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 December 31, 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
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(Name of Small Business Issuer in its Charter)
NEVADA 22-2800078
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(State of Incorporation) (IRS Employer Identification No.)
2707 South Cooper, 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
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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:
136,311,277 shares of common stock, $0.0001 par value, as of December 31, 2005
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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........................................7
Item 2. Management's Discussion and Analysis of Plan
of Operation.......................................................18
Item 3. Controls and Procedures..............................................26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................27
Item 2. Changes in Securities and Use of Proceeds...........................27
Item 3. Defaults upon Senior Securities.....................................28
Item 4. Submission of Matters to a Vote
of Security Holders.................................................28
Item 5. Other Information...................................................28
Item 6. Exhibits and Reports on Form 8-K....................................29
Signatures...................................................................30
2
URBAN TELEVISION NETWORK CORPORATION
FORM 10-QSB
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements. (Unaudited)
3
PART I - FINANCIAL STATEMENTS
URBAN TELEVISION NETWORK CORPORATION
Consolidated Balance Sheet
December 31, September 30,
2005 2005
Assets (Unaudited) (Audited)
Currents assets
Cash and cash equivalents $ 1,586 $ 40,369
Accounts receivable 9,262 11,572
------------ ------------
Total current assets 10,848 51,941
------------ ------------
Furniture, fixtures and equipment, net 83,171 97,520
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Other assets
Coal Reserves 4,600,000 4,600,000
Network assets, net 56,822 63,082
Deposits 3,600 3,600
Organizational costs 360 360
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Total other assets 4,660,782 4,667,042
------------ ------------
Total assets $ 4,754,801 $ 4,816,503
============ ============
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 442,904 $ 403,192
Due to stockholders 163,515 151,015
Notes payable to stockholders 327,367 337,367
Note payable to vendor 63,511 --
Advances 665,000 665,000
Accrued compensation 425,325 341,760
Accrued interest payable 813 4,565
------------ ------------
Total current liabilities 2,088,435 1,902,899
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Stockholders' equity
Preferred stock, $1 par value, 500,000 shares authorized,
100,000 outstanding at December 31, 2005 and September 30, 2005 100,000 100,000
Common stock, $0.0001 par value, 200,000,000 shares authorized;
136,311,277 and 135,461,277 outstanding at December 31, 2005 and
September 30,2005, respectively 13,631 13,546
Additional paid-in capital 28,006,966 27,922,051
Stock subscriptions receivable (6,650,500) (6,690,000)
Retained earnings (deficit) (18,803,731) (18,431,993)
------------ ------------
Total stockholders' equity (deficit) 2,666,366 2,913,604
------------ ------------
Total liabilities and stockholders' equity $ 4,754,801 $ 4,816,503
============ ============
See notes to financial statements.
4
URBAN TELEVISION NETWORK CORPORATION
Consolidated Statement of Operations
For the three months ended December 31, 2005 and 2004
(UNAUDITED)
2005 2004
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Revenues $ 33,035 $ 100,016
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Expenses:
Satellite and uplink services 102,899 80,109
Master control and production 38,035 83,200
Programming 14,938 --
Affiliate relations 27,388 --
Station operating costs -- 89,115
Technology expenses 43,130 46,230
Administration 153,238 609,149
Depreciation and amortization 20,609 22,937
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Total expenses 400,237 930,740
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Income (loss) from operations (367,202) (830,724)
Other (income) expense
Interest expense(net) (4,536) (6,004)
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Net loss $ (371,738) $ (836,728)
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Earnings per share: $ (0.00) $ (0.01)
Net income (loss)
Weighted average number of common
shares outstanding 182,236,277 72,212,619
See notes to financial statements.
5
URBAN TELEVISION NETWORK CORPORATION
Consolidated Statement of Cash Flows
For the three months ended December 31, 2005 and 2004
(UNAUDITED)
2005 2004
--------- ---------
Operating Activities
Net (loss) $(371,738) $(836,728)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 20,609 22,937
Common stock issued for services 10,000 294,000
Changes in operating assets and liabilities:
Accounts receivable 2,310 10,915
Accounts payable 39,712 26,489
Accrued interest expense (3,752) (2,993)
Accrued compensation 83,565 26,000
Deferred income -- (24,750)
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Net cash provided by operating activities (219,294) (484,130)
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Investing Activities
Capital expenditures -- --
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Net cash (used in) investing activities -- --
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Financing Activities
Collection on stock subscription receivable 39,500 100,000
Proceeds from bridge loans -- 508,541
Payment on loans and note payables (9,000) (2,000)
Proceeds from loans and note payable 150,011 --
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Net cash provided by financing activities 180,511 606,541
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Increase (decrease) in cash (38,783) 122,411
Cash at beginning of period 40,369 8,995
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Cash at end of period $ 1,586 $ 131,406
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 5,508 $ 9,000
Income taxes $ -- $ --
Non-cash transactions:
Common stock issued for note conversions $ 75,000 $ --
Common stock issued for services $ 10,000 $ 294,000
See notes to financial statements.
