U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ending March 31, 2004
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 33-58972
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URBAN TELEVISION NETWORK CORPORATION
-------------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
NEVADA 22-2800078
------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
2707 South Cooper, Suite 119, Arlington, TX 76015
-------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (817) 303 - 7449
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Check whether the issuer (1)filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Applicable only to issuers involved in bankruptcy proceedings during
the preceding five years.
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date:
Transitional Small Business Disclosure Format
(Check One) Yes No X
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................................ 3
Independent Accountants Review Letter...............................
Balance Sheet (unaudited)........................................... 4
Statements of Operations (unaudited)................................ 5
Statements of Cash Flows (unaudited)................................ 6
Notes to Financial Statements....................................... 8
Item 2. Management's Discussion and Analysis of Plan
of Operation.......................................................17
Item 3. Controls and Procedures..............................................21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................22
Item 2. Changes in Securities and Use of Proceeds...........................22
Item 3. Defaults upon Senior Securities.....................................22
Item 4. Submission of Matters to a Vote
of Security Holders.................................................22
Item 5. Other Information...................................................22
Item 6. Exhibits and Reports on Form 8-K....................................23
Signatures....................................................................23
URBAN TELEVISION NETWORK CORPORATION
FORM 10-QSB
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements. (Unaudited)
As prescribed by Item 310 of Regulation S-B, the independent auditor has
reviewed these unaudited interim financial statements of the registrant for the
six months ended March 31, 2004. The financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. The unaudited
financial statements of registrant for the six months ended March 31, 2004,
follow.
3
PART I - FINANCIAL STATEMENTS
URBAN TELEVISION NETWORK CORPORATION
Consolidated Balance Sheet
March 31, September 30,
2004 2003
------------- -------------
Assets (Unaudited) (Audited)
Currents assets
Cash and cash equivalents $ 218,596 $ 235,408
Accounts receivable 6,746 4,241
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Total current assets 225,342 239,649
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Furniture, fixtures and equipment, net 123,530 29,938
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Other assets
Prepaid management services 2,000,000 --
Network assets, net 117,902 137,465
Organizational costs 360 360
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Total other assets 2,118,262 $ 137,825
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Total assets $ 2,467,134 $ 407,412
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Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 43,490 $ 96,678
Due to stockholders -- 198,515
Notes payable to stockholder 97,935 132,200
Bridge loans payable 21,494 37,000
Note payable 20,000 --
Accrued compensation 75,000 --
Accrued interest payable 6,503 4,550
------------- -------------
Total current liabilities 264,422 468,943
------------- -------------
Stockholders' equity
Preferred stock, $1 par value, 500,000 shares authorized, none issued -- --
Common stock, $0.0001 par value, 200,000,000 shares authorized;
43,729,964 and 23,711,736 outstanding at March 31, 2004 and
September 30,2 003, respectively 4,373 2,371
Additional paid-in capital 17,985,423 8,058,311
Stock subscriptions receivable (6,577,200) (57,400)
Retained earnings (deficit) (9,209,884) (8,064,813)
------------- -------------
Total stockholders' equity 2,202,712 (61,531)
------------- -------------
Total liabilities and stockholders' equity $ 2,467,134 $ 407,412
------------- -------------
See notes to financial statements.
4
URBAN TELEVISION NETWORK CORPORATION
Consolidated Statement of Operations
For the six months ended March 31, 2004 and 2003
(UNAUDITED)
Three months ended March 31, Six months ended March 31,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues $ 31,196 $ 43,870 $ 57,167 $ 93,888
------------ ------------ ------------ ------------
Expenses:
Satellite and uplink services 107,891 161,122 186,020 301,572
Master control and production 86,103 34,488 215,656 52,654
Station operating costs 90,843 1,950 171,137 3,900
Technology expenses 26,871 61,034 55,848 132,534
Administration 246,339 30,908 534,712 94,041
Depreciation and amortization 18,718 9,135 35,760 18,270
------------ ------------ ------------ ------------
Total expenses 576,765 298,637 1,199,133 602,971
------------ ------------ ------------ ------------
Income (loss) from operations (545,569) (254,767) (1,141,966) (509,083)
Other (income) expense
Interest income 232 -- 333 --
Interest (expense) (1,455) (14,357) (3,438) (21,584)
------------ ------------ ------------ ------------
Net loss $ (546,792) $ (269,124) $ (1,145,071) $ (530,667)
------------ ------------ ------------ ------------
Earnings per share:
Net income (loss) $ (.01) $ (0.03) $ (0.03) $ (0.09)
Weighted average number of common
shares outstanding 43,729,964 10,181,969 37,834,813 5,732,636
See notes to financial statements.
5
URBAN TELEVISION NETWORK CORPORATION
Consolidated Statement of Stockholders' Equity
(UNAUDITED)
Common Stock Additional Stock Total
-------------------------- Paid-In Subscription Capital
Shares Amount Capital Receivable Deficit Deficit
------------ ------------ ------------ ------------ ------------ ------------
Balance at September 30, 2001 311,636 $ 31 $ 5,444,567 $ 0 $ (5,444,598) $ 0
Recapitalization of
private company 800,000 80 518,785 -- -- 518,865
Stock issued to Hispanic
Television Network 5,000 1 9,999 -- -- 10,000
Net income for year ended
September 30, 2002 -- -- -- -- (581,106) (581,106)
------------ ------------ ------------ ------------ ------------ ------------
Balance September 30, 2002 1,116,636 112 5,973,351 0 (6,025,704) (52,241)
Recapitalization of
private company 13,248,000 1,325 238,594 -- -- 239,919
Stock issued for services 7,275,000 727 810,523 -- -- 811,250
Stock issued for bridge
loan conversions 1,957,300 196 978,454 -- -- 978,650
Stock subscriptions 114,800 11 57,389 $ 57,389 $ (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)
Stock issued for services 200,000 20 49,980 -- -- 50,000
Stock subscription 14,040,000 1,404 7,018,596 (6,520,000) -- 500,000
Stock issued for management
services 4,000,000 400 1,999,600 -- -- 2,000,000
Stock subscriptions received -- -- -- 200 -- 200
Stock issued for bridge loan
conversions 1,658,228 166 828,948 -- -- 829,114
Stock issued for equipment 120,000 12 29,988 -- -- 30,000
Net loss for six months ended
March 31, 2004 -- -- -- -- (1,145,071) (1,145,071)
------------ ------------ ------------ ------------ ------------ ------------
Balance, March 31, 2004 43,729,964 $ 4,373 $ 17,985,423 $ (6,577,200) $ (9,209,884) $ 2,202,712
------------ ------------ ------------ ------------ ------------ ------------
See notes to financial statements.
