,000 per month for sixteen months beginning January
15, 2005) and issue Wright Entertainment LLC 1,000,000 shares of the
Company's restricted common stock.
In summary, World One Media Group, Inc.'s acquisition of 70,000,000 Million
restricted common shares and the cancellation of 18,000,000 common shares
in the name of Wright Entertainment LLC leaves World One Media Group, Inc.
owning approximately 51.3% of the Company's 136,428,379 outstanding shares.
See Note 13 - Subsequent Event for discussion of change in ownership.
7. Notes Payable
Notes payable and advances consist of:
June 30, September 30,
2005 2004
------------- -------------
Notes payable to stockholders at 6%
interest payable on September 30, 2004 $ 657 $ 2,657
Note payable to stockholder at 6%
interest payable July 31, 2005 228,290 228,290
Note payable to stockholder at 6%
interest payable August 31, 2005 171,710 171,710
Note payable to stockholder at no
interest, payable $15,000 per month 165,000 --
Advances from a non-related party
that the Company expects to convert
to a note payable with a term of at
least one year 665,000 --
Advances from shareholders 85,500 --
------------- -------------
Total Notes Payable and Advances $ 1,316,157 $ 402,657
------------- -------------
12
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(UNAUDITED)
7. Notes Payable - continued
The holder of the July and August 2005 notes has a UCC-1 lien against the
Company's assets.
The $228,290 and $171,710 notes payable are convertible at any time before
the maturity date into the Company's common stock at the rate of five
shares of common stock for each dollar of loan amount plus accrued interest
through the date of conversion.
8. 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, 2005 and 2004.
The (provision) benefit for income tax consist of the following:
June 30, September 30,
2005 2004
------------- -------------
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. For the year ended September 30, 2004, the Valuation Allowance
increased by approximately $1,100,000.
9. 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.
13
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(UNAUDITED)
9. Capital Stock - continued
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.
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.
The accompanying financial statements have been restated to reflect the
Reverse of 1 for 20 stock split.
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. In December 2004,
this subscription agreement was terminated by mutual agreement between the
Company and Wright Entertainment LLC as well as the termination of
4,000,000 shares that has been issued to Wright Entertainment and were to
be vested to Wright Entertainment upon the full payment of the subscription
agreement.
In October 2003, the Company issued 100,000 shares of its common stock for
services rendered, which the Company valued at $60,000.
In October 2003, the Company issued 100,000 shares of its common stock to
management for services, which the Company valued at $25,000.00.
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 $19,500.
In July 2004, the Company issued 1,000,000 shares of its common stock to
directors, which the Company valued at $100,000.
In August 2004, the Company issued 2,900,000 shares of its common stock to
employees, directors and advisory board members for management services,
which the Company valued at $290,000.
In August 2004, the Company issued 100,000 shares of its common stock in
lieu Payments due on a television station lease agreement, which the
Company valued at $9,000.
In September 2004, the Company issued 1,506,000 shares of its common stock
for services rendered, which the Company valued at $301,200.
14
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(UNAUDITED)
9. Capital Stock - continued
During the period ended September 30, 2004, the Company issued 4,135,441
shares of its common stock to Bridge Loan Lenders who elected to convert
$1,852,648 of bridge loans to common stock at an average conversion price
of $.447 per share.
During the nine months ended June 30, 2005, the Company issued 6,158,202
shares of its common stock to Bridge Loan Lenders who elected to convert
$708,550 of bridge loans to common stock at an average conversion price of
$.115 per share.
In October 2004, the Company issued 600,000 shares of its common stock to
Directors, which the Company valued at $60,000.
In October 2004, the Company issued 100,000 shares of its common stock in
Lieu of payments due on a television station lease agreement, which the
Company valued at $18,000.
In October 2004, the Company issued 500,000 share of its common stock for
for services rendered, which the Company valued at $50,000.
In December 2004, the Company issued 1,000,000 shares of its common stock
to Wright Entertainment, LLC as part of the Definitive Agreement discussed
in Footnote 6, which the Company valued at $200,000.
On December 13, 2004, we entered into a definitive agreement with World One
Media Group, Inc., a Nevada corporation. The definitive agreement called
for World One to purchase 70,000,000 restricted common shares for
$7,000,000. The subscription agreement signed on December 23, 2004 set the
terms of the installment purchase at $100,000 being paid on December 23,
2004 and with a promissory note bearing no interest being executed for the
remaining $6,900,000 and being paid at the rate of $150,000 every 45 days
beginning on January 31, 2005 until promissory note has been paid in full.
All the shares are pledged as collateral for the promissory note and will
be physically held by the Company. Additionally, World One will be issued
warrants for 30,000,000 (reduced by mutual agreement from the original
80,000,000 warrant) shares of common stock that can be exercised for $.01
per share at any time after the Company's stock price has maintained a $10
bid price for 20 consecutive trading days. The total warrants exercisable
will be subject the available authorized and unissued shares of the Company
at the time of exercise. See Note 13 - Subsequent Event for discussion of
change in ownership.