6
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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, 2005, which was filed January 13,
2006. 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 December 31, 2005 and the
results of its Operations and cash flows for the quarter 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 December 31, 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 Street, 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) Agreeing to deposit $100,000 into an attorneys escrow account
in return for receiving a balance sheet with no assets and no liabilities.
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. Urban-Texas agreed to deposit 300,000 shares of the Company's
common stock into the attorney's escrow account after the completion of the
Stock Exchange Agreement described below, dated February 7, 2003.
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
2003, the remaining 10% of Urban- Texas was acquired by 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
December 31, 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.
On September 30, 2005, the Company entered into an agreement with GeoTec
Thermal Generators, Inc. to acquire 200,000 tons of mined coal in exchange
for 100,000 shares of Preferred Stock, which may be converted into the
Company's Common Stock, at the sole discretion of the GeoTec Thermal
Generators, Inc., at any time in an amount equal to the purchase price at
the stock bid price of $.10 on September 30, 2005.
The Company is actively pursuing the sale of the mined coal reserves to
utility companies and other companies that use coal as an alternative fuel.
Also the coal reserves have related federal income tax credits resulting
from the Super Fund established by The Federal Government that can be sold
to other companies and the Company is actively pursuing buyers for these
tax credits.
Accounting Method
The Company records income and expenses on the accrual method.
Revenue Recognition
The Company's sources of revenues include the sale of short-form 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.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions
are eliminated. The Company owns 100% of Urban Television Network
Corporation, a Texas corporation and 100% of Waste Conversion Systems Of
Virginia, Inc.
Coal Reserves
The Coal reserves owned by the Company are recorded at lower of cost or net
Realizable value. Net realizable value is the estimated price at which the
coal reserves can be sold in the normal course of business after allowing
for the cost of processing and sale. Such cost will be depreciated using
the units-of-production method as the coal reserves are sold.
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.
Issuance of Common Stock
The issuance of common stock for other than cash is recorded by the Company
at management's estimate of the fair value of the assets acquired or
services rendered.
8
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
(UNAUDITED)
2. Significant Accounting Policies - continued
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.
Concentration of Credit Risk
The Company at times maintains cash in excess of federally insured limits.
The amount in excess of the federally insured limits at December 31, 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 three months
ended December 31, 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 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.
9
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
(UNAUDITED)
2. Significant Accounting Policies - continued
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
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.
In May 2005, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 154, "Accounting
Changes and Error Corrections." SFAS 154 changes the requirements for the
accounting for and reporting of a change in accounting principle,
requiring, in general, retrospective application to prior periods'
financial statements of changes in accounting principle. The Company has
adopted the provisions of SFAS No. 154 which are effective for accounting
changes and corrections of errors beginning after December 15, 2005. The
adoption did not have a material effect on the results of operations of the
Company.
Stock Options
The Company accounts for non-employee stock options under SFAS 123, whereby
option costs are recorded at the fair value of the consideration received
or the fair value of the equity instrument issued, whichever is more
reliable measurement, in accordance with EITF 96-18 "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring or in
Conjunction with Selling Goods or Services".
Reclassification of Prior Year Amounts
Certain prior year amounts have been reclassified to conform with current
year presentation.
10
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
(UNAUDITED)
3. Accounts receivable
Accounts receivable consists of normal trade receivables. The Company
assesses the collectibility of its accounts receivable regularly. Based on
this assessment, an allowance for doubtful accounts is recorded. At
December 31, 2005, an allowance for doubtful accounts was not considered
necessary.
4. Network Assets - Amortization
Network assets consist of intangibles other than Goodwill. These assets are
recorded at cost and consist of amounts paid to acquire the television
network affiliate base from Hispanic Television Network, plus technology
consulting directly related to setting up the affiliate network. 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 $138,806 and the amortization for the
three months ended December 31, 2005 and 2004 was $6,260 and $9,781,
respectively.
