U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ending June 30, 2006
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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Commission file number 33-58972
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URBAN TELEVISION NETWORK CORPORATION
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(Name of Small Business Issuer in its Charter)
NEVADA 22-2800078
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(State of Incorporation) (IRS Employer Identification No.)
2707 South Cooper, Suite 119, Arlington, TX 76015
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, ( 817 ) 303 - 7449
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Check whether the issuer (1)filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years.
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date:
77,822,277 shares of common stock, $0.0001 par value, as of June 30, 2006
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Transitional Small Business Disclosure Format
(Check One) Yes No X
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URBAN TELEVISION NETWORK CORPORATION
FORM 10-QSB/A FOR THE QUARTER ENDED JUNE 30, 2006
Explanatory Note
----------------
This quarterly report on Form 10-QSB/A is filed for the purpose of amending
disclosure in Note 8 in the Notes to Consolidated Financial Statements for the
nine months ended June 30, 2006 and 2005, concerning the note payable to vendor,
to remove the sentence stating that the Company and the noteholder have agreed
to come to terms on an extension of this note. The amended disclosure has no
impact on our consolidated balance sheet as of June 30, 2006, or our
consolidated statement of earnings and related loss per share amounts,
consolidated statement of cash flows or our consolidated statement of
stockholders' equity for the three and nine months ended June 30, 2006 and 2005.
This Amended Report sets forth the content of the Original Report in its
Entirety, except for the change noted above to the Original Report. This Amended
Report continues to speak as of the date of the Original Report. We have not
updated the disclosures contained in this Amended Report to reflect any events
that occurred at a date subsequent to the filing of the Original Report. The
filing of this Amended Report is not a representation that any statements
contained in the Original Report or this Amended Report are true or complete as
of any date subsequent to the date of the Original Report. The revision does not
affect the remaining information set forth in the Original Report, the remaining
provisions of which have not been amended. In addition, the filing of this Form
10-QSB/A shall not be deemed an admission that the Original 10-QSB Filing, when
made, included any untrue statement of material fact or omitted to state a
material fact necessary to make a statement made therein not misleading.
Currently date certifications from the Company's Chief Executive Officer and
Chief Financial Officer have been included as Exhibits to this amendment.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..................................................4
Balance Sheet (unaudited).............................................5
Statements of Operations (unaudited)..................................6
Statements of Cash Flows (unaudited)..................................7
Notes to Financial Statements.........................................8
Item 2. Management's Discussion and Analysis of Plan
of Operation.......................................................20
Item 3. Controls and Procedures..............................................30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................31
Item 2. Changes in Securities and Use of Proceeds............................31
Item 3. Defaults upon Senior Securities......................................32
Item 4. Submission of Matters to a Vote
of Security Holders................................................32
Item 5. Other Information....................................................32
Item 6. Exhibits and Reports on Form 8-K....................................32
Signatures....................................................................32
URBAN TELEVISION NETWORK CORPORATION
FORM 10-QSB
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. (Unaudited)
As prescribed by Item 310 of Regulation S-B, the independent auditor has
reviewed these unaudited interim financial statements of the registrant for the
nine months ended June 30, 2006 the financial statements reflect all adjustments
which are, in the opinion of management, necessary to a fair statement of the
results for the interim period presented. The unaudited financial statements of
registrant for the nine months ended June 30, 2006, follow.
4
PART I - FINANCIAL STATEMENTS
URBAN TELEVISION NETWORK CORPORATION
Consolidated Balance Sheet
June 30, September 30,
2006 2005
(Unaudited) (Audited)
------------- -------------
Assets
Currents assets
Cash and cash equivalents $ 9,234 $ 40,369
Accounts receivable -- 11,572
------------- -------------
Total current assets 9,234 51,941
------------- -------------
Furniture, fixtures and equipment, net 54,473 97,520
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Other assets
Coal reserves 4,600,000 4,600,000
Network assets, net 44,302 63,082
Deposits -- 3,600
Organizational costs 360 360
------------- -------------
Total other assets 4,644,662 $ 4,667,042
------------- -------------
Total assets $ 4,708,369 $ 4,816,503
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Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 686,630 $ 403,192
Due to stockholders 112,908 151,015
Notes payable to stockholders 460,205 337,367
Notes payable to vendor 63,511 --
Advances 665,000 665,000
Accrued compensation 647,825 341,760
Accrued interest payable 14,678 4,565
------------- -------------
Total current liabilities 2,650,757 1,902,899
Stockholders' equity
Preferred stock, $1 par value, 500,000 shares authorized, issued
and outstanding, 200,000 at June 30, 2006 and 100,000 at
September 30, 2005 200,000 100,000
Common stock, $0.0001 par value, 200,000,000 shares authorized;
77,822,277 and 135,461,277 outstanding at June 30, 2006 and
September 30, 2005, respectively 7,783 13,546
Additional paid-in capital 28,178,684 27,922,051
Stock subscriptions receivable (6,650,500) (6,690,000)
Retained earnings (deficit) (19,678,355) (18,431,993)
------------- -------------
Total stockholders' equity 2,057,612 2,913,604
------------- -------------
Total liabilities and stockholders' equity $ 4,708,369 $ 4,816,503
------------- -------------
See notes to financial statements.
5
URBAN TELEVISION NETWORK CORPORATION
Consolidated Statement of Operations
For the nine months ended June 30, 2006 and 2005
(UNAUDITED)
Three months ended June 30, Nine months ended June 30,
2006 2005 2006 2005
------------- ------------- ------------- -------------
Revenues $ 20,155 $ 55,624 $ 80,182 $ 225,757
------------- ------------- ------------- -------------
Expenses:
Satellite and uplink services 54,031 80,049 252,933 240,267
Master control and production 12,733 61,660 98,047 181,394
Station operating costs -- 71,231 -- 255,255
Affiliate Relations (521) 25,853 31,028 41,053
Programming 374 139,586 19,996 188,368
Technology expenses 25,000 58,655 121,913 152,690
Administration 210,193 332,850 719,552 1,966,378
Depreciation and amortization 20,609 23,907 61,827 69,782
------------- ------------- ------------- -------------
Total expenses 322,419 793,791 1,305,296 3,095,187
------------- ------------- ------------- -------------
Income (loss) from operations (302,264) (738,167) (1,225,114) (2,869,430)
Other (income) expense
Interest income -- 9 -- 12
Interest (expense) (7,945) (6,007) (21,248) (18,021)
------------- ------------- ------------- -------------
Net loss $ (310,209) $ (744,165) $ (1,246,362) $ (2,887,439)
------------- ------------- ------------- -------------
Earnings per share:
Net (loss) $ (.01) $ (0.01) $ (0.02) $ (0.03)
Weighted average number of common
shares outstanding 77,822,277 113,910,631 71,822,277 114,285,131
See notes to financial statements.
6
URBAN TELEVISION NETWORK CORPORATION
Consolidated Statement of Cash Flows For the nine months
ended June 30, 2006 and 2005
(UNAUDITED)
Three months ended June 30, Nine months ended June 30,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Operating Activities
Net (loss) $ (310,209) $ (744,165) $(1,246,362) $(2,887,439)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 20,609 23,907 61,827 69,782
Common stock issued for services 7,950 267,500 190,870 1,139,500
Changes in operating assets and liabilities:
Accounts receivable 8,765 428 11,572 7,523
Prepaid expense -- (2,195) 3,600 (5,795)
Accounts payable 124,773 (43,595) 283,438 (27,994)
Advances -- 335,500 -- 749,750
Accrued interest expense 6,543 (3,993) 10,113 (5,979)
Accrued compensation 116,250 37,377 306,065 118,377
Deferred revenue -- (17,500) -- (67,400)
----------- ----------- ----------- -----------
Net cash provided by operating activities (25,319) (146,736) (378,877) (909,675)
----------- ----------- ----------- -----------
Investing Activities
Capital expenditures -- (16,660) -- (18,325)
----------- ----------- ----------- -----------
Net cash (used in) investing activities -- (16,660) -- (18,325)
----------- ----------- ----------- -----------
Financing Activities
Proceeds from common stock sales -- -- -- 250,000
Proceeds from bridge loans -- -- -- 508,541
Proceeds from loans and notes payable 31,200 -- 331,964 240,000
Payments on loans and notes payable -- (30,000) (23,722) (77,000)
Collection on subscription receivable -- -- 39,500 --
----------- ----------- ----------- -----------
Net cash provided by financing activities 31,200 (30,000) 347,742 921,541
----------- ----------- ----------- -----------
Increase (decrease) in cash 5,881 (193,396) (31,135) (6,459)
Cash at beginning of period 3,353 195,932 40,369 8,995
----------- ----------- ----------- -----------
Cash at end of period $ 9,234 $ 2,536 $ 9,234 $ 2,536
----------- ----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ -- $ 6,953 $ --
Income taxes $ -- $ -- $ -- $ --
Non-cash transactions:
Common stock issued for services $ 7,950 $ 267,500 $ 190,870 $ 1,139,500
Common stock issued for note conversions $ -- $ -- $ 160,000 $ --
See notes to financial statements.
7
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited financial statements have been prepared by the Company,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such SEC rules and
regulations; nevertheless, the Company believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements and the notes hereto should be read in conjunction with the
financial statements and notes thereto included in the Company's Form
10-KSB for the year ended September 30, 2005, which was filed January 13,
2006. In the opinion of the Company, all adjustments, including normal
recurring adjustments necessary to present fairly the financial position of
Urban Television Network Corporation as of June 30, 2006 and the results of
its Operations and cash flows for the nine months then ended, have been
included. The results of operations for the interim period are not
necessarily indicative of the results for the full year.
ACCOUNTING POLICIES:
There have been no changes in accounting policies used by the Company
during the quarter ended June 30, 2006.
2. Significant Accounting Policies
Description of Business
Urban Television Network Corporation (the "Company") formerly known as
Waste Conversion Systems, Inc. was incorporated under the laws of the state
of Nevada on October 21, 1986. The principal office of the corporation is
2707 South Cooper, Suite 119, Arlington, Texas 76015.
In January 2002, the Company underwent a change of control in connection
with Urban Television Network Corporation, a Texas corporation,
(Urban-Texas) Agreeing to deposit $100,000 into an attorneys escrow account
in return for receiving a balance sheet with no assets and no liabilities.