6
URBAN TELEVISION NETWORK CORPORATION
Consolidated Statement of Cash Flows
For the six months ended March 31, 2003 and 2002
(UNAUDITED)
Three months ended March 31, Six months ended March 31,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Operating Activities
Net (loss) $ (546,792) $ (269,124) $ (1,145,071) $ (530,667)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 18,718 9,135 35,760 18,270
Common stock issued for services 50,000 82,500
Changes in operating assets and liabilities:
Accounts receivable -- 3,171 (2,505) (5,525)
Prepaid expense -- -- -- (18,043)
Accounts payable (26,000) 141,174 (53,188) 181,890
Accrued interest expense 1,455 14,356 3,438 22,474
Accrued compensation 30,000 -- 75,000 --
------------ ------------ ------------ ------------
Net cash provided by operating activities (522,619) (101,288) (1,036,566) (249,101)
------------ ------------ ------------ ------------
Investing Activities
Capital expenditures (49,089) (23,145) (79,789) (27,088)
------------ ------------ ------------ ------------
Net cash (used in) investing activities (49,089) (23,145) (79,789) (27,088)
------------ ------------ ------------ ------------
Financing Activities
Proceeds from common stock sales -- -- 300,000 --
Proceeds from bridge loans 192,038 219,000 813,608 219,000
Proceeds from notes payable 231,850 100,500 254,350 255,272
Payments on notes payable (263,121) -- (268,615) --
Collection on subscription receivable -- -- 200 --
------------ ------------ ------------ ------------
Net cash provided by financing activities 160,767 319,500 1,099,543 474,272
------------ ------------ ------------ ------------
Increase (decrease) in cash (410,941) 195,067 (16,812) 198,083
Cash at beginning of period 629,537 3,016 235,408 --
------------ ------------ ------------ ------------
Cash at end of period $ 218,596 $ 198,083 $ 218,596 $ 198,083
------------ ------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ -- $ -- $ --
Income taxes $ -- $ -- $ -- $ --
Non-cash transactions:
Common stock issued for services $ -- $ -- $ 50,000 $ 82,500
See notes to financial statements.
7
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited financial statements have been prepared by the Company,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such SEC rules and
regulations; nevertheless, the Company believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements and the notes hereto should be read in conjunction with the
financial statements and notes thereto included in the Company's Form
10-KSB for the year ended September 30, 2003, which was filed January 14,
2004. In the opinion of the Company, all adjustments, including normal
recurring adjustments necessary to present fairly the financial position of
Urban Television Network Corporation as of March 31, 2004 and the results
of its Operations and cash flows for the six months then ended, have been
included. The results of operations for the interim period are not
necessarily indicative of the results for the full year.
ACCOUNTING POLICIES:
There have been no changes in accounting policies used by the Company
during the quarter ended March 31, 2004.
2. Significant Accounting Policies
Description of Business
Urban Television Network Corporation (the "Company") formerly known as
Waste Conversion Systems, Inc. was incorporated under the laws of the state
of Nevada on October 21, 1986. The principal office of the corporation is
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). The directors of the Company appointed Urban-Texas officers
as new officers of the Company, and at the same time resigned their board
positions and appointed the directors of Urban-Texas as the Company's new
board of directors.
On May 1, 2002, the Company entered into an agreement with Urban-Texas to
acquire the rights to the Urban-Texas affiliate network signal space which
included the assignment of the Urban-Texas broadcast television station
affiliates for 16,000,0000 shares of common stock, which became 800,000
after a 1 for 20 reverse stock split.
On February 7, 2003, the Company entered into a Stock Exchange Agreement
with the majority shareholders of Urban-Texas. Among other things, the
Agreement provided for the Company's purchase of approximately 90% of the
issued and outstanding capital stock of Urban-Texas (13,248,000 of
14,759,000 shares) in exchange for the Company's issuance of 13,248,000
shares of its authorized but unissued common stock, $.0001 par value (the
"Exchange Shares"), to the majority shareholders of Urban-Texas. In June of
2003, the remaining 10% of Urban-Texas common stock was contributed to the
Company.
Urban-Texas is considered the accounting acquirer, and the accompanying
financial statements include the operations of Urban-Texas from the
earliest period presented. The Company operated from May 1, 2002 to
February 7, 2003 as a 71% subsidiary of Urban-Texas, a predecessor entity
to the existing business. The May 1, 2002 and February 7, 2003 transactions
with the Company are presented as a recapitalization of Urban-Texas.
The Company is authorized to issue 200,000,000 shares of $.0001 par value
stock and 500,000 shares of $1.00 par value preferred stock.
8
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(UNAUDITED)
2. Significant Accounting Policies - continued
The Company is engaged in the business of supplying programming to
broadcast television stations and cable systems. The Company's programming
format is specifically focusing on the African American and Hispanic
demographic markets. Formerly the Company's business had been the marketing
of thermal burner systems that utilize industrial and agricultural waste
products as fuel to produce steam, which generates electricity,
air-conditioning or heat.
Accounting Method
The Company records income and expenses on the accrual method.
Revenue Recognition
The Company's sources of revenues includes sale of short-form national and
local spot advertising long-form program time slots. The Company's policy
is to recognize the revenue associated with these sources of revenue at the
time that it inserts the short-form advertising spots or airs the long-form
program at the network or local level.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiary. All material intercompany accounts and transactions are
eliminated. The Company owns 100% of Urban Television Network Corporation,
a Texas corporation and 100% of Waste Conversion Systems Of Virginia, Inc.
Non Goodwill Intangible Assets
Intangible assets other than goodwill consist of network assets acquired by
purchase. They are being amortized over their expected lives of 5 years and
are reviewed for potential impairment whenever events or circumstances
indicate that carrying amounts may not be recoverable. No impairment loss
was recognized during the reporting periods. On January 1, 2002, the
Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Intangible Assets. This provides that a recognized intangible
shall be amortized over its useful life to the reporting entity unless that
life is determined to be indefinite. The amount of an intangible asset to
be amortized shall be the amount initially assigned to that asset less any
residual value.