As part of the definitive agreement, Wright Entertainment LLC which had
previously entered into a stock subscription agreement for 14,000,000
shares agreed to the termination and cancellation of that agreement by the
Company and further agreed to the termination and cancellation of 4,000,000
shares that had been issued in Wright Entertainment LLC's name and were to
be vested when Wright Entertainment LLC completed the payment for its
subscription agreement. The definitive agreement calls for the Company to
pay Wright Entertainment LLC, owned by Lonnie G. Wright, $300,000 ($60,000
at the signing and $15,000 per month for sixteen months beginning January
15, 2005) and issue Wright Entertainment LLC 1,000,000 shares of the
Company's restricted common stock.
In January 2005, the Company issued 5,000,000 shares of its common stock
for management services to an officer and director, which the Company
valued at $500,000.
In February 2005, the Company issued 1,000,000 shares of its common stock
to a bridge loan holder who converted a $200,000 bridge loan at the rate of
5 shares for each $1.00 of bridge loan.
In March 2005, the Company issued 200,000 shares of its common stock in
lieu of payments due on a television station lease agreement, which the
Company valued at $24,000.
15
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(UNAUDITED)
9. Capital Stock - continued
In March 2005, the Company issued 200,000 shares of its common stock for
marketing and sales services to be provided by an outside consulting firm,
which the Company valued at $20,000.
In June 2005, the Company issued 2,500,000 shares of its common stock for
management services to officers, which the Company valued at $250,000.
Non-Qualified Stock Grant and Option Plan
The Company is authorized to issue up to 6,800,000 shares of common stock
under its 2003 Non-Qualified Stock Grant and Option Plan (the "Plan")
through an S-8 registration, as amended. 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
distributed 1,900,000 of the shares through grants. During the period ended
September 30, 2004, the Company distributed 1,606,000 of the shares through
grants. During the nine month period ended June 30, 2005, the Company
distributed 200,000 of the shares through grants
10. 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, 2005.
11. 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, 2005
and 2004, the amounts expensed were $162,387 and $162,387, respectively.
Future lease payments due during the term of the lease ending on November
21, 2005 will equal $144,344 and be due as follows:
Year ended September 30, 2005 $54,129
Year ended September 30, 2006 $90,215
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 $72,000, respectively.
Future lease payments due during the term of the lease ending on November
21, 2005 will equal $40,000 and be due as follows:
Year ended September 30, 2005 $24,000
Year ended September 30, 2006 $16,000
16
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(UNAUDITED)
11. Commitments and Contingencies - continued
Station Lease
The Company entered into a station programming agreement for Channel 19 in
Oklahoma City beginning October 1, 2003 for a period of five years. For the
nine months ended June 30, 2005 and 2004, the amounts expensed were $42,000
and $27,750, respectively. This station lease was terminated in April 2005
by mutual agreement between the Company and the station owner.
Facilities Space Lease
The Company entered into a lease for office and uplink space on March 1,
2004 for a period of one year ending on February 28, 2005 a the rate of
$2,330 per month. The lease was renewed through February 28, 2006 at the
rate of $2,363 per month. For the nine months ended June 30, 2005 and 2004,
the amount expensed for office space lease was $23,432 and $6,990,
respectively.
Future lease payments due during the term of the lease ending on February
28, 2006 will equal $18,904 and be due as follows:
Year ended September 30, 2005 $ 7,089
Year ended September 30, 2006 $11,815
The Company entered into a lease for studio and office space on April 1,
2005 for a period of one year ending on March 31, 2006 a the rate of $4,130
per month. For the nine months ended June 30, 2005 the amount expensed for
this space lease was $12,390.
Future lease payments due during the term of the lease ending on March 31,
2006 will equal $37,170 and be due as follows:
Year ended September 30, 2005 $12,390
Year ended September 30, 2006 $24,780
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.
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, 2005, $76,000 of Mr. Moseley's compensation was accrued as a
payable. At June 30, 2005 and September 30, 2004, a total of $226,000 and
$150,000 of Mr. Moseley's annual 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.
In June of 2004, the Company was granted a motion for default judgment and
entry of permanent injunction against a former independent contractor and
his companies. The default judgment is for $1,575,850 and the permanent
injunction is against the defendants, their officers, agents, employees,
and all persons acting in concert with them. The defendants were further
enjoined from contacting the directors, officers, agents, consultants,
servants, and employees of the Company. The Company has made the decision
not to record the default judgment as an asset until at such time as it is
confident that asset value can be recovered from the defendants.