The directors of the Company appointed Urban-Texas officers as new officers
of the Company, and at the same time resigned their board positions and
appointed the directors of Urban-Texas as the Company's new board of
directors. Urban-Texas agreed to deposit 300,000 shares of the Company's
common stock into the attorney's escrow account after the completion of the
Stock Exchange Agreement described below, dated February 7, 2003.
On May 1, 2002, the Company entered into an agreement with Urban-Texas to
acquire the rights to the Urban-Texas affiliate network signal space which
included the assignment of the Urban-Texas broadcast television station
affiliates for 16,000,0000 shares of common stock, which became 800,000
after a 1 for 20 reverse stock split.
On February 7, 2003, the Company entered into a Stock Exchange Agreement
with the majority shareholders of Urban-Texas. Among other things, the
Agreement provided for the Company's purchase of approximately 90% of the
issued and outstanding capital stock of Urban-Texas (13,248,000 of
14,759,000 shares) in exchange for the Company's issuance of 13,248,000
shares of its authorized but unissued common stock, $.0001 par value (the
"Exchange Shares"), to the majority shareholders of Urban-Texas. In June of
2003, the remaining 10% of Urban-Texas common stock was contributed to the
Company.
Urban-Texas is considered the accounting acquirer, and the accompanying
financial statements include the operations of Urban-Texas from the
earliest period presented. The Company operated from May 1, 2002 to
February 7, 2003 as a 71% subsidiary of Urban-Texas, a predecessor entity
to the existing business. The May 1, 2002 and February 7, 2003 transactions
with the Company are presented as a recapitalization of Urban-Texas.
The Company is authorized to issue 200,000,000 shares of $.0001 par value
stock and 500,000 shares of $1.00 par value preferred stock.
8
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(UNAUDITED)
2. Significant Accounting Policies - continued
The Company is engaged in the business of supplying programming to
broadcast television stations and cable systems. Formerly the Company's
business as Waste Conversion Systems, Inc. had been the marketing of
thermal burner systems that utilize industrial and agricultural waste
products as fuel to produce steam, which generates electricity,
air-conditioning or heat.
On September 30, 2005, the Company entered into an agreement with GeoTec
Thermal Generators, Inc. to acquire 200,000 tons of mined coal in exchange
for 100,000 shares of Preferred Stock, which may be converted into the
Company's Common Stock, at the sole discretion of the GeoTec Thermal
Generators, Inc., at any time in an amount equal to the purchase price at
the stock bid price of $.10 on September 30, 2005.
The Company is actively pursuing the sale of the mined coal reserves to
utility companies and other companies that use coal as an alternative fuel.
Also the coal reserves have related federal income tax credits resulting
from the Super Fund established by The Federal Government that can be sold
to other companies and the Company is actively pursuing buyers for these
tax credits.
Accounting Method
The Company records income and expenses on the accrual method.
Revenue Recognition
The Company's sources of revenues includes sale of short-form national and
local spot advertising long-form program time slots. The Company's policy
is to recognize the revenue associated with these sources of revenue at the
time that it inserts the short-form advertising spots or airs the long-form
program at the network or local level.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiary. All material intercompany accounts and transactions are
eliminated. The Company owns 100% of Urban Television Network Corporation,
a Texas corporation, Urban Records, Inc., a Nevada corporation and Waste
Conversion Systems Of Virginia, Inc.
Coal Reserves
The Coal reserves owned by the Company are recorded at lower of cost or net
realizable value. Net realizable value is the estimated price at which the
coal reserves can be sold in the normal course of business after allowing
for the cost of processing and sale. Such cost will be depreciated using
the units-of-production method as the coal reserves are sold.
Non-Goodwill Intangible Assets
Intangible assets other than goodwill consist of network assets acquired by
purchase. They are being amortized over their expected lives of 5 years and
are reviewed for potential impairment whenever events or circumstances
indicate that carrying amounts may not be recoverable. No impairment loss
was recognized during the reporting periods. On January 1, 2002, the
Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Intangible Assets. This provides that a recognized intangible
shall be amortized over its useful life to the reporting entity unless that
life is determined to be indefinite. The amount of an intangible asset to
be amortized shall be the amount initially assigned to that asset less any
residual value.
Issuance of Common Stock
The issuance of common stock for other than cash is recorded by the Company
at management's estimate of the fair value of the assets acquired or
services rendered.
9
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(UNAUDITED)
2. Significant Accounting Policies - continued
Income (Loss) Per Share
Income (loss) per common share is calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share".
Basic Income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Diluted net
income (loss) per share is computed similar to basic net income (loss) per
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were
dilutive. Stock options and warrants are anti-dilutive, and accordingly,
are not included in the calculation of income (loss) per share.
Comprehensive Income
Comprehensive income (loss) and net income (loss) are the same for the
Company.
Cash
For purposes of the statement of cash flows, the Company considers
unrestricted cash and all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash.
Concentration of Credit Risk
The Company maintains cash in excess of federally insured limits. The
amount in excess at June 30, 2006 was $-0-.
Advertising Costs
The Company expenses non-direct advertising costs as incurred. The Company
did not incur any direct response advertising costs for the nine months
ended June 30, 2006 and 2005.
Stock Based Compensation
The Company accounts for equity instruments issued to employees for
services based on the fair value of the equity instruments issued and
accounts for equity instruments issued to other than employees based on the
fair value of the consideration received or the fair value of the equity
instruments, whichever is more reliably measurable. The determined value is
recognized as an expense in the accompanying consolidated statements of
operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Recent Accounting Standards
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29." This Statement eliminates the
exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. This Statement is
effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. The Company does not expect application of
SFAS No. 153 to have a material affect on its financial statements.
10
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(UNAUDITED)
2. Significant Accounting Policies - continued
In December 2004, the FASB issued a revision to SFAS No. 123, "Share-Based
Payment." This Statement supercedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and its related implementation guidance. It
establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the entity's
equity instruments or that may be settled by the issuance of those equity
instruments. This Statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided
in Statement No. 123 as originally issued and EITF Issue No. 96-18. This
Statement is effective for public entities that file as small business
issuers as of the beginning of the first fiscal period that begins after
December 15, 2005.
In May 2005, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 154, "Accounting
Changes and Error Corrections." SFAS 154 changes the requirements for the
accounting for and reporting of a change in accounting principle,
requiring, in general, retrospective application to prior periods'
financial statements of changes in accounting principle. The Company has
adopted the provisions of SFAS No. 154 which are effective for accounting
changes and corrections of errors beginning after December 15, 2005. The
adoption did not have a material effect on the results of operations of the
Company.
Stock Options
The Company accounts for non-employee stock options under SFAS 123, whereby
option costs are recorded at the fair value of the consideration received
or the fair value of the equity instrument issued, whichever is more
reliable measurement, in accordance with EITF 96-18 "Accounting for Equity"
instruments that are issued to other than employees for acquiring or in
conjunction with selling goods or services.
Reclassification of Prior Year Amounts
Certain prior year amounts have been reclassified to conform with current
year presentation.
3. Accounts receivable
Accounts receivable consists of normal trade receivables. The Company
assesses the collectibility of its accounts receivable regularly. Based on
this assessment, an allowance for doubtful accounts is recorded. At June
30, 2006, an allowance for doubtful accounts was not considered necessary.
4. Network Assets - Amortization
Network assets consist of intangibles other than Goodwill. These assets are
recorded at cost and consist of amounts paid to acquire the television
network affiliate base from Hispanic Television Network, plus technology
consulting directly related to setting up the affiliate network. These
assets automatically renew every year unless either party terminates the
agreement by such notification to the other party. A useful life of five
(5) years is estimated for the assets. The Company's communication with the
affiliate base since its going off the air in April 2006 indicates that the
a good portion of the affiliate base still needs the type programming
offered by the Company. Based on this need of programming by independent
stations, the Company believes that the remaining value of $44,302 is a
reasonable value of the future value for network assets. Total amortization
of these assets has been $138,806 and the amortization for the nine months
ended June 30, 2006 and 2005 was $18,780 and $25,552, respectively.
Future amortization of the Network assets at June 30, 2006 will be $44,302
and on an annual basis be as follows:
Year ended September 30, 2006 $ 6,260
Year ended September 30, 2007 $25,040
Year ended September 30, 2008 $13,002
11
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(UNAUDITED)
5. Coal Reserves
By agreement dated September 30, 2005 with GeoTec Thermal Generators, Inc.,
the Company acquired 200,000 tons of mined coal in exchange for 100,000
shares of preferred Stock, which may be converted into the Company's common
stock, at the sole discretion of the GeoTec Thermal Generators, Inc., at
any time in an amount equal to the purchase price, which based on the bid
price of $.10 price on September 30, 2005, was valued at $4,600,000. GeoTec
Thermal Generators, Inc. has other coal in other locations in the United
States and the agreement allows the Company to substitute coal in these
other locations, which the Company may exercise this right if it for
example would expedite the delivery process.
6. Property, Plant and Equipment
Furniture, fixtures and equipment, their estimated useful lives, and
related accumulated depreciation are summarized as follows:
ange of
ives in June 30, September 30,
Years 2006 2005
------- ------------- -------------
Master Control, Editing Equipment 3-5 $ 84,074 $ 84,074
Studio and Production Equipment 3-5 60,500 60,500
Production Van 5 45,000 45,000
Affiliated Receiver Equipment 5 20,247 20,247
------------- -------------
209,821 209,821
Less: Accumulated Depreciation (155,348) (112,301)
------------- -------------
$ 54,473 $ 97,520
============= =============
The Company acquired no equipment totaling $ -0- and $18,325 during the
nine months ended June 30, 2006 and 2005, respectively. Total depreciation
expense for the nine months ended June 30, 2006 and 2005 was $43,046 and
$40,784, respectively.
7 Related Party Transactions
In May 2002, the Company issued 16,000,000 (800,000 after the 1 for 20
Reverse) shares to Urban Television Network Corporation, a Texas
corporation for asset purchase of network assets - See footnote 1.