Income (Loss) Per Share
Income (loss) per common share is calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share".
Basic Income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Diluted net
income (loss) per share is computed similar to basic net income (loss) per
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were
dilutive. Stock options and warrants are anti-dilutive, and accordingly,
are not included in the calculation of income (loss) per share.
Comprehensive Income
Comprehensive income (loss) and net income (loss) are the same for the
Company.
Cash
For purposes of the statement of cash flows, the Company considers
unrestricted cash and all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash.
Concentration of Credit Risk
The Company periodically maintains cash in excess of federally insured
limits. The amount in excess at March 31, 2004 was $-0-.
9
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(UNAUDITED)
2. 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 six months
ended March 31, 2004 and 2003.
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 reclassification of collateral and for disclosures ending after
December 15, 2001. The Statement is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after
March 31, 2001. The initial application of SFAS No. 140 will have no impact
to the Company's results of operations and financial position.
In June, 2001 the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" and No. 142
"Goodwill and Other Intangible Assets." These statements prohibit
pooling-of -interest accounting for Transactions initiated after June 30,
2001, require the use of the purchase method of accounting for all
combinations after June 30, 2001, and establish new standards for
accounting for goodwill and other intangibles acquired in business
combinations. The Company does not expect these pronouncements to have a
material affect on its financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
This Statement establishes standards for classifying and measuring as
liabilities certain financial instruments that embody obligations of the
issuer and have characteristics of both liabilities and equity. SFAS No.
150 is effective at the beginning of the first interim period beginning
after June 15, 2003; including all financial instruments created or
modified after May 31, 2003. SFAS No. 150 currently has no impact on the
Company.
Stock Options
The Company accounts for non-employee stock options under SFAS 123, whereby
option costs are recorded at the fair value of the consideration received
or the fair value of the equity instrument issued, whichever is more
reliable measurement, in accordance with EITF 96-18 "Accounting for Equity"
instruments that are issued to other than employees for acquiring or in
conjunction with selling goods or services.
The Company adopted in February 1993 an employee stock option plan. There
are no options outstanding under this plan. This plan will be accounted for
under FAS 123 as described above.
10
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(UNAUDITED)
3. Accounts receivable
Accounts receivable consists of normal trade receivables. The Company
assesses the collectibility of its accounts receivable regularly. Based on
this assessment, an allowance for doubtful accounts is recorded. At March
31, 2004 and 2003 an allowance for doubtful accounts was not considered
necessary.
4. Network Assets - Amortization
Network assets consist of intangibles other than Goodwill. These assets
automatically renew every year unless either party terminates the agreement
by such notification to the other party. A useful life of five (5) years is
estimated for the assets. These agreements are not expected to be
terminated by either party prior to its useful life period. Total
amortization of these assets has been $77,726 and the amortization for the
six months ended March 31, 2004 and 2003 was $19,563 and $14,520,
respectively.
Future amortization of the Network assets at March 31, 2004 will be
$117,903 and on an annual basis be as follows:
Year ended September 30, 2004 $19,563
Year ended September 30, 2005 $39,125
Year ended September 30, 2006 $39,125
Year ended September 30, 2007 $20,090
5. Property, Plant and Equipment
The Company acquired equipment totaling $5,084 during the year ended
September 30, 2003 and $37,708 and $109,789 during the six months ended
March 31, 2004, which included the issuance of 120,000 shares of the
Company's common stock valued at $30,000. Equipment is recorded at cost and
depreciation is calculated on a straight-line basis over three (3) to five
(5) years. Total depreciation of the equipment has been $29,051 and
depreciation for the six months ended March 31, 2004 and 2003 was $16,197
and $3,750, respectively.
6 Related Party Transactions
In May 2002, the Company issued 16,000,000 (800,000 after the 1 for 20
Reverse) shares to Urban Television Network Corporation, a Texas
corporation for asset purchase of network assets - See footnote 1.
The Company leased office space from one its shareholders and director for
$2,000 per month. The lease expired on March 31, 2004. The total rental
expense for the six months ended March 31, 2004 and 2003 was $12,000 and
$6,000, respectively. Amounts payable were $-0- and $24,000, respectively.
In year 2003, the Company began using the services of a company owned by
shareholders, one being a director of the Company, that provides the
Company with the equipment and master control services to put the Company's
programming on the satellite for the broadcast affiliates to receive and
rebroadcast to their local markets. During the six months ended March 31,
2004 and 2003, the total expense paid out was $202,245 and $33,543,
respectively.
The Company uses the services of a company owned by shareholders to provide
it with technology services including Internet and affiliate relations.
During the six months ended March 31, 2004 and 2003, the total expense paid
out for these services was $55,848 and $132,534, respectively.
11
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(UNAUDITED)
6. Related Party Transactions - continued
During the periods ended September 30, 2003 and 2002, the Company executed
interest bearing notes with shareholders. The Company borrowed $298,127 and
$263,165 from the shareholders and made repayments of $164,177 and $66,400
during the years ended September 30, 2003 and 2002, respectively. At
September 30, 2003, $168,765 of the notes plus accrued interest of $29,750
were converted to a non-interest payable to the shareholder. In October
2003, a shareholder agreed to reduce the Company payable by $198,515 to
apply towards the purchase of common stock by Wright Entertainment LLC.
The Company executed an interest bearing note with a shareholder of the
Company during the period ended September 30, 2003 to pay operating
expenses. During the period ended September 30, 2003 the amounts loaned
totaled $132,200. The balance on this loan was $97,935 at March 31, 2004.
On October 30, 2003, the Company completed a stock subscription agreement
with Wright Entertainment, LLC, a Nevada limited liability company, whose
owner and managing director is Lonnie G. Wright, President and Chief
Executive Officer of the Company. Wright Entertainment, LLC entered into
the stock Subscription agreement for Fourteen Million (14,000,000) common
shares for Seven Million ($7,000,000) Dollars or Fifty ($0.50) Cents per
share. The stock sale was structured as an installment stock sale. The
terms of the stock sale are as follows: $500,000 down, the $6,500,000
balance payable on a promissory note at $875,000 Dollars quarterly,
including 6% interest on the declining balance. A portion ($200,000) of the
$500,000 down payment was achieved by one of the Company's lenders
forgiving $198,515 of advances due the lender and $1,485 of accrued
interest on a note payable to the lender. Subsequent to December 31, 2003,
the subscription agreement has been amended to set the first four quarterly
installments at $437,500 each beginning April 30, 2004 and the remaining
quarterly installments remaining at $875,000 each until the total
subscription amounts has been paid including accrued interest. All of the
shares have been pledged as security for the promissory note and will be
physically held by the Company. Additionally, the board of directors
authorized the issuance of Four Million (4,000,000) common shares to Wright
Entertainment for executive management services to be valued at $2,000,000.