17
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(UNAUDITED)
11. Commitments and Contingencies - continued
In August of 2004, the Company settled a lawsuit brought by Three F
Productions, Inc. vs. Pacific Family Entertainment LLC, et al. which
included the Company as a defendant as the result of the Company airing a
program that Pacific Family Entertainment had represented as having the
copyright and rights to air. The settlement amount due by Company was
$50,000 to be paid at the rate of $5,000 per month beginning September 1,
2004. The Company paid the final payment of $5,000 on June 1, 2005 and
received a Stipulation for Dismissal of Action Against the Company from
Three F Productions.
12. Going Concern
The Company has suffered recurring losses from operations and has a deficit
in both working capital and stockholders' equity. 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 operating cash flows, the
sale of its equity securities, or debt securities. Subsequent to year end
the Company has raised additional capital of approximately $508,541 from
bridge loans, that were subsequently converted to common stock, $450,000 in
other advances to the Company and $550,000 from World One towards the
payment on its stock subscription agreement.
13. Subsequent Event
On July 26, 2005, the Board of Directors voted to (1) terminate the stock
subscription agreement with Dove Media Group, Inc. (formerly known as World
One Media Group, Inc.) due to its nonpayment of required installment
payments, (2) cancel the 70,000,000 shares issued and held by the Company
as security on the stock subscription agreement, (3) reissue 2,500,000
shares to Dove Media Group, Inc. for $250,000 that it paid towards the
stock subscription Agreement and (4) cancel the 5,000,000 shares that had
been authorized for Dr. Ajibike Akinkoye for services to be rendered to the
Company.
On July 29, 2005, we entered into a stock subscription agreement with Miles
Investment Group, Inc., a Texas limited liability company controlled by
Jacob R. Miles III, a shareholder and the Company's Chief Executive
Officer. The agreement calls for Miles Investment Group, LLC to purchase
69,000,000 restricted common shares for $6,900,000 on an installment basis
over a 28 month period with the terms being $100,000 as a down payment and
$250,000 per month beginning on September 1, 2005 and the first each month
thereafter until the total of $6,800,000 has been paid in full. All the
shares are pledged as collateral for the promissory note and will be
physically held by the Company. Additionally, Miles Investment Group, LLC
will be issued warrants for 30,000,000 shares of restricted common stock
that can be exercised for $.01 per share on the following basis: (1) three
million shares at any time after the Company's stock bid price on the OTCBB
exchange has maintained a $1.50 price for 10 consecutive trading days, (2)
seven million shares at any time after the Company's stock bid price on the
OTCBB exchange has maintained a $3.00 price for 10 consecutive trading
days,(3) ten million shares at any time after the Company's stock bid price
on the OTCBB exchange has maintained a $5.00 price for 10 consecutive
trading days and (4) ten million shares at any time after the Company's
stock bid price on the OTCBB exchange has maintained a $6.00 price for 10
consecutive trading days.
18
Item 2. Management's Discussion and Analysis or Plan of Operation.
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,
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.
Readers are urged to carefully review and consider the various disclosures made
by us in this Quarterly Report on Form 10-QSB and our Form 10-KSB for the period
ended September 30, 2004 and our other filings with the U.S. Securities and
Exchange Commission. These reports and filings attempt to advise interested
parties of the risks and factors that may affect our business, financial
condition and results of operations and prospects. The forward-looking
statements made in this Form 10-QSB speak only as of the date hereof and we
disclaim any obligation to provide updates, revisions or amendments to any
forward-looking statements to reflect changes in our expectations or future
events.
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.
19
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. In December 2004, this
subscription agreement was terminated by mutual agreement between the Company
and Wright Entertainment LLC as well as the termination of 4,000,000 shares that
has been issued to Wright Entertainment and were to be vested to Wright
Entertainment upon the full payment of the subscription agreement.
On December 13, 2004, we entered into a definitive agreement with World One
Media Group, Inc., a Nevada corporation. The definitive agreement called for
World One to purchase 70,000,000 restricted common shares for $7,000,000. The
subscription agreement signed on December 23, 2004 set the terms of the
installment purchase at $100,000 being paid on December 23, 2004 and with a
promissory note bearing no interest being executed for the remaining $6,900,000
and being paid at the rate of $150,000 every 45 days beginning on January 31,
2005 until promissory note has been paid in full. All the shares are pledged as
collateral for the promissory note and will be physically held by the Company.
Additionally, World One will be issued warrants for 30,000,000 (reduced by
mutual agreement from the original 80,000,000 warrants) shares of common stock
that can be exercised for $.01 per share at any time after the Company's stock
price has maintained a $10 bid price for 20 consecutive trading days. The total
warrants exercisable will be subject the available authorized and unissued
shares of the Company at the time of exercise. See Note 13 - Subsequent Events
to the financial statements for discussion of change in ownership.