The Company leased office space from one its shareholders and director for
$2,000 per month. The total rental expense for the years ended September
30, 2004 and 2003 was $24,000 and $14,000, 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 periods ended September 30,
2004 and 2003, the total expense paid out for these services was $430,367
and $345,081, respectively.
The Company uses the services of a by shareholder to provide it with
technology services including Internet and affiliate relations. During the
nine months ended June 30, 2006 and 2005, the total expense paid out for
these services was $96,914 and $84,285, respectively.
During the period ended September 2003, the Company executed an interest
bearing note with a shareholder. The principal borrowed of $168,765 plus
accrued interest of $29,750 were converted to a non-interest payable to the
shareholder. As discussed below, the shareholder agreed to reduce the
Company payable by $198,515 to apply towards the purchase of common stock
by Wright Entertainment LLC during the period ended September 30, 2004. In
December 2004, this payable was reinstated in conjunction with the
termination of the Wright Entertainment LLC subscription agreement and the
execution of the World One Media Group, Inc. subscription Agreement
discussed later in this Note 7. This note was converted to 1,000,000 shares
of common stock in February of 2005.
12
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(UNAUDITED)
7 Related Party Transactions - continued
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. During the period ended September 30, 2004, the Company
repaid $130,000 and the remaining $2,200 was repaid during the year ended
September 30, 2005.
The Company executed an interest bearing note with a shareholder of the
Company during the year ended September 30, 2004 to pay operating expenses.
During the year ended September 30, 2004 the amounts loaned totaled
$400,000. In September 2005, $228,290 of this note was converted to
2,282,900 shares of common stock by the noteholder and the remaining
balance of $171,710 was extended to June 30, 2006 and the balance at June
30, 2006 had increased to $191,005. See Note 8 disclosure of terms,
interest rate and conversion privileges.
On October 30, 2003, the Company completed a stock subscription agreement
with Wright Entertainment, LLC, a Nevada limited liability company, whose
owner and managing director is Lonnie G. Wright, Chairman and Chief
Executive Officer of the Company. Wright Entertainment, LLC entered into
the stock subscription agreement for Fourteen Million (14,000,000) common
shares for Seven Million ($7,000,000) Dollars or Fifty ($0.50) Cents per
share. The stock sale was structured as an installment stock sale. The
terms of the stock sale are as follows: $500,000 down, the $6,500,000
balance payable on a promissory note at $875,000 Dollars quarterly,
including 6% interest on the declining balance. A portion ($200,000) of the
$500,000 down payment was satisfied by one of the Company's lenders
forgiving $198,515 of advances due the lender and $1,485 of accrued
interest on a note payable to the lender. As part of the definitive
agreement, between the Company, Wright Entertainment LLC and World One
Media Group, Inc. discussed in the next paragraph this stock subscription
agreement for 14,000,000 shares was termination and the 4,000,000 shares
that had been issued to Wright Entertainment LLC's for management services
and to be vested upon Wright Entertainment LLC's completed the payment for
its subscription agreement were cancelled. The definitive agreement calls
for the Company to pay Wright Entertainment LLC, owned by Lonnie G. Wright,
$300,000 ($60,000 at the signing and $15,000 per month for nineteen months
beginning January 15, 2005) and issue Wright Entertainment LLC 1,000,000
shares of the Company's restricted common stock.
On December 13, 2004, we entered into a definitive agreement with World One
Media Group, Inc., a Nevada corporation. The definitive agreement called
for World One to purchase 70,000,000 restricted common shares for
$7,000,000. The subscription agreement signed on December 23, 2004 set the
terms of the installment purchase at $100,000 being paid on December 23,
2004 and with a promissory note bearing no interest being executed for the
remaining $6,900,000 and being paid at the rate of $150,000 every 45 days
beginning on January 31, 2005 until promissory note has been paid in full.
All the shares were pledged as collateral for the promissory note and were
physically held by the Company. Additionally, World One was to be issued
warrants for 30,000,000 (reduced by mutual agreement from the original
80,000,000 warrants) shares of common stock that were exercisable for $.01
per share at any time after the Company's stock price maintained a $10 bid
price for 20 consecutive trading days.
On July 26, 2005, the Board of Directors voted to (1) terminate the stock
subscription agreement with Dove Media Group, Inc. (formerly known as World
One Media Group, Inc.) due to its nonpayment of required installment
payments, (2) cancel the 70,000,000 shares issued and held by the Company
as security on the stock subscription agreement and the 30,000,000
warrants, (3) reissue 2,500,000 shares to Dove Media Group, Inc. for
$250,000 that it paid towards the stock subscription Agreement and (4)
cancel the 5,000,000 shares that had been authorized for Dr. Ajibike
Akinkoye for services to be rendered.
13
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(UNAUDITED)
7 Related Party Transactions - continued
On July 29, 2005, we entered into a stock subscription agreement with Miles
Investment Group, Inc., a Texas limited liability company controlled by
Jacob R. Miles III, a shareholder and the Company's Chief Executive
Officer. The agreement calls for Miles Investment Group, LLC to purchase
69,000,000 restricted common shares for $6,900,000 on an installment basis
over a 28 month period with the terms being $100,000 as a down payment and
$250,000 per month beginning on September 1, 2005 and the first each month
thereafter until the total of $6,800,000 has been paid in full. The Company
has deferred payments on the stock subscription agreement until August 15,
2006, in consideration for Miles Investment Group LLC bringing the coal
reserves deal to the Company. All the shares are pledged as collateral for
the promissory note and will be physically held by the Company.
Additionally, Miles Investment Group, LLC will be issued warrants for
30,000,000 shares of restricted common stock that can be exercised for $.01
per share on the following basis: (1) three million shares at any time
after the Company's stock bid price on the OTCBB exchange has maintained a
$1.50 price for 10 consecutive trading days, (2) seven million shares at
any time after the Company's stock bid price on the OTCBB exchange has
maintained a $3.00 price for 10 consecutive trading days,(3) ten million
shares at any time after the Company's stock bid price on the OTCBB
exchange has maintained a $5.00 price for 10 consecutive trading days and
(4) ten million shares at any time after the Company's stock bid price on
the OTCBB exchange has maintained a $6.00 price for 10 consecutive trading
days.
On June 15, 2006, the board of directors voted to accept Miles Investment
Group, LLC offer to convert the current balance beneficially owned
restricted common stock shares of 67,000,000 to 100,000 shares of Preferred
Stock, $1 par value, which may continue to vote on an "as converted" basis.
The Preferred Stock is convertible into restricted common shares on the
basis of 67 restricted common shares for each share of Preferred Stock, or
67,000,000 shares. The Board also voted to continue to defer payments on
the stock subscription agreement until August 15, 2006 from June 30, 2006,
in consideration of the continued development of the coal reserves deal.
The impact of the action is to remove 67,000,000 shares from the authorized
and issued $.0001 common stock, to reduce that number issued and
outstanding from 144,822,277 shares to 77,822,277 shares.
8. Notes Payable and Advances
June 30, September 30,
2006 2005
------------- -------------
Notes payable to stockholders at 6%
interest payable on September 30, 2004 $ -- $ 657
Note payable to stockholder at 6%
interest payable June 30, 2006 (1) 192,005 171,710
Note payable to stockholders at 6%
due upon sale of coal reserves 178,200 --
Note payable to stockholder at no
interest payable $15,000 per month,
on 15th of month, final payment
due April 15, 2006 (2) 90,000 165,000
Note payable to vendor at 12% interest
payable on April 30, 2006 (3) 63,511 --
Advances from shareholders (4) 112,908 151,015
Advances from a non-related party that
is currently being claimed by Receiver (5) 665,000 665,000
------------- -------------
$ 1,301,624 $ 1,153,382
(1) The holders of the March 2006 note and vendor note have a UCC-1 lien
against the Company's assets. The March 2006 note originally due on August
31, 2005 was extended by the noteholder to June 30, 2006 in consideration
for the Company issuing the noteholder 200,000 shares of common stock,
which the Company valued at $20,000 and the conversion ratio from five
shares to ten shares of common stock for each dollar of loan amount plus
accrued interest through the date of conversion. The noteholder and the the
Company have agreed to come to terms on an extension of this note.
14
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(UNAUDITED)
8. Notes Payable and Advances - continued
(2) The holder of the $165,000 note converted $75,000 of the note balance
into 750,000 shares of the Company's common stock in October 2005.
(3) Westar Satellite Services was granted 100,000 warrants at an exercise
price $0.12 per share for a period of three years from November 7, 2005.
(4) The advances from shareholders are due on demand and do not bear
interest.
(5) See Note 12 - Commitments and Contingencies for a discussion of this
liability.
9. Income Tax
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
standard requires, among other things, recognition of future tax
consequences, measured by enacted tax rates attributable to taxable and
deductible temporary differences between financial statement and income tax
bases of assets and liabilities. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the
change during the period in the deferred tax asset and liability.
Temporary differences between the financial statement carrying amounts and
tax basis of assets and liabilities did not give rise to significant
portions of deferred taxes at June 30, 2006 and 2005.
The (provision) benefit for income tax consist of the following:
June 30, September 30,
2006 2005
------------- -------------
Current $ 0 $ 0
Deferred 0 0
------------- -------------
$ 0 $ 0
============= =============
The Company's utilization of any tax loss carryforward available to it will
be significantly limited under Internal Revenue Code Section 382, if not
totally, by recent stock issuances and changes in control. The Company has
established a 100% valuation allowance until such time as it is decided
that any tax loss carryforwards might be available to it. The Company
accounts for income taxes pursuant to the Statement of Financial Accounting
Standards No.109. The Company has no current or Deferred income tax
component. For the year ended September 30, 2005, the Valuation Allowance
increased by approximately $425,000. During the nine months ended June 30,
2006, the Valuation Allowance increased by approximately $90,000.
10. Capital Stock
The Company has authorized 200,000,000 common shares with a par value of
$0.0001 per share. Each common share entitles the holder to one vote, in
person or proxy, on any matter on which action of the stockholders of the
corporation is sought.