These shares will be held by the Company and accounted for as prepaid
management services until the total subscription price has been paid by
Wright Entertainment. When the shares have been forwarded to Wright
Entertainment, the $2,000,000 will be amortized over four years.
7. Notes Payable
Notes payable consist of:
March 31, September 30,
2004 2003
------------- -------------
Notes payable to stockholders at 6%
interest payable on September 30, 2004 $ 97,935 $ 132,200
Note payable to individual at 0% interest
Payable on July 1, 2004 20,000 --
------------- -------------
$ 117,935 $ 132,200
------------- -------------
8. Convertible Bridge Loan
Convertible bridge loans consist of:
March 31, September 30,
2004 2003
------------- -------------
Convertible bridge loan payable to
individuals at 6% interest payable
on February 14, 2004 $ 21,494 $ 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.
12
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(UNAUDITED)
9. Income Tax
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
standard requires, among other things, recognition of future tax
consequences, measured by enacted tax rates attributable to taxable and
deductible temporary differences between financial statement and income tax
bases of assets and liabilities. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the
change during the period in the deferred tax asset and liability.
Temporary differences between the financial statement carrying amounts and
tax basis of assets and liabilities did not give rise to significant
portions of deferred taxes at March 31, 2004 and 2003.
The (provision) benefit for income tax consist of the following:
March 31, December 31,
2004 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.
10. Capital Stock
In May 2002, the Company issued 16,000,000 (800,000 after the 1 for 20
reverse) shares to Urban Television Network Corporation, a Texas
corporation for asset purchase of network assets -See footnote 1.
In September 2002, the Company issued 100,000 (5,000 after the 1 for 20
reverse) shares to Hispanic Television Network, Inc. as part of the mutual
settlement agreement between the two companies to cancel the Satellite
Transponder Service Agreement and notes payable/receivable.
On November 21, 2002 the Company completed a 1:20 reverse stock split and
amended its Articles of Incorporation to increase its authorized common
shares to 200,000,000 and adjust its par value to $0.0001 per share.
In December 2002, the Company issued 300,000 shares of its common stock for
consulting and legal services, which the Company valued at $82,500.
On February 7, 2003, the Company entered into an Exchange Agreement with
the majority shareholders of Urban Television Network Corporation, a Texas
corporation (Urban-Texas). The Company acquired 90% of the issued and
outstanding capital stock of Urban-Texas in return for 13,248,000 shares of
the Company's common stock - See footnote 1.
In May 2003, the Company issued 5,075,000 shares of its common stock for
consulting Services, which the Company valued at $253,750.
In June 2003, the Company issued 1,900,000 of its common stock for employee
compensation, consulting services and legal services, which the Company
valued at $475,000 under the Plan.
13
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(UNAUDITED)
10. Capital Stock - continued
During the period ended September 30, 2003, the Company issued 1,957,300
shares of its common stock to Bridge Loan Lenders who elected to convert
$978,650 of bridge loans to common stock at the rate of 2 shares for each
dollar of bridge loan converted.
On October 30, 2003, the Company completed a stock subscription agreement
with Wright Entertainment, LLC, a Nevada limited liability company. The
Company sold Fourteen Million (14,000,000) common shares for Seven Million
($7,000,000) Dollars or Fifty ($0.50) Cents per share. The stock sale was
structured as an installment stock sale. The terms of the stock sale are as
follows: $500,000 down, the $6,500,000 balance payable on a promissory note
at $875,000 Dollars quarterly, including 6% interest on the declining
balance. A portion ($200,000) of the $500,000 down payment was achieved by
one of the Company's lenders forgiving $198,515 of advances due the lender
and $1,485 of accrued on a note payable to the lender. Subsequent to
December 31, 2003, the subscription agreement has been amended to set the
first four quarterly installments at $437,500 each beginning April 30, 2004
and the remaining quarterly installments remaining at $875,000 each until
the total subscription amounts has been paid including accrued interest.
All of the shares have been pledged as security for the promissory note and
will be physically held by the Company. Additionally, the board of
directors authorized the issuance of Four Million (4,000,000) common shares
to Wright Entertainment for executive management services to be valued at
$2,000,000. These shares will be held and accounted for as prepaid
management services by the Company until the total subscription price has
been paid by Wright Entertainment. When the shares have been forwarded to
Wright Entertainment, the $2,000,000 will be amortized over four years.
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.
In October 2003, the Company issued 100,000 shares of its common stock for
services rendered, which the Company valued at $25,000.
In October 2003, the Company issued 120,000 shares of its common stock as
Part of the purchase of videoing and production equipment. The shares were
Valued at $30,000 in the purchase.
During the six months ended March 31, 2004, the Company issued 1,658,228
shares of its common stock to Bridge Loan Lenders who elected to convert
$829,114 of bridge loans to common stock at the rate of 2 shares for each
dollar of bridge loan converted.
Non-Qualified Stock Grant and Option Plan
The Company is authorized to issue up to 2,000,000 shares of common stock
under its 2003 Non-Qualified Stock Grant and Option Plan (the "Plan")
through an S-8 registration. This Plan is intended to serve as an incentive
to and to encourage stock ownership by certain directors, officers,
employees of and certain persons rendering service to the Company, so that
they may acquire or increase their proprietary interest in the success of
the Company, and to encourage them to remain in the Company's service.
During the period ended September 30, 2003, the Company had distributed
1,900,000 of the shares through grants. The remaining 100,000 shares were
issued in October 2003 as a stock grant.
14
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(UNAUDITED)
11. Preferred Stock
The Articles of Incorporation of the Company authorize issuance of a
maximum of 500,000 shares of nonvoting preferred stock with a par value of
$1.00 per share. The Articles of Incorporation grant the Board of Directors
of the Company authority to determine the designations, preferences, and
relative participating, optional or other special rights of any preferred
stock issued.