Future amortization of the Network assets at December 31, 2005 will be
$56,822 and on an annual basis be as follows:
Year ended September 30, 2006 $18,780
Year ended September 30, 2007 $25,040
Year ended September 30, 2008 $13,002
5. Coal Reserves
By agreement dated September 30, 2005 with GeoTec Thermal Generators, Inc.,
the Company acquired 200,000 tons of mined coal in exchange for 100,000
shares of preferred Stock, which may be converted into the Company's common
stock, at the sole discretion of the GeoTec Thermal Generators, Inc., at
any time in an amount equal to the purchase price, which based on the bid
price of $.10 price on September 30, 2005, was valued at $4,600,000. GeoTec
Thermal Generators, Inc. has other coal in other locations in the United
States and the agreement allows the Company to substitute coal in these
other locations, which the Company may exercise this right if it for
example would expedite the delivery process.
6. Furniture, Fixtures and Equipment
Furniture, fixtures and equipment, their estimated useful lives, and
related accumulated depreciation are summarized as follows:
Range of
Lives in December 31, September 30,
Years 2005 2005
--------- ------------- -------------
Master Control, Editing Equipment 3-5 $ 84,074 $ 84,074
Studio and Production Equipment 3-5 60,500 60,500
Production Van 5 45,000 45,000
Affiliated Receiver Equipment 5 20,247 20,247
------------- -------------
209,821 209,821
Less: Accumulated Depreciation (126,650) (112,301)
------------- -------------
$ 83,171 $ 97,520
============= =============
The Company acquired equipment totaling $ -0- and $ -0- during the three
months ended December 31, 2005 and 2004, respectively. Total depreciation
expense for the three months ended December 31, 2005 and 2004 was $14,349
and $13,516, respectively.
11
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
(UNAUDITED)
7. 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 has leased office space from one its shareholders and director
for $2,000 per month. The total rental expense for the years ended
September 30, 2004 was $24,000.
In year 2003, the Company began using the services of a company owned by
shareholders, one being a director of the Company, that provides the
Company with the equipment and master control services to put the Company's
programming on the satellite for the broadcast affiliates to receive and
rebroadcast to their local markets. During the periods ended September 30,
2004 the total expense paid out for these services was $430,367.
The Company uses the services of a company owned by shareholders to provide
it with technology services including Internet and affiliate relations.
During the periods ended December 31, 2005 and 2004 the total expense paid
Out for these services was $43,130 and $46,230 respectively.
During the period ended September 2003, the Company executed an interest
bearing note with a shareholder. The principal borrowed of $168,765 plus
accrued interest of $29,750 were converted to a non-interest payable to the
shareholder. As discussed below, the 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. In
December 2004, this payable was reinstated in conjunction with the
termination of the Wright Entertainment LLC subscription agreement and the
execution of the World One Media Group, Inc. subscription Agreement
discussed later in this Note 7. This note was converted to 1,000,000 shares
of common stock in February of 2005.
The Company executed an interest bearing note with a shareholder of the
Company during the year ended September 30, 2003 to pay operating expenses.
During the year ended September 30, 2003 the amounts loaned totaled
$132,200. During the year ended September 30, 2004, the Company repaid
$130,000 and the remaining $2,200 was repaid during the year ended
September 30, 2005.
The Company executed an interest bearing note with a shareholder of the
Company during the year ended September 30, 2004 to pay operating expenses.
During the year ended September 30, 2004 the amounts loaned totaled
$400,000. In September 2005, $228,290 of this note was converted to
2,282,900 shares of common stock by the noteholder and the remaining
balance of $171,710 was extended to March 31, 2006. See Note 8 disclosure
of terms, interest rate and conversion privileges.
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. As part of the definitive
agreement, between the Company, Wright Entertainment LLC and World One
Media Group, Inc. discussed in the next paragraph this stock subscription
agreement for 14,000,000 shares was termination and the 4,000,000 shares
that had been issued to Wright Entertainment LLC's for management services
and to be vested upon Wright Entertainment LLC's completed the payment for
its subscription agreement were cancelled. 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.
12
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
(UNAUDITED)
7. Related Party Transactions - continued
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.
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.
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. The Company
has deferred payments on the stock subscription agreement until January
31,2 006, in consideration for Miles Investment Group LLC bringing the coal
reserves deal to the Company. 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.