The Company began operations by completing the acquisition of Urban
Television Network Corporation, a Texas corporation, in two steps; (1) in
May of 2002 the Company issued 16,000,000 shares (800,000 after the 1 for
20 reverse)and (2) in February of 2003, the Company entered into an
Exchange Agreement with the majority shareholders of Urban Television
Network Corporation, a Texas corporation (Urban-Texas) to acquire 90% of
the issued and outstanding capital stock of Urban-Texas in return for
13,248,000 shares of the Company's common stock - See footnote 1.
15
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(UNAUDITED)
10. Capital Stock - continued
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
amending its Articles of Incorporation to increase its authorized common
shares to 200,000,000 and adjust its par value to $0.0001 per share.
During the year ended September 30, 2003, the Company issued 7,275,000
shares of its common stock to for consulting, legal and management services
which the company valued at $811,250.
During the year ended September 30, 2004, the Company issued 21,308,000
shares of its common stock to for consulting, legal, vendor payments and
management services which the company valued at $4,771,450.
During the year ended September 30, 2005, the Company issued 4,150,000
shares of its common stock to for consulting, legal, vendor payments and
management services which the company valued at $427,000.
During the period ended September 30, 2003, the Company issued 1,957,300
shares of its common stock to Bridge Loan Lenders who elected to convert
$978,650 of bridge loans to common stock at the rate of 2 shares for each
dollar of bridge loan converted.
During the period ended September 30, 2004, the Company issued 4,135,441
shares of its common stock to Bridge Loan Lenders who elected to convert
$1,852,648 of bridge loans to common stock at an average conversion price
of $.45 per share.
During the period ended September 30, 2005, the Company issued 9,276,100
shares of its common stock to Bridge Loan Lenders who elected to convert
$936,922 of bridge loans to common stock at an average conversion price of
$.10 per share.
In the fiscal years ended September 30, 2004 and 2005 the Company entered
into three stock subscription agreements, of which two have been
terminated, with three different minority groups for a majority ownership
interest in the Company's common stock. Following is a summary of the stock
transactions involved in those agreements, which or more fully described in
Note 7 - Related Party Transactions;
Number of Value
Date of Shares Assigned Note Warrants
Agreement Name of Group Issued To Shares Value Issued
--------- ---------------------- ------------ ------------ ------------ ------------
10/30/03 Wright Entertainment 18,000,000 $ 9,000,000 $ 6,800,000
12/13/04 Wright Entertainment (18,000,000) $ (9,000,000) $ (6,800,000)
12/13/04 World One Media Group 70,000,000 $ 7,000,000 $ 6,750,000 30,000,000
7/26/05 World One Media Group (67,500,000) $ (6,750,000) $ (6,750,000) (30,000,000)
7/29/05 Miles Investment Group 69,000,000 $ 6,900,000 6,650,500 30,000,000
6/15/06 Miles Investment Group (67,000,000) (6,700,000)
------------ ------------ ------------ ------------
Net Effect at 6/30/06 4,500,000 $ 450,000 $ 6,650,500 30,000,000
Miles Investment Group has the right to exercise the warrants for $0.01 per
share if market bid price for the Company's common stock are reached as
described in Note 7 - Related Party Transactions.
In February 2005, the Company issued 1,000,000 shares of its common stock
to a bridge loan holder who converted a $200,000 bridge loan at the rate of
5 shares for each $1.00 of bridge loan.
In September 2005, the Company issued 200,000 shares of its common stock to
the noteholder of the $171,710 note payable discussed in Note 8 as part of
the consideration for the noteholder agreeing to extend the note to March
31, 2006.
16
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(UNAUDITED)
10. Capital Stock - continued
In October 2005, a stockholder who had a note balance of %165,000 due from
the Company converted $75,000 of the note into 750,000 shares of the
Company's restricted common stock.
In December 2005, the Company issued 100,000 shares of its restricted
common stock for consulting services rendered to the Company, which the
Company valued at $10,000.
In February 2006, the Company issued 750,000 shares of its restricted
common stock to management for services rendered, which the Company valued
at $22,500.
In March 2006, the Company issued 4,000,000 shares of its restricted common
stock to management and the board of directors for services rendered, which
the Company valued at $120,000.
In March 2006, the Company issued 809,000 shares of its restricted common
stock to consultants for services rendered, which the Company valued at
$24,270.
In March 2006, the Company issued 205,000 shares of its restricted common
Stock to employees for services rendered, which the Company valued at
$6,150.
In March 2006, the Company issued 2,482,000 of its restricted common stock
to lenders who elected to convert $85,000 of loans to the Company's common
Stock.
In June 2006, the Company issued 265,000 shares of its restricted common
stock to consultants for services rendered, which the Company valued at
$7,950.
On June 15, 2006, the board of directors voted to accept Miles Investment
Group, LLC offer to convert the current balance of beneficially owned
restricted common stock shares of 67,000,000 to 100,000 shares of Preferred
Stock, $1 par value, which may continue to vote on an "as converted" basis.
The Preferred Stock is convertible into restricted common shares on the
basis of 67 restricted common shares for each share of Preferred Stock, or
67,000,000 shares. The Board also voted to continue to defer payments on
the stock subscription agreement until August 15, 2006 from June 30, 2006,
in consideration of the continued development of the coal reserves deal.
The impact of the action is to remove 67,000,000 shares from the authorized
and issued $.0001 common stock, to reduce that number issued and
outstanding from 144,822,277 shares to 77,822,277 shares.
Warrants
In connection with a vendor converting a payable to note payable, the
Company Issued the vendor 100,000 warrants that can be exercised over a
five year period at the exercise price of $.25 per share.
The Company issued management 950,000 warrants in March 2006 which are
vested Immediately and exercisable at $0.05 per shares on or before
December 31, 2007 in return for loans made to the Company for operating
expenses. The Company has not recognized any expense related to these
warrants as the market price of the Company's stock at issuance was equal
to the exercise price.
Non-Qualified Stock Grant and Option Plan
The Company is authorized to issue up to 6,800,000 shares of common stock
under its 2003 Non-Qualified Stock Grant and Option Plan (the "Plan")
through an S-8 registration, as amended. This Plan is intended to serve as
an incentive to and to encourage stock ownership by certain directors,
officers, employees of and certain persons rendering service to the
Company, so that they may acquire or increase their proprietary interest in
the success of the Company, and to encourage them to remain in the
Company's service. During the year ended September 30, 2003, the Company
had distributed 1,900,000 of the shares through grants. During the year
ended September 30, 2004, the Company had distributed 1,586,000 of the
shares through grants. During the year ended September 30, 2005, the
Company distributed 200,000 of the shares through grants.
17
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(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.
On September 30, 2005, the Company entered into an agreement with GeoTec
Thermal Generators, Inc. to acquire 200,000 tons of coal in exchange for
100,000 shares of preferred Stock, which may be converted into the
Company's common stock, at the sole discretion of the GeoTec Thermal
Generators, Inc., at any time in an amount equal to the purchase price at
the stock bid price of $.10 on September 30, 2005. The 100,000 shares of
preferred stock do not have any voting rights or preferences, except for
the conversion privilege.
On June 15, 2006, the board of directors voted to accept Miles Investment
Group, LLC offer to convert the current balance of beneficially owned
restricted common stock shares of 67,000,000 to 100,000 shares of Preferred
Stock, $1 par value, which may continue to vote on an "as converted" basis.
The Preferred Stock is convertible into restricted common shares on the
basis of 67 restricted common shares for each share of Preferred Stock, or
67,000,000 shares. The Board also voted to continue to defer payments on
the stock subscription agreement until August 15, 2006 from June 30, 2006,
in consideration of the continued development of the coal reserves deal.
The impact of the action is to remove 67,000,000 shares from the authorized
and issued $.0001 common stock, to reduce that number issued and
outstanding from 144,822,277 shares to 77,822,277 shares.
12. Commitments and Contingencies
Satellite Transponder Lease
In December 2005, the Company renewed its Satellite space segment service
agreement with Intelsat, Inc. for 6 MHz of satellite bandwidth on Intelsat
5 for a period of five years ending on October 31, 2010 at the rate of
$17,850 per month. This agreement was terminated by Intelsat in April of
2006 for non-payment by the Company. For the periods ended June 30, 2006
and 2005, the amounts expensed were $125,028 and $162,387, respectively.
Signal Uplink Lease
The Company renewed its Full Time Broadcast Agreement with Westar Satellite
Services, LP on October 15, 2005 for a full time redundant 6 MHz digital
C-band uplink service for a period of five years ending on October 31, 2010
at the rate of $8,800 per month. For periods ended June 30, 2006 and 2005
the amounts expensed for Uplink services were $95,260 and $72,000,
respectively.
Future lease payments due during the term of the lease ending on October
31, 2010 will equal $466,400 and be due as follows:
Year ended September 30, 2006 $ 52,800
Year ended September 30, 2007 $105,600
Year ended September 30, 2008 $105,600
Year ended September 30, 2009 $105,600
Year ended September 30, 2010 $ 96,800
18
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(UNAUDITED)
12. Commitments and Contingencies - continued
Facilities Space Lease
The Company entered into a lease for office and uplink space on March 1,
2004 for a period of one year ending on February 28, 2005 and renewed the
lease through February 28, 2007 at the rate of $2,569 per month. For
periods ended June 30, 2006 and 2005, the amount expensed for this office
space lease was $22,491 and $23,432, respectively.
The Company entered into a lease for additional space at the its corporate
headquarters facilities on April 1, 2005 for one year ending on March 31,
2006, at the rate of 4,100 per month. The Company exercised its option to
terminate this lease on its March 31, 2006 anniversary date. For the period
ended June 30, 2006 the amount expensed for this office space lease was
$24,600.
Future lease payments due during the term of the lease ending on February
28, 2007, will equal $ 20,552 and be due as follows:
Year ended September 30, 2006 $ 7,707
Year ended September 30, 2007 $ 12,845
Employment Agreements
Mr. Randy Moseley is employed pursuant to a five-year employment agreement
that commenced on October 2, 2002. The agreement provides for a base annual
salary equal to $200,000 and a possible annual cash bonus as determined by
the Board of Directors and/or the Compensation Committee. In October 2003,
the employment agreement of Mr. Moseley was extended and amended to allow
for the naming of a new President and Chief Executive Officer for the
Company. Mr. Moseley accepted the officer position of Executive Vice
President and Chief Financial Officer and agreed to defer the payment of
his salary for the period from October 2, 2002 to September 30, 2003 with
this deferred year being added to the end of the original employment term
to make the term of the employment agreement now end on September 30, 2008.