No preferred shares had been issued as of March 31, 2004.
12. 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
six months ended March 31, 2004 and 2003, the amount expensed were $108,258
and $151,572, respectively.
Future lease payments due during the term of the lease ending on November
21, 2005 will equal $360,860 and be due as follows:
Year ended September 30, 2004 $108,258
Year ended September 30, 2005 $216,516
Year ended September 30, 2006 $ 36,086
Signal Uplink Lease
The Company entered into a Full Time Broadcast Agreement with Verestar,
Inc. on November 21, 2002 for a full time redundant 6 MHz digital C-band
uplink service for a period of three years ending on November 21, 2005. For
the six months ended March 31, 2004 and 2003, the amount expensed for
Uplink services was $48,000 and $40,000, respectively.
Future lease payments due during the term of the lease ending on November
21, 2005 will equal $160,000 and be due as follows:
Year ended September 30, 2004 $48,000
Year ended September 30, 2005 $96,000
Year ended September 30, 2006 $16,000
Facilities Space Lease
The Company entered into a lease for office space on March 15, 2002 for a
period of three years ending on March 31, 2005. For periods ended September
30, 2003 and 2002, the amount expensed for office space lease was $14,000
and $24,000. For the six months ended March 31, 2004 and 2003, the amount
expensed for office space was $12,000, respectively. This lease was
terminated by mutual agreement on March 31, 2004.
The Company entered into a lease for office space on March 8, 2004 for a
period of one year ending on February 28, 2005. For the period beginning
March 8, 2004 and ended March 31, 2004 the amount expensed for office space
was $1,550.
Future lease payments due during the term of the lease ending on February
28, 2005 will equal $25,630.
Employment Agreements
Mr. Randy Moseley is employed pursuant to a five-year employment agreement
that commenced on October 2, 2002. The agreement provides for a base annual
salary equal to $200,000 and a possible annual cash bonus as determined by
the Board of Directors and/or the Compensation Committee.
15
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(UNAUDITED)
12. Commitments and Contingencies - continued
In October 2003, the employment agreement of Randy Moseley was amended to
allow for the naming of a new President and Chief Executive Officer for the
Company. Mr. Moseley accepted the Officer Position of Executive Vice
President and Chief Financial Officer and agreed to defer the payment of
salary for the period from October 2, 2002 to September 30, 2003 with this
deferred year being added to the end of the original term to make the term
of the contract end on September 30, 2008. During the six months ended
March 31, 2004, $75,000 of Mr. Moseley's compensation was accrued as a
payable.
Mr. Stanley Woods is employed pursuant to a three-year employment Agreement
that commenced on October 2, 2002. The agreement provides for a base annual
salary equal to $50,000 and a possible annual cash bonus as determined by
the Board of Directors and/or the Compensation Committee. Mr. Woods was
issued 200,000 shares of common stock in 2003 in lieu of his annual salary
for the period ended September 30, 2003.
Contingencies
The Company is involved in various legal actions arising in the normal
course of business. Management is of the opinion that any judgment or
settlement resulting from pending or threatened litigation would not have a
material adverse effect on the financial position or results of operations
of the Company.
13. Going Concern
The Company has suffered recurring losses from operations. In order for the
Company to sustain operations and execute its television broadcast and
programming business plan , capital will need to be raised to support
operations as the company executes its business plan. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern.
The Company may raise additional capital through the sale of its equity
securities, or debt securities. Subsequent to year end the Company has
raised additional capital of approximately $1,193,108 from $813,608 in
bridge loans, $79,500 in advances from shareholders and $300,000 in cash
from the Wright Entertainment LLC subscription agreement.
14. Subsequent Events
On April 27, 2004, the Company's Board of Directors, with Lonnie G. Wright
abstaining, accepted a contribution of master control and uplinking assets
from Wright Entertainment LLC in lieu of the April 30, 2004 payment due by
Wright Entertainment, LLC on its stock purchase agreement described in Note
10 above. Any value in excess of the April 30, 2004 payment amount to be
determined by outside independent appraisal will be applied towards future
payments due on the Wright Entertainment LLC stock purchase agreement.
16
Item 2. Management's Discussion and Analysis or Plan of Operation.
Background
Urban Television Network Corporation (the "Company") formerly known as Waste
Conversion Systems, Inc. was incorporated under the laws of the state of Nevada
On October 21, 1986. The principal office of the corporation is 2707 S. Cooper,
Suite 119, Arlington, Texas 76015.
In January 2002, the Company underwent a change of control with the directors of
the Company appointing the directors and officers of Urban Television Network
Corporation, a Texas corporation, (Urban-Texas) as the new directors and
officers of the Company, and at the same time resigning their board positions.
On May 1, 2002, the Company entered into an agreement with Urban-Texas to
acquire the rights to the Urban-Texas affiliate network signal space which
included the assignment of the Urban-Texas broadcast television station
affiliates for 16,000,0000 shares of common stock, which became 800,000 shares
after the 1 for 20 reverse split in November 2002.
On February 7, 2003, the Company entered into a Stock Exchange Agreement with
the majority shareholders of Urban-Texas to acquire approximately 90% of the
issued and outstanding capital stock of Urban-Texas (13,248,000 of 14,759,000
shares) in exchange for the Company's issuance of 13,248,000 shares of its
authorized but unissued common stock, $.0001 par value (the "Exchange Shares"),
to the majority shareholders of Urban-Texas. The remaining 10% was contributed
to the Company in June of 2003.
Urban-Texas is considered the accounting acquirer, and the accompanying
financial statements include the operations of Urban-Texas from the earliest
period presented. The May 2002 and February 2003 transactions with the Company
are presented as a recapitalization of Urban-Texas.
The consideration exchanged in Stock Exchange Agreement was negotiated between
the Company and Urban-Texas in a transaction with management. The management of
the Company and Urban- Texas, were the same individuals. The transaction does
not represent an arms-length transaction.
The Company is engaged in the business of supplying programming to independent
broadcast television stations and cable systems. Formerly the Company's business
had been the marketing of thermal burner systems that utilize industrial and
agricultural waste products as fuel to produce steam, which generates
electricity, air-conditioning or heat.
The Company acquired a general market television network affiliate base from
Hispanic Television Network, Inc. (HTVN). This television network was rebranded
to focus on the minority markets, primarily the African American and Hispanic
markets, across the United States. The network presently includes approximately
72 broadcast television station affiliates in various parts of the country.