As part of the definitive agreement, Wright Entertainment LLC which had
previously entered into a stock subscription agreement for 14,000,000 shares
agreed to the termination and cancellation of that agreement by the Company and
further agreed to the termination and cancellation of 4,000,000 shares that had
been issued in Wright Entertainment LLC's name and were to be vested when Wright
Entertainment LLC completed the payment for its subscription agreement. The
definitive agreement calls for the Company to pay Wright Entertainment LLC,
owned by Lonnie G. Wright, $300,000 ($60,000 at the signing and $15,000 per
month for sixteen months beginning January 15, 2005) and issue Wright
Entertainment LLC 1,000,000 shares of the Company's restricted common stock.
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 70
broadcast television station affiliates in various parts of the country.
We are targeting the minority markets, primarily the African American and
English speaking 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. The certification was renewed for a year
on February 1, 2005.
20
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
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.
Revenues
Our primary source of revenue is the sale of advertising and programming time on
our network and local stations. Our revenues are affected primarily by the
advertising rates that we are able to charge for national advertising
commercials on the Urban TV network and that the television stations we manage
on a local basis are able to charge as well as the overall demand for
African-American and Hispanic television advertising time. Advertising rates in
general are determined primarily by:
o the markets covered by broadcast television affiliates,
o the number of competing African-American television stations
in the same market as our affiliate stations,
o the television audience share in the demographic groups
targeted by advertisers, and
o the supply and demand for African-American advertising time.
Seasonal fluctuations are also common to the broadcast industry and are due
primarily to fluctuations in advertising expenditures by national and local
advertisers. The first calendar quarter typically produces the lowest broadcast
revenues for the year because of the normal post-holiday decreases in
advertising.
Currently most of our network advertising has been sold to direct response and
per inquiry advertisers. 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.
We market our advertising time on the Urban Television network to:
o Advertising agencies and independent advertisers. We market
commercial time to advertising agencies and independent
advertisers. The monetary value of this time is based upon the
estimated size of the viewing audience; the larger the
audience, the more we are able to charge for the advertising
time.
To measure the size of a viewing audience, networks and
stations generally subscribe to nationally recognized rating
services, such as Nielsen. We do not currently have the
resources to subscribe to the Nielsen service and this hinders
our ability to attract the larger advertising clients.
Currently, a number of Urban Television's affiliate stations
are located in the smaller market areas of the country, which
is also not as desirable to the larger advertising clients.
Our goal is to enter into affiliate agreements with television
stations located in the top demographic market areas (ideally
stations that are already on a cable system), which would give
us the ability to justify the cost of Nielsen ratings that
would in turn justify charging higher rates for our
advertising time.
21
o Affiliate Stations. In exchange for providing programming and
advertising time to our affiliate stations, we retain
advertising time and gain access to the affiliate stations'
markets. In a traditional broadcasting contract, an affiliate
station would retain all available advertising time, which it
would then sell to outside advertisers, and the network would
receive a fee from the affiliate station. However, we believe
that with a network such as ours that currently is composed
primarily of small independent low power stations that cannot
afford a significant affiliation fee, we will have the ability
to generate larger revenues over time by taking half of the
affiliates advertising time, aggregating a number of the
affiliate stations and accumulating a large household coverage
base. This household coverage base of over the air broadcast
television stations (which a portion will be on local cable in
their local markets) can then be used to market the retained
commercial time to outside advertisers. Advertising time is
generally a component of the programming contract with
affiliate stations. As a result, our advertising spots are
inserted into the programs that go to the affiliates and we do
have to separately market the advertising time to our
affiliate stations.
o Program Owners: In exchange for licensing rights to select
programming, the program owner retains half of the available
advertising time in each program and we as the network get the
other half of the available advertising time in each program.
The program owner is then able to sell the advertising time he
retains to outside parties. We obtain programming by
contracting with program owners at the annual National
Association of Television Program Executives convention and by
contracting with program owners who during the year are
looking for distributions sources. In the future, to acquire
certain exclusive, original or first-run usage and licenses
for programming, we may be required to incur upfront
programming expenses.
Expenses
Our most significant expenses are satellite and uplink transmission costs,
master control costs, technology expenses, employee compensation, advertising
and promotional expenses, and production and programming expenses. In cases,
where we may in the future incur upfront programming expenses to procure
exclusive programming usages and licenses, upfront payments will, in most cases,
be amortized over the applicable contract term. Until cash flow permits, we do
not expect to acquire exclusive programming usages and licenses that require up
front costs. We will maintain tight controls over our operating expenses by
contracting master control and centralizing network programming, finance, human
resources and management information system functions. Depreciation of fixed
assets and amortization of costs associated with the acquisition of additional
stations are also significant elements in determining our total expense level.
As a result of attracting key officers and personnel to Urban Television, we may
offer stock grants or options as an alternate form of compensation. In the event
that the strike price of the stock option is less than the fair market value of
the stock on the date of grant, any difference will be amortized as compensation
expense over the vesting period of the stock options.
Our monthly operating expense level may vary from month to month due primarily
to the timing of significant advertising and promotion expenses. We will incur
significant advertising and promotion expenses associated with the growth of
Urban Television and with the establishment of our presence in new markets
associated with any new station lease or acquisition agreements. Increased
advertising revenue associated with these advertising and promotional expenses
will typically lag behind the incurrence of these expenses.