During the period ended June 30, 2006, $50,000 of Mr. Moseley's annual
compensation was accrued as a payable. At June 30, 2006, a total of
$376,000 in compensation was accrued as a payable to Mr. Moseley.
Mr. Jacob R. Miles III, is employed as the Company's President and Chief
Executive Officer pursuant to a three-year employment agreement that
commenced effective January 1, 2006. The agreement provides for a base
annual salary equal to $225,000 with a minimum of annual increases of 5%
and a possible annual cash bonus as determined by the Board of Directors
and/or the Compensation Committee. During the period ended June 30, 2006,
$56,250 of Mr. Miles' annual compensation was accrued as a payable. At June
30, 2006, a total of $121,750 in compensation was accrued as a Payable to
Mr. Miles.
Legal Matters
The Company's motion to dismiss was granted on February 23, 2006 by the
United States District Court, Central District of California, Los Angeles
Division In a legal action styled Walter E. Morgan, Jr. vs. Urban
Television Network Corporation et al. The Company claimed that the
Plaintiff claims should have been brought in a previous case wherein the
Company took a judgment against Mr. Morgan in excess of $1,500,000 in June
2204 in the U.S. District Court for the Northern District of Texas, Fort
Worth Division. Mr. Morgan and his related companies appealed the judgment,
which was dismissed sua sponte by the U.S. Court of Appeals for the Fifth
Circuit. The Company has made the decision not to record the default
judgment as an asset until at such time as it is confident that asset value
can be recovered from the defendants.
The Company is party to legal action pending in the United States District
Court for the Northern District of Texas. The Company has been served with
a summons in a civil case styled Michael J. Quilling, Receiver For MegaFund
Corporation and Stanley A. Leitner vs.Urban Television Network Corporation.
The Receiver has filed complaint against the Company to recover advances in
the amount of $665,000 to the Company by Mega Fund Corporation on behalf of
Dove Media Group, Inc. related to its stock subscription agreement.
19
Urban Television Network Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(UNAUDITED)
12. Commitments and Contingencies - continued
The Company has recorded these advances as a liability on its financial
statements believes that the ultimate disposition will not have a material
adverse effect on the Company's consolidated financial position, results of
operations and liquidity.
13. Going Concern
The Company has suffered recurring losses from operations and has a deficit
in both working capital and stockholders' equity. In order for the Company
to sustain operations and execute its television broadcast and programming
business plan , capital will need to be raised to support operations as the
company executes its business plan. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
The Company may raise additional capital through operating cash flows, the
sale of its equity securities, or debt securities. Subsequent to June 30,
2006, the Company has raised additional capital of approximately $20,973
from shareholder advances.
20
Item 2. Management's Discussion and Analysis or Plan of Operation.
This Form 10-QSB contains statements that constitute "forward-looking
statements." These forward-looking statements can be identified by the use of
predictive, future-tense or forward-looking terminology, such as "believes,"
"anticipates," "expects," "estimates," "plans," "may," "will," or similar terms.
These statements appear in a number of places in this report and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things: (i) trends
affecting the Company's financial condition or results of operations for its
limited history; (ii) the Company's business and growth strategies; (iii) the
Internet and Internet commerce; and, (iv) the Company's financing plans.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may differ materially from those
projected in the forward- looking statements as a result of various factors.
Factors that could adversely affect actual results and performance include,
among others, the Company's limited operating history, dependence on key
management, financing requirements, government regulation, technological change
and competition. Consequently, all of the forward-looking statements made in
this Form 10-QSB are qualified by these cautionary statements and there can be
no assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequence to or effects on the Company or its business or operations.
The Company assumes no obligations to update any such forward-looking
statements.
Readers are urged to carefully review and consider the various disclosures made
by us in this Quarterly Report on Form 10-QSB and our Form 10-KSB for the period
ended September 30, 2005 and our other filings with the U.S. Securities and
Exchange Commission. These reports and filings attempt to advise interested
parties of the risks and factors that may affect our business, financial
condition and results of operations and prospects. The forward-looking
statements made in this Form 10-QSB speak only as of the date hereof and we
disclaim any obligation to provide updates, revisions or amendments to any
forward-looking statements to reflect changes in our expectations or future
events.
Background
Urban Television Network Corporation (the "Company") formerly known as Waste
Conversion Systems, Inc. was incorporated under the laws of the state of Nevada
On October 21, 1986. The principal office of the corporation is 2707 South
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.
21
On October 30, 2003, the Company completed a stock subscription agreement with
Wright Entertainment, LLC, a Nevada limited liability company, whose owner and
managing director is Lonnie G. Wright, Chairman and Chief Executive Officer of
the Company. Wright Entertainment, LLC entered into the stock subscription
agreement for Fourteen Million (14,000,000) common shares for Seven Million
($7,000,000) Dollars or Fifty ($0.50) Cents per share. The stock sale was
structured as an installment stock sale. The terms of the stock sale are as
follows: $500,000 down, the $6,500,000 balance payable on a promissory note at
$875,000 Dollars quarterly, including 6% interest on the declining balance. A
portion ($200,000) of the $500,000 down payment was satisfied by one of the
Company's lenders forgiving $198,515 of advances due the lender and $1,485 of
accrued interest on a note payable to the lender. In December 2004, this
subscription agreement was terminated by mutual agreement between the Company
and Wright Entertainment LLC as well as the termination of 4,000,000 shares that
has been issued to Wright Entertainment and were to be vested to Wright
Entertainment upon the full payment of the subscription agreement.
On December 13, 2004, we entered into a definitive agreement with World One
Media Group, Inc., a Nevada corporation. The definitive agreement called for
World One to purchase 70,000,000 restricted common shares for $7,000,000. The
subscription agreement signed on December 23, 2004 set the terms of the
installment purchase at $100,000 being paid on December 23, 2004 and with a
promissory note bearing no interest being executed for the remaining $6,900,000
and being paid at the rate of $150,000 every 45 days beginning on January 31,
2005 until promissory note has been paid in full. All the shares are pledged as
collateral for the promissory note and will be physically held by the Company.
Additionally, World One was to be issued warrants for 30,000,000 (reduced by
mutual agreement from the original 80,000,000 warrants) shares of common stock
that can be exercised for $.01 per share at any time after the Company's stock
price maintained a $10 bid price for 20 consecutive trading days.
As part of the definitive agreement, Wright Entertainment LLC which had
previously entered into a stock subscription agreement for 14,000,000 shares
agreed to the termination and cancellation of that agreement by the Company and
further agreed to the termination and cancellation of 4,000,000 shares that had
been issued in Wright Entertainment LLC's name and were to be vested when Wright
Entertainment LLC completed the payment for its subscription agreement. The
definitive agreement calls for the Company to pay Wright Entertainment LLC,
owned by Lonnie G. Wright, $300,000 ($60,000 at the signing and $15,000 per
month for nineteen months beginning January 15, 2005) and issue Wright
Entertainment LLC 1,000,000 shares of the Company's restricted common stock.
On July 26, 2005, the Board of Directors voted to (1) terminate the stock
subscription agreement with Dove Media Group, Inc. (formerly known as World One
Media Group, Inc.)due to its nonpayment of required installment payments, (2)
cancel the 70,000,000 shares issued and held by the Company as security on the
stock subscription agreement, (3) reissue 2,500,000 shares to Dove Media Group,
Inc. for $250,000 that it paid towards the stock subscription Agreement, (4)
cancel the 30,000,000 warrants issued as part of the subscription agreement and
(5) cancel the 5,000,000 shares that had been authorized for Dr. Ajibike
Akinkoye for services to be rendered.
On July 29, 2005, we entered into a stock subscription agreement with Miles
Investment Group, Inc., a Texas limited liability company controlled by Jacob R.
Miles III, a shareholder and the Company's Chief Executive Officer. The
agreement calls for Miles Investment Group, LLC to purchase 69,000,000
restricted common shares for $6,900,000 on an installment basis over a 28 month
period with the terms being $100,000 as a down payment and $250,000 per month
beginning on September 1, 2005 and the first each month thereafter until the
total of $6,800,000 has been paid in full. The Company has deferred payments on
the stock subscription agreement until August 15,2006, in consideration for
Miles Investment Group LLC bringing the coal reserves deal to the Company. All
the shares are pledged as collateral for the promissory note and will be
physically held by the Company. Additionally, Miles Investment Group, LLC will
be issued warrants for 30,000,000 shares of restricted common stock that can be
exercised for $.01 per share on the following basis: (1) three million shares at
any time after the Company's stock bid price on the OTCBB exchange has
maintained a $1.50 price for 10 consecutive trading days, (2) seven million
shares at any time after the Company's stock bid price on the OTCBB exchange has
maintained a $3.00 price for 10 consecutive trading days,(3) ten million shares
at any time after the Company's stock bid price on the OTCBB exchange has
maintained a $5.00 price for 10 consecutive trading days and (4) ten million
shares at any time after the Company's stock bid price on the OTCBB exchange has
maintained a $6.00 price for 10 consecutive trading days.
22
On June 15, 2006, the board of directors voted to accept Miles Investment Group,
LLC offer to convert the current balance beneficially owned restricted common
stock shares of 67,000,000 to 100,000 shares of Preferred Stock, $1 par value,
which may continue to vote on an "as converted" basis. The Preferred Stock is
convertible into restricted common shares on the basis of 67 restricted common
shares for each share of Preferred Stock, or 67,000,000 shares at the time that
Miles Investment Group, LLC completes the payment on its subscription agreement.
The impact of the action is to remove 67,000,000 shares from the authorized and
issued $.0001 common stock, to reduce that number issued and outstanding from
144,822,277 shares to 77,822,277 shares.