We are targeting the minority markets, primarily the African American and
Hispanic Markets, because we believe that they present vast marketing
opportunities and that are currently under-served by our competition. With few
competitors that are exclusively devoted to programming to the minority markets,
especially the African American market, which composes approximately 13% of the
U.S. population with a spending power in excess of $500 billion. The Hispanic
population is also approximately 13% of the U.S. total with a spending power
also in the $500+ billion range. We feel that there are attractive opportunities
to provide a quality broadcasting service to the African American and Hispanic
(especially bi-lingual Hispanic programming) populations that together make up
in excess of 25% of the U.S. population.
Our financial results depend on a number of factors, including the strength of
the national economy and the local economies served by our affiliate stations,
total advertising dollars dedicated to the markets served by our affiliate
stations, advertising dollars dedicated to the African American and Hispanic
consumers in the markets served by our affiliate stations, our affiliate
stations' audience ratings, our ability to provide interesting minority focused
programming, local market competition from other television stations and other
media, and government regulations and policies, such as the multiple ownership
rules, the ability of Class A affiliate stations to be considered must carry for
cable systems (this would increase their local coverage) and the deadlines for
television stations converting to digital signals (which financial requirement
could determine whether the stations remain on the air).
17
Management is implementing a revenue generation plan that includes local
advertising sales, for company operated stations, securing network advertising
at the best available rate, uplinking other parties signals to the satellite,
plus implementing a Technology plan to assist its affiliates with sale of their
local advertising time. Management intends to increase rates as affiliate
stations are added to the network. The implementation of this comprehensive plan
is expected to have a positive affect upon sales revenues. In addition, the
Company has added a focus to secure carriage agreements with cable and digital
distribution companies.
OPERATIONS. The Company had revenues of $31,196 and $43,870 for the three months
ended March 31, 2004 and 2003, respectively and $57,167 and $93,888 for six
months ended March 31, 2004 and 2003, respectively. Currently most of our
network advertising has been sold to direct response and per inquiry
advertisers. The decrease in the six month period and quarter ending March 31,
2004 compared to 2003 is due to the Company continuing to be in the development
stages and not having an established advertising client base. Going forward, we
plan to deploy a network advertising team consisting of account executives that
will solicit advertising directly from national advertisers as well as
soliciting advertising from national advertising agencies. Locally managed
stations will also have account executives that will solicit local and national
advertising directly from advertisers and from advertising agencies in the local
markets.
The operations are still in the development stages and the Company is dependent
Upon working capital derived from management, significant shareholders and
private investors to provide sufficient working capital. There is no assurance,
however, that the Company will be able to generate the necessary working capital
needs from these sources.
OPERATING RESULTS. For the three months ended March 31, 2004 and 2003 the
Company had operating cost of $311,708 and $258,594, respectively. For the six
months ended March 31, 2004 and 2003, the Company had operating cost of $628,661
and $490,660, respectively. The major components of cost of operations for the
three months and six months periods ended March 31, 2004 and 2003 were as
follows:
Three months ended Six months ended
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Satellite and uplink services $107,891 $161,122 $186,020 $301,572
Master control and production 86,103 34,488 215,656 52,654
Operations of stations 90,843 1,950 171,137 3,900
Technology expenses 26,871 61,034 55,848 132,534
-------- -------- -------- --------
Total $311,708 $258,594 $628,661 $490,660
-------- -------- -------- --------
In November of 2002, the Company terminated an arrangement with a company in
Florida that provided satellite space, uplinking of the satellite signal to the
satellite, master control, and tape editing/formatting. At that time the Company
secured its own satellite space on Telstar 5 from Loral Skynet and uplinking
services from Verestar, Inc. in Dallas, Texas and is working with a group of the
Company's shareholders who are providing digital compression equipment, tape
editing and master control tape playback 24 hours per day, 7 days per week. The
Company expects this new arrangement to save it approximately $10,000 per month
and give it more flexibility in taking live feeds and changing programming and
advertising insertions.
The costs of operations for stations increased by $88,893 in three months ended
March 31, 2004 as compared to 2003 primarily as the result operating a station
in Dallas, Texas at a cost of $81,844 that the Company did not have in 2003.
The costs of operations for stations increased by $167,237 in six months ended
March 31, 2004 as compared to 2003 primarily as the result operating a station
in Dallas, Texas at a cost of $152,209 that the Company did not have in 2003 and
a $15,028 increase in the cost of the Oklahoma City station.
The technology expenses decreased by $34,163 for the three months ended March
31, 2004 as compared to 2003 due primarily to a decrease in system software
development.
The technology expenses decreased by $76,686 for the six months ended March 31,
2004 as compared to 2003 due primarily to a decrease in system software
development.
18
Administration expenses of $246,339 for the three months ended March 31, 2004
increased by $215,431 or 697% over the administrative expenses of $30,908 for
the three months ended March 31, 2003.
Administration expenses of $534,712 for the six months ended March 31, 2004
increased by $440,671 or 469% over the administrative expenses of $94,041 for
the six months ended March 31, 2003.
Following is a comparative of the major expense categories for the three months
ended March 31, 2004 and 2003 and The six months ended March 31, 2004 and 2003.
Three months ended Six months ended
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Administration cost $ 55,000 $ -- $125,000 $ --
Consulting 55,195 4,500 115,889 4,500
Travel, conventions 38,419 5,445 82,540 6,546
Legal fees 22,000 -- 54,500 27,500
Accounting fees 2,301 -- 12,301 11,500
Public relations costs 500 -- 10,230 --
Transfer Agent, permit fees 5,784 1,500 17,849 2,810
Rent expenses 13,330 -- 23,876 6,000
Internet costs 6,371 6,000 13,051 6,000
Supplies 24,781 8,200 36,811 14,762
Telephone 6,610 4,598 13,575 11,467
Postage and shipping 1,679 665 4,671 2,956
Marketing,printing,promotions 5,348 -- 18,341 --
Other 9,021 -- 6,078 --
-------- -------- -------- --------
TOTAL $246,339 $ 30,908 $534,712 $ 94,041
-------- -------- -------- --------
The increase in administrative costs is due to management not taking any
compensation during the six months ended March 31, 2003.