Advertising and Program Time Sales
The majority of all revenues generated come from the sale of national
advertising spots and program time slots and from advertising spots and program
time slots on managed local television stations.
Network Advertising. All operated stations as well as affiliates have a
percentage of available commercial time dedicated for "network" sales. The
commercials sold on the network are broadcast simultaneously and aired in the
affiliate markets that are at that time airing the network's programming.
22
National Spot Advertising. National advertisers have the opportunity to buy
"spot" advertising in specific markets. For example, an advertising agency in
New York would could use spot advertising to purchase commercials in Dallas or
Oklahoma City.
Currently the Company generates its Network and National spot advertising sales.
The Company's plan is to have the yet to be established sales personnel located
in all major markets that have a large concentration of advertising agencies
targeting the African-American and English speaking Hispanic markets. The sales
of our local spot advertising would them be generated by these local sales staff
personnel placed at each of our television stations.
Local Spot Advertising. Advertising agencies and businesses located in specific
markets will buy commercial air-time in their respective market. This commercial
time will be sold in the market by a local sales force or as a specific buy from
a national client. Local spot advertising also includes event marketing. In
conjunction with a spot buy, the station incorporates events that may be held on
the premise of a business or advertiser for the purpose of driving traffic to
that place of business.
Program Time Sales. Also known as long-form programs are sold on the network and
on locally managed stations to companies wanting to purchase the television time
and air their own programs.
Results of Operations
Urban Television Network Corporation - Historical Results for the three month
and nine month periods ended June 30, 2005 and 2004.
REVENUES. Revenues are primarily derived from sales of advertising and
programming time. Revenues for the three months and nine months ended June 30,
2005 were $55,624 and $225,757 compared to $71,842 and $129,009 for the three
months and nine month periods ended June 30, 2004. The decrease in revenues of
$16,218 for the three month period ended June 30, 2005 and the increase of
$96,748 for the nine months periods ended June 30, 2005 is primarily
attributable to the fluctuations in the sales of program time during these
periods. The Company is still in the process of implementing its revenue
generation plan that includes focusing on creating advertising and sponsorship
opportunities for the Fortune 500 companies that want to target the 80 million
consumers that consider themselves "urban", uplinking and providing master
control services for other parties wanting to have a satellite signal, plus
implementing a technology plan to assist its affiliates with sale of their local
advertising time.
The operations are still in the growth 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, 2005 and 2004 the Company
had operating cost of $437,034 and $360,291, respectively. For the nine months
ended June 30, 2005 and 2004, the Company had operating cost of $1,059,027 and
$988,952, respectively. The major components of cost of operations for the three
month and nine month periods ended June 30, 2005 and 2004 were as follows:
Three months ended Nine months ended
----------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Satellite and uplink services $ 80,049 $ 80,174 $ 240,267 $ 266,194
Master control and production 61,660 34,073 181,394 213,329
Affiliate relations 25,853 11,250 41,053 11,250
Programming 139,586 12,600 188,368 49,000
Operations of stations 71,231 74,934 255,255 246,071
Technology expenses 58,655 147,260 152,690 203,108
---------- ---------- ---------- ----------
Total $ 437,034 $ 360,291 $1,059,027 $ 988,952
---------- ---------- ---------- ----------
The cost of satellite and uplink services decreased by $25,927 in the nine
months ended June 30, 2005 as compared to 2004 primarily as the result of the
Company reducing its facilities costs by moving its master control facilities
from the Verestar uplink facilities to its own facilities in Arlington, Texas in
April of 2004.
23
The cost of master control and production decreased by $31,935 for the nine
months ended June 30, 2005 as compared to 2004 primarily as the result reduction
in expenses by moving its master control facilities from the Verestar uplink
facilities to its own facilities in Arlington, Texas in April of 2004 and moving
from a tape based system to a digital system.
The cost of master control and production increased by $27,587 for the three
months ended June 30, 2005 as compared to 2004 primarily due to increased
production costs for programming.
Affiliate relations costs increased for the nine months and three months ended
June 30, 2005 as compared to 2004 primarily as the result of adding additional
personnel to manage the networks television affiliates.
Programming costs increased for the nine months and three months ended March 31,
2005 as compared to 2004 primarily as the result of adding additional personnel
to work with program suppliers and develop original programming for the Company.
The costs of operations for stations increased by $9,184 for nine months ended
June 30, 2005 as compared to 2004 primarily as the result of the increased
monthly lease costs of the Dallas and Oklahoma City stations.
The costs of operations for stations decreased for three months ended June 30,
2005 as compared to 2004 primarily as the result of the lease agreement for the
Oklahoma City station being terminated in April of 2005 by mutual agreement
between the station owner and the Company.