8. Notes Payable and Advances
December 31, September 30,
2005 2005
------------- -------------
Notes payable to stockholders at 6%
interest payable on September 30, 2004 $ 657 $ 657
Note payable to stockholder at 6%
interest payable March 31, 2006 (1) 171,710 171,710
Note payable to stockholders at 6%
due upon sale of coal reserves 65,000 --
Note payable to stockholder at no
interest payable $15,000 per month,
on 15th of month, final payment
due April 15, 2006 (2) 90,000 165,000
Note payable to vendor at 12% interest
payable on April 30, 2006 (3) 63,511 --
Advances from shareholders (4) 163,515 151,015
Advances from a non-related party
that the Company expects to convert
to a note payable with terms of at
least one year 665,000 665,000
------------- -------------
$ 1,219,393 $ 1,153,382
------------- -------------
13
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
(UNAUDITED)
8. Notes Payable and Advances - cotinued
(1) The holders of the March 2006 note and vendor note have a UCC-1 lien
against the Company's assets. The March 2006 note originally due on August
31, 2005 was extended by the noteholder to March 31, 2006 in consideration
for the Company issuing the noteholder 200,000 shares of common stock,
which the Company valued at $20,000 and the conversion ratio from five
shares to ten shares of common stock for each dollar of loan amount plus
accrued interest through the date of conversion.
(2) The holder of the $165,000 note converted $75,000 of the note balance
into 750,000 shares of the Company's common stock in October 2005.
(3) Westar Satellite Services was granted 100,000 warrants at an exercise
Price $0.12 per share for a period of three years from November 7, 2005.
(4) The advances from shareholders are due on demand and do not bear
Interest.
9. Income Tax
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
standard requires, among other things, recognition of future tax
consequences, measured by enacted tax rates attributable to taxable and
deductible temporary differences between financial statement and income tax
bases of assets and liabilities. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the
change during the period in the deferred tax asset and liability.
Temporary differences between the financial statement carrying amounts and
tax basis of assets and liabilities did not give rise to significant
portions of deferred taxes at December 31, 2005 and September 30, 2005.
The (provision) benefit for income tax consist of the following:
December 31, September 30,
2005 2005
------------- -------------
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, 2005, the Valuation Allowance
increased by approximately $425,000. During the three months ended December
31, 2005, the Valuation Allowance increased by approximately $110,000.
10. Capital Stock
The Company has authorized 200,000,000 common shares with a par value of
$0.0001 per share. Each common share entitles the holder to one vote, in
person or proxy, on any matter on which action of the stockholders of the
corporation is sought.
The Company began operations by completing the acquisition of Urban
Television Network Corporation, a Texas corporation, in two steps; (1) in
May of 2002 the Company issued 16,000,000 shares (800,000 after the 1 for
20 reverse)and (2) in February of 2003, the Company entered into an
Exchange Agreement with the majority shareholders of Urban Television
Network Corporation, a Texas corporation (Urban-Texas) to acquire 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.
14
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
(UNAUDITED)
10. Capital Stock - continued
In September 2002, issuing 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
amending its Articles of Incorporation to increase its authorized common
shares to 200,000,000 and adjust its par value to $0.0001 per share.
During the year ended September 30, 2003, the Company issued 7,275,000
shares of its common stock to for consulting, legal and management services
which the company valued at $811,250.
During the year ended September 30, 2004, the Company issued 21,308,000
shares of its common stock to for consulting, legal, vendor payments and
management services which the company valued at $4,771,450.
During the year ended September 30, 2005, the Company issued 4,150,000
shares of its common stock to for consulting, legal, vendor payments and
management services which the company valued at $427,000.
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.
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 $.45 per share.
During the period ended September 30, 2005, the Company issued 9,276,100
shares of its common stock to Bridge Loan Lenders who elected to convert
$936,922 of bridge loans to common stock at an average conversion price of
$.10 per share.
In the fiscal years ended September 30, 2004 and 2005 the Company entered
into three stock subscription agreements, of which two have been
terminated, with three different minority groups for a majority ownership
interest in the Company's common stock. Following is a summary of the stock
transactions involved in those agreements, which or more fully described in
Note 7 - Related Party Transactions;
Number of Value
Date of Shares Assigned Note Warrants
Agreement Name of Group Issued To Shares Value Issued
--------- ---------------------- ------------ ------------ ------------ ------------
10/30/03 Wright Entertainment 18,000,000 $ 9,000,000 $ 6,800,000
12/13/04 Wright Entertainment (18,000,000) $ (9,000,000) $ (6,800,000)
12/13/04 World One Media Group 70,000,000 $ 7,000,000 $ 6,750,000 30,000,000
7/26/05 World One Media Group (67,500,000) $ (6,750,000) $ (6,750,000) (30,000,000)
7/29/05 Miles Investment Group 69,000,000 $ 6,900,000 6,690,000 30,000,000
------------ ------------ ------------ ------------
Net Effect at 9/30/05 71,500,000 $ 7,150,000 $ 6,690,000 30,000,000
Miles Investment Group has the right to exercise the warrants for $0.01 per
share if market bid price for the Company's common stock are reached as
described in Note 7 - Related Party Transactions.