The increase in consulting fees is due the Company incurring limited consulting
expenses during the six months ended March 31, 2003. In 2004 the company has
brought in additional management and paid them as consultants and it is not in
the position to pay them on a regular salary basis at this time.
The increase in travel and conventions is related to the Company's travel
related cost associated with the minority Las Vegas, Nevada group that purchased
majority control of the Company and increased attendance at national television
and cable conventions.
The increase in public relations is due to an increase in expenses for public
functions, announcements and support for minority groups.
The increase in transfer agent expenses is related to the cost incurred in the
bridge loan investors converting their bridge loans to common stock of the
company.
The increase in rent expense is due the Company incurring additional space for
sales offices and studio production facilities.
Internet cost increased during the six months ended March 31, 2004 due the
Company Installing its own high speed Internet line at the corporate offices.
The increase in costs of supplies is due primarily to the Company's conversion
from a tape digital based operations for its program insertions. This will give
the Company the ability to deliver a consistent television signal to its
affiliates and save on labor costs in the future.
The increase in marketing, printing and promotions increased in 2004 due the
Company developing marketing brochures and sponsoring events to promote the
network.
The Company had operating losses for the three months ended March 31, 2004 and
2003 of $545,569 and $254,767, respectively. The increase of $290,802 from 2004
to 2003 is due primarily to the $88,893 increase of expenses for station
operating costs and the $215,431 increase in administrative expenses.
19
The Company had operating losses for the six months ended March 31, 2004 and
2003 of $1,141,966 and $509,083, respectively. The increase of $596,162 from
2004 to 2003 is due primarily to the $167,237 increase of expenses for station
operations and the $440,671 increase in administration expenses.
EARNINGS PER SHARE OF COMMON STOCK. Income (loss) per common share is calculated
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." Basic Income (loss) per share is computed by dividing the
net income (loss) by the weighted average number of common shares outstanding.
Diluted net income (loss) per share is computed similar to basic net income
(loss) per share, except that the denominator is increased to include the number
of additional common shares that would have outstanding if the potential common
shares had been issued and if the additional common shares were dilutive. Stock
options and warrants are anti-dilutive, and accordingly, are not included in the
calculation of income (loss) per share. The basic and diluted net loss per share
of common stock was $0.01 and $.03 for the three months March 31, 2004 and 2003,
respectively. The basic and diluted net loss per share of common stock was $0.03
and $.09 for the six months March 31, 2004 and 2003, respectively.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations through a combination of loans from
stockholders, proceeds from convertible promissory notes and to a much lesser
extent revenues generated from operations. The Company has incurred cumulative
losses of $9,209,884 from the inception of the Company through March 31, 2004.
Current assets at March 31, 2004 were $225,342 which were exceeded by current
liabilities of $264,422 by $39,080.
Our growth will require additional funds that may come from a variety of
sources, including shareholder loans, equity or debt issuances, bank borrowings
and capital lease financings. We currently intend to use any funds raised
through these sources to fund various aspects of our growth, including funding
our working capital needs, performing digital upgrades, funding key programming
acquisitions, performing station capital upgrades, securing cable connections,
funding master control/network equipment upgrades, acquisition of new stations
and making strategic investments.
We had net losses $546,792 and $269,124 for the three months ended March 31,
2004 and 2003, respectively and $ 1,145,071 and $530,667 for the six months
ended March, 31 2004 and 2003, respectively. We expect these losses to continue
as we Incur operating expenses in the growth of the Company's television network
and its affiliate base and convert them to an African-American format. We
currently anticipate that our revenues as well as cash from financings and
equity sales will be sufficient to satisfy operating expenses by the end of
fiscal 2004, although we can offer no assurance in this regard. We may need to
raise additional funds, however. If adequate funds are not available on
acceptable terms, our business, results of operations and financial condition
could be materially adversely affected. In a worse case scenario, we would have
to scale back or cease operations, and we might not be able to remain a viable
entity.
Financing activities for the three months ended March 31, 2004 include:
1) Bridge loan subscriptions of $192,532 for the $1,500,000 convertible Bridge
loan agreement with interest at the rate of six percent (6%) per annum with a
consortium of private investors. The bridge loan lenders have the option to
convert their loans before the maturity date of February 14, 2004 into common
stock of the Company at the rate of two shares of common stock for every dollar
invested. During the three months ended March 31, 2004 bridge loan lenders of
$192,038 had elected to convert their bridge loan to 384,076 shares of common
stock.
In addition common stock may also be issued for conversion or settlement of debt
and/or payables for equity, future obligations which may be satisfied by the
issuance of common shares, and other transactions and agreements which may in
the future result in the issuance of additional common shares. The common shares
that the Company may issue in the future could significantly increase the number
of shares outstanding and could be extremely dilutive.
Impact of Inflation
Management does not believe that general inflation has had or will have a
material effect on operations.
20
Other Events
On March 24, 2004, the Board of Directors nominated Edward Maddox, as the
President and director. Mr. Maddox replaced Conrad H. Bullard, who resigned as
Executive Vice President and as a director of the Company on March 16, 2004.
Mr. Maddox has over 30 years of experience in television, mass media,
finance and politics. Mr. Maddox is the former Executive Vice President of Black
Entertainment Television (BET). He was former Special Assistant to Senior Vice
President, Finance and Administration, for The Times Mirror Corporation. He was
the first minority broadcaster to be a Host/Moderator on C-SPAN, a position that
he held for twelve years. Mr. Maddox is the Founder, President and CEO of
Powerhouse Corp, Inc., a multi-ethnic public relations firm. He was formerly the
Executive Vice President of FreedomCard, Inc., the first minority owned credit
card in the U.S. Mr. Maddox was the Founder, President and CEO of Summit 2000,
Inc., a non-profit umbrella organization of fifteen national non-profit
professional and civil rights groups. Mr. Maddox was the Founder and CEO of The
Maddox Company, a Washington D.C. based business and political consulting firm.
Mr. Maddox was a Senior Vice president for Cranston Prescott, a subsidiary of
Kemper Financial. Mr. Maddox was Staff Assistant to the President for the Former
President of the United States Jimmy Carter during President Carter's
Administration, after being a Staff Member of President Carter's successful
Presidential campaign. Mr. Maddox was a former Honor's Attorney for the U.S.