Although the Company is currently not airing programming to affiliates as
discussed later in this Item 2 in the Liquidity and Capital Resources Section,
the Company's business is to supply programming to independent broadcast
television stations and cable systems. Formerly as Waste Conversion Systems,
Inc., 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.
In 2001, the Company acquired a general market television network affiliate base
from Hispanic Television Network, Inc. (HTVN) and rebranded it towards the Urban
market. The Company's business is to provides ethnic television programming to
the minority programming interests of the African-American and English- speaking
Hispanic population markets across the United States. The Company at the time of
going dark in April of 2006 included approximately 74 broadcast television
station affiliates in various parts of the country. Upon successfully securing
new financing and maintaining its Nielsen Market Research agreement, the
Company's goal is to attract the larger of these 74 affiliates along with
independent full power stations as affiliates.
We are targeting the minority markets, primarily the African American and
Hispanic Markets, because we believe that they present vast marketing
opportunities and that are currently under-served by our competition. The
African American market, composes approximately 13% of the U.S. population with
a spending power in excess of $600 billion. The Hispanic population is also
approximately 13% of the U.S. total with a spending power also in the $600+
billion range. With few competitors in broadcast television that are exclusively
devoted to programming to the minority markets, we feel that there are
attractive opportunities to provide a quality broadcasting service to the
African American and Hispanic (especially bi-lingual and English speaking
Hispanic programming) populations that together make up in excess of 25% of the
U.S. population.
On July 10, 2004, the Company received a certificate from Nevada Minority
Business Council, an affiliate of the National Minority Supplier Development
Council, indicating that the Company qualifies as a Minority Owned and Managed
Company, which has met the certification criteria established by the National
Minority Supplier Development Council. The certification was renewed on February
1, 2005 for a one year period. On January 31, 2006, the Company renewed its
certification with the Dallas/Fort Worth Minority Business Council, Inc. for a
one year period ending January 31, 2007.
Our financial results depend on a number of factors, including the ability to
attract new financing for the Company's growth, the strength of the national
economy and the local economies served by affiliate stations, total advertising
dollars dedicated to the markets served by affiliate stations, advertising
dollars dedicated to the African American and Hispanic consumers in the markets
served by affiliate stations, the affiliate stations' audience ratings, our
ability to provide interesting minority focused programming, local market
competition from other television stations and other media, and government
regulations and policies, such as the multiple ownership rules, the ability of
Class A affiliate stations to be considered must carry for cable systems to
increase their distribution and the deadlines for television stations converting
to digital signals.
Management has developed a revenue generation plan that includes program
syndication, securing network advertising at the best available rate, uplinking
other party's 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
affiliations with independent full power stations that have must carry
privileges with cable and digital distribution companies.
23
Revenues
The Company's business plan includes multiple sources of revenues that are now
available to companies that have the ability to reach viewers through
television, the Internet and wireless devices that are delivering programming
and messages viewers that have access to these sources. Following is a
discussion of these revenue sources;
1. Advertising spots and programming time on the 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 local spots that the Company may obtain on local stations, as well as the
overall demand for African-American and English-speaking Hispanic television
advertising time by advertisers.
National Spot Advertising. National advertisers have the opportunity to buy
"spot" advertising on a network wide basis or in specific markets. For example,
an advertising agency in New York could purchase advertising spots on a program
airing in a particular time period on all the affiliate stations or purchase
advertising spots for a program airing on affiliate stations in particular
markets where the Network has an affiliate station.
The Company's plan is to have the yet to be established sales personnel located
in all major markets that have a large concentration of advertising agencies
targeting the African-American and English-speaking Hispanic markets. The sales
of the local spot advertising would them be generated by these local sales staff
personnel.
Local Spot Advertising. Advertising agencies and businesses located in
specific markets will buy commercial air-time in their respective market. This
commercial time will be sold in the market by a local sales force or as a
specific buy from a national client. Local spot advertising also includes event
marketing. In conjunction with a spot buy, the station incorporates events that
may be held on the premise of a business or advertiser for the purpose of
driving traffic to that place of business.
Program Time Sales. Also known as long-form programs are sold on the
network and on locally managed stations to companies wanting to purchase the
television time and air their own programs.
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.
Historically most of our network advertising has being sold to direct
response and per inquiry advertisers. Going forward, we plan to deploy a network
advertising team consisting of account executives that will solicit advertising
directly from national advertisers as well as soliciting advertising from
national advertising agencies. Locally managed stations will also have account
executives that will solicit local and national advertising directly from
advertisers and from advertising agencies in the local markets.
We will 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.
24
To measure the size of a viewing audience, networks and stations
generally subscribe to nationally recognized rating services, such as
Nielsen. We have executed an agreement with Nielsen Media Research To
measure the viewing audience of certain of our programs that are Aired
in the must carry programming on our affiliate network. This Agreement
will allow us to approach the larger advertising agencies. 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 full-power television stations located in the top
demographic market areas do not have the ability to obtain Nielsen
ratings for their individual station. Urban Television believes that
it can offer these stations a proposal that will give them the benefit
of Nielsen ratings on a local basis while giving the UATV Network the
ability to cumulate local ratings into a national rating for its
national advertisers.
o Affiliate Stations. In exchange for providing programming and
advertising time to 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. As
mentioned above, our goal is to move our network from its predominate
low-power station affiliates to a full-power affiliate base. The basic
plan would continue to share to advertising time in return for
providing the programming. By aggregating a number of the affiliate
stations and accumulating a large household coverage base, Urban
Television will be able to sell its national advertising spots for the
best rate possible.
o Program Owners: In exchange for licensing rights to select
programming, the program owner retains a portion (usually 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 agencies and corporate advertisers. 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 distribution
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.
2. Syndication: The Company also plans to become a leading syndicator to
independent stations outside the Urban Television Network and advertising
agencies of television programming targeting African-American, English-speaking
Hispanics, and Asian urban households. The Company's long-term strategic
objective is to be the dominant integrated urban media company; developing,
producing, and distributing entertainment content in the television and other
media channels that target the wide audience of consumers who enjoy urban
entertainment content, including African-Americans, English-speaking Hispanics,
Asian, suburban and urban consumers. The Company believes that it is well
positioned to achieve this objective, given the strength of its management
leadership, operating discipline, long-standing relationships, product mix, and
executional capabilities.
The size of the syndication television market is currently estimated to be
$2.6 billion. (1) African-American households represent 13,171,160 of the total
household universe of 109,600,000 or roughly 12%.(2) The value of Company's
market segment, focused on African-American household television advertising
dollars, is thus conservatively estimated by the Company at $312 million,
representing 12% of the aforementioned $2.6 billion in advertising sales in
broadcast syndication. The Company believes that a similar size market is on the
horizon for English speaking Hispanic-Americans. According to
HispanIntelligence,(3) a national media organization focused on Hispanic
advertising, the overall size of the market for advertising directed to
Hispanics is $2.8 billion per year. Ninety percent (90%) of these dollars are
dedicated to Spanish-language programming, leaving the size of the English
speaking market at 10%, or approximately $279 million per year. However, 52% of
Hispanics surveyed by HispanIntelligence, with the results reported in the same
publication, indicated that they prefer English as the communication medium for
advertisements across a broad base of programming, including the Internet. Thus,
HMG believes that this segment is poised to experience explosive growth in the
near future.
25
-----------------------------
1 Television Week, March 7, 2006, p. 30, citing to data provided by
Syndicated National Television Association
2 Black Hispanic DMA Market Demographic Rank, Nielsen Media Research,
September 2004, p.40.
3 Volume 4, #68, April 27, 2004.
3. Multi-Platform Strategy in Wireless and other Digital Applications
After over five years of operation of the Urban Television Network, the
Company believes upon successfully obtaining new financing that it has assembled
a seasoned management team with the experience to develop the Company into a
diversified multi-platform distribution media company generating multiple cash
flow streams from produced and acquired urban focused content. The Company
believes that this platform would extend the Company's offerings to its targeted
urban consumers by enabling those consumers to access UATV content through
alternative distribution channels. To achieve this end, the Company intends to
expand its distribution to other media platforms such as cable television,
video-on-demand ("VOD"), wireless, broadband internet, internet protocol TV
("IPTV"), home video, personal digital appliances ("PDA's), cellular phones
utilizing G-3 broadband streaming infrastructure, and like digital and wireless
applications now known and hereinafter conceived and/or invented. The Company
intends to create equity value by monetizing cost- efficiently produced content
across multiple distribution channels generating multiple revenue streams, while
building a library of content assets that will have annuity value.
Expenses
Our most significant operating expenses are satellite and uplink transmission
costs, master control costs, technology expenses, employee compensation,
advertising and promotional expenses, and production and programming expenses.
In cases, where we may in the future incur upfront programming expenses to
procure exclusive programming usages and licenses, upfront payments will, in
most cases, be amortized over the applicable contract term. Until cash flow
permits, we do not expect to acquire exclusive programming usages and licenses
that require up front costs. We will maintain tight controls over our operating
expenses by contracting master control and centralizing network programming,
finance, human resources and management information system functions.
Depreciation of fixed assets and amortization of costs associated with the
acquisition of additional stations are also significant elements in determining
our total expense level.
As a result of attracting key officers and personnel to Urban Television, we may
offer stock grants or options as an alternate form of compensation. In the event
that the strike price of the stock option is less than the fair market value of
the stock on the date of grant, any difference will be amortized as compensation
expense over the vesting period of the stock options.
Our monthly operating expense level may vary from month to month due primarily
to the timing of significant advertising and promotion expenses. We will incur
significant advertising and promotion expenses associated with the growth of
Urban Television and with the establishment of our presence in new markets
associated with any new station lease or acquisition agreements. Increased
advertising revenue associated with these advertising and promotional expenses
will typically lag behind the incurrence of these expenses.
Results of Operations
Urban Television Network Corporation - Historical Results for the three month
and nine month periods ended June 30, 2006 and 2005.