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 September 2005, the Company issued 200,000 shares of its common stock to
the noteholder of the $171,710 note payable discussed in Note 8 as part of
the consideration for the noteholder agreeing to extend the note to March
31, 2006.
15
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
(UNAUDITED)
10. Capital Stock - continued
In October 2005, a stockholder who had a note balance of %165,000 due from
the Company converted $75,000 of the note into 750,000 shares of the
Company's restricted common stock.
In December 2005, the Company issued 100,000 shares of its restricted
common stock for consulting services rendered to the Company, which the
Company valued at $10,000.
Warrants
In connection with a vendor converting a payable to note payable, the
Company Issued the vendor 100,000 warrants that can be exercised over a
five year period at the exercise price of $.25 per share.
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 year ended September 30, 2003, the Company
had distributed 1,900,000 of the shares through grants. During the year
ended September 30, 2004, the Company had distributed 1,586,000 of the
shares through grants. During the year ended September 30, 2005, the
Company distributed 200,000 of the shares through grants.
11. Preferred Stock
The Articles of Incorporation of the Company authorize issuance of a
maximum of 500,000 shares of nonvoting preferred stock with a par value of
$1.00 per share. The Articles of Incorporation grant the Board of Directors
of the Company authority to determine the designations, preferences, and
relative participating, optional or other special rights of any preferred
stock issued.
No preferred shares had been issued as of September 30, 2004.
On September 30, 2005, the Company entered into an agreement with GeoTec
Thermal Generators, Inc. to acquire 200,000 tons of coal in exchange for
100,000 shares of preferred Stock, which may be converted into the
Company's common stock, at the sole discretion of the GeoTec Thermal
Generators, Inc., at any time in an amount equal to the purchase price at
the stock bid price of $.10 on September 30, 2005. The 100,000 shares of
preferred stock do not have any voting rights or preferences, except for
the conversion privilege.
12. Commitments and Contingencies
Satellite Transponder Lease
In December 2005, the Company renewed its Satellite space segment service
agreement with Intelsat, Inc. for 6 MHz of satellite bandwidth on Intelsat
5 for a period of five years ending on October 31, 2010 at the rate of
$17,850 per month. For the periods ended December 31, 2005 and 2004, the
amounts expensed were $53,936 and $54,129, respectively.
Future lease payments due during the term of the lease ending on October
31, 2010 will equal $36,086 and be due as follows:
Year ended September 30, 2006 $160,650
Year ended September 30, 2006 $214,200
Year ended September 30, 2006 $214,200
Year ended September 30, 2006 $214,200
Year ended September 30, 2006 $196,350
16
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
(UNAUDITED)
12. Commitments and Contingencies - continued
Signal Uplink Lease
The Company renewed its Full Time Broadcast Agreement with Westar Satellite
Services, LP on October 15, 2005 for a full time redundant 6 MHz digital
C-band uplink service for a period of five years ending on October 31, 2010
at the rate of $8,800 per month. For periods ended December 31, 2005 and
2004 the amounts expensed for Uplink services were $26,200 and $24,000,
respectively.
Future lease payments due during the term of the lease ending on October
31, 2010 will equal $36,086 and be due as follows:
Year ended September 30, 2006 $ 79,200
Year ended September 30, 2006 $105,600
Year ended September 30, 2006 $105,600
Year ended September 30, 2006 $105,600
Year ended September 30, 2006 $ 96,800
Facilities Space Lease
The Company entered into a lease for office space on March 15, 2002 for a
period of three years ending on March 31, 2005, which was terminated in
March of 2004. The amount expensed on this lease for year ended September
30, 2004 was $14,000.
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 and renewed the
lease through February 28, 2006 at the rate of $2,447 per month. For
periods ended December 31, 2005 and 2004, the amount expensed for this
office space lease was $7,341 and $6,990, respectively.
The Company entered into a lease for additional space at the its corporate
Headquarters facilities on April 1, 2005 for one year ending on March 31,
2006 With an option to renew for five years at 5% increase per year at the
initial Rate of $4,130 per month. For the three months ended December 31,
2005 the amount expensed for this office space lease was $12,390.
Future lease payments due during the year ended September 30, 2006 will
equal $78,924 assuming that the leases are renewed at their current rate
plus the 5% annual increase.
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 Mr. Moseley was extended and 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
his salary for the period from October 2, 2002 to September 30, 2003 with
this deferred year being added to the end of the original employment term
to make the term of the employment agreement now end on September 30, 2008.