The technology expenses decreased by for the nine months and three months ended
June 30, 2005 as compared to 2004 due primarily to due the completion of the
Conversion from a tape based system to a digital system in 2004.
Administration expenses of $332,850 for the three months ended June 30, 2005
decreased by $4,151,204 from the administrative expenses of $4,484,054 for the
three months ended June 30, 2004.
Administration expenses of $1,966,378 for the nine months ended June 30, 2005
decreased by $3,052,409 from the administrative expenses of $5,018,787 for the
nine months ended June 30, 2004.
Following is a comparative of the major expense categories for the three and
nine months periods ending June 30, 2005 and 2004.
Three months ended Nine months ended
----------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Management personnel costs $ 90,000 $ 66,500 $ 232,500 $ 191,500
Stock based compensation 167,500 3,666,750 849,000 3,716,750
Consulting -- 578,279 45,697 638,168
Las Vegas Office -- 20,000 473,129 20,000
Commissions 1,882 21,400 14,111 27,194
Travel, conventions 17,901 33,154 40,394 95,694
Legal fees -- 10,150 120,534 54,650
Accounting fees 1,000 357 11,000 12,658
Employee benefits 5,783 -- 5,783 --
Public relations costs -- -- 2,460 10,230
Transfer Agent, permit fees 2,011 6,847 18,404 24,696
Rent and utilities expenses 19,878 40,239 40,722 64,115
Internet costs 4,281 4,016 11,640 17,067
Supplies - digital operations 2,311 16,963 23,535 44,772
Supplies 2,000 1,737 5,793 28,204
Telephone 9,713 6,958 42,052 20,533
Postage and shipping 1,919 2,174 6,024 6,845
Marketing,printing,promotions 4,363 1,700 9,294 12,782
Other 2,308 6,830 14,306 32,929
---------- ---------- ---------- ----------
TOTAL $ 332,850 $4,484,054 $1,966,378 $5,018,787
---------- ---------- ---------- ----------
The increase in administration costs for the three and nine months ended June
30, 2005 as compared to the same periods for 2004 is due to the Company adding
additional management personnel in the current fiscal year.
Stock based compensation decreased for the three and nine months periods ended
June 30, 2005 as compared to the same periods for 2004 primarily due to fewer
shares being issued to new management, board members and consultants.
24
The decreases in consulting fees for the three and nine months ended June 30,
2005 as compared to 2004 is due the Company replacing consultants with
additional management personnel.
The increases in expenses associated with the Las Vegas office is due to the
costs associated with the resignation and termination of the stock subscription
agreement by Lonnie G. Wright and Wright Entertainment LLC. These direct
expenses were $447,500 for the nine months ended June 30, 2005. The $447,500 is
made up of $307,500 in cash and note payable and $140,000 value assigned to
1,200,000 shares of common stock issued to Wright Entertainment LLC.
The decreases in commissions for the three and nine months ended June 30, 2005
as compared to 2004 is attributed program sales decreasing in the 2005 periods
as compared to the same periods ending in 2004.
The decreases in travel and conventions costs for the three and nine months
ended June 30, 2005 as compared to 2004 is related to the Company's reduced
travel related cost associated with the minority ownership no longer being
located in Las Vegas, Nevada.
The increases in legal expenses for the nine months ended June 30, 2005 as
compared to the same period for 2004 is attributed to the legal fees associated
with the pursuit of sources of capital for the Company and with the continued
legal requirements regarding permanent injunction obtained by the Company
against Walter E. Morgan, Jr.
The decrease in public relations for the nine months ended June 30, 2005 as
compared to the same period for 2004 is due to the $7,250 cost associated with a
media event held in Las Vegas in November of 2004 announcing the new minority
ownership position of Wright Entertainment LLC.
The decreases in rent and utilities costs for the three and nine months ended
June 30, 2005 as compared to 2004 is related to the Company's reduced rent
expense associated with the minority ownership no longer being located in Las
Vegas, Nevada.
Internet cost decreased during nine month periods ended June 30, 2005 as
compared to the same period for 2004 primarily due to the Company securing its
own high speed Internet line at the corporate offices, rather than contracting
with an outside provider.
The decrease in supplies - digital operations during the three and nine month
periods ended June 30, 2005 as compared to the same periods for 2004 is due to
the completing in 2004 its conversion from a tape digital based operations for
its program insertions.
The increase in telephone related costs for the three and nine months ended June
30, 2005 as compared to the same periods in 2004 is due primarily to the Company
incurring a one time cost of $14,500 related to the installation of video fiber
from the Arlington master control facilities to the Verestar uplink facilities
in De Soto, Texas and the monthly cost of the video fiber service.
Operating Results:
The Company had operating losses for the three months ended June 30, 2005 and
2004 of $738,167 and $4,795,440, respectively. The decrease in loss of
$4,057,273 from 2005 to 2004 is due primarily to $4,151,204 decrease in
administrative expenses of which $3,499,250 was attributable to a decrease in
stock based compensation and $578,279 was attributable to a decrease in
consulting expenses.