REVENUES. Revenues are primarily derived from sales of advertising and
programming time. Revenues for the three months and nine months ended June 30,
2006 were $20,155 and $80,182 compared to $55,624 and $225,757 for the three
months and nine month periods ended June 30, 2005. The decrease in revenues is
primarily attributable to decrease revenues from event productions and sales of
program time. The Company is still in the process of implementing its revenue
generation plan that includes national and local advertising sales, uplinking
other parties' signals to the satellite, plus implementing a technology plan to
assist its affiliates with sale of their local advertising time. The Company at
the time of going dark in April of 2006 included approximately 74 broadcast
television station affiliates in various parts of the country. Upon successfully
securing new financing and maintaining its Nielsen Market Research agreement,
the Company's goal is to attract the larger of these 74 affiliates along with
independent full power stations as affiliates
The operations are still in the growth stages and the Company is dependent upon
working capital derived from management, significant shareholders and private
investors to provide sufficient working capital. There is no assurance, however,
that the Company will be able to generate the necessary working capital needs
from these sources.
26
OPERATING RESULTS. For the three months ended June 30, 2006 and 2005 the Company
had operating cost of $92,138 and $437,034, respectively. For the nine months
ended June 30, 2006 and 2005, the Company had operating cost of $523,917 and
$1,059,027, respectively. The major components of cost of operations for the
three month and nine month periods ended June 30, 2006 and 2005 were as follows:
Three months ended Nine months ended
------------------- -------------------
2006 2005 2006 2005
-------- -------- -------- --------
Satellite and uplink services $ 54,031 80,049 $252,933 $240,267
Master control and production 12,733 61,660 98,047 181,394
Affiliate relations ( 521) 25,853 31,028 41,053
Programming cost 374 139,586 19,996 188,368
Operations of stations - 71,231 - 255,255
Technology expenses 25,000 58,655 121,913 152,690
-------- -------- -------- --------
Total $ 92,138 $437,034 $523,917 $1,059,027
-------- -------- -------- --------
The cost of satellite and uplink services decreased by $26,018 in the three
months ended June 30, 2006 as compared to 2005 primarily as the result of the
Company going dark in April of 2006 due the lack of operating capital.
The cost of satellite and uplink services increased by $12,266 during the nine
months ended June 30, 2006 as compared to 2005 primarily as the result of the
Company's cost of uplink services increasing on its annual renewal with Westar
Satellite Services.
The cost of master control and production decreased by $48,927 and $83,347 for
the three and nine month periods ending June 30, 2006 and 2005, respectively,
primarily as the result of the reduction of personnel in master control and
production departments due to the Company's lack of operating capital.
Affiliate relations costs increased by $26,374 and $10,025 for the three months
and nine months ended June 30, 2006 as compared to the same periods for 2005,
respectively, primarily as the result of the reduction of personnel in the
affiliate relations department due to the Company's lack of operating capital.
Programming costs decreased by $139,212 and $168,372 for the three and nine
month periods ending June 30, 2006 as compared to the same period for 2005,
respectively, primarily as the result reduction in programming personnel during
the 2006 periods due to the Company's lack of operating capital.
The costs of operations for stations decreased by $71,231 and $255,255 for the
three and nine month periods ending June 30, 2006, as compared to the same
periods for 2005, respectively, primarily as the result of the Company canceling
its station management agreements for stations in Dallas and Oklahoma City in
fiscal year 2005.
The technology expenses decreased by $33,655 and $30,777 for the three months
and nine months ended June 30, 2006 as compared to the same periods for 2005,
respectively, primarily to a decrease in the technology consulting services
incurred by the Company.
Administration expenses of $210,193 for the three months ended June 30, 2006
decreased by $122,657 or 36.8% from the administrative expenses of $332,850 for
the three months ended June 30, 2005.
Administration expenses of $719,552 for the nine months ended June 30, 2006
decreased by $1,246,826 or 63.4% from the administrative expenses of $1,966,378
for the nine months ended June 30, 2005.
27
Following is a comparative of the major expense categories for the three month
and nine month periods ending June 30, 2006 and 2005.
Three months ended Nine months ended
----------------------- -----------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
Administrative management $ 136,250 $ 90,500 $ 348,500 $ 232,500
Stock based compensation 7,950 167,500 150,450 849,000
Consulting - -- 11,000 45,697
Nielsen Market Research 32,194 -- 42,303 --
Payroll taxes 850 -- 8,990 --
Property taxes - -- 4,215 --
Las Vegas office - -- -- 473,129
Commissions - 1,882 -- 14,111
Travel, conventions 5,937 17,901 21,434 40,394
Legal fees - -- -- 120,534
Accounting fees 4,000 1,000 14,137 11,000
Employee benefits - 5,783 -- 5,783
Public relations costs 375 -- 3,285 2,460
Transfer Agent, permit fees 1,000 2,011 6,086 18,404
Rent and utilities expense 10,675 19,878 54,959 40,722
Internet costs 2,933 4,281 10,408 11,640
Supplies - digital operations -- 2,311 -- 23,535
Supplies 183 2,000 4,511 5,793
Telephone 5,746 9,713 23,132 42,052
Postage and shipping 673 1,919 4,202 6,024
Marketing,printing,promotions -- 4,363 -- 9,294
Other 1,427 2,308 11,940 14,306
---------- ---------- ---------- ----------
TOTAL $ 210,193 $332,850 $719,552 $1,966,378
---------- ---------- ---------- ----------
The increase in administrative management expense for the three months and nine
months ended June 30, 2006 as compared to the same periods for 2005 is due to
the Company adding a salaried President and Chief Executive Officer in the three
and nine months period ended June 30, 2006 that was not there in the same
periods ended June 30, 2005.
Stock based compensation decreased for the three and nine months periods ended
June 30, 2006 as compared to the same periods for 2005 primarily due to a
decrease in the number shares being issued to management and board members.
The decreases in consulting fees of $34,697 for the nine months ended June 30,
2006 as compared to the same period for 2005, is due the Company replacing
consultants with additional management personnel.
The Nielsen Market Research expenses increased by $42,303 for the three and nine
month periods ended June 30, 2006 as compared to the same periods for 2005 as
the result of the Company's contract with Nielsen beginning January 1, 2006.
Payroll taxes increased by $850 and $8,990 for the three and nine months periods
ended June 30, 2006 as compared to the same periods for 2005 as the result of
the Company converting its master control, programming and production personnel
from a contract labor status to the Company's payroll in May of 2005.
Property taxes for the nine months ended June 30,2006 are the result of the
Company establishing its own master control and uplink facilities in Arlington,
Texas versus outsourcing them in previous years.
The decreases in expenses associated with the Las Vegas office is due to the
costs in the three and nine months ended June 30,2005 periods associated with
the resignation and termination of the stock subscription agreement by Lonnie G.
Wright and Wright Entertainment LLC. These direct expenses were $287,500 for the
three months ended June 30, 2005 and $473,129 for the nine months ended June 30,
2005. The $473,129 is made up of $307,500 in cash and note payable, $140,000
value assigned to 1,200,000 shares of common stock issued to Wright
Entertainment LLC and $25,629 for office rent and telephones.
Commissions decreased in the three and nine months periods ended June 30, 2006
due to the not having any advertising or programming revenues produced by
commissioned sales people during these periods.
The decreases in travel and conventions for the nine months ended June 30, 2006
as compared to the same period in 2005 is related to the Company's reduced
located in Las Vegas, Nevada.
28
Legal expenses in the 2005 periods were related to the Company's search for
capital and minority investors and with the continued legal requirements
regarding the permanent injunction obtained by the Company against Walter E.
Morgan, Jr. and his appeals.
Transfer agent expenses decreased in the three and nine months periods ended
June 30, 2006 as compared to the same periods in 2005 due primarily to the
Company not incurring the expenses for issuance of stock certificates for the
conversion of bridge loans that were incurred in 2005.
Rent expense decrease by $9,203 for the three months ended June 30, 2006
compared to the same period for 2005 due to the Company electing not to continue
the lease for production facilities after March 31, 2006. Rent increased by
$14,237 for the nine months ended June 30, 2006 as compared to the same period
for 2005 was due the 2005 period including the rent expense for the production
facilities that were terminated by the Company on March 31, 2006.
The decrease in supplies - digital operations for the three and nine month
periods ended June 30, 2006 is due the Company having completed its conversion
from a tape format to digital format in the 2005 periods.
Telephone expense decreased by $18,920 for the nine months ended June 30, 2006
as compared to the same period in 2005 primarily as the result of the one time
expense of $14,500 in 2005 period for the installation of the Company's own high
speed Internet lines at its Arlington offices and the installation of fiber
lines to the Westar Satellite Uplink Services facilities in DeSoto, Texas.
Operating Results:
Operating Results. We had a net operating losses of $302,264 and $738,167, for
the three months ended June 30, 2006 and 2005, respectively. The decreased loss
of $435,903 for 2006 was primarily attributed to the decrease of $139,212 in
programming cost as the result of the Company's financial problems, the $122,657
decrease in administrative expenses, which was primarily attributable to an
increase in management costs of $45,750 and decreases in the following expense
categories;
Stock based compensation $159,550
Travel expenses $ 11,964
The Company had operating losses for the nine months ended June 30, 2006 and
2005 of $1,225,114 and $2,869,430, respectively. The decreased loss of
$1,644,316 for 2006 was primarily attributed to decreases of $255,255 in station
operating costs, $168,372 in programming costs, $83,347 in master control and
the $1,246,826 decrease in administrative expenses, which was primarily
attributable to decreases in the following expense categories;
Stock based compensation $698,550
Legal expense $120,534
Las Vegas offices $473,129
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 $0.01 for the three months June 30, 2006 and 2005,
respectively. The basic and diluted net loss per share of common stock was $0.02
and $0.03 for the nine months June 30, 2006 and 2005, respectively.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations through a combination of loans from
stockholders, proceeds from convertible promissory notes and revenues generated
from operations. The Company has incurred cumulative losses of $19,678,356 from
the inception of the Company through June 30, 2006.
29
Current liabilities at June 30, 2006 were $2,650,757 which exceeded current
assets of $9,234 by $2,641,523. The Company's cash position at June 30, 2006 was
$9,234, a decrease of $31,135from the position at September 30, 2005. As
discussed below, the Company's ability to continue its growth will require
additional funds from various sources. If adequate funds are not available on
acceptable terms, our business, results of operations and financial condition
could be materially adversely affected. In a worse case scenario, we would have
to scale back or cease operations, and we might not be able to remain a viable
entity. Accrued compensation is the result of management deferring a portion of
their annual compensation until the Company has funds available.