During period ended December 31, 2005 and September 30, 2005 and 2004,
$50,000 and $150,000 of Mr. Moseley's annual compensation was accrued as a
payable.
Legal Matters
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
December 31, 2005
(UNAUDITED)
12. 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 for the Company was
$50,000 to be paid at the rate of $5,000 per month beginning September 1,
2004. In June 2005, the Company completed the payment of the $50,000 and
received a Stipulation For Dismissal of Action Against Urban Television
Network Corporation with Prejudice from Three F Productions.
The Company is party to legal action pending in the United States District
Court for the Central District of California, Los Angeles Division. It is
styled Walter E. Morgan, Jr. vs. Urban Television Network Corporation et
al. This action is subject to pending motions to dismiss which are
predicated
upon the following: The claims of the Plaintiff do not appear to have merit
in that they should have been brought in a previous case wherein the
Company took a judgment against Mr. Morgan in excess of $1,500,000 (as
discussed above) in the U.S. District Court for the Northern District of
Texas, Fort Worth Division. Mr. Morgan and his related companies appealed
the judgment which was dismissed sua sponte by the U.S. Court of Appeals
for the Fifth Circuit.
13. 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 December
31, 2005, the Company has raised additional capital of approximately
$90,000 from shareholder advances.
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, 2005 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 18505 Highway
377 South, Cresson, Texas 76035.
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. In June 2003, the remaining 10% of
the 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 transaction with the Company is 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 does
not represent an arms-length transaction.
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
19
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 80,000,000 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.
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 television network affiliate base from Hispanic
Television Network, Inc. (HTVN). This television network provides television
programming serving ethnic minority programming interests of the
African-American population across the United States. The network presently
includes approximately 74 broadcast television station affiliates in various
parts of the country.
We are targeting the minority markets, primarily the African American and
Hispanic Markets, because we believe that they present vast marketing
opportunities and that are currently under-served by our competition. The
African American market, composes approximately 13% of the U.S. population with
a spending power in excess of $600 billion. The Hispanic population is also
approximately 13% of the U.S. total with a spending power also in the $600+
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 on February
1, 2005 for a one year period.
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
20
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.
National Spot Advertising. National advertisers have the opportunity to buy
"spot" advertising on a network wide basis or in specific markets. For example,
an advertising agency in New York could purchase advertising spots on a program
airing in a particular time period on all the affiliate stations or purchase
advertising spots for a program airing on affiliate stations in particular
markets where the Network has an affiliate station.
22
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 the local spot advertising would them be generated by these local sales staff
personnel.
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 months
ended December 31, 2005 compared to the three months ended December 31, 2004.
Revenues. Revenues are primarily derived from sales of advertising and
programming time. Revenues for the three months ended December 31, 2005 and 2004
were $33,034 and $100,016, respectively, an decrease of $66,891. The decrease in
revenues is primarily attributable to decrease revenues from event productions
and sales of program time. The Company is still in the process of implementing
its revenue generation plan that includes national and local advertising sales,
uplinking other parties' signals to the satellite, plus implementing a
technology plan to assist its affiliates with sale of their local advertising
time. The Company has maintained its affiliate base of approximately 70 with a
household coverage of approximately 22 million.
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.
Cost of Operations. Costs of operations for the three months ended December 31,
2005 and 2004 were $226,390 and $298,654, respectively. The major components of
cost of operations for the three months ended December 31, 2005 and 2004 were as
follows:
2005 2004
-------- --------
Satellite and uplink services $102,899 $ 80,109
Master control and production 38,035 57,300
Programming costs 14,938 19,600
Affiliate relations 27,388 6,300
Station operating costs -- 89,115
Technology expenses 43,130 46,230
-------- --------
Total Cost of Operations $226,390 $298,654
-------- --------
Certain prior year amounts have been reclassified to conform with current year
presentation.
The expense for satellite, uplink services, master control and production
increased by $3,525 in 2005 as compared to 2004. The Company is continuing to
develop its own inhouse master control and production capabilities.
Programming costs decreased by $4,662 in 2005 as compared to 2004 primarily as
the result of a decrease in the programming activities in the 2005 as compared
to 2004.
Affiliate relations was a new department established in March of fiscal 2005
with Carl Olivieri, Executive Vice President, heading up the department. The
$21,088 increase is primarily made up of cost of personnel in a concentrated
effort to increase the number of affiliates, especially full-power affiliates
and also provide better affiliate services.