The Company had operating losses for the nine months ended June 30, 2005 and
2004 of $2,869,430 and $5,937,427, respectively. The decrease in loss of
$3,067,997 from 2005 to 2004 is due primarily to $3,052,409 decrease in
administrative expenses of which $2,867,750 was attributable to a decrease in
stock based compensation; $592,471 was attributable to a decrease in consulting
expenses along with increases in Las Vegas Office costs of $453,129 and legal
expenses of $65,884.
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
25
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 $0.01 and $0.09 for the three months June 30, 2005 and 2004,
respectively. The basic and diluted net loss per share of common stock was $0.03
and $0.13 for the nine months June 30, 2005 and 2004, 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 $18,477,873 from the inception of the Company through June 30, 2005.
Current assets at June 30, 2005 were $15,663 which were exceeded by current
liabilities of $1,594,605 by $1,578,942. The Company's cash position at June 30,
2005 was $2,536, a decrease of $6,459 from the position at September 30,2004. 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. Accrued compensation is the result of management deferring a portion of
their annual compensation until the Company has funds available. Deferred income
is the result of the Company receiving full payment for a year contract to air
programming, which amount was amortized on a monthly basis as the programming
was aired.
Our continued growth, will require additional funds that may come from a variety
of sources, including stock subscription agreements, 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 continued growth, including funding our working capital needs, acquisition
of new stations, performing digital upgrades of acquired stations, funding key
programming acquisitions,performing station capital upgrades, securing cable
connections, funding master control/ network equipment upgrades, making
strategic investments.
The Company's licensing agreements with program suppliers are generally for a
term of 13 to 52 weeks and are cancelable by either party upon thirty (30) days
written notice. These license agreements provide the Company with a source of
revenue by the Company's right to insert commercial spots during the programs.
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. As the Company continues to
grow, it has been entering into new license agreements to replace existing
licenses for programs that do not fit into the Company's business model for a
minority focused television network. The cancelable feature of these license
agreements could effect the Company's source of revenue generation should a
program be cancelled by a licensor and the Company not be able to replace it
within the 30 day notice of cancellation period.
We had net losses $744,165 and $4,795,440 for the three months ended June 30,
2005 and 2004, respectively and $2,887,439 and $5,940,448 for the nine months
ended June 30, 2005 and 2004, 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 2005, 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.
RISK FACTORS
We are subject to a high degree of risk as we are considered to be in unsound
financial condition. The following risks, if any one or more occurs, could
materially harm our business, financial condition or future results of
operations, and the trading price of our common stock could decline. These risks
factors include, but are not limited to, our limited operating history, history
of operating losses, the inability to obtain for additional capital, the failure
to successfully expand our operations, the competition in the television
industry from competitors with substantially greater resources, the legal and
26
regulatory requirements and uncertainties related to our industry, the inability
to enter into strategic partnerships with major advertisers, the loss of key
personnel, adverse economic conditions, the control of our common stock by our
management, the classification of our common stock as "penny stock," the absence
of any right to dividends, the costs associated with the issuance of and the
rights granted to additional securities, the unpredictability of the trading of
our common stock.
For a more detailed discussion as to the risks related to Urban Television
Network Corporation, our industry and our common stock, please see the section
entitled, "Management's Discussion and Analysis or Plan of Operation - Risk
Factors," in our Annual Report on Form 10-KSB, as filed with the Securities and
Exchange Commission on January 13, 2005.
Financing activities for the three months ended June 30, 2005 include:
1) Issuance of common stock in lieu of cash payments totaling $267,500
For management and consulting services.
2) The Company received $150,000 cash as payments on the World One
Media Group, Inc.(name changed to Dove Media Group, Inc.) subscription agreement
as discussed in Footnote 9 to the Financial Statements and in Item 2 of this
Quarterly Report
4) The Company received $100,000 cash as advances from a non-related
party that the Company expects to convert to a note payable with a term of at
least one year
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 s
material effect on operations.
Critical Accounting Policies
The discussion and analysis of the financial condition and results of operations
are based on the financial statements, which have been prepared in accordance
with generally accepted accounting principles. Note 1 of the Notes describes the
significant accounting policies essential to the financial statements. The
preparation of these financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
We believe the following to be critical accounting policies and estimates. That
is, they are both important to the portrayal of the Company's financial
condition and results, and they require significant management judgment and
estimates about matters that are inherently uncertain. As a result of inherent
uncertainty, there is a likelihood that materially different amounts would be
reported under different conditions or using different assumptions. Although we
believe that our judgments and estimates are reasonable, appropriate and
correct, actual future results may differ materially from our estimates.
Revenue Recognition
The Company's sources of revenues include the sale of short-term national and
local spot advertising and 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.
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.