Department of Transportation. Mr. Maddox is a graduate of Boalt Hall, School of
Law, University of California, Berkley California, Editor-in-Chief of the Black
Law Journal, and holds a B.A. in Political Science from the University of
California at Los Angeles (UCLA).
On April 28, 2004 the Company's Board of Directors approved to give Wright
Entertainment, LLC full voting rights on the common stock that it owns in the
Company, except for any votes that may affect the terms of Wright Entertainment,
LLC debt obligations to the Company. Wright Entertainment LLC had given, as a
condition of it stock purchase agreement with the Company on October 30, 2003,
an irrevocable proxy to Randy Moseley, an officer of the Company, until Wright
Entertainment LLC had satisfied its purchase obligations. The Company never
requested Mr. Moseley to exercise the proxy rights on the Wright Entertainment
LLC shares from October 30, 2003 through April 28, 2004.
This Form 10-QSB contains statements that constitute "forward-looking
statements." These forward-looking statements can be identified by the use of
predictive, future-tense or forward-looking terminology, such as "believes,"
"anticipates," "expects," "estimates," "plans," "may," "will," or similar terms.
These statements appear in a number of places in this report and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things: (i) trends
affecting the Company's financial condition or results of operations for its
limited history; (ii) the Company's business and growth strategies; (iii) the
Internet and Internet commerce; and, (iv) the Company's financing plans.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may differ materially from those
projected in the forward- looking statements as a result of various factors.
Factors that could adversely affect actual results and performance include,
among others, the Company's limited operating history, dependence on key
management, financing requirements, government regulation, technological change
and competition. Consequently, all of the forward-looking statements made in
this Form 10-QSB are qualified by these cautionary statements and there can be
no assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequence to or effects on the Company or its business or operations.
The Company assumes no obligations to update any such forward-looking
statements.
Item 3. Controls and Procedures.
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer of the effectiveness of the
Company's disclosure controls and procedures (as defined in Rules 13a-15 (e) and
15d-15(e) under the Securities Exchange Act of 1934 as amended (the "Exchange
Act")). Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures as of the end of the fiscal quarter covered by this Quarterly Report
on Form 10-QSB are effective to ensure that information required to be disclosed
by the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods
21
specified in Securities and Exchange Commission rules and forms. Management of
the Company has also evaluated, with the participation of the Chief Executive
Officer and Chief Financial Officer of the Company, any change in the Company's
internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the fiscal quarter
covered by this Quarterly Report on Form 10QSB. There was no change in the
Company's internal control over financial reporting during the Company's most
recent completed fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting. However, due to the limited number of Company employees engaged in
the authorization, recording, processing and reporting of transactions, there is
inherently a lack of segregation of duties. The Company periodically assesses
the cost versus benefit of adding the resources that would remedy or mitigate
this situation and currently, does not consider the benefits to outweigh the
costs of adding additional staff in light of the limited number of transactions
related to the Company's operations.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a party to various legal actions and claims arising in the
ordinary course of its business. In the Company's opinion, the Company has
adequate legal defenses for each of the actions and claims, and believes that
their ultimate disposition will not have a material adverse effect on the
Company's consolidated financial position, results of operations and liquidity.
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
During the quarter ending March 31, 2004, the Company offered and sold the
following securities pursuant to securities transaction exemption from the
registration requirements of the Securities Act of 1933, as amended.
On 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 quarter ended March 31, 2004, a total of $192,532 was advanced
on the agreement. The lenders may convert their loans, including accrued
interest, to our common stock at the rate of two (2) shares for each dollar
loaned, at any time prior to maturity on February 14, 2004. During the quarter
ended March 31, 2004, a total of $192,038 in bridge loans were converted to
384,076 shares of the Company's common stock.
These securities that have been and will be issued above were issued in a
private transaction pursuant to Section 4(2) of the Securities Act of 1933, as
amended, (the "Securities Act"). These convertible securities are considered
restricted securities and may not be publicly resold unless registered for
resale with appropriate governmental agencies or unless exempt from any
applicable registration requirements.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders, through the
solicitation of proxies or Otherwise, during the second quarter of the fiscal
year covered by this report.
Item 5. Other Information
On March 24, 2004, the Board of Directors nominated Edward Maddox, as the
President and director. Mr. Maddox replaced Conrad H. Bullard, who resigned as
Executive Vice President and as a director of the Company on March 16, 2004.
Mr. Maddox has over 30 years of experience in television, mass media,
finance and politics. Mr. Maddox is the former Executive Vice President of Black
Entertainment Television (BET). He was former Special Assistant to Senior Vice
President, Finance and Administration, for The Times Mirror Corporation. He was
the first minority broadcaster to be a Host/Moderator on C-SPAN, a position that
he held for twelve years. Mr. Maddox is the Founder, President and CEO of
Powerhouse Corp, Inc., a multi-ethnic public relations firm. He was formerly the
Executive Vice President of FreedomCard, Inc., the first minority owned credit
card in the U.S. Mr. Maddox was the Founder,
22
President and CEO of Summit 2000, Inc., a non-profit umbrella organization of
fifteen national non-profit professional and civil rights groups. Mr. Maddox was
the Founder and CEO of The Maddox Company, a Washington D.C. based business and
political consulting firm. Mr. Maddox was a Senior Vice president for Cranston
Prescott, a subsidiary of Kemper Financial. Mr. Maddox was Staff Assistant to
the President for the Former President of the United States Jimmy Carter during
President Carter's Administration, after being a Staff Member of President
Carter's successful Presidential campaign. Mr. Maddox was a former Honor's
Attorney for the U.S. Department of Transportation. Mr. Maddox is a graduate of
Boalt Hall, School of Law, University of California, Berkley California,
Editor-in-Chief of the Black Law Journal, and holds a B.A. in Political Science
from the University of California at Los Angeles (UCLA).
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description and Method of Filing
---------- --------------------------------
10.01* Amended Subscription Agreement with Wright Entertainment, LLC.
31.1 Certification by Chief Executive Officer, pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.
31.2 Certification by Chief Financial Officer, pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.
32.1 Certification by Chief Executive Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Filed with previous filing
(b) Reports on Form 8-K.
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: May 17, 2004
Urban Television Network Corporation
By: /s/ Lonnie G. Wright By: /s/ Randy Moseley
------------------------------ -----------------------------------
Lonnie G. Wright Randy Moseley
Title: Chief Executive Officer Title: Executive Vice President/CFO
23