The Company is experiencing liquidity needs resulting from an inability to
complete a structured financing with existing shareholders or new investors or a
strategic investment on acceptable terms to the company.
Due to the lack of necessary capital resources, the Company is not able to pay
for its satellite space and uplinking services which in turn results in the
Company's affiliates not being able to air UATV programming. The Company has
laid-off its master control employees while it seek financing.
The Company has made several concerted efforts to enlist support from its major
shareholder groups. However, notwithstanding significant commitment, these
efforts have been successful only in raising modest amounts to maintain marginal
operations. The Company is continuing to work with certain investors to help
meet immediate short-term liquidity needs estimated to be approximately $500
thousand and the funds to execute on its plan of developing an affiliate base of
predominately full power stations with associated Nielsen ratings which would
lead to advertising revenue from major corporations. As of June 5, 2006, the
Company had cash on hand of approximately $9,000 and as of March 31, 2006, a net
working capital deficit of $2,359,873. The Company has loan Agreements with
"certain lenders" totaling approximately $500,000 secured by blanket liens upon
the Company's assets that matured in April 2006, which are now callable at
anytime and entitled the lenders upon default to foreclose on the Company's
assets. The total outstanding indebtedness as of June 5, 2006 is approximately
$2,500,000 million. The Company's ability to continue its operations and execute
on its business plan requires additional funds from various sources. If adequate
funds are not available on acceptable terms our business future as a viable
entity is in severe jeopardy.
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.
The Company's licensing agreements with program suppliers are generally for a
term of 13 to 52 weeks and are cancelable by either party upon thirty (30) days
written notice. These license agreements provide the Company with a source of
revenue by the Company's right to insert commercial spots during the programs.
The Company's policy is to recognize the revenue associated with these sources
of revenue at the time that it inserts the short-form advertising spots or airs
the long-form program at the network or local level. As the Company continues to
grow, it has been entering into new license agreements to replace existing
licenses for programs that do not fit into the Company's business model for a
minority focused television network. The cancelable feature of these license
agreements could effect the Company's source of revenue generation should a
program be cancelled by a licensor and the Company not be able to replace it
within the 30 day notice of cancellation period.
We had net losses $310,209 and $744,165 for the three months ended June 30, 2006
and 2005, respectively and $1,246,362 and $2,887,439 for the nine months ended
March, 31 2006 and 2005, 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 and English speaking
Hispanic 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 2007. 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.
30
RISK FACTORS
We are subject to a high degree of risk as we are considered to be in unsound
financial condition. The following risks, if any one or more occurs, could
materially harm our business, financial condition or future results of
operations, and the trading price of our common stock could decline. These risks
factors include, but are not limited to, our limited operating history, history
of operating losses, the inability to obtain for additional capital, the failure
to successfully expand our operations, the competition in the television
industry from competitors with substantially greater resources, the legal and
regulatory requirements and uncertainties related to our industry, the inability
to enter into strategic partnerships with major advertisers, the loss of key
personnel, adverse economic conditions, the control of our common stock by our
management, the classification of our common stock as "penny stock," the absence
of any right to dividends, the costs associated with the issuance of and the
rights granted to additional securities, the unpredictability of the trading of
our common stock.
For a more detailed discussion as to the risks related to Urban Television
Network Corporation, our industry and our common stock, please see the section
entitled, "Management's Discussion and Analysis or Plan of Operation - Risk
Factors," in our Annual Report on Form 10-KSB, as filed with the Securities and
Exchange Commission on January 13, 2006.
Financing activities for the three months ended June 30, 2006 include:
1) Shareholders loaned the Company $31,200 for operating expenses.
2) Issuance of 265,000 shares of its restricted common stock in lieu of
cash payments totaling $7,950 for management and consulting services.
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.
Critical Accounting Policies
The discussion and analysis of the financial condition and results of operations
are based on the financial statements, which have been prepared in accordance
with generally accepted accounting principles. Note 2 of the Notes describes the
significant accounting policies essential to the financial statements. The
preparation of these financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
We believe the following to be critical accounting policies and estimates. That
is, they are both important to the portrayal of the Company's financial
condition and results, and they require significant management judgment and
estimates about matters that are inherently uncertain. As a result of inherent
uncertainty, there is a likelihood that materially different amounts would be
reported under different conditions or using different assumptions. Although we
believe that our judgments and estimates are reasonable, appropriate and
correct, actual future results may differ materially from our estimates.
Revenue Recognition
The Company's sources of revenues include the sale of short-term national and
local spot advertising and long-form program time slots. The Company's policy is
to recognize the revenue associated with these sources of revenue at the time
that it inserts the short-form advertising spots or airs the long-form program
at the network or local level.
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Non Goodwill Intangible Assets
Intangible assets other than goodwill consist of network assets acquired by
purchase. They are being amortized over their expected lives of 5 years and are
reviewed for potential impairment whenever events or circumstances indicate that
carrying amounts may not be recoverable. No impairment loss was recognized
during the reporting periods. On January 1, 2002, the Company adopted Statement
of Financial Accounting Standards No. 142, Goodwill and Intangible Assets. This
provides that a recognized intangible shall be amortized over its useful life to
the reporting entity unless that life is determined to be indefinite. The amount
of an intangible asset to be amortized shall be the amount initially assigned to
that asset less any residual value.
Stock Based Compensation
The Company accounts for equity instruments issued to employees for services
based on the fair value of the equity instruments issued and accounts for equity
instruments issued to other than employees based on the fair value of the
consideration received or the fair value of the equity instruments, whichever is
more reliably measurable. The determined value is recognized as an expense in
the accompanying consolidated statements of operations.
Contingencies
In the normal course of business, the Company is subject to certain claims and
legal proceedings. The Company records an accrued liability for these matters
when an adverse outcome is probable and the amount of the potential liability is
reasonably estimable. The Company does not believe that the resolution of these
matters will have a material effect upon its financial condition, results of
operations, or cash flows for an interim or annual period.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements and their effect on us are discussed
in the notes to the financial statements in our September 30, 2005 audited
financial statements.
Other Events
None
Item 3. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
Within the 90 days prior to the date of this Quarterly Report for the quarter
ended June 30, 2006, we carried out an evaluation, under the supervision and
with the participation of our management, including the Company's Chairman and
Chief Executive Officer and the Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures pursuant to
Rule 13a-4 of the Securities Exchange Act of 1934 (the "Exchange Act"), which
disclosure controls and procedures are designed to insure that information
required to be disclosed by a company in the reports that it files under the
Exchange Act is recorded, processed, summarized and reported within required
time periods specified by the SEC's rules and forms.
Limitations on the Effectiveness of Controls
Our management does not expect that our disclosure controls and procedures or
our internal controls over financial reporting will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, but not absolute, assurance that the objectives of a control
system are met. Further, any control system reflects limitations on resources,
and the benefits of a control system must be considered relative to its costs.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of a control. The design of a control system
is also based upon certain assumptions about the likelihood of future events,
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate. Although unlikely, due to the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and may not be detected.
32
Conclusions
Based on this evaluation, our chief executive officer and our president
concluded that, subject to the limitations noted above and as of the evaluation
date, our disclosure controls and procedures are effective to ensure that the
information we are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized, and reported in such
reports within the time periods specified in the Securities and Exchange
Commission's rules and forms.
(b) Changes in Internal Control.
Subsequent to the date of such evaluation as described in subparagraph (a)
above, there were no significant changes in our internal controls or other
factors that could significantly affect these controls, including any corrective
action with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company's motion to dismiss was granted on February 23, 2006 by the United
States District Court, Central District of California, Los Angeles Division in a
legal action styled Walter E. Morgan, Jr. vs. Urban Television Network
Corporation et al. The Company claimed that the Plaintiff claims should have
been brought in a previous case wherein the Company took a judgment against Mr.
Morgan in excess of $1,500,000 (as discussed above) in the U.S. District Court
for the Northern District of Texas, Fort Worth Division. Mr. Morgan and his
related companies appealed the judgment which was dismissed sua sponte by the
U.S. Court of Appeals for the Fifth Circuit.
The Company believes that the ultimate disposition will not have a material
adverse effect on the Company's consolidated financial position, results of
operations and liquidity.
The Company is party to legal action pending in the United States District Court
for the Northern District of Texas. The Company has been served with a summons
in a civil case styled Michael J. Quilling, Receiver For MegaFund Corporation
and Stanley A. Leitner vs.Urban Television Network Corporation. The Receiver has
filed complaint against the Company to recover advances in the amount of
$665,000 to the Company by Mega Fund Corporation on behalf of Dove Media related
to its stock subscription agreement.
The Company has recorded these advances as a liability on its financial
statements believes that the ultimate disposition will not have a material
adverse effect on the Company's consolidated financial position, results of
operations and liquidity.
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
During the quarter ending June 30, 2006, the Company offered and sold the
following securities pursuant to securities transaction exemption from the
registration requirements of the Securities Act of 1933, as amended.
In June 2006, the Company issued 265,000 shares of its restricted common stock
for consulting services rendered, which the Company valued at $7,950.
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.
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Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description and Method of Filing
---------- --------------------------------
10.01* Employment Agreement with Jacob R. Miles III
31.1 Certification by Chief Executive Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification by Chief Financial Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification by Chief Executive Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Filed with previous filing
(b) Reports on Form 8-K.
On June 7, 2006, we filed a Form 8-K announcing the resignation of the
Company's independent auditors.
On June 20, 2006, we filed a Form 8-K announcing a modification to the
stock subscription agreement with the Miles Investment Group, LLC, the
engagement of new independent auditors for the Company, and other events
disclosing the Company's liquidity and capital resource needs for continued
operations.
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: November 9, 2006
Urban Television Network Corporation
By: /s/ Jacob R. Miles III By: /s/ Randy Moseley
------------------------------ -----------------------------------
Jacob R. Miles III Randy Moseley
Title: Chief Executive Officer Title: Executive Vice President/CFO
34