23
Station operating costs decreased by $89,115 in 2005 as compared to 2004
primarily as the result of the Company terminating its affiliation with two low
power stations (the Oklahoma City station in April 2005 and the Dallas station
in July 2005).
Administration expenses of $153,238 for the three months ended December 31, 2005
decreased by $455,911 or 74.8% over the administrative expenses of $609,149 for
the three months ended December 31, 2004.
Following is a comparative of the general administrative expense categories for
the three months ended December 31, 2005 and 2004.
2005 2004
-------- --------
Administrative personnel $ 84,500 $112,000
Stock based compensation 10,000 276,000
Consulting 1,000 23,181
Contract labor -- 2,500
Travel, conventions 2,629 14,094
Legal fees -- 75,750
Las Vegas office expenses -- 25,000
Commissions -- 9,550
Accounting fees 10,000 10,000
Public relations costs 790 --
Transfer Agent, permit fees 2,373 6,898
Rent expenses 19,559 10,457
Internet and service bureau costs 3,085 4,912
Supplies - digital operations -- 6,511
Supplies 387 1,048
Payroll taxes 3,855 --
Taxes -other 4,215 --
Telephone 6,341 24,675
Postage and shipping 1,379 1,302
Marketing,printing,promotions -- 800
Utilities 2,008 7,178
Other 1,117 4,471
-------- --------
TOTAL $153,238 $609,149
-------- --------
The decrease in administrative cost is due primarily to the $60,000 paid to
Wright Entertainment LLC in 2004 as part of the termination settlement of the
Wright Entertainment LLC stock subscription agreement as set forth in the
Definitive Agreement between the Company, Wright Entertainment LLC and World One
Media Group, Inc. See Footnote 7 to the Financial Statements for a discussion of
this transaction.
The decrease in stock based compensation is due to the Company not issuing any
common stock to management and directors during the three months ended December
31, 2005. The 2004 amount is due primarily to the issuance of common stock to
Lonnie Wright as part of the Definitive Agreement between the Company, Wright
Entertainment LLC and World One Media Group, Inc. See Footnote 7 to the
Financial Statements for a discussion of this transaction.
The decrease in consulting fees is due the Company's management performing the
services that the Company has engaged outside consultants in 2004 for specific
projects relating to financial and strategic planning.
The Company did not hire any outside labor for production crew on events and
studio productions in the three months ended December 31, 2005.
Travel and convention expenses decreased $11,465 in 2005 primarily as the result
the Company not having the Las Vegas office in 2005 which result in additional
travel and office lease expenses.
Legal expenses in 2004 were the result of the Company's search for capital and
minority investors. The Company did not incur any expenses for these services in
the three months ended December 31, 2005.
Commissions decreased in 2005 due to the Company not having any advertising or
programming revenues produced by commissioned sales people.
Transfer agent expenses decreased in 2005 as the Company did not incur any
expenses related to the issuance of stock certificates for the conversion of
bridge loans in the three months ended December 31, 2005.
24
Rent expense increased by $9,102 in 2005 due to the Company having its
production facilities in 2005 that it did not have until in the three months
ended December 31, 2004.
Payroll taxes in 2005 are the result of the Company converting its master
control, programming and production personnel from a contract labor status to
the Company's payroll in May of 2005.
Property taxes are the result of the Company establishing its own master control
and uplink facilities in Arlington, Texas versus outsourcing them in previous
years.
Telephone expenses decreased in 2005 versus 2004 primarily as the result of the
Company's one time expenses in 2004 for the installation of its own high speed
Internet lines at the Arlington offices and the installation of fiber lines to
the Westar Satellite Uplink Services facilities.
Utilities expenses increased $5,170 in 2005. The increase is due to the
increased leased space of approximately 6,000 square feet for programming and
production.
Operating Results. We had a net operating losses of $371,738 and $836,728, for
the three months ended December 31, 2005 and 2004, respectively. The decreased
loss of $464,990 for 2005 was primarily attributed to the $455,911 decrease in
administrative expenses, which was primarily attributable to decreases in the
following expense categories;
Administrative personnel $ 27,500
Stock based compensation $276,000
Legal expense $ 75,000
Las Vegas offices $ 25,000
Earnings Per Share of Common Stock. Income (loss) per common share is calculated
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." Basic Income (loss) per share is computed by dividing the
net income (loss) by the weighted average number of common shares outstanding.
Diluted net income (loss) per share is computed similar to basic net income
(loss) per share, except that the denominator is increased to include the number
of additional common shares that would have outstanding if the potential common
shares had been issued and if the additional common shares were dilutive. Stock
options and warrants are anti-dilutive, and accordingly, are not included in the
calculation of income (loss) per share. The basic and diluted net loss per share
of common stock was $0.00 and $0.01 for the three months ended December 31, 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 revenues generated
from operations. The Company has incurred cumulative losses of $18,803,731 from
the inception of the Company through December 31, 2005.
Current liabilities at December 31, 2005 were $2,088,435 which exceeded current
assets of $10,848 by $2,077,587. The Company's cash position at December 31,
2005 was $1,586, a decrease of $38,783 from the position at September 30, 2005.
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. Notes payable and advances increased from $1,153,382 at September
30,2005 to $1,219,393 at December 31, 2005. This increase of $66,011 is the
result of of $141,000 increase in loans and the conversion of $75,000 into
common stock by a stockholder. Accrued compensation is the result of management
deferring a portion of their annual compensation until the Company has funds
available.
Our continued growth, will require additional funds that may come from a variety
of sources, including shareholder loans, equity or debt issuances, bank
borrowings and capital lease financings. We currently intend to use any funds
raised through these sources to fund various aspects of our 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.
25
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 $371,738 and $836,728 for the three months ended December 31,
2005 and 2004, respectively. We expect these losses to continue as we incur
operating expenses in the growth of the Company's television network's affiliate
base with full power stations and begin to with advertising agencies to contract
for advertising and sponsorship revenues with the aid of the recent agreement
with Nielsen Media Research, which will allow the Company to show advertisers
viewer rating results. We currently anticipate that cash proceeds from the
liquidation of its coal reserves, advertising revenues, and cash proceeds from
financings and equity sales will be sufficient to satisfy our operating expenses
by the end of fiscal 2006. 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
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, 2006.
Financing activities for the three months ended December 31, 2005 include:
1) Issuance of 100,000 shares of common stock in lieu of cash payments
totaling $10,000 for consulting services and 750,000 shares of common stock for
the conversion of $75,000 of a note payable to a stockholder.
2) The Company received $39,500 cash as payment on the Miles Investment
Group LLC subscription agreement as discussed in Footnote 7 to the Financial
Statements and in Item 2 of this Quarterly Report.
3) Shareholders increased their loans to the by the company by $77,000.
4) On November 7, 2005, Company converted $63,511 owed to Westar Satellite
Services for satellite uplink services to a note payable on April 30, 2006.
Westar was issued 100,000 warrants exercisable at the $.25 per shares.
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.
26
Impact of Inflation
Management does not believe that general inflation has had or will have a
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 2 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.
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, 2005 audited
financial statements.
Other Events
None
27
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 December 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.
(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 party to legal action pending in the United States District Court
for the Central District of California, Los Angeles Division. It is styled
Walter E. Morgan, Jr. vs. Urban Television Network Corporation et al. This
action is subject to pending motions to dismiss which are predicated upon the
following: The claims of the Plaintiff do not appear to have merit in that they
should have been brought in a previous case wherein the Company took a judgment
against Mr. Morgan in excess of $1,500,000 (as discussed above) in the U.S.
District Court for the Northern District of Texas, Fort Worth Division. Mr.
Morgan and his related companies appealed the judgment which was dismissed sua
sponte by the U.S. Court of Appeals for the Fifth Circuit.
The Company believes that the ultimate disposition will not have a material
adverse effect on the Company's consolidated financial position, results of
operations and liquidity.
28
The Company is party to legal action pending in the United States District Court
for the Northern District of Texas. The Company has been served with a summons
in a civil case styled Michael J. Quilling, Receiver For MegaFund Corporation
and Stanley A. Leitner vs.Urban Television Network Corporation. The Receiver has
filed complaint against the Company to recover advances to the Company in the
amount of $665,000.
The Company has recorded these advances as a liability on its financial
statements believes that the 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 first quarter of fiscal 2006 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.
On October 16, 2005, we issued Wright Entertainment LLC 750,000 shares in lieu
of payments $75,000 on the Company's note payable to Wright Entertainment LLC.
On December 23, 2005, the Company issued 100,000 shares of its common stock for
business consulting services relating to the growth of the company's affiliate
base and addition of programming to the company's program schedule. The shares
were valued at $10,000 by the Company.
We believe shares issued above were issued in a private transactions pursuant to
Section 4(2) of the Securities Act of 1933, as amended, (the "Securities Act").
These shares 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 first quarter of the fiscal year covered by
this report.
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description and Method of Filing
---------- --------------------------------
31.1 Certification by Chief Executive Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification by Chief Financial Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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.
(b) Reports on Form 8-K.
None
29
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: February 14, 2006
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