27
Stock Based Compensation
The Company accounts for equity instruments issued to employees for services
based on the fair value of the equity instruments issued and accounts for equity
instruments issued to other than employees based on the fair value of the
consideration received or the fair value of the equity instruments, whichever is
more reliably measurable. The determined value is recognized as an expense in
the accompanying consolidated statements of operations.
Contingencies
In the normal course of business, the Company is subject to certain claims and
legal proceedings. The Company records an accrued liability for these matters
when an adverse outcome is probable and the amount of the potential liability is
reasonably estimable. The Company does not believe that the resolution of these
matters will have a material effect upon its financial condition, results of
operations, or cash flows for an interim or annual period.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements and their effect on us are discussed
in the notes to the financial statements in our September 30, 2004 audited
financial statements.
Other Events
None
Item 3. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
Within the 90 days prior to the date of this Quarterly Report for the quarter
ended March 31, 2005, we carried out an evaluation, under the supervision and
with the participation of our management, including the Company's Chairman and
Chief Executive Officer and the Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures pursuant to
Rule 13a-4 of the Securities Exchange Act of 1934 (the "Exchange Act"), which
disclosure controls and procedures are designed to insure that information
required to be disclosed by a company in the reports that it files under the
Exchange Act is recorded, processed, summarized and reported within required
time periods specified by the SEC's rules and forms.
Limitations on the Effectiveness of Controls
Our management does not expect that our disclosure controls and procedures or
our internal controls over financial reporting will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, but not absolute, assurance that the objectives of a control
system are met. Further, any control system reflects limitations on resources,
and the benefits of a control system must be considered relative to its costs.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of a control. The design of a control system
is also based upon certain assumptions about the likelihood of future events,
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate. Although unlikely, due to the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and may not be detected.
Conclusions
Based on this evaluation, our chief executive officer and our president
concluded that, subject to the limitations noted above and as of the evaluation
date, our disclosure controls and procedures are effective to ensure that the
information we are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized, and reported in such
reports within the time periods specified in the Securities and Exchange
Commission's rules and forms.
28
(b) Changes in Internal Control.
Subsequent to the date of such evaluation as described in subparagraph (a)
above, there were no significant changes in our internal controls or other
factors that could significantly affect these controls, including any corrective
action with regard to significant deficiencies and material weaknesses.
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 June 2005, the Company issued 2,500,000 shares of its common stock
for management services to officers and directors, which the company valued at
$250,000.
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 20, 2005, Jacob R. Miles III, Executive Vice President was appointed to
the position of Chief Executive Officer upon the resignation of Dr. Ajibike
Olukunle Akinkoye as Chief Executive Officer of the Company and. Mr. Miles is
also currently President of Grapevine Entertainment Services and Production,
Inc., which position he has held since 2002. Prior to 2002, Mr. Miles served as
President and CEO of Urban Cool Network, Inc., an Internet Portal targeted at
the Urban Community from 1997 to 2002. Mr. Miles has also served as President of
the Dallas-Fort Worth chapter of the National Association of Minorities in
Cable. He is a past engineering and operations executive with General Mills Toy
& Entertainment Group and Tonka Toys/Hasbro, respectively.
On May 20, 2005, Sandra Pate was appointed to the position of Executive Vice
President of the Company. Her television career began in 1991 at Twentieth
Television as executive assistant to the Sr. Vice President of Business And
Legal Affairs. She then became Manager of Current Programming at Fox
Broadcasting Company in 1993 where she was assigned responsibilities for
primetime situation Comedies and dramas including, "Martin", "Living Single",
"New York Undercover", and other shows on the Fox lineup. For the past eight
years since 1997, she has been President of Entertainment & Talent Consultants,
Inc., a company she created to assist recording artists, novelists, visual
artists, and other creative talent.
29
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.
31.1 Certification by Chief Executive Officer, pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.
31.2 Certification by Chief Financial Officer, pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.
32.1 Certification by Chief Executive Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 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
(b) Reports on Form 8-K.
On May 24, 2005, the Company filed an 8K Report dealing with Item 5, titled
"Departure of Directors or Principal Officers"
On July 5, 2005, the Company filed an 8K Report dealing with Item 5, titled
"Departure of Directors or Principal Officers; Election of Directors".
On August 2, 2005, the Company files an 8K Report dealing with Item 1, titled
"Entry into a Material Definitive Agreement" and "Termination of a Material
Definitive Agreement", Item 3, titled "Unregistered Sales of Equity Securities",
Item 5, titled "Changes in Control of Registrant" and "Departure of Directors or
Principal Officers; Election of Directors" and Item 9, titled "Financial
Statements and Exhibits".
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 11, 2005
Urban Television Network Corporation
By: /s/ Jacob R. Miles III By: /s/ Randy Moseley
------------------ ------------------
Jacob R. Miles III Randy Moseley
Title: Chief Executive Officer Title: Executive Vice President/CFO
30