U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ending June 30, 2007
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.)
300 RadioShack Circle, Ste. T3-381, Fort Worth, Texas 76102
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, ( 817 ) 415 - 4816
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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:
130,161,010 shares of common stock, $0.0001 par value, as of August 10, 2007
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Transitional Small Business Disclosure Format
(Check One) Yes No X
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................3
Balance Sheet (unaudited)............................................4
Statements of Operations (unaudited).................................5
Statements of Cash Flows (unaudited).................................6
Notes to Financial Statements........................................7
Item 2. Management's Discussion and Analysis of Plan
of Operation.......................................................22
Item 3. Controls and Procedures..............................................35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................36
Item 2. Changes in Securities and Use of Proceeds...........................37
Item 3. Defaults upon Senior Securities.....................................37
Item 4. Submission of Matters to a Vote
of Security Holders.................................................37
Item 5. Other Information...................................................37
Item 6. Exhibits and Reports on Form 8-K....................................37
Signatures....................................................................37
URBAN TELEVISION NETWORK CORPORATION
FORM 10-QSB
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements. (Unaudited)
3
PART I - FINANCIAL STATEMENTS
URBAN TELEVISION NETWORK CORPORATION
Balance Sheet - (Unaudited)
June 30, 2007
ASSETS
Currents Assets
Cash and Cash Equivalents $ 149
Prepaid Expense 153,533
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Total Current Assets 153,682
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Other Assets
Coal Reserves 4,600,000
Impairment of Coal Reserves (4,600,000)
Organizational Costs-Net 360
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Total Other Assets 360
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TOTAL ASSETS $ 154,042
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts Payable $ 1,138,990
Due to Stockholders 45,545
Notes Payable to Stockholders 465,091
Advances 665,000
Accrued Compensation 818,645
Accrued Interest Payable 104,629
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Total Liabilities (All Current) 3,237,900
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Stockholders' Equity
Preferred Stock, $1 par value, 500,000 shares authorized,
100,000 outstanding at June 30, 2007 100,000
Common Stock, $0.0001 par value, 200,000,000 shares authorized;
130,161,010 outstanding at June 30, 2007 13,016
Additional Paid-in Capital 22,292,991
Accumulated Deficit (25,489,865)
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Total Stockholders' Equity (Deficit) (3,083,858)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 154,042
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The accompanying notes are an integral part of these
unaudited financial statements.
4
URBAN TELEVISION NETWORK CORPORATION
Statement of Operations - (Unaudited)
Three months ended June 30, Nine months ended June 30,
2007 2006 2007 2006
-------- --------- --------- ----------
REVENUES $ - $ 20,155 $ 3,997 $ 80,182
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OPERATING EXPENSES:
Satellite and Uplink Services 26,400 54,031 99,600 252,933
Master Control, Production 50,000 12,733 66,667 98,047
Programming -- 374 -- 19,996
Affiliate Relations -- (521) -- 31,028
Technology Expenses -- 25,000 19,840 121,913
Administration 9,750 210,193 375,021 719,552
Depreciation and Amortization 10,187 20,609 39,793 61,827
--------- -------- -------- --------
TOTAL OPERATING EXPENSES 96,337 322,419 600,921 1,305,296
--------- -------- -------- --------
NET OPERATING (LOSS) (96,337) (302,264) (596,924) (1,225,114)
OTHER INCOME) EXPENSE
Interest (expense) (23,708) (7,945) (69,675) (21,248)
Write-off assets (38,493) -- (38,493) --
Discounts on liability settlements -- -- 1,780 --
--------- -------- -------- --------
TOTAL OTHER INCOME (EXPENSE) (158,538) (310,209) (703,312) (1,246,362)
--------- -------- -------- --------
NET INCOME (LOSS) BEFORE INCOME TAXES
Provision for Income Taxes
(Expense) Benefit -- -- -- --
--------- -------- -------- ----------
NET INCOME (LOSS) (158,538) (310,209) (703,312) (1,246,362)
Beginning Retained Earnings (Deficit) (25,331,327) (19,368,146) (24,786,553) (18,431,993)
ENDING RETAINED EARNINGS (DEFICIT) (25,489,865) (19,678,355) (25,489,865) (19,678,355)
=========== ========== ========== ===========
Earnings (Loss) per share:
Net (loss) $ (.002) $ (0.004) $ (0.01) $ (0.02)
Weighted average number of common
shares outstanding 96,208,508 77,822,277 96,208,508 71,822,277
The accompanying notes are an integral part of
these unaudited financial statements.
5
URBAN TELEVISION NETWORK CORPORATION
Statement of Cash Flows - (Unaudited)
Nine months ended June 30,
2007 2006
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Operating Activities
Net (loss) $ (703,312) $(1,246,362)
Adjustments to reconcile net (loss) to net
Cash provided by operating activities:
Depreciation and Amortization 39,793 61,827
Write-off assets 38,493 --
Common Stock Issued for Services 295,040 190,870
Accounts receivable -- 11,572
Prepaid expense (153,533) 3,600
Discounts on liability settlements (1,780) --
Accounts payable 