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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2003
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission file number 000-23105
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Urban Television Network Corporation
(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 22-2800078
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
18505 Highway 377 South, 76035
Cresson, Texas
(Address of Principal Executive offices) (Zip Code)
Issuer's telephone number, including area code: (817) 512-3033
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
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Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 / /
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge in the definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. / /
State issuer's revenues for its most recent fiscal year: $ 242,998
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity as of a
specified date within the past 60 days. The aggregate market value of our common
stock held by non-affiliates as of December 20, 2003 was approximately
$26,570,000. State the number of shares outstanding of each of the issuer's
classes of common equity as of the latest practicable date. As of December 20,
2003, there were approximately 42,319,636 shares of our common stock issued and
outstanding.
Transitional Small Business Disclosure Format: Yes / / No / X /
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2
URBAN TELEVISION NETWORK CORPORATION
TABLE CONTENTS
Page
PART I
Item 1. Business..........................................................4
Item 2. Properties.......................................................19
Item 3. Legal Proceedings................................................20
Item 4. Submission of Matters to a Vote of Security Holders..............20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters..........................................................20
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................21
Item 7. Financial Statements and Supplementary Data......................25
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.........................................25
PART III
Item 9. Directors and Executive Officers of the Registrant...............26
Item 10. Executive Compensation...........................................29
Item 11. Security Ownership of Certain Beneficial Owners and
Management.......................................................31
Item 12. Certain Relationships and Related Transactions...................31
Item 13. Exhibits, Lists and Reports on Form 8-K..........................33
3
PART I
This Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of the Securities Exchange Act of 1934. The words "expect", "estimate",
"anticipate", "predict", "believe", and similar expressions and variations
thereof are intended to identify forward-looking statements. These statements
appear in a number of of places in this document and include statements
regarding the intent, belief, or current expectations of the Company, its
directors or its officers with respect to, among other things, trends affecting
the Company's financial condition or results of operations. The readers of this
document are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties and that
actual results could differ materially from those projected in the
forward-looking statements. This report also identifies other factors that could
cause such differences. No assurance can be given that these are all of the
factors that could cause actual results to vary materially from the
forward-looking statements. The Company does not ordinarily make projections of
its future operating results and undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law. This section should be
read in conjunction with the audited consolidated financial statements of the
Company and related notes set forth elsewhere herein.
Item 1. Business
Overview
Urban Television Network Corporation ("Urban Television", "The Company")
operates a U.S. based, broadcast television network (as opposed to cable
networks discussed in the competition section) focused primarily on serving the
African-American population and other ethnic populations in the urban markets.
The Company has branded the broadcast television network, for marketing
purposes, as Urban TV. The Company operates and has an option to acquire one
broadcast television station, KOUT-LP Channel 19 in the Oklahoma City, Oklahoma
market.
Urban Television provides free over-the-air programming to television viewing
audiences in the communities served through our local affiliate television
stations. The programming is delivered 24 hours a day, seven days a week.
Currently, we have approximately 72 affiliates located in over 55 markets and
with a household coverage of approximately 22 million households. Our affiliates
are comprised of broadcast stations with approximately 40% of them being on
cable in their local markets.
The affiliates have the right to air all or a portion of the daily program
schedule provided by the Company. Generally, we request that an affiliate
broadcast a minimum of 12 hours of our programming within a 24 hour period.
Approximately 33% of our affiliates broadcast 12 hours or more per day of our
Urban Television programming, with the remaining affiliates airing at least 6
hours or less. Generally the network advertising rates are calculated only for
that portion of time that the affiliate broadcasts our programming.
We have the broadcast rights to a variety of sports and entertainment
programming. Urban Television broadcasts a variety of other shows, including,
sports, movies, news, entertainment, variety, and family programming. We obtain
our programming from a variety of sources.
We are targeting the African-American market because we believe that it contains
numerous marketing opportunities and is currently under-served. According to
Census Bureau statistics, the African American population totals approximately
34 million, and is located largely in urban areas. As a whole this population
group has a GNP equal to the 11th richest nation in the world. The income of
this group has increased by 170% over the last 17 years and exceeds the growth
rate of 112% for other ethnic groups over that same period. According to the
Selig Center for Economic Growth at the University of Georgia, African-American
buying power - the personal income available after taxes for spending on goods
and services - stands at over $645 billion and will increase to over $850
billion in 2007.
4
The vision of the Company focuses on operating a dynamic, quality broadcast
television and cable network oriented towards the urban market, which is
predominately African- American and multi-ethnic. In turn, a successful
broadcast television and cable network will have the ability to serve as the
engine of growth for an exciting media company that capitalizes on its position
of owning/operating broadcast media properties, possessing excellent talent
relations and controlling its capabilities to finance, produce, and distribute
entertainment-driven products. The Company's goal is to be a ground-breaking
media company that is publicly traded, has a majority of
African-American/Minority ownership and control, and presents a positive image
of African- American and urban America's varied multi-ethnic culture.
Additionally, the Company has a goal of qualifying as a "Minority Business
Enterprise" under the standards established by the National Minority Supplier
Development Council. The Company believes that as a certified minority business
it may achieve significant advantages when it comes to major advertisers
allocating their advertising budgets. Among other requirements, the definition
requires that at least 51% of the Company's ownership be held by shareholders
who are minority persons.
Urban Television Network
We operate and have the option to purchase one television station that is
currently broadcasting Urban Television programming. We have a goal of operating
stations through local marketing agreements, or LMA's, pursuant to which we
would control all programming, be entitled to all revenues and be liable for all
expenses pending acquisition of the stations. We broadcast our programming to a
combination of full- power and low-power stations, the latter of which are
generally located close to or are directed at urban areas.
In October 2003, the Company assumed the operations and executed an option to
purchase KOUT-LP Channel 19 in Oklahoma City, Oklahoma that is rated as the 46th
DMA (Designated Market Area) in the country. This station serves the Oklahoma
City, Norman and Enid markets. Combined, these markets have a total population
of 1.2 million, of which 125,000 are African-American or 99% of the
African-American population in this DMA.
Programming
The Company's mission is "to chronicle the beauty, depth and breadth of African-
American and other ethnic groups' cultures and histories from yesterday to today
and into the future." There are approximately 36 million African-American
citizens living in the United States, or 12.8% of the total population. They
have an estimated spending power of $600+ billion.
The Company's policy will be that all programming shown by the Network will be
suitable for viewing families, primarily African-American, but will also include
other ethnic demographics as the network grows. Further, the goal is to give the
African-American community a network that will demonstrate more of its
traditional culture and heritage. Urban Television broadcasts first-run and
syndicated programming 24 hours a day, seven days a week. To insure the quality
of our programming, we have decided that we will limit the airing of
"infomercials," or program-like commercials on the Urban Television Network.
Urban Television does not air programming for adult-only audiences. As a new
network, Urban Television will initially rely totally on outside sources of
programming for the Network. As cash flow allows, the network will look to
develop programming for the network. The Company does not currently have
sufficient capital to allow it to develop more than a fraction of its
programming for the network, and it will have to rely on outside sources of
programming for the foreseeable future.
The Company will seek to develop a library of interest for its African-American
markets that includes documentaries, biographies, comedies, kids programming,
music, dramas, film shorts, animation, international lifestyle and news. The
Company's goal is to target the "trendsetter" marketing demographic (young,
urban, African-American teens) that companies such as Nike, Coke, Pepsi, Proctor
and Gamble, General Electric, Dell, Microsoft, Apple, General Motors, Ford,
Chrysler, Nissan, Exxon-Mobil, Texaco, Prudential Securities, Merrill Lynch,
American Airlines, Delta Airlines, and music companies pursue as the major focal
point for network, during pivotal prime-time viewing hours. The plan is to
"adapt and improve on" key original and other ethnic programming that other
networks successfully offer, (e.g., A&E's Biography, a multi- ethnic Soul Train,
the Discovery Channel's documentaries, MTV's and Vh-1's music based programming
around stars, groups, genres of music, "behind the scenes" looks, etc.) and
various other shows that will resonate with the network's audience. The network
5
will only have a small amount of original programming from its inception but
plans to increase its original programming going forward to set it apart from
other minority focused networks. The network's programming can be seen at
www.uatvn.com by clicking the "Programming" link.
Urban Television believes that there is adequate programming available from
program syndicators, independent companies and other minority networks with
which it will be bundling (sharing) programming. The network is broadcasting 24
hours daily, seven days per week with a diversified programming schedule that it
is continually revising for new programming coming to the network.
A typical 24 hour schedule during the week of network programming is as follows:
UrbanTV Network Program Schedule
December 15, 2003 through December 21, 2003
-------------------------|--------------------------------------------------------------|--------------|--------------|----------
EST |Mon 12/15/2003|Tues 12/16/2003|Wed 12/17/2003|Thurs 12/18/2003|Fri 12/19/2003|Sat 12/20/2003|Sun 12/21/2003| EST
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
6:00 A.M.| Tru News | Tru News | Tru News | Tru News | Tru News | Jon |Steel Dreams | 6:00 A.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
| Newswatch | Newswatch | Newswatch | Newswatch | Newswatch | Black | Outdoorsman |
6:30 A.M.| | | | | | Perspective | | 6:30 A.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
| American | American | American | American | n-Contrast | The Best of | Urban |
| Review | Review | Review | Review | Review | Tony Brown's | Outdoorsman |
7:00 A.M.| | | | | | Journal | | 7:00 A.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
| Black | Black | Black | Black |Clio Exchange | Cartoon Zone | Jon |
7:30 A.M.|Perspective | Perspective | Perspective | Perspective | | | | 7:30 A.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|-----------
| Reality | Reality | Reality | Reality | Make it | Tama And | The Best of |
| Talks | Talks | Talks | Talks | Happen | Friends | Tony Brown's |
8:00 A.M.| | | | | | | Journal | 8:00 A.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
| First | First | First | First | First | Zebb Zoo | Gospel |
8:30 A.M.| Business | Business | Business | Business | Business | | Grooves | 8:30 A.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
| | | | | | Through Our | Black |
9:00 A.M.| | | | | | Eyes | Forum | 9.00 A.M.
----------| | | | | |--------------|--------------|----------
| UrbanTV Movie| UrbanTV Movie | UrbanTV Movie| UrbanTV Movie |UrbanTV Movie | Animal | Black |
9:30 A.M.| Get Christi | Pancho Villa | His Girl | At War With the| The Swap | Rescue | Perspective | 9:30 A.M.
----------| Love | (1971) | Friday | Army | (1969) |--------------|--------------|----------
.| (1974) | | (1940) | (1950) | | Missing | The Clio |
10:00 A.M.| | | | | | | Exchange |10:00 A.M.
----------| | | | | |--------------|--------------|----------
| | | | | | Totally Pets | Holy |
10:30 A.M.| | | | | | | Hip Hops |10:30 A.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
| The Best of | The Best of | The Best of | The Best of | The Best of | Nu Joint | Bible Answers|
| Tony Brown's | Tony Brown's | Tony Brown's | Tony Brown's | Tony Brown's | Top Ten | |
11:00 A.M.| Journal | Journal | Journal | Journal | Journal | Countdown | |11:00 A.M.
----------|--------------|---------------|--------------|----------------|--------------| |--------------|----------
11:30 A.M.| Da Blues | Da Blues | Da Blues | Da Blues | Da Blues | | Time For Hope|11:30 A.M.
----------|------------- |---------------|--------------|----------------|--------------|--------------|--------------|----------
| Beverly | Beverly | Beverly | Beverly | | Raceline | Crosstalk |
12:00 P.M.| Hillbillies | Hillbillies | Hillbillies | Hillbillies |Neo Soul Cafe | | |12:00 P.M.
----------|--------------|---------------|--------------|----------------| |--------------|--------------|----------
12:30 P.M.| Lucy Show | Lucy Show | Lucy Show | Lucy Show | | Racer's Edge |Awakening Hour|12:30 P.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
| | | | | |World Football| |
1:00 P.M.| UrbanTV Movie| UrbanTV Movie | UrbanTV Movie| UrbanTV Movie |UrbanTV Movie | Show |UrbanTV Movie | 1:00 P.M.
----------| The Jungle |Africa Screams | Algiers | Scared to Death| The Fat Spy |--------------| Pancho Villa |----------
| Book | (1949) | (1938) | (1947) | (1965) | Major Black | (1971) |
| (1942) | | | | |College Sports| |
1:30 P.M.| | | | | | Weekly | | 1:30 P.M.
----------| | | | | |--------------| |----------
| | | | | | | |
2:00 P.M.| | | | | | Pioneer Bowl | | 2:00 P.M.
----------| | | | | | Georgia Dome | |----------
2:30 P.M.| | | | | | Atlanta, GA | | 2:30 P.M.
----------|--------------|---------------|--------------|----------------|--------------| Live |--------------|---------
3:00 P.M.| Crimestrike | Crimestrike | Crimestrike | Crimestrike | Crimestrike | | | 3:00 P.M.
----------|--------------|---------------|--------------|----------------|--------------| | |----------
| Missing | Totally Pets |Animal Rescue | American | Zebby Zoo | |UrbanTV Movie |
3:30 P.M.| | | | Adventurer | | |Flying Dueces | 3:30 P.M.
----------|--------------|---------------|--------------|----------------|--------------| | (1939) |----------
4:00 P.M.| Cartoon Zone | Cartoon Zone | Cartoon Zone | Cartoon Zone | Cartoon Zone | | | 4:00 P.M.
----------|--------------|---------------|--------------|----------------|--------------| | |----------
| Reality Talks| Reality Talks | Through Our | Reality Talks | Reality Talks| | |
4:30 P.M.| | | Eyes | | | | | 4:30 P.M.
----------|--------------|---------------|--------------|----------------|--------------| |--------------|----------
5:00 P.M.| Nu Joint | Nu Joint | Nu Joint | Nu Joint | Nu Joint | | UrbanTV Movie| 5:00 P.M.
----------| | | | | | | The Swap |----------
5:30 P.M.| | | | | | | (1969) | 5:30 P.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------| |----------
6
----------|--------------|---------------|--------------|----------------|--------------|--------------| |----------
| The Best of | The Best of | The Best of | The Best of | The Best of |Wild and Wacky| |
| Tony Brown's | Tony Brown's | Tony Brown's | Tony Brown's | Tony Brown's | Christmas | |
6:00 P.M.| Journal | Journal | Journal | Journal | Journal | | | 6:00 P.M.
----------|--------------|---------------|--------------|----------------|--------------| | |----------
| American | American | American | American | American | | |
6:30 P.M.| Review | Review | Review | Review | Review | | | 6:30 P.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
7:00 P.M.| American | American | American | American | American | Christmas | The Clio |
| News Network | News Network | News Network | News Network | News Network | with the | Exchange | 7:00 P.M.
----------|--------------|---------------|--------------|----------------|--------------| Stars |--------------|----------
| America's | America's | America's | America's | America's | | Make It |
7:30 P.M.| Black Forum | Black Forum | Black Forum | Black Forum | Black Forum | | Happen | 7:30 P.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
| Neo Soul Cafe| Master of | Beverly | Gospel Groovez | Holy Hip Hop | Santa's | Missing |
| | Illusion | Hillbillies | with | | Favorite | |
8:00 P.M.| | Christmas | | Charles West | | Home Videos | | 8:00 P.M.
----------| | Show IX |--------------|----------------|--------------|and Pranks Two|--------------|----------
| | | Steel Dreams | Lucy Show |ComixSpotlight| | n-Contrast |
8:30 P.M.| | | | | | | | 8:30 P.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
| Make It | Ballroom | Thunderbox | | | | Merry |
| Happen | Boxing | | | | |Christmas Las |
| | | | | | | Vegas hosted |
9:00 P.M.| | | | | | | by Tony Sacca| 9:00 P.M.
----------|--------------| | | UrbanTV Movie | Videobob's | Christmas | |----------
9:30 P.M.| Missing | | | Algiers | Stupid Movie | Special | | 9:30 P.M.
----------|--------------|---------------|--------------| (1938) | Beast From | The Story of |--------------|----------
| The Clio | | | | Haunted Cave | the First | Master of |
10:00 P.M.| Exchange | NWA Total | NWA Southwest| | | Noel | Illusion VII |10:00 P.M.
----------|--------------| Nonstop Action| | | | | |----------
10:30 P.M.| n-Contrast | | | | | | |10:30 P.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
| America's | Flava TV | Flava TV | Flava TV | Major Black | Flava TV | Entertain |
| Black Forum | | | |College Sports| | Las Vegas |
11:00 P.M.| | | | | Weekly | | |11:00 P.M.
----------|--------------| | | |--------------| |--------------|----------
| | | | | Poorman's | |Smooth Grooves|
11:30 P.M.| Crimestrike | | | | Bikini Beach | | |11:30 P.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
| MBC Network | MBC Network | MBC Network | MBC Network | MBC Network | Thunderbox | Nu Joint |
12:00 A.M.| News | News | News | News | News | | Top 10 |12:00 A.M.
----------|--------------|---------------|--------------|----------------|--------------| | Countdown |----------
12:30 A.M.| Da Blues | Da Blues | Da Blues | Da Blues | Da Blues | | |12:30 A.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
1:00 A.M.| | | | | | NWA Total | Underground | 1:00 A.M.
----------| Rhythms | Rhythms | Rhythms | Rhythms | Rhythms |Nonstop Action| Video |----------
1:30 A.M.| | | | | | | | 1:30 A.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
2:00 A.M.| | | | | | American | | 2:00 A.M.
----------| UrbanTV Movie| UrbanTV Movie | UrbanTV Movie| UrbanTV Movie | UrbanTV Movie| International| UrbanTV Movie|----------
2:30 A.M.| Get Christi | Pancho Villa | His Girl | At War with | The Swap | Wrestling | The Swap | 2:30 A.M.
----------| Love | (1971) | Friday | the Army | (1969) |--------------| (1969) |----------
| (1974) | | (1940) | (1950) | | Poorman's | |
3:00 A.M.| | | | | | Bikini Beach | | 3:00 A.M.
----------| | | | | |--------------| |----------
3:30 A.M.| | | | | |ComiXSpotlight| | 3:30 A.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
4:00 A.M.| | | | | | | | 4:00 A.M.
----------| UrbanTV Movie| UrbanTV Movie | UrbanTV Movie| UrbanTV Movie | UrbanTV Movie| Videobob's | UrbanTV Movie|----------
4:30 A.M.| The Jungle | Africa Screams| Algiers | Scared To | The Fat Spy | Stupid Movie | Flying Dueces| 4:30 A.M.
----------| Book | (1949) | (1938) | Death | (1965) | Beast From | (1939) |----------
5:00 A.M.| (1942) | | | (1947) | | Haunted Cave | | 5:00 A.M.
----------| | | | | | | |----------
5:30 A.M.| | | | | | | | 5:30 A.M.
----------|--------------|---------------|--------------|----------------|--------------|--------------|--------------|----------
Programming Costs
Urban Television obtains virtually all of the existing programming from outside
sources in exchange for allowing the provider to fill a portion of the
advertising slots. For example, a thirty-minute program routinely contains six
to seven minutes of advertisements or spots that are available to Urban
Television. Urban Television generally allows the provider to fill up to 50% of
these slots in exchange for use of the programming.
Programming Distribution
There are a number of mediums for distribution of the Urban Television network
programming to viewing audiences. Generally, the three largest are traditional
broadcast television stations, cable television systems and direct satellite
broadcasters such as DirectTV and Dish Network. Presently, the Urban Television
network has approximately 72 broadcast television station affiliates (which can
be seen at www.uatvn.com and clicking the "Affiliates" link) of which a number
are also on cable in their local markets.
The Company's goal is to negotiate with the operators of cable television
systems and satellite broadcasters for these operators to carry the network for
nominal or no charges, especially with the network having a minority focused
programming grid. The Company believes that many of these operators may be
willing to offer attractive terms because of their desire to carry additional
programming addressed to the African- American and other minority viewers.
Because none of these arrangements have yet been negotiated, there can be no
assurance that these goals will come to fruition.
The Broadcast Facilities and Satellite Signal.
In November 2002, the Company entered into agreements with Loral Skynet for 6
MHZ of bandwidth on the Telstar 5 for satellite space and with Verestar, Inc. to
uplink the Urban Television Network signal to the satellite. The cost to the
Company for both agreements is a total of $26,043 per month for three years.
Licensing Rights.
Our basic form of licensing rights agreement with program suppliers contains
terms pursuant to which the Company obtains broadcasting rights to certain
7
identified programming and in exchange, we allow the licensor advertising time
during the broadcast of such programs. Generally speaking, in a thirty (30)
minute program with seven (7) minutes of commercial time, the time is allocated
as follows:
o two and one-half (2.5) minutes to the licensor;
o two (2) minutes to our affiliate station; and
o two and one-half (2.5) minutes to Urban Television Network.
The licensor can then sell this advertising time to outside parties, thereby
earning income on the licensing of their program. Our licensing agreements are
generally for a term of 26 to 52 weeks and are cancelable by either party upon
thirty (30) days written notice. We also have the right to refuse any program,
without prior notice, if the content, subject matter, or production quality does
not meet our standards.
Affiliates
Currently, we have approximately 72 affiliates located in over 55 markets and
with a household coverage of approximately 22 million households. Our affiliates
are comprised of broadcast stations with approximately 40% of them being on
cable in their local markets.
Generally, we request that an affiliate broadcast a minimum of 12 hours of our
programming within a 24 hour period. Approximately 33% of our affiliates
broadcast 12 hours or more per day of our Urban Television programming, with the
remaining affiliates airing at least 6 hours or less. Generally the network
advertising rates are calculated only for that portion of time that the
affiliate broadcasts our programming.
We grant the Urban Television affiliates a limited license pursuant to an
affiliate license agreement. This limited license permits our affiliates to
receive Urban Television programming via satellite transmissions and to exhibit
and rebroadcast our programming. Affiliates may rebroadcast any portion of the
programming received up to a maximum of two times within 24 hours of receipt.
They must broadcast the programming received in its entirety at least one time
between the hours of 7:00 a.m. and 1:00 a.m. Additionally, we request
affiliates' to submit weekly broadcast logs in order to monitor compliance with
these requirements. Our affiliates agree that they will not preempt, cover or in
any way disrupt national advertisements contained in any program or portion
thereof that they broadcast with the exception of two (2) two-minute spots per
hour for local commercial insertions, as well as two (2) ten-second station
breaks per hour. Either the network or our affiliate may cancel the agreement at
any time with thirty (30) days written notice.
In exchange for providing the affiliate with programming and commercial time, we
retain the remainder of the advertising time, which we sell to advertising firms
and independent advertisers, or use it to barter with third-parties to acquire
additional programs.
Marketing
The Company plans to use (although it has none hired at this time) marketing
professionals, known as account executives, to target advertisers and
advertising agencies that are interested in the Urban market demographics. They
will consist of network and national spot account executives and local spot
account executives for markets where the Company by agreement has control of the
stations operations. Account executives targeting network advertisers will serve
a dual role as national spot sellers. These sales personnel will have the
flexibility of offering a network wide sales package or a market specific sales
package. Generally, the majority of network and national spot advertising sales
is generated from the same advertising agencies. This efficiency will allow us
to generate greater profits while controlling our own sales efforts. Account
executives responsible for local spot sales will be located in each of the
operated station markets. They will target advertising agencies, businesses and
service providers in their individual markets.
These marketing efforts will be enhanced through the use of research developed
by an in-house research department (which is yet to be established) utilizing
both qualitative and quantitative information. This research will allow the
sales departments to better negotiate and price our commercial inventory. The
research department will further help our sales efforts by identifying and
targeting advertisers in this utilized market.
8
As the Company grows, its goal is to have national and network sales offices in
the major markets such as Los Angeles, New York, Miami, Chicago, Dallas, Atlanta
and Houston.
Competition
The network television broadcasting business is highly competitive and, as a
result of the wide range of programming available in both the broadcast and
cable formats; the network will compete with a large number of competitors in
the television, cable and direct television markets. The network will compete
for available airtime, channel capacity, advertiser revenues, revenue from
license fees, number of viewing households, and programming material.
Competition for sales of broadcast advertising time is based primarily on the
anticipated and actually delivered size and demographic characteristics of
audiences as determined by various rating services, price, the time of day when
the advertising is to be broadcast, competition from other broadcast networks,
cable television systems, DBS services and other media and general economic
conditions. Competition for audiences is based primarily on the selection of
program- ming, the acceptance of which is dependent on the reaction of the
viewing public which is often difficult to predict. The Company believes that
its strongest competitive advantages are: (1) the quality of and vision of its
African-American oriented programming; (2) its competitive advertising rates;
(3) the African-American nature of the network's broadcasts and programming; (4)
cross promotional and advertising opportunities with other media; (5) its
technology plan that will give its affiliates tools that they have never had to
manage their stations; and (6) its intention to become a publicly traded
majority owned Minority Business Enterprise, which will enable it to access
diversity spending by major advertisers and access large capital at cost-
effective rates to grow its core business and synergistic entertainment
opportunities in film, television, music, the internet and intellectual
property.
In its operations, Urban Television will experience substantial competition from
others with substantially greater financial resources than the Company. The
telecommunications and entertainment industries are very competitive, and many
of the other companies are large, well-capitalized entities. The networks
currently directed to the African-American market are cable networks with little
or no broadcast station distribution. The largest network currently directed to
African-American audiences in the United States is BET Holdings, Inc., which is
now part of Viacom, Inc., a Fortune 500 company. A number of other networks that
will be competitors are owned by some well capitalized companies in the United
States. There is no assurance that the Company will be able to compete
successfully.
The Company plans to bundle (share) programming with other minority networks
(that have significant cable distribution) thus giving the Company substantial
cable coverage to add to its broadcast households. In return the other minority
networks will be able to count the network's distribution coverage in their
total coverage. The Company sees this as a coming trend to increase the total
coverage numbers to give it and others the critical mass (total household
coverage) needed to sell national advertising quicker than each could achieve on
its own. The Company is currently sharing programming with Major Broadcasting
Corporation, which is considered as one of the Company's primary competitors as
discussed below.
Some of the competition in our market niche are:
Black Entertainment Television (BET): BET, formed and headed by Bob
Johnson, and now owned by Viacom, has been in business for 20 years and
currently reaches approximately 55+ million homes. BET's annual revenues have
hover at around $160 million. BETs programming basically consists of no-cost
music videos, low-cost standup comic shows, infomercials and some talk shows.
Programming has always been a sore spot for BET with its relationships with the
Multiple Systems Operators (MSOs) and the African-American Community. The sore
spot comes from the fact that the African-American Community does not believe
that BET's programming depicts the true culture and lifestyle of this ethnic
group. Bob Johnson's, and now Viacom's, retort has been over the years, "We are
a business first and a black network second." This is clear to many and provides
Urban TV with a great opportunity to provide a different programming philosophy
that will depict the culture and lifestyle of the African- American Community,
allowing it to take pride in and support the Urban TV programming. BET will try
to obtain more channel space on cable networks to thwart the competition,
including the Company's Urban Television network. BET.com, a great website and
venture with major media entities as partners, has been launched.
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Major Broadcasting Corporation: MBC launched in 1999 as a cable network but
has not acquired the distribution it expected. Our estimate is that MBC has
cable subscriber service of less than ten million. Headed by celebrities:
Evander Holyfield, Marlon Jackson, Cecil Fielder, attorney Willie Gary and
businessman, Alvin James, MBC has chosen to go after the African-American,
Christian family audience. The "esprit de corps" and corporate culture are two
of MBC's assets.
Overall, Urban Television expects for BET and possibly MBC to be its strongest
competitors. It is anticipated that BET will try a competitive move by launching
additional BET channels for Family, Movies and Jazz. BET, as part of Viacom, has
significant financial resources and has one of cable's most important
entrepreneurs ever, John Malone, as a significant minority investor. MBC is not
an immediate threat, but poses a threat if each successive MSO that carries MBC
will not then carry Urban Television. In addition, there are and always have
been other entities, trying to launch similar-themed networks.
Urban Television's response to the competition includes (1) developing a network
grid format with family oriented programs that the minority community will
endorse and support (2) producing, owning and programming quality shows to make
the Urban Television network more appealing to the broadcast television
stations, the direct to home broadcast systems, the MSOs and the
African-American television consumer; (3) developing a technology component (one
developed around an Internet application) that will set it and its affiliate
partners apart from all others in the television industry; and (4) become a
certified Minority Business Enterprise which will allow it to qualify for
diversity dollars set aside by the major corporations.
For Urban Television to continue to grow, particular emphasis has to be placed
on (1) securing affiliations from broadcast television stations, cable MSOs and
direct to home systems in the major African American demographic markets, (2)
implementation of an effective sales force and (3) securing innovative
programming to attract advertisers, sponsors and viewers and (4) becoming a
certified Minority Business Enterprise which will allow it to qualify for
diversity dollars set aside by the major corporations.
Competitive Strategy
Urban Television's goal is to become the best managed, highest quality,
multimedia company that focuses on the African-American and other minority
ethnic markets. Led, initially, by its broadcast television station network and
later as it adds cable and direct-to-home systems, Urban Television plans to
build a network that will make it one of the predominate television programming
networks focusing on the depth, breadth, history and beauty of African-American
people and their culture. Urban Television will pursue a strategy of
differentiation within the broadcast television, cable and direct to home
industry.
Urban Television's competitive strategy consists of the following key
points:
1. Hire and retain a strong management team. Develop a Board of
Directors and Advisory Board who will help lead and advise Urban
Television, in addition to bringing in valuable resources and
relationships.
2. Produce (or partner with producers) and broadcast as many high-
concept, quality original programs and series as it can
economically and prudently afford to do each year. Such original
productions will enable Urban Television to build brand loyalty,
attract advertisers and sponsors and build a library of media
copyrights to exploit worldwide
3. In regards to cost and risk management, Urban Television will
seek to minimize overhead; obtain no-cost, low-cost and barter
programming, and establish strong financial relationships with
strategic partners;
4. Pursue parallel strategies of distribution for the network with
MSOs for analog and digital cable carriage, satellite systems,
and broadcast television stations;
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5. Pursue affiliate and distribution deals with independent
television stations and MSOs where there is a heavy African-
American and/or multi-ethnic population;
6. Obtain and maintain the status of being a certified Minority
Business Enterprise to attract major corporate and governmental
advertisers/sponsors;
7. Establish a strong sales presence in New York, Los Angeles,
Dallas-Fort Worth, Chicago, San Antonio, Detroit, Orlando,
Houston, Philadelphia, Memphis, Washington D.C., Nashville, New
Orleans, Atlanta to obtain the maximum penetration of the
African-American market that will translate into higher
advertising rates;
8. Establish a lobbying presence in Washington, DC to push for Urban
Television's interest with the FCC, congress, governmental
agencies and to certify Urban Television as a minority vendor;
9. Establish a working committee for Business Development to serve
as an incubator for ventures utilizing Urban Television's
management skills and unsold commercial inventory;
10. Feature prominent stars and writer-producers for Urban
Television's programming;
11. Develop and launch a cost-effective, profitable, strategic
internet business(s);
12. Use corporate sponsors; especially other media entities, to
co-finance and co-promote Urban Television programming;
13. Develop "franchise" intellectual properties in-house to develop
revenue streams in all media;
14. Develop a merchandising/licensing arm to create revenue streams
for Urban Television's intellectual properties;
15. Develop a music division at the appropriate time to take
advantage of opportunities, when they arise in the future to
brand Urban Television products;
16. Establish a technology relationship with Cresson Technology, Inc.
to help Urban Television maximize its technology opportunities in
all areas of media distribution;
17. Program the most profitable shows for the day-part, especially in
regards to the late night and early morning time slots;
18. When appropriate, develop, produce and sell television
programming to other networks and/or syndicators via the
Company's in-house production unit as capital sources allow;
19. Develop and nurture strong community relations through the use of
fund raisers, scholarships, tie-ins to national and local groups,
contests for viewers, awards shows, programming, use of the web
sites, education and information, etc.
Our affiliate stations also face competition from direct broadcast satellite
services which transmit programming directly to homes equipped with special
receiving antennas and from video signals delivered over telephone lines.
Satellites may be used not only to distribute non-broadcast programming
anddistant broadcasting signals but also to deliver certain local broadcast
programming which otherwise may not be available to a station's audience.
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The broadcasting industry is continuously faced with technological change and
Innovation and the possible rise in popularity of competing entertainment and
communications media. The rules and the policies of the FCC also encourage
increased competition among different electronic communications media. As a
result, we may experience increased competition from other free or pay systems
that deliver entertainment programming directly to consumers and this could
possibly have a material adverse effect on our operations and results. For
example, commercial television broadcasting may face future competition from
interactive video and data services that provide two-way interaction with
commercial video programming, along with information and data services that may
be delivered by commercial television stations, cable television, direct
broadcast satellites, multi-point distribution systems, multi-channel
multi-point distribution systems, Class A low-power television stations, digital
television and radio technologies, or other video delivery systems.
In addition, actions by the FCC, Congress and the courts all presage significant
future involvement in the provision of video services by telephone companies.
The Telecommunications Act of 1996 lifts the prohibition on the provision of
cable television services by telephone companies in their own telephone areas
subject to regulatory safeguards and permits telephone companies to own cable
systems under certain circumstances. It is not possible to predict the effect on
our television stations of any future relaxation or elimination of the existing
limitations on the ownership of cable systems by telephone companies. The
elimination or further relaxation of the restriction, however, could increase
competition that our affiliate stations face from other distributors of video
programming.
Factors that are material to a television station's competitive position include
signal coverage, local program acceptance, network affiliation, audience
characteristics, assigned frequency and strength of local competition. Although
there is competition for our target market, we believe that we possess certain
competitive advantages over our competitors, including:
Our Ability to Broadcast in Digital. Unlike many television networks, we
Broadcast our programming in a digital format from a fully-digital earth
station. We chose this format in anticipation of an FCC regulation
requiring all television stations to broadcast in digital by 2006. The
operation of a digital control room requires much less input and effort
than a traditional analog station. Although, not all of our affiliate
stations have the ability to broadcast in digital, sending out a digital
signal helps reduce our operating costs because the cost of a digital
signal is less than leasing an analog signal on the satellite transponder.
Our Management Team Reflects our Target Audience. From President and CEO,
Lonnie Wright to Executive Vice President of Network Operations, Jacob R.
Miles III, and Executive Vice President of Development and Production,
Conrad H. Bullard, our team is expected to be comprised of many African-
Americans. We believe that the best way to understand the needs and wants
of our target market is to include people that share a similar cultural
background to our target audience. The nature of our management team is
also reflective of our dedication to the creation of an African American
television network.
In the course of its business our network uses various trademarks including its
logo in its advertising and promotions. We believe the strength of our
trademarks are important to our business and intend to continue to protect and
promote our marks as appropriate. Currently, we have applied for trademark
protection on Urban Television and certain other brand identification. There can
be no assurance that we will receive each of these trademarks. Other than these
pending trademarks, we do not hold or depend upon any material patent,
government license, franchise or concession.
Federal Communications Commission Regulation
FCC Licenses
In general, the television broadcast industry in the U.S. is highly regulated by
Federal Laws and regulations issued and administered by various Federal
agencies, including the FCC. The FCC regulates television broadcast stations
pursuant to the Communications Act of 1934, as amended (the "Communications
Act"). The Communications Act permits the operation of television broadcast
stations only in accordance with a license issued by the FCC upon a finding that
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grant of the license would serve the public interest, convenience and necessity.
The FCC grants television station license for specific periods of time and upon
application, may renew the licenses for additional terms. Under the
Communications Act, television broadcast licenses may be granted for a maximum
permitted term of eight years. Generally the FCC renews broadcast licenses upon
finding that (i) the television station has served the public interest,
convenience and necessity, (ii) there have been no serious violations by the
licensee of the Communications Act or FCC rules and regulations, and (iii) there
have been no other violations by the licensee of the Communications Act or FCC
rules and regulations which, taken together, indicate a pattern of abuse. After
considering these factors, the FCC may grant the license renewal application
with or without conditions, including renewal for a term shorter than the
maximum other permitted, or hold an evidentiary hearing. In addition to the
above powers, the Communications Act empowers the FCC, among other things:
o to decide whether to approve a change of ownership or control of
station licenses;
o to regulate the equipment used by stations; and
o to adopt and implement regulations to carry out the provisions of the
Communications Act.
Failure to observe FCC or other governmental rules and policies can result in
the imposition of various sanctions, including monetary forfeitures, the grant
of short, or less than maximum, license renewal terms or, for particularly
egregious violations, the denial of a license renewal application, the
revocation of a license or denial of FCC consent to acquire additional broadcast
properties.
We recently executed a lease agreement with KOUT Channel 19, which is a low
power UHF television station in Oklahoma City, Oklahoma. The lease term is for
60 months starting on October 1, 2003. The monthly lease payment due by the
Company is $3,000 through month three, $4,500 for months 4 through 6, $6,000 for
months 7 through 24 and will vary between $6,500 and $7,800 for months 25
through 60 depending on whether the station is upgraded to a higher power
station. The Company also has an option to purchase the station during the five
year lease period for $3,250,000. The Company will file an application to get
FCC approval of the license transfer at the time that the Company elects to
exercise its option on KOUT Channel 19.
Under the Communications Act, a broadcast license may not be granted to or held
by any corporation that has more than one-fifth of its capital stock owned or
voted by non- U.S. citizens or entities or their representatives, by foreign
governments or their representatives, or by non-U.S. corporations. The
Communications Act further provides that no FCC broadcast license may be granted
to any corporation directly or indirectly controlled by any other corporation of
which more than one-fourth of its capital stock is owned or record or voted by
non-U.S. citizens if the FCC finds the public interest will be served by the
refusal of such.
On June 2003, the FCC concluded the 2002 biennial review of its broadcast
ownership Regulations required by the 1996 Telecom Act by amending its rules
governing ownership Of television and radio stations and by replacing its
newspaper/broadcast cross- ownership ban the radio/television cross-ownership
restrictions with a new set of cross- media ownership limits. The new rules
would (i) permit an entity to have an attributable ownership interest in an
unlimited number of television stations nationally so long as the audience reach
of such stations does not exceed, in the aggregate and after the application of
the UHF Discount, 45% of the U.S. television households; (ii) permit common
ownership of up to three television stations in DMAs with 18 or more television
stations, and two television stations in DMAs with between five and 17
television stations, provided, in both cases, that a single entity cannot have
an attributable interest in two television stations ranked among the top four
(in terms of audience share) in any DMA (the "Local Restriction"); (iii) permit
(A) in markets with nine or more television stations, common ownership of daily
news- papers and up to the maximum number of television and radio stations
permitted by the Local Restriction and the local radio ownership rule, and in
(B) in markets with between four and eight television stations, common ownership
of a daily newspaper and up to 50% of the television and radio stations
permitted by the Local Restriction and the local radio ownership rule, or a
daily newspaper and up to the maximum number of radio stations permitted by the
local radio ownership rule.
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Several parties have appealed the FCC's biennial review decision and/or
petitioned the FCC to reconsider the new rules. In addition, several legislative
measures have been introduced in Congress to repeal or prevent the
implementation of some or all of the new rules. On September 3, 2003 the United
States Court of Appeals for the Third Circuit issued an Order staying the
effectiveness of the new rules. It is not possible to predict the timing or
outcome of the appeals, petitions or Congressional action or their effect on the
Company.
Common ownership of multiple television stations in a market could adversely
affect the Company's future affiliate possibilities, if the larger networks
control most of the television stations in given markets.
Transfers or Assignment of License
The Communications Act prohibits the assignment of a broadcast license or
transfer of control of a broadcast licensee without the prior approval of the
FCC. In determining whether to permit the assignment or transfer of control of,
or the grant or renewal of, a broadcast license, the FCC considers a number of
factors pertaining to the licensee, including:
o compliance with various rules limiting common ownership of media
properties;
o the character of the licensee and those persons holding attributable
interests therein; and
o compliance with the Communications Act's limitations on alien
ownership.
Character generally refers to the likelihood that the licensee or applicant will
comply with applicable law and regulation. Attributable interests generally
refers to the level of ownership or other involvement in station operations that
would result in the FCC attributing ownership of that station or other media
outlets to the person or entity in determining compliance with FCC ownership
limitations.
To obtain the FCC's prior consent to assign a broadcast license or transfer
control of a broadcast licensee, an application must be filed with the FCC. If
the application involves a substantial change in ownership or control, the
application must be placed on public notice for a period of no less than 30 days
during which petitions to deny the application or other objections may be filed
by interested parties, including certain members of the public. If the FCC
grants the application, interested parties have no less than 30 days from the
date of public notice of the grant to seek reconsideration or review of that
grant by the full commission or, as the case may be, a court of competent
jurisdiction. The full FCC has an additional 10 days to set aside on its own
motion any action taken by the FCC's staff acting under delegated authority.
When passing on an assignment or transfer application, the FCC is prohibited
from considering whether the public interest might be served by an assignment or
transfer to any party other than the assignee or transferee specified in the
application.
Programming and Operation
The FCC continues to enforce strictly its regulations concerning "indecent"
programming, political advertising, environmental concerns, technical operating
matters and antenna tower maintenance. Although not required by FCC regulation,
the Company has committed to provide program ratings information for its
broadcast network programming. FCC regulations governing network affiliation
agreements mandate that television broadcast station licensees retain the right
to reject or refuse network programming in certain circumstances or to
substitute programming that the licensee believes to be of greater local or
national importance.
The Communications Act requires broadcasters to serve the public interest,
convenience and necessity. The FCC has gradually restricted or eliminated many
of the more formalized procedures it had developed to promote the broadcast of
programming responsive to the needs of the station's community of license.
Licensees continue to be required, however, to present programming that is
responsive to community problems, needs and interests and to maintain certain
records demonstrating such responsiveness. Complaints from listeners concerning
a station's programming will be considered by the FCC when it evaluates the
licensee's renewal application, but these complaints may be filed and considered
at any time.
14
Stations must also pay regulatory and application fees and follow various FCC
rules that regulate, among other things:
o political advertising;
o children's programming;
o commercial advertising on children's programming;
o the broadcast of obscene or indecent programming;
o sponsorship identification; and
o technical operations and equal employment opportunity requirements.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
short or less than the maximum renewal terms, or for particularly egregious
violations, the denial of a license renewal application or the revocation of a
license.
Must-Carry / Retransmission Consent
As part of the Cable Television Consumer Protection and Competition Act of 1992,
television broadcasters are required to make triennial elections to exercise
either "must-carry" or "retransmission consent" rights with respect to their
carriage by cable systems in each broadcaster's local market. By electing
must-carry rights, a broadcaster demands carriage on a specified channel on
cable systems within its television market or DMA. Alternatively, if a
broadcaster chooses to exercise retransmission consent rights, it can negotiate
the terms under which the cable system will carry its broadcast signal.
The United States Supreme Court upheld the validity of the must-carry rules in a
1997 decision. These must-carry rights are not absolute and their exercise is
dependent on a variety of factors, including: (i) the number of active channels
on the cable system; (ii) the location and size of the cable system; and (iii)
the amount of programming on a broadcast station that duplicates the programming
of another broadcast station carried by the cable system. Therefore, under
certain circumstances, a cable system may decline to carry a given station.
Under the FCC's rules, television stations were required to make their election
between must-carry and retransmission consent status by October 1, 1999, for the
period from January 1, 2000 through December 31, 2002. Television stations that
failed to make an election by the specified deadline were deemed to have elected
must-carry status for the relevant three-year period.
The FCC is currently conducting a rulemaking proceeding to determine the scope
of the cable systems' carriage obligations with respect to digital broadcast
signals during and following the transition from analog to digital broadcasting.
Review of Must Carry Rules
FCC regulations implementing the Cable Television Consumer Protection and
Competition Act of 1992 require each full-power television broadcaster to elect,
at three year intervals beginning October 1,1993, to either:
o require carriage of its signal by cable systems in the station's
market, which is referred to as must carry rules; or
o negotiate the terms on which such broadcast station would permit
transmission of its signal by the cable systems within its market,
which is referred to as retransmission consent.
The United States Supreme Court upheld the must-carry rules in a 1997 decision.
These must carry rights are not absolute, and their exercise is dependent on a
variety of factors such as:
o the number of active channels on the cable system;
15
o the location and size of the cable system; and
o the amount of programming on a broadcast station that duplicates the
programming of another broadcast station carried by the cable system.
Therefore, under certain circumstances, a cable system may choose to decline to
carry a given station. We are currently exploring the possibilities with cable
providers to obtain carriage for our low-power affiliate broadcast stations,
which will give the Company a higher percentage of potential viewing audience
and allow the Company to increase its advertising rates for advertising spots
sold to advertisers. We can offer no assurances, however, that we will obtain
such cable carriage.
Local Marketing Agreements
We may, from time to time, enter into local marketing agreements, or LMAs,
generally in connection with pending station acquisitions. By using LMAs, we can
provide programming and other services to a station that we intend to acquire
before we receive all applicable FCC and other governmental approvals that are
necessary to consummate that assignment.
FCC rules and policies generally permit LMAs if the station licensee retains
ultimate responsibility for and control of the applicable station, including
finances, personnel, programming and compliance with the FCC's rules and
policies. We cannot be sure that we will be able to air all of our scheduled
programming on a station with which we have LMAs or that we will receive the
anticipated revenue from the sale of advertising for such programming.
For purposes of its national and local multiple ownership rules, the FCC
attributes LMAs that involve more than 15% of the brokered station's weekly
program time. Thus, if an entity owns one television station in a market and has
a qualifying LMA with another station in the same market, this arrangement must
comply with all of the FCC's ownership rules including the television duopoly
rule.
Digital Television Services
In February 1998, The FCC has adopted rules for implementing digital television
service in the United States. Implementation of digital television will improve
the technical quality of television signals and provide broadcasters the
flexibility to offer new services, including high-definition television and data
broadcasting. The FCC has established service rules and adopted a table of
allotments for digital television. The table of digital allotments provides each
existing television station licensee or permittee with a second broadcast
channel to be used during the transition to digital television, conditioned upon
the surrender of one of the channels at the end of the digital television
transition period.
The spectrum to provide a variety of ancillary or supplemental services
including, for example, data transfer, subscription video, interactive
materials, and audio signals, subject to the digital television implementing
rules permit broadcasters to use their assigned digital requirement that they
continue to provide at least one free, over-the-air television service. The FCC
established May 1, 2002 as the deadline for initiation of digital television
service for all television stations and 2006 as the date that television
broadcasters must return their analog license to the FCC unless specified
conditions exist, that in effect limit the public's access to digital television
in a particular market. These dates are subject to biennial reviews that will
evaluate the progress of the DTV transition, including consumer acceptance. The
FCC also has adopted rules that require broadcasters to pay a fee of 5% of gross
revenues received from ancillary or supplementary uses of the digital spectrum
for which they receive subscription fees or compensation other than advertising
revenues derived from free over-the-air broadcasting services.
Equipment and other costs associated with the digital television transition,
including the necessity of temporary dual-mode operations, will impose some
near-term financial costs on television stations in their conversion to digital
television transmission. The potential also exists for new sources of revenue to
be derived from digital television. We cannot predict the overall effect the
transition to digital television might have on our business.
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Satellite Home Viewer Improvement Act
The Satellite Home Viewer Improvement Act ("SHVIA") enables satellite carriers
to provide more television programming to subscribers. Specifically, SHVIA: (1)
provides a statutory copyright license to enable satellite carriers to
retransmit a local television broadcast station into the station's local market
(i.e., provide "local-into-local" service); (2) permits the continued
importation of distant network signals (i.e., network signals that originate
outside of a satellite subscriber's local television market or DMA) for certain
existing subscribers; (3) provides broadcast stations with retransmission
consent rights; and (4) mandates carriage of broadcast signals on a
"local-into-local" basis after a phase-in period. "Local markets" are defined to
include both a station's DMA and its county of license.
SHVIA requires that, with several exceptions, satellite carriers may not
retransmit the signal of a television broadcast station without the express
authority of the originating station. Such express authorization is not needed,
however, when satellite carriers retransmit a station's signal into its local
market (i.e., provide local-into-local transmissions) prior to May 28, 2000.
This retransmission can occur without the station's consent. Beginning May 29,
2000, however, a satellite carrier must obtain a station's consent before
retransmitting its signal within the local market. Additional exceptions to the
retransmission consent requirement exist for noncommercial stations, certain
superstations and broadcast stations that have asserted their must-carry rights.
In addition, SHVIA permits satellite carriers to provide distant or nationally
broadcast programming to subscribers in "unserved" households (i.e., households
are unserved by a particular network if they do not receive a signal of at least
Grade B intensity from a station affiliated with that network) until December
31, 2004. However, satellite television providers can retransmit the distant
signals of no more than two stations per day for each television network.
SHVIA also provides for mandatory carriage of all television broadcast stations
by satellite carriers, effective January 1, 2002, under certain circumstances.
Effective January 1, 2002, a satellite carrier that retransmits one local
television broadcast station into its local market under a retransmission
consent agreement, must carry upon request all television broadcast stations in
that same market. Satellite carriers are not required, however, to carry the
signal of a station that substantially duplicates the programming of another
station in the market, and are not required to carry more than one affiliate of
the same network in a given market unless the television stations are located in
different states.
In addition, SHVIA requires the FCC to commence a rulemaking proceeding that
extends the network nonduplication, syndicated exclusivity and sports blackout
rules to the satellite retransmission of nationally distributed superstations.
The FCC already has initiated several rulemaking proceedings, as required by
SHVIA, to implement certain aspects of this Act.
Therefore, under certain circumstances, a SHVIA system may choose to decline to
carry a given network or broadcast station. We are currently exploring the
possibilities with SHVIA providers to obtain carriage for the Urban Television
Network, which would give the Company another source of viewers in addition to
the current broadcast station affiliates. This increase in potential viewers
would give the Company the potential to increase its advertising rates for
advertising spots. We can offer no assurances, however, that we will obtain such
SHVIA system carriage.
Children's Television Act
The FCC's rules limit the amount of commercial matter that may be broadcast
during programming designed for children 12 years of age and younger to 12
minutes per hour on weekdays and 10.5 minutes per hour on weekends. Violations
of the children's commercial limitations may result in monetary fines or
non-renewal of a station's broadcast license. FCC rules further require
television stations to serve the educational and informational needs of children
16 years old and younger through the stations' own programming as well as
through other means. The FCC has guidelines for processing television station
renewals under which stations are found to have complied with the children's
programming requirements if they broadcast three hours per week of "core"
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children's educational programming, which among other things, must have as a
significant purpose serving the educational and informational needs of children
16 years of age and younger. A television station that the FCC finds not to have
complied with the "core" programming processing guideline could face sanctions,
including monetary fines and the possible non-renewal of its broadcasting
license, if it has not demonstrated compliance with the children's programming
requirements in other ways. The FCC has indicated its intent to strictly enforce
its children's television rules. Television broadcasters must file periodic
reports with the FCC to document their compliance with foregoing obligations.
The Company takes these rules into considerations when preparing its program
schedule, to give its affiliates the ability to similarly comply with the rules
when broadcasting Urban Television programming over their local television
station.
Proposed Regulations and Legislation
In 1995, the FCC issued notices of proposed rulemaking proposing to modify or
eliminate most of its remaining rules governing the broadcast network-affiliate
relationship. The network-affiliate rules were originally intended to limit
networks' ability to control programming aired by affiliates or to set station
advertising rates and to reduce barriers to entry by networks. The dual network
rule, which generally prevents a single entity from owning more than one
broadcast television network, is among the rules under consideration in these
proceedings. Although the Telecommunications Act substantially relaxed the dual
network rule by providing that an entity may own more than one television
network, none of the four major national television networks may merge with each
other or acquire certain other networks in existence on February 8, 1996. We
cannot predict how or when the FCC proceeding will be resolved or how those
proceedings or the relaxation of the dual network rule may affect our business.
Low-Power Television
Low-power television stations are regarded by the FCC as having secondary status
to full-power television stations and are subject to being displaced by changes
in full-power stations resulting from digital television allotments. On November
29, 1999, Congress enacted the Community Broadcasters Protection Act, which
created a new "Class A" low-power television station. Class A low-power
television stations are entitled to protection from future displacement by
full-power television stations under certain circumstances. The FCC has adopted
rules governing the extent of interference protection that must be afforded to
Class A stations and the eligibility criteria for these stations. Station
KLHO-LP Channel 18 in Oklahoma City, Oklahoma was granted a Class A License
In addition, the U.S. Congress and the FCC have under consideration, and in the
future may consider and adopt new laws, regulation and policies regarding a wide
variety of matters that could affect, directly or indirectly, the operation,
ownership and profitability of our affiliate broadcast stations. Any such
changes could result in the loss of audience share and advertising revenues for
broadcast stations, and affect our ability to acquire broadcast stations or
finance such acquisitions. Also potential FCC changes could possibly eliminate
certain broadcast stations, which would reduce the total affiliate base and
household coverage of Urban Television. In addition to the issues noted above,
such changes may include:
o spectrum use fees;
o political advertising rates;
o potential restrictions on the advertising of certain products (beer,
wine and hard liquor);
o further revisions in the FCC's cross-interest, multiple ownership and
attribution policies;
o foreign ownership of broadcast licenses;
o technical and frequency allocation matters; and
o DTV tower siting issues.
18
The FCC also has initiated a notice of inquiry to examine whether additional
public interest obligations should be imposed on DTV licensees. We cannot
predict the resolution of these issues or other issues discussed above, although
their outcome could, over a period of time, affect, either adversely or
favorably, the broadcasting industry generally or us specifically.
Restrictions on Broadcast Advertising
Advertising of cigarette and certain other tobacco products on broadcast
stations has been banned for many years. Various states also restrict the
advertising of alcoholic beverages and certain members of Congress are currently
contemplating legislation to place restrictions on the advertisement of such
alcoholic beverage products. FCC rules also restrict the amount and type of
advertising which can appear in programming broadcast primarily for an audience
of children twelve years old and younger.
The Communications Act and FCC rules also place restrictions on the broadcasting
of advertisements by legally qualified candidates for elective office. Among
other things,
o stations must provide "reasonable access" for the purchase of time by
legally qualified candidates for federal office,
o stations must provide "equal opportunities" for the purchase of
equivalent amounts of comparable broadcast time by opposing candidates
for the same elective office, and
o during the 45 days preceding a primary or primary run-off election and
during the 60 days preceding a general or special election, legally
qualified candidates for elective office may be charged no more than
the station's "lowest unit charge" for the same class of
advertisement, length of advertisement, and daypart.
The foregoing summary of FCC and other governmental regulations is not intended
to be comprehensive. For further information concerning the nature and extent of
federal regulation of broadcast stations, you should refer to the Communications
Act, the Telecommunications Act, other Congressional acts, FCC rules and the
public notices and rulings of the FCC.
Facilities
We currently lease our principal offices of approximately 2,000 square feet
located at 18505 Highway 377 South, Cresson, Texas 76035. The space is leased
from M3X Development, Inc. Marc Pace, a stockholder and director of the Company,
is a director and principal of M3X Development, Inc. The term of the lease is
three years at the rate of $2,000 per month. The lease term ends March 31, 2005
with the total lease expense for the term of the lease being $72,000.00. We use
this space for our general office and administrative purposes, as well as for
programming services. We broadcast our programming to our operated and affiliate
stations from Verestar, Inc. in Cedar Hill, Texas. The Company contracts its
master control functions to Clear Fork Communications, owned by shareholders of
the Company. We believe that this space is adequate for our current needs. See
Related Party Transactions for details on ownership by Company directors and
shareholders.
Employees
As of September 30, 2003, we had no full time employees. The Company has
contractual Relationships with its Executive Vice President and Chief Financial
Officer and the Company's corporate secretary. Our employees are not represented
by any collective bargaining organization, and we have never experienced a work
stoppage. We believe that our relations with our employees are satisfactory.
Item 2. Properties
A description of the Company's properties is included in Item 1, Business, and
is incorporated herein by reference.
19
Item 3. Legal Proceedings and Administrative Matters
During the first week of October 2001, the Company was served as a defendant in
Jules Nordlicht v. Stan Abrams, individually; Waste Conversion Systems, Inc. in
the District Court for the City and County of Denver. Mr. Nordlicht alleges: (1)
that the Company breached a contract by failing market and resell certain
equipment and by failing to keep said equipment insured; and, (2) that the
Company was negligent or careless in causing some or all said equipment to be
shipped to Ireland. Mr. Nordlicht has asserted that he is owed $62,500 and
requests that he be awarded interest as provided by law, costs and any other
relief that the Court deems just and proper. The Company denies that it in any
way acted in breach of the alleged contract or that its actions were in any way
negligent. In addition, the Company believes that the action is subject to
certain valid defenses. During October 2001, the Company entered into an
Assumption of Liability, Indemnification and Hold Harmless Agreement with Stan
Abrams, the Company's former President, whereby Mr. Abrams has agreed, upon the
receipt of $20,000, to: (1) assume and promptly pay, any and all liability with
regard to this litigation, including any costs, expenses, attorney and expert
fees, and travel costs; and (2) indemnify and hold the Company harmless from
paying any and or all claims relating to this litigation. (See Exhibit 10.0
filed with the 10-QSB report for the period ending December 31, 2001).
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of our security holders, through the solicitation of
proxies or otherwise.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters:
There was no active market for the Company's common stock. The stock was traded
on a very limited basis in limited volumes on the over-the-counter market. It
was included in the NASD's OTC Bulletin Board under the symbol, "WSCY" until the
Company changed its name in June 2002 to Urban Television Network Corporation at
which time the symbol was changed to "UNTV." The Company effectuated a 1 to 20
reverse stock split on November 28, 2002 at which time the NASD gave the Company
the new symbol "URBT". Prices for the common stock were also published in the
National Quotation Bureau, Inc.'s Pink Sheets.
A range of high and low quotations for the Company's Common Stock for fiscal
years 2002 and 2003 are listed below. The information was obtained from the
NASDAQ web site (www.nasdaq.com). The prices reported may not be indicative of
the value of the Common Stock or the existence of an active trading market. The
Company does not know whether these quotations reflect inter-dealer prices
without retail mark-up, markdown or commissions. These quotations may not
represent actual transactions.
2003 2002
Low High Low High
--- ---- --- ----
First Quarter $0.500 $6.000 $0.010 $0.090
Second Quarter $0.500 $6.000 $0.010 $0.510
Third Quarter $0.500 $1.900 $0.010 $0.510
Fourth Quarter $0.630 $1.950 $0.010 $0.550
The Company common stock commenced trading on the NASD's OTC Bulletin Board in
August of 2002.
At September 30, 2003 there were 576 holders of record. No dividends have been
paid to date and it is not anticipated that dividends will be paid in the near
future. We currently intend to retain future earnings to finance the growth of
our business. Therefore, it is unlikely that you will receive any funds from
your investment in our common stock without selling your shares. We cannot
assure you that you will receive a gain on your investment when you sell your
shares or that you will not lose the entire amount of your investment.
20
Recent Sales of Unregistered Securities
During the period July 1 through September 30, 2003, we sold the following
securities in exempt transactions not requiring registration:
On February 14, 2003, we entered into a $1,500,000 Loan Agreement between
certain lenders and our Company The Loan Agreement provides for the periodic
advance of monies with interest payable at the rate of six (6%) percent per
annum. During the period ended September 30, 2003, a total of $1,105,650 was
advanced on the agreement. The lenders may convert their loans, including
accrued interest, to our common stock at the rate of two (2) shares for each
dollar loaned, at any time prior to maturity on February 14, 2004. 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.
We believe these securities were issued in private transactions pursuant to
Sections 3(a) (9) and, or 4(2) of the Securities Act of 1933, as amended, (the
"Securities Act"). These convertible securities are considered restricted
securities and may not be publicly resold unless registered for resale with
appropriate governmental agencies or unless exempt from any applicable
registration requirements.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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.
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 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.
21
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 72 broadcast television station affiliates in various
parts of the country.
We are targeting the African American market primarily because we believe that
it presents vast marketing opportunities and that it is currently under-served
by our competition. With few competitors in this rapidly growing market, we feel
that there are unlimited opportunities to provide a quality broadcasting service
to the African- American population that is experiencing an explosive growth
rate.
Our financial results depend on a number of factors, including the strength of
the national economy and the local economies served by our stations, total
advertising dollars dedicated to the markets served by our stations, advertising
dollars dedicated to the African-American consumers in the markets served by our
stations, our stations' audience ratings, our ability to provide interesting
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 stations to be considered must carry for cable
systems and the deadlines for television stations converting to digital signals.
As is common in other media companies, our performance is measured by our
ability to generate broadcast cash flow, earnings before extraordinary items,
net interest expense, income taxes, depreciation, amortization (EBITDA) and
after-tax cash flow. Broadcast cash flow consists of operating income before
depreciation, amortization and corporate expenses. After-tax cash flow consists
of income before income tax benefit (expense) and extraordinary items, minus the
current income tax provision, plus depreciation and amortization expense.
Although broadcast cash flow, EBITDA and after-tax cash flow are not measures of
performance calculated in accordance with generally acceptable accounting
principals, we feel that broadcast cash flow, EBITDA and after-tax cash flow are
useful in evaluating us because these measures are acceptable by the
broadcasting industry as generally recognized measures of performance and are
used by securities industry analysts who publish reports on the performance of
broadcasting companies. Broadcast cash flow, EBITDA and after-tax cash flow are
not intended to be substitutes for operating income as determined in accordance
with generally acceptable accounting principles, or alternatives to cash flow
from operating activities (as a measure of liquidity) or net income.
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 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.
22
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.
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
23
the stock on the date of grant, any difference will be amortized as compensation
expense over the vesting period of the stock options.
Our monthly operating expense level may vary from month to month due primarily
to the timing of significant advertising and promotion expenses. We will incur
significant advertising and promotion expenses associated with the growth of
Urban Television and with the establishment of our presence in new markets
associated with any new station lease or acquisition agreements. Increased
advertising revenue associated with these advertising and promotional expenses
will typically lag behind the incurrence of these expenses.
Advertising and Program Time Sales
The majority of all revenues generated come from the sale of national
advertising spots and program time slots and from advertising spots and program
time slots on managed local television stations.
Network Advertising. All operated stations as well as affiliates have a
percentage of available commercial time dedicated for "network" sales. The
commercials sold on the network are broadcast simultaneously and aired in the
affiliate markets that are at that time airing the network's programming.
National Spot Advertising. National advertisers have the opportunity to buy
"spot" advertising in specific markets. For example, an advertising agency in
New York would could use spot advertising to purchase commercials in Dallas or
Oklahoma City.
Currently the Company generates its Network and National spot advertising sales.
The Company's plan is to have the yet to be established sales personnel located
in all major markets that have a large concentration of advertising agencies
targeting the African-American market. The sales of our local spot advertising
would them be generated by these local sales staff personnel placed at each of
our television stations.
Local Spot Advertising. Advertising agencies and businesses located in specific
markets will buy commercial air-time in their respective market. This commercial
time will be sold in the market by a local sales force or as a specific buy from
a national client. Local spot advertising also includes event marketing. In
conjunction with a spot buy, the station incorporates events that may be held on
the premise of a business or advertiser for the purpose of driving traffic to
that place of business.
Program Time Sales. Also known as long-form programs are sold on the network and
on locally managed stations to companies wanting to purchase the television time
and air their own programs.
Results of Operations
Urban Television Network Corporation - Historical Results of Operations Year
ended September 30, 2003 compared to the year ended September 30, 2002.
Revenues. Revenues are primarily derived from sales of advertising and
programming time. Revenues for fiscal 2003 were $242,998 compared to $142,811
for fiscal 2001, an increase of $100,187. The increase in revenues is primarily
attributable to the growth of the network's affiliate base and the resulting
increase in household coverage, which led to the Company bringing in more
advertising and program revenues.
Cost of Operations. Costs of operations were $858,102 for the 2003 fiscal year
and $434,463 for the 2002 fiscal year. The increase in 2003 is primarily due to
the Company having a complete year (8 months versus 12 months) of network
operating costs resulting in increased costs for satellite, uplink, master
control services and technology expenses.
General and Administrative. General and administrative expenses for the fiscal
year ended September 30, 2003 were $1,348,992 compared to $215,215 for the 2002
fiscal year. The 2003 general and administrative expenses increased by
$1,133,777 and is primarily due to a $733,750 expenses for stock grants relating
to consulting services and executive compensation, increases of $126,586 in cost
of operating television stations under the Company's control, $23,938 in
Internet costs, $40,066 in legal expenses, $17,500 in accounting fees, $10,525
in transfer agent fees, $22,794 in supplies, expense, $10,735 in affiliate
supplies, $27,927 in contract labor costs, and $8,436 in rent expense.
24
Interest expense for the fiscal year 2003 was $27,664 compared to $40,571 for
fiscal year 2002. The 2003 and 2002 interest expense is a result of accrued
interest on note payable to shareholders.
Operating Results. We had a net operating loss of $2,039,109 for fiscal year
ended September 30, 2003 compared to a net operating loss of $581,106 for the
fiscal year ended September 30, 2002. The increased loss for 2003 was primarily
attributed to the Company having a complete year (8 months versus 12 months) of
network operating costs resulting in increased costs for satellite, uplink,
master control services and technology expenses and general and administrative
expenses increasing resulting from the growth in operations.
Earnings Per Share of Common Stock. The net loss per common share is based upon
the weighted average of outstanding common stock. In 2003, the net loss per
share of common stock was $0.15. For fiscal 2002, net loss per share of common
stock was $0.90.
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 $8,064,813 from
the inception of the Company through September 30, 2003.
Current liabilities at September 30, 2003 were $468,943, which exceeds current
assets of $239,649 by $229,294.
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.
We had net losses $2,039,109 in 2003 and $581,106 in 2002. We expect these
losses to continue as we incur operating expenses in the growth of the Company's
television network and its affiliate base and convert them to an African
American format. We currently anticipate that our revenues as well as cash from
financings and equity sales will be sufficient to satisfy operating expenses by
the end of fiscal 2004. 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.
Impact of inflation
Management does not believe that general inflation has had or will have a
material effect on operations.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Financial Statement Schedule filed as a part of
this Annual Report on Form 10-KSB are listed on the Index to Consolidated
Financial Statements and Consolidated Financial Statement Schedule on page F-1.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Although there were no changes during fiscal 2002, the Company received formal
notice on October 6, 2003, from Jack Burke, Jr. C.P.A. that he had resigned as
the Company's certifying independent accountant, effective September 22, 2003.
There were no disagreements related to accounting principles or practices,
financial statement disclosure, internal controls or auditing scope or procedure
during the past two fiscal years and interim periods, including the interim
period up through the date the relationship ended.
25
On November 21, 2003 we retained Comiskey & Company as our new independent
auditor.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
with Section 16(a) of the Exchange Act
The directors and executive officers of the Company as of September 30,
2003 are as follows:
Name Age Position
---- --- --------
Lonnie G. Wright.............. 51 Chairman of the Board
President and Chief Executive Officer
Randy Moseley................. 56 Executive Vice President, Chief Financial
Officer, Director
Conrad H. Bullard............ 68 Executive Vice President, Director
Anthony K. Campbell........... 38 Executive Vice President, Director
Carl Olivieri................. 41 Executive Vice President, Director
Jacob R. Miles III............ 50 Executive Vice President, Director
Marc Pace..................... 48 Director
Stanley Woods ................ 51 Director, Secretary
The term of office for each director is one (1) year, or until his/her successor
is Elected at the Company's annual meeting and is qualified. The term of office
for Each officer of the Company is at the pleasure of the board of directors,
except for Randy Moseley and Stan Woods - See Item 10 - Executive Compensation.
Lonnie G. Wright, age 51, President, Chief Executive Officer and Chairman of the
Board. Mr. Wright has over 25 years of hotel and gaming experience in Las Vegas
resorts and is currently President of Hospitality International and Wright
Entertainment based in Las Vegas, Nevada. Mr. Wright is also an Associate Vice
President at the Community College of Southern Nevada where he has worked in
various capacities for the past 15 years. For the four years previous to being
appointed as an Associate Vice President, Mr. Wright served as the Chairperson
of the Resorts and Gaming Department. Most recently, Mr. Wright worked with the
management of the largest hotel in the world, Las Vegas MGM Hotel and Casino,
where he developed a pilot program entitled "Race and Culturenomics". Mr. Wright
holds a Masters Degree in Post-Secondary Education and a B.S. in Hotel
Management both from the University of Nevada - Las Vegas and is a PH.D.
Candidate in Hotel Administration.
Randy Moseley, age 56, Executive Vice President, Chief Financial Officer,
Director. Mr. Moseley was co-founder of the Company in October 2001 and was the
President and Chief Executive Officer and Chief Financial Officer until the
Company's officers was reorganized In October of 2003 when Wright Entertainment,
LLC purchased 51% of the Company's common stock. Prior to the founding of Urban
Television Network Corporation in October 2001, Mr. Moseley was Executive Vice
President and Chief Financial Officer of Tensor Information Systems, Inc., a
custom software development company based in Fort Worth, Texas from November
1999. Prior to joining Tensor, Moseley served as Executive Vice President and
Chief Financial Officer for American Independent Network, Inc. ("AIN"), a
network for independent broadcast television stations and cable operators. AIN
merged with Hispanic Television Network, Inc. in November 1999 and its name
changed to Hispanic Television Network, Inc. Previously, Moseley held positions
with Jerry Lancaster & Associates Inc. and Ernst & Young. Moseley received a
bachelor's degree in business administration from Southern Methodist University
and is a certified public accountant. Moseley has affiliations with the Texas
Society of CPAs and the American Institute of CPAs.
Conrad H. Bullard, age 68, Executive Vice President of Development and
Production, Director. Mr. Bullard has served as Managing Director and CEO of
Creative Imagery Enterprises, L.L.C. for the past ten years with the
responsibility of consulting, researching, developing, budgeting, writing and
producing and directing feature films, television shows, broadcast television
commercials, documentaries and live musical concerts. Mr. Bullard also serves as
Chief Consultant for the Hydeia L. Broadbent Foundation Incorporated. A native
of Los Angeles, he is producer, director and writer who has a long and
26
distinguished record of achievements comprised of thirty years diverse
experience in the production of feature films, broadcast television, artist
bookings, artist management, promotion, recording industry, corporate training
films/videos, legitimate theatre, and the promotion of live musical concerts.
Mr. Bullard is a member of the University of California Los Angeles (UCLA)
alumni Association, the American Federation of Television Radio Artists
(A.F.T.R.A.), Entertainment Direct Television, Incorporated (ED.TV.INC.), the
Writer's Guild of America (W.G.A.), the Screen Actor's Guild (S.A.G.), and the
A.F.A.M. Scottish-Rite Masonry. Mr. Bullard is a honorably discharged Korean and
Viet Nam War Veteran, having served in the United States Navy.
Jacob R. Miles III, age 50, Executive Vice President of Network Operations,
Director. Mr. Miles is also currently President of Grapevine Entertainment
Services and Production, Inc., which position he has held since 2002. Prior to
2002, Mr. Miles served as President and CEO of Urban Cool Network, Inc., an
Internet Portal targeted at the Urban Community from 1997 to 2002. Mr. Miles
also serves as President of the Dallas-Fort Worth chapter of the National
Association of Minorities in Cable.
Carl Olivieri, age 41, Executive Vice President of Marketing and Corporate
Operations, Director. Mr. Olivieri has been President since May 2002 of Soul to
Sole Ventures, Inc. in Los Angeles, CA. Sole to Soul provides retail clients
with services relating to customer service shopping, loss prevention, store
safety, operating expense control, and in-store marketing evaluations. Mr.
Olivieri served as field operations manager for U.S. Retail from January 2000 to
May 2002. He managed 165 stores nationwide and was responsible for directing the
operations and HR/Training for the managers to insure that the policies and
training programs were linked to both strategic and sales goals. Mr. Olivieri
served as regional manager for U.S. Retail from January 1997 to January 2000 and
was responsible for the sales performance, personnel and operations for 30
stores in a seven state area. Mr. Olivieri is also the Chief Executive Officer
of Black Buddha Music, which is preparing to release its first artist in
February 2004. He is also an independent film producer and his latest project is
the just-released, 60-minute documentary on Tupac Shakur titled, "2Pac 4Ever".
Anthony K. Campbell, age 38, Executive Vice President of Programming, Director.
Mr. Campbell has been Executive Producer for Beatnik Entertainment in Los
Angeles, CA. for the past five years. Beatnik Entertainment operates a recording
studio, publishing, and a video/commercial production. Mr. Campbell also has his
own record label, titled "Black Buddha Music".
Stanley Woods, age 51, Corporate Secretary and Director. He has served as
President of Cresson Investments, Inc., a corporate planning and consulting
firm, since October of 2001. Mr. Woods taught at the junior college and high
school levels from 1997 to 2001. He received a Bachelor's Degree in Business
Administration from Tarleton State University in 1978.
Marc Pace, age 48, Corporate Director. He presently owns and operates M3X Real
Estate Development and has been involved in the real estate development business
for the past ten years plus being involved in several oil and gas development
projects. He received a Bachelor's Degree in Business Management from Texas Tech
University in 1976.
Compensation of Directors
The Company does not pay any cash compensation for attendance at directors
meetings or participation in directors' functions.
Committees of the Board of Directors
Audit Committee
During the year ending September 30, 2001, we did not have a formal Audit
Committee of the Board of Directors. On September 30, 2002, our Board approved
an Audit Committee Charter. During 2003, the Board of Directors appointed Marc
Pace and Stanley Woods to serve on the on the audit committee. The audit
committee will make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans and
results of such audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of our internal accounting controls.
27
Compensation Committee
We did not have a formal Compensation Committee during 2002 or 2003. We
anticipate forming such a committee to make recommendations to the Board
concerning compensation of our executive officers.
Compensation Committee Interlocks and Insider Participation
No executive officer or director of the company serves as an executive officer,
director or member of a compensation committee of any other entity for which an
executive officer, director or member of such entity is a member of the Board or
the Compensation Committee of the Board. There are no other interlocks.
Advisory Committee
The Company has named three individuals to its advisory committee (the "Advisory
Committee") with additional individuals to follow as the Company grows. Its
members are expected to come from major demographic areas across the country and
include people from corporate and entertainment fields. The advisory committee
members named are as follows:
Ramon Palameros - Deputy Director of U.S. Department of Housing and Urban
Development since 1977. Mr. Palomares helps manage the public housing systems of
about 300 cities in Texas. A native of San Antonio, Texas, Mr. Palomares earned
his undergraduate degree from Our Lady of the Lake University. He earned a
fellowship to the Nation's capital in Washington, D.C. where he earned a Masters
Degree in Public Administration from Washington, D.C. Branch of the University
of Southern California. Mr. Palomares was elected as a State Director for Latin
United of Latin American Countries (LULAC) in 1999 and was instrumental in
establishing the LULAC Texas State Office in Austin and opening the Texas Civil
Rights Office in San Antonio. Some of the creative initiatives led by Mr.
Palomares and his Executive Board include the Legislative Gala, the Annual Civil
Rights Symposium, the Leadership Academy for Adult Officers and joining with the
NAACP for promotion of civil rights for all Americans.
Jill Darden - Publisher of the Fort Worth Black News, a newspaper
highlighting activities and accomplishments in the local African-American
community. She also produces and hosts a television show that is featured on the
local cable system. Ms. Darden graduated with a degree in Broadcast Journalism
from the University of Texas at Arlington. While in college, she was elected
Miss UTA and became the first African-American to hold the title. She was
pictured in the national publication of Ebony Magazine among black college
queens. Ms. Darden has received the Leadership Award From the U.S. Department of
Commerce Minority Business Development Agency. She has published a book of
poetry call Back Talk, poetic confessions from the soul and received the Paul R.
Ellis Media Award from the American Heart Association for her story, Search Your
Heart.
Christian Diaz - Mr. Diaz is Co-Founder and Sr. Executive President of
Interkard International. Mr. Diaz, with over 25 years experience in direct sales
and international marketing, he brings a wealth of marketing and communications
experience to the Interkard team. Prior to Interkard, Chris served as Executive
Vice President of XENO Development, Inc., a holding company comprised of
Prodika, Inc., POWERmedia, Inc. and EyeQ Corp. As part of XENO's executive team,
he also served as Marketing Director of Prodika and President of XENO de las
Americas, a corporate division of XENO based in Puerto Rico that targets Latin
America. Diaz joined XENO from AmeriPlan USA where he held the position of
Director of Creative Services and Vice President of Marketing for the Eastern
Division and National Hispanic Market.
Since 1998, Mr. Diaz has served on Senator Orin Hatch's Senate Advisory Board on
Hispanic Affairs and also has served on the US Congressional Advisory Board
since 1984.
After formation, the Advisory Committee shall meet with the Company's Board of
Directors no less than quarterly for the purpose of discussing the Company's
operations. The Advisory Committee shall have no binding authority, but it may
advise and consult with the Chief Executive Officer and report to the Board of
Directors. The Company will reimburse the members of the Advisory Committee for
their expenses, but they shall not be paid any compensation for serving on the
Advisory Committee.
28
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of the
Company's Common Stock, to file with the Securities and Exchange Commission (a)
initial reports of beneficial ownership (From 3), (b) reports of changes in
beneficial ownership of Common Stock of the Company (Form 4) and (c) annual
reports of beneficial ownership (Form 5). Copies of those reports must also be
furnished to us. Randy Moseley was delinquent in filing two Form 4 and one Form
5. Lonnie G. Wright, Marc Pace and Stanley Woods were delinquent in filing one
Form 4 each. Lonnie G. Wright, Conrad H. Bullard, Anthony K. Campbell and Carl
Olivieri were delinquent in filing their initial beneficial reports on Form 3.
Item 10. Executive Compensation
Randy Moseley, President, Chief Executive Officer and Chief Financial Officer at
September 30, 2003, and currently Executive Vice President and Chief Financial
Officer, received stock (see table below) issued under the 2003 Non-Qualified
Stock Grant and Option Plan discussed below. Randy Moseley, President, Chief
Executive Officer and Chief Financial Officer and Stanley Woods, Secretary of
the Company have employment agreements as set forth below in this Item 10. There
is no health insurance, retirement, pension, profit sharing or similar program
currently in effect.
Stock Option Plan. In February 1993, the Company adopted, with stockholder
approval, The 1993 Stock Option Plan (the "Plan"). Options granted under the
Plan may be either (i) options intended to qualify as "incentive stock options"
under Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), or (ii) nonqualified stock options. Incentive stock
options may be granted under the Plan to employees, including officers and
directors who are employees. Nonqualified options may be granted to non-employee
directors and to such other persons, as the Board of Directors shall select.
The 1993 Stock Option Plan is administered by the Board of Directors. The Board
of Directors has the authority to determine the person to whom options will be
granted, the number of shares to be covered by each option, whether the options
granted are intended to be incentive stock options, the duration and rate of
exercise of each option, the option price per share, the manner of exercise, and
the time, manner and form of payment upon exercise of an option. The Company has
76,000 shares of common stock reserved for issuance under the Plan.
2003 Non-Qualified Stock Grant and Option Plan. The Company is authorized to
issue up to 2,000,000 shares of common stock under its 2003 Non-Qualified Stock
Grant and Option Plan (the "Plan") through an S-8 registration. This Plan is
intended to serve as an inventive to and to encourage stock ownership by certain
directors, officers, employees of and certain persons rendering service to the
Company, so that they may acquire or increase their proprietary interest in the
success of the Company, and to encourage them to remain in the Company's
service. During the period ended September 30, 2003, the Company had distributed
1,900,000 of the shares through grants. The remaining 100,000 shares were issued
in October 2003 as a stock grant for consulting services.
The 2003 Non-Qualified Stock Grant and Option Plan is administered by the Board
of Directors. The Board of Directors has the authority to determine the person
to whom Grants and options will be granted, the number of shares to be covered
by each grant or option, whether the options granted are intended to be
incentive stock options, the duration and rate of exercise of each option, the
option price per share, the manner of exercise, and the time, manner and form of
payment upon exercise of an option.
29
The following table provides information about our Chief Executive Officer and
each of our executive officers who received salary and bonus in the years ended
September 30, 2003 and 2002, that exceeded $100,000, these persons being
collectively referred to as "named executive officers."
Other Annual All Other
Name and principal position Year Salary Bonus Compensation Compensation
-------------------------- ---- ------ ----- ------------ ------------
Stan Abrams 2002 $ 00.00 -- -- --
Chief Executive Officer
(Sept. - Feb)
Randy Moseley 2002 $150,000.00 -- -- --
Chief Executive Officer 2003 $ 00.00 -- -- --
(Feb. - Sept)
Stan Woods
Secretary 2002 $ 0.00 -- -- --
2003 $ 50,000.00 -- -- --
Annual compensation represents 600,000 shares of common stock issued to Mr.
Moseley and 200,000 shares of common stock issued to Mr. Woods under the 2003
Non-Qualified Stock Grant and Option Plan.
Option Grants in Last Fiscal Year
We did not grant any options to our named executive officers during fiscal year
2003.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
During fiscal year 2002, no options were exercised.
Stock Grants in Last Fiscal Year
During the 2003 fiscal year the Company issued stock grants for common stock
under the 2003 Non-Qualified Stock Grant and Option Plan for executive
compensation. Randy Moseley, President, Chief Executive Officer and Chief
Financial Officer was issued 600,000 common shares with 500,000 of the shares
being vested on January 9, 2004 if he holds the corporate office of President or
Chief Financial Officer on such date. The Company also issued Stan Woods, the
corporate Secretary, 200,000 common shares with 100,000 of the shares being
vested on January 9, 2004 if he holds the office of corporate secretary on such
date.
During the 2003 fiscal year the Company issued stock grants for common stock
under the 2003 Non-Qualified Stock Grant and Option Plan for legal and
consulting services. The Company issued 400,000 shares for legal services and
700,000 shares for consulting services.
Employment Agreements with Executive Officers
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.
Subsequent to September 30, 2003, the employment agreement of Randy Moseley was
amended to allow for the naming of a new President and Chief Executive Officer
for the Company. Mr. Moseley accepted the officer position of Executive Vice
President and Chief Financial Officer and agreed to defer the payment of salary
for the period from October 2, 2002 to September 30, 2003 with this deferred
year being added to the end of the original term to make the term of the
contract end on September 30, 2008 rather than on September 30, 2007.
30
Mr. Stanley Woods is employed pursuant to a three-year employment agreement that
commenced on October 2, 2002. The agreement provides for a base annual salary
equal to $50,000 and a possible annual cash bonus as determined by the Board of
Directors and/or the Compensation Committee. Mr. Woods was issued 200,000 shares
of common stock in June 2003 in lieu of his annual salary for the period ended
September 30, 2003.
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of December 20, 2003, we had 42,319,636 shares of common stock outstanding.
The following table sets forth information concerning beneficial ownership of
shares of our common stock as of December 20, 2003:
o each person (or group within the meaning of Section 13(d)(3) of the
(Exchange Act) known to us to own more than 5% of our outstanding
common stock;
o each director;
o each executive officer; and
o all directors and executive officers as a group.
Except as otherwise noted, the named beneficial holder has sole voting and
investment power. The address for all officers and directors is 18505 Highway
377 South, Cresson, Texas, 76035.
Shares of Common Stock
Beneficially Owned (*)
------------------------
Number Percent
---------- -------
Wright Entertainment, LLC (2).................... 22,000,000 52.7%
Lonnie Wright (1) (2) (3)........................ 22,000,000 52.7%
Randy Moseley...(1)(2) (4)....................... 24,070,000 56.9%
Marc Pace (1).................................... 980,000 2.3%
Stanley Woods (1)................................ 405,803 1.0%
Jacob R. Miles, III (1).......................... 150,000 .4%
All officers and directors as a group
(8 persons)...................................... 25,605,803 61.4%
(1) Directors and Officers
(2) 5% Beneficial shareholder
(3) Lonnie Wright is a director and President of the Company. He is also
President of Wright Entertainment, LLC, a Nevada Limited Liability
Corporation, the company that is the majority shareholder of Urban
Television Network Corporation, a Nevada corporation.
(4) Randy Moseley's shares includes 500,000 shares owned by his spouse,
500,000 shares that are eligible to become vested in January, 2004 and
the 22,000,000 shares owned by Wright Entertainment LLC which he has
the authority to vote, therefore he is deemed a beneficial owner of
these shares.
--------
(*) As used in this table, "beneficial ownership" means the sole or shared
power to vote, or to direct the voting of, a security, or the sole or
shared investment power with respect to a security (i.e., the power to
dispose of, or to direct the disposition of, a security) and includes the
ownership of a security through corporate, partnership, or trust entities.
In addition, for purposes of this table, a person is deemed, as of any
date, to have "beneficial ownership" of any security that such person has
the right to acquire within 60 days after such date.
Item 12. Certain Relationships and Related Transactions
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.
31
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.
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.
The Company leases office space from one its shareholders and director for
$2,000 per month. The office space consist of approximately 2,000 square feet
located at 18505 Highway 377 South, Cresson, Texas 76035. The total rental
expense for the years ended September 30, 2003 and 2002 was $24,000 and $14,000,
respectively.
On May 7, 2002, the new majority company shareholder, Urban Television, a Texas
corporation, authorized an amendment to the Articles of Incorporation changing
the corporate name from Waste Conversion Systems, Inc. to Urban Television
Network Corporation. This authorization was implemented by the written consent
of the majority shareholders in lieu of a special meeting. The new corporate
name became effective in June 2002 when the Amendment to the Company's Articles
of Incorporation were filed with the Nevada Secretary of State. This filing took
place after notice to the Company shareholders in accordance with the disclosure
provisions of the Schedule 14C Information Statement.
Urban Television Network Corporation (Urban-Texas), a Texas corporation, was
organized in October 2001 for the purpose of acquiring the original American
Independent Network (AIN) television broadcast signal and television network
affiliate base from Hispanic Television Network, Inc. AIN provided a general
market, family-oriented programming to its network affiliates. Urban-Texas
changed the AIN programming format when it acquired the broadcast signal and
affiliate base from HTVN to focus the programming content on the ethnic minority
programming interests of African-American viewers across the United States.
In year 2003, the Company began using the services of Clear Fork Communications,
a company (in which Marc Pace, a director of Urban Television,owns a 15%
interest), 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 period
ended September 30, 2003, the total expense paid out for these services was
$345,081.
The Company uses the services of a Cresson Technology, Inc., company owned by
shareholders to provide it with technology services including Internet and
affiliate relations. During the period ended September 30, 2003, the total
expense paid out for these services was $192,691.
During the periods ended September 30, 2003 and 2002, the Company executed
interest bearing notes with shareholders for money to pay operating expenses on
behalf of the Company. The Company borrowed $298,127 and $263,165 from the
shareholders and made repayments of $164,177 and $66,400 during the periods
ended September 30, 2003 and 2002, respectively. At September 30, 2003, $168,765
of the Notes plus accrued interest of $29,750 were converted to a non-interest
payable to The shareholder. As discussed in Note 12, a shareholder agreed to
reduce the Company Payable by $198,515 to apply towards the purchase of common
stock.
During the period ended September 30, 2003, the Company executed an interest
bearing note with a shareholder for money to pay operating expenses on behalf of
the Company. During the periods ended September 30, 2003 the amounts loaned
totaled $132,200.
32
Item 13. Exhibits, LISTS and Reports on Form 8-K
(a) EXHIBITS
Exhibit No. Description and Method of Filing
----------- --------------------------------
2.0 Asset Purchase Agreement w/o Exhibits
10.1 Promissory Note
10.2 Satellite Transponder Space Service Agreement between Hispanic
Television Network, Inc. and Urban Television Network
Corporation dated on, or about October 28, 2001
10.3 Agreement between Hispanic Television Network, Inc. and Urban
Television Network Corporation dated November 13, 2001
10.5 Satellite Space Agreement with Loral Skynet dated on, or about
November 22, 2002
10.6 Employment Agreement by and between Randy Moseley and Urban
Television Network Corporation, dated October 2, 2002.
10.7 Employment Agreement by and between Stanley Woods and Urban
Television Network Corporation, dated October 2, 2002.
21* Subsidiaries of the Registrant.
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 1850 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 1850 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
-----------------
*Filed herewith.
(b) Reports on Form 8-K.
None
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Urban Television Network Corporation
By: /s/ Lonnie G. Wright
-----------------------------
Lonnie G. Wright
Chairman of the Board and CEO
34
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities indicated on January 14, 2004.
By:/s/ Lonnie G. Wright Title: Chairman of the Board Date: January 14, 2004
---------------------
Lonnie G. Wright
By:/s/ Lonnie G. Wright Title: Chief Executive Officer Date: January 14, 2004
--------------------- and Director
Lonnie G. Wright
By:/s/ Randy Moseley Title: Executive Vice President Date: January 14, 2004
--------------------- Chief Financial Officer
Randy Moseley and Director
By:/s/ Conrad H. Bullard Title: Executive Vice Date: January 14, 2004
--------------------- Presidentand Director
Conrad H. Bullard
By:/s/ Carl Olivieri Title: Executive Vice Date: January 14, 2004
--------------------- President and Director
Carl Olivieri
By:/s/ Marc Pace Title: Director Date: January 14, 2004
---------------------
Marc Pace
By:/s/ Stanley Woods Title: Secretary, Director Date: January 14, 2004
---------------------
Stanley Woods
35
Independent Auditors' Report
----------------------------
Board of Directors
Urban Television Network Corporation
Cresson, Texas
We have audited the accompanying consolidated balance sheets of Urban Television
Network Corporation (a Nevada corporation) and subsidiaries as of September 30,
2003 and 2002, and the related consolidated statements of operations, capital
deficit and cash flows for the years ended September 30, 2003 and 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Urban Television Network
Corporation as of September 30, 2003 and 2002, and the results of its operations
and changes in its cash flows for the years ended September 30, 2003 and 2002 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 12. The
financial statements may not include all adjustments that might result from the
outcome of this uncertainty.
/s/ Comiskey & Company, P.C.
----------------------------
December 10, 2003
36
Urban Television Network Corporation
Consolidated Balance Sheet
September 30, 2003 and 2002
2003 2002
ASSETS
------
Current assets:
Cash and cash equivalents $ 235,408 $ 802
Accounts receivable 4,241 7,068
----------- -----------
Total current assets 239,649 7,870
----------- -----------
Furniture, fixtures and equipment, net 29,938 33,078
----------- -----------
Other assets
Network assets, net 137,465 176,590
Organizational costs 360 360
----------- -----------
137,825 176,950
----------- -----------
Total Assets $ 407,412 $ 217,898
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Accounts payable $ 96,678 $ 60,803
Due to stockholders 198,515 --
Notes payable to stockholders 132,200 196,765
Bridge loans payable 37,000 --
Accrued interest payable 4,550 12,571
----------- -----------
Total current liabilities 468,943 270,139
----------- -----------
Stockholders' equity (deficit):
Preferred stock, $1 par value, 500,000 shares authorized, none issued -- --
Common stock, $.0001 par value, 200,000,000 shares authorized,
23,711,736 and 1,116,636 outstanding at September 30, 2003 and 2002 2,371 112
Additional paid-in capital 8,058,311 5,973,351
Stock subscription receivable (57,400) --
Accumulated deficit (8,064,813) (6,025,704)
----------- -----------
Total stockholders' equity (deficit) (61,531) (52,241)
----------- -----------
$ 407,412 $ 217,898
=========== ===========
See notes to financial statements.
37
Urban Television Network Corporation
Consolidated Statements of Operations
For the years ended September 30, 2003 and 2002
2003 2002
============ ============
Revenues $ 242,998 $ 142,811
------------ ------------
Expenses:
Satellite and uplink services 312,730 327,500
Master control and production 352,681 106,963
Technology expenses 192,691 --
Administration 1,348,992 215,215
Depreciation and amortization 47,349 33,668
------------ ------------
Total expenses $ 2,254,443 $ 683,346
------------ ------------
Income loss from operations (2,011,445) (540,535)
Other income (expense)
Interest expense (net) (27,664) (40,571)
------------ ------------
Net income (loss) $ (2,039,109) $ (581,106)
============ ============
Earnings per share:
Net income (loss) $ (0.15) $ (0.90)
Weighted average number of common
shares outstanding 13,303,804 645,100
See notes to financial statements.
38
Urban Television Network Corporation
Consolidated Statements of Capital Deficit
For the years ended September 30, 2003 and 2002
Additional Stock Total
Common Stock Paid-In Subscription Capital
Shares Amount Capital Receivable Deficit Deficit
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 2001 311,636 $ 31 $ 5,444,567 $ 0 $ (5,444,598) $ 0
Recapitalization of
private company 800,000 80 518,785 518,865
Stock issued to Hispanic
Television Network 5,000 1 9,999 10,000
Net loss for year ended
September 30, 2002 (581,106) (581,106)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 2002 1,116,636 112 5,973,351 0 (6,025,704) (52,241)
Recapitalization of
private company 13,248,000 1,325 238,594 239,919
Stock issued for services 7,275,000 727 810,523 811,250
Stock issued for bridge
loan conversions 1,957,300 196 978,454 978,650
Stock Subscription 114,800 11 57,389 $ (57,400) 0
Net loss for year ended
September 30, 2003 (2,039,109) (2,039,109)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 2003 23,711,736 $ 2,371 $ 8,058,311 $ (57,400) $ (8,064,813) $ (61,531)
============ ============ ============ ============ ============ ============
See notes to financial statements.
39
Urban Television Network Corporation
Consolidated Statements of Cash Flows
For the years ended September 30, 2003 and 2002
2003 2002
=========== ===========
Operating activities:
Net (loss) $(2,039,109) $ (581,106)
Adjustments to reconcile net (loss) to
cash provided (used) by operating activities:
Depreciation and amortization 47,349 33,668
Stock issued for services 811,250
Net change in assets and liabilities:
Accounts receivable 2,827 (7,068)
Accounts payable 35,875 60,803
Accrued interest payable (8,021) 12,571
----------- -----------
Net cash provided (used) by operating activities (1,149,829) (481,132)
----------- -----------
Investing Activities:
Purchase of equipment (5,084) (37,708)
Investment in network assets -- (195,628)
Organizational costs (360)
Recapitalization of private company 239,919 518,865
----------- -----------
Total investing activities 234,835 285,169
----------- -----------
Financing activities:
Proceeds from shareholders advances 298,127 263,165
Repayments on shareholder advances (164,177) (66,400)
Proceeds from bridge loans 1,015,650 --
----------- -----------
Total financing activities 1,149,600 196,765
----------- -----------
Net increase in cash 234,606 802
Cash, beginning of period 802 --
----------- -----------
Cash, end of period $ 235,408 $ 802
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 6,936 $ --
Income taxes $ -- $ --
Non cash transactions:
Common stock issued for services $ 811,250 $ --
See notes to financial statements.
40
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
1. 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
18505 Highway 377 South, Cresson, Texas 76035.
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.
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 transaction with the Company is 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.
The Company is engaged in the business of supplying programming to
broadcast television stations and cable systems. Formerly the Company's
business had been the marketing of thermal burner systems that utilize
industrial and agricultural waste products as fuel to produce steam, which
generates electricity, air-conditioning or heat.
Accounting Method
The Company records income and expenses on the accrual method.
41
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
1. Significant Accounting Policies - continued
Revenue Recognition
Revenue is recognized at the time services are performed for airing of
programs and insertions of advertising spot.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiary. All material intercompany accounts and transactions are
eliminated. The Company owns 100% of Urban Television Network Corporation,
a Texas corporation and 100% of Waste Conversion Systems Of Virginia, Inc.
Non Goodwill Intangible Assets
Intangible assets other than goodwill consist of network assets acquired by
purchase. They are being amortized over their expected lives of 5 years and
are reviewed for potential impairment whenever events or circumstances
indicate that carrying amounts may not be recoverable. No impairment loss
was recognized during the reporting periods. On January 1, 2002, the
Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Intangible Assets. This provides that a recognized intangible
shall be amortized over its useful life to the reporting entity unless that
life is determined to be indefinite. The amount of an intangible asset to
be amortized shall be the amount initially assigned to that asset less any
residual value.
Income (Loss) Per Share
Income (loss) per common share is calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share".
Basic Income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Diluted net
income (loss) per share is computed similar to basic net income (loss) per
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were
dilutive. Stock options and warrants are anti-dilutive, and accordingly,
are not included in the calculation of income (loss) per share.
Comprehensive Income
Comprehensive income (loss) and net income (loss) are the same for the
Company.
Cash
For purposes of the statement of cash flows, the Company considers
unrestricted cash and all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash.
Concentration of Credit Risk
The Company maintains cash in excess of federally insured limits. The
amount in excess at September 30, 2003 was approximately $129,700.
42
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
1. Significant Accounting Policies - continued
Advertising Costs
The Company expenses non-direct advertising costs as incurred. The Company
did not incur any direct response advertising costs for the periods ended
September 30, 2003 and 2002.
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
The FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." The Statement
provides guidance for determining whether a transfer of financial assets
should be accounted for as a sale or a secured borrowing, and whether a
liability has been extinguished. The Statement is effective for recognition
and reclassifi- cation of collateral and for disclosures ending after
December 15, 2001. The Statement is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after
March 31, 2001. The initial application of SFAS No. 140 will have no impact
to the Company's results of operations and financial position.
In June, 2001 the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" and No. 142
"Goodwill and Other Intangible Assets." These statements prohibit
pooling-of -interest accounting for Transactions initiated after June 30,
2001, require the use of the purchase method of accounting for all
combinations after June 30, 2001, and establish new standards for
accounting for goodwill and other intangibles acquired in business
combinations. The Company does not expect these pronouncements to have a
material affect on its financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
This Statement establishes standards for classifying and measuring as
liabilities certain financial instruments that embody obligations of the
issuer and have characteristics of both liabilities and equity. SFAS No.
150 is effective at the beginning of the first interim period beginning
after June 15, 2003; including all financial instruments created or
modified after May 31, 2003. SFAS No. 150 currently has no impact on the
Company.
43
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
1. Significant Accounting Policies - continued
Stock Options
The Company accounts for non-employee stock options under SFAS 123, whereby
option costs are recorded at the fair value of the consideration received
or the fair value of the equity instrument issued, whichever is more
reliable measurement, in accordance with EITF 96-18 "Accounting for Equity"
instruments that are issued to other than employees for acquiring or in
conjunction with selling goods or services.
The Company adopted in February 1993 an employee stock option plan. There
are no options outstanding under this plan. This plan will be accounted for
under FAS 123 as described above.
2. 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
September 30, 2003 and 2002, an allowance for doubtful accounts was not
considered necessary.
3. Network Assets - Amortization
Network assets consist of intangibles other than Goodwill. These assets
automatically renew every year unless either party terminates the agreement
by such notification to the other party. A useful life of five (5) years is
estimated for the assets. These agreements are not expected to be
terminated by either party prior to its useful life period. Total
amortization of these assets has been $68,163 and the amortization for the
periods ended September 30,2003 and 2002 was $39,125 and $29,038,
respectively.
Future amortization of the Network assets at September 30, 2003 will be
$137,465 and on an annual basis be as follows:
Year ended September 30, 2004 $39,125
Year ended September 30, 2005 $39,125
Year ended September 30, 2006 $39,125
Year ended September 30, 2007 $20,090
4. Property, Plant and Equipment
The Company acquired equipment totaling $5,084 during the year ended
September 30, 2003 and $37,708 during the year ended September 30, 2002.
Equipment is recorded at cost and depreciation is calculated on a
straight-line basis over five (5) years. Total depreciation of the
equipment has been $12,854 and depreciation for the periods ended September
30, 2003 and 2002 was $8,224 and $4,630, respectively.
44
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
5. 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 leases office space from one its shareholders and director for
$2,000 per month. The total rental expense for the years ended September
30, 2003 and 2002 was $24,000 and $14,000, respectively. Amounts payable
were $28,000 and $12,000, respectively.
In year 2003, the Company began using the services of a company owned by
shareholders, one being a director of the Company, that provides the
Company with the equipment and master control services to put the Company's
programming on the satellite for the broadcast affiliates to receive and
rebroadcast to their local markets. During the period ended September 30,
2003, the total expense paid out for these services was $345,081.
The Company uses the services of a company owned by shareholders to provide
it with technology services including Internet and affiliate relations.
During the period ended September 30, 2003, the total expense paid out for
these services was $192,691.
During the periods ended September 30, 2003 and 2002, the Company executed
interest bearing notes with shareholders. The Company borrowed $298,127 and
$263,165 from the shareholders and made repayments of $164,177 and $66,400
during the periods ended September 30, 2003 and 2002, respectively. At
September 30, 2003, $168,765 of the notes plus accrued interest of $29,750
were converted to a non-interest payable to the shareholder. As discussed
in footnote 13, a shareholder agreed to reduce the Company payable by
$198,515 to apply towards the purchase of common stock after year end.
The Company executed an interest bearing note with a shareholder of the
Company during the period ended September 30, 2003 to pay operating
expenses. During the period ended September 30, 2003 the amounts loaned
totaled $132,200.
6. Notes Payable
Notes payable at September 30, 2003 and 2002 consist of:
2003 2002
---------- ----------
Notes payable to stockholders at 6%
interest payable on September 30, 2004 $ 132,200 $ 196,765
---------- ----------
45
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
7. Convertible Bridge Loan
Convertible bridge loans at September 30, 2003 and 2002 consist of:
2003 2002
--------- ---------
Convertible bridge loan payable to
individuals at 6% interest payable
on February 14, 2004 $ 37,000 $ --
--------- ---------
The convertible bridge loans are convertible at any time before the
maturity date into the Company's common stock at the rate of two shares of
common stock for each dollar of convertible bridge loan plus accrued
interest through the date of conversion. Subsequent to year end all of the
convertible bridge loans outstanding were converted to common stock.
8. Income Tax
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
standard requires, among other things, recognition of future tax
consequences, measured by enacted tax rates attributable to taxable and
deductible temporary differences between financial statement and income tax
bases of assets and liabilities. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the
change during the period in the deferred tax asset and liability.
Temporary differences between the financial statement carrying amounts and
tax basis of assets and liabilities did not give rise to significant
portions of deferred taxes at September 30, 2003 and 2002.
The (provision) benefit for income tax consist of the following:
2003 2002
-------- --------
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.
46
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
9. Capital Stock
In May 2002, the Company issued 16,000,000 (800,000 after the 1 for 20
reverse) shares to Urban Television Network Corporation, a Texas
corporation for asset purchase of network assets -See footnote 1.
In September 2002, the Company issued 100,000 (5,000 after the 1 for 20
reverse) shares to Hispanic Television Network, Inc. as part of the mutual
settlement agreement between the two companies to cancel the Satellite
Transponder Service Agreement and notes payable/receivable.
On November 21, 2002 the Company completed a 1:20 reverse stock split and
amended its Articles of Incorporation to increase its authorized common
shares to 200,000,000 and adjust its par value to $0.0001 per share.
In December 2002, the Company issued 300,000 shares of its common stock for
consulting and legal services, which the Company valued at $82,500.
On February 7, 2003, the Company entered into an Exchange Agreement with
the majority shareholders of Urban Television Network Corporation, a Texas
corporation (Urban-Texas). The Company acquired 90% of the issued and
outstanding capital stock of Urban-Texas in return for 13,248,000 shares of
the Company's common stock - See footnote 1.
In May 2003, the Company issued 5,075,000 shares of its common stock for
consulting Services, which the Company valued at $253,750.
In June 2003, the Company issued 1,900,000 of its common stock for employee
compensation, consulting services and legal services, which the Company
valued at $475,000 under the Plan.
During the period ended September 30, 2003, the Company issued 1,957,300
shares of its common stock to Bridge Loan Lenders who elected to convert
$978,650 of bridge loans to common stock at the rate of 2 shares for each
dollar of bridge loan converted.
The accompanying financial statements have been restated to reflect the
reverse of 1 for 20 stock split.
Non-Qualified Stock Grant and Option Plan
The Company is authorized to issue up to 2,000,000 shares of common stock
under its 2003 Non-Qualified Stock Grant and Option Plan (the "Plan")
through an S-8 registration. This Plan is intended to serve as an incentive
to and to encourage stock ownership by certain directors, officers,
employees of and certain persons rendering service to the Company, so that
they may acquire or increase their proprietary interest in the success of
the Company, and to encourage them to remain in the Company's service.
During the period ended September 30, 2003, the Company had distributed
1,900,000 of the shares through grants. The remaining 100,000 shares were
issued in October 2003 as a stock grant.
47
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
10. Preferred Stock
The Articles of Incorporation of the Company authorize issuance of a
maximum of 500,000 shares of nonvoting preferred stock with a par value of
$1.00 per share. The Articles of Incorporation grant the Board of Directors
of the Company authority to determine the designations, preferences, and
relative participating, optional or other special rights of any preferred
stock issued.
No preferred shares had been issued as of September 30, 2003 and 2002.
11. Commitments and Contingencies
Satellite Transponder Lease
The Company entered into a Satellite space segment service agreement with
Loral Skynet on November 20, 2002 for 6 MHz of satellite bandwidth on
Telstar 5 for a period of three year ending on November 21, 2005. For the
period ended September 30, 2003, the amount expensed was $201,887.
Future lease payments due during the term of the lease ending on November
21, 2005 will equal $469,118 and be due as follows:
Year ended September 30, 2004 $216,516
Year ended September 30, 2005 $216,516
Year ended September 30, 2006 $ 36,086
Signal Uplink Lease
The Company entered into a Full Time Broadcast Agreement with Verestar,
Inc. on November 21, 2002 for a full time redundant 6 MHz digital C-band
uplink service for a period of three years ending on November 21, 2005. For
period ended September 30, 2003 the amount expensed for Uplink services was
$110,843.
Future lease payments due during the term of the lease ending on November
21, 2005 will equal $208,000 and be due as follows:
Year ended September 30, 2004 $96,000
Year ended September 30, 2005 $96,000
Year ended September 30, 2006 $16,000
Facilities Space Lease
The Company entered into a lease for office space on March 15, 2002 for a
period of three years ending on March 31, 2005. For periods ended September
30, 2003 and 2002, the amount expensed for office space lease was $14,000
and $24,000.
Future lease payments due during the term of the lease ending on March 31,
2005 Will be equal $34,000 and be due as follows:
Year ended September 30, 2004 $24,000
Year ended September 30, 2005 $10,000
48
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
11. Commitments and Contingencies - continued
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. Mr. Moseley's
employment agreement was restructured in October 2003 -See footnote 13.
Mr. Stanley Woods is employed pursuant to a three-year employment Agreement
that commenced on October 2, 2002. The agreement provides for a base annual
salary equal to $50,000 and a possible annual cash bonus as determined by
the Board of Directors and/or the Compensation Committee. Mr. Woods was
issued 200,000 shares of common stock in 2003 in lieu of his annual salary
for the period ended September 30, 2003.
Contingencies
The Company is involved in various legal actions arising in the normal
course of business. Management is of the opinion that any judgment or
settlement resulting from pending or threatened litigation would not have a
material adverse effect on the financial position or results of operations
of the Company.
12. Going Concern
The Company has suffered recurring losses from operations. In order for the
Company to sustain operations and execute its television broadcast and
programming business plan , capital will need to be raised to support
operations as the company executes its business plan. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern.
The Company may raise additional capital through the sale of its equity
securities, or debt securities. Subsequent to year end the Company has
additional capital of approximately $900,000 from $600,000 in bridge loans
and $300,000 in cash from the Wright Entertainment LLC subscription
agreement discussed in Note 13.
13. Subsequent Events
On October 30, 2003, the Company completed a stock subscription agreement
with Wright Entertainment, LLC, a Nevada limited liability company. The
Company sold Fourteen Million (14,000,000) common shares for Seven Million
($7,000,000) Dollars or Fifty ($0.50) Cents per share. The stock sale was
structured as an installment stock sale. The terms of the stock sale are as
follows: $500,000 down, the $6,500,000 balance payable on a promissory note
at $875,000 Dollars quarterly, including 6% interest on the declining
balance. A portion ($200,000) of the $500,000 down payment was achieved by
one of the Company's lenders forgiving $198,515 of advances due the lender
and $1,485 of a note payable to the lender. The first $875,000 installment
payment will be due December 31, 2003. All of the shares have been pledged
as security for the promissory note and will be physically held by the
company. Additionally, the board of directors authorized the issuance of
Four Million (4,000,000) common shares to Wright Entertainment for
executive management services to be valued at $2,000,000 and to be
amortized over four years.
49
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
13. Subsequent Events - continued
In addition to raising capital for the Company, a second major goal was to
achieve the status of being 50+% owned by minorities and allow the Company
to become a certified Minority Business Enterprise, which will allow the
Company to qualify for diversity spending by major corporations. To achieve
the 50+% minority ownership level, a group of the Company's shareholders
entered into an agreement, that became effective on October 31, 2003 to
sell Four Million (4,000,000) common shares to Wright Entertainment, LLC
for Two Million ($2,000,000) Dollars. The stock sale was structured as an
installment stock sale. The terms of this sale are $100,000 down, the
$1,900,000 Dollar balance payable on a promissory note at $250,000 Dollars
quarterly, including 6% interest on the declining balance. The first
installment payment will be due December 31, 2003.
Wright Entertainment has given Randy Moseley an irrevocable common stock
proxy to vote all of our company shares acquired by Wright until Wright has
satisfied its purchase obligations. The Company anticipates that it will
release Wright's pledged company shares and voting proxies, on a pro-rata
basis, as Wright makes its quarterly payments on the note.
On October 30, 2003, the Board of Directors nominated Lonnie G. Wright, as
the Chairman of the Board of Directors and President, Chief Executive
Officer replacing Randy Moseley. Mr. Moseley will continue to serve the
Company as a board director, Executive Vice President and Chief Financial
Officer. In connection with Wright Entertainment's stock purchase, our
board of directors amended the By-Laws increasing the number of board
seats. The board nominated four new board members and officer positions.
Justin Nemec resigned his board seat creating a vacancy. Conrad Bullard was
named board director and Executive Vice President of Development and
Productions. Anthony K. Campbell was named board director and Executive
Vice President of Programming. C. Bruno Olivier was named board director
and Executive Vice President of Marketing and Corporate Operations. Joseph
R. Miles III was named board director and Executive Vice President of
Network Operations.
Subsequent to September 30, 2003, the employment agreement of Randy Moseley
was restructured to allow for the naming of a new President and Chief
Executive Officer for the Company. Mr. Moseley accepted the Officer
Position of Executive Vice President and Chief Financial Officer and agreed
to defer the payment of salary for the period from October 2, 2002 to
September 30, 2003 with this deferred year being added to the end of the
original term to make the term of the contract end on September 30, 2008
rather than on September 30, 2007.
Subsequent to September 30, 2003, the $37,000 in bridge loans due have been
converted to common stock at the rate of two shares for each dollar of
bridge loan converted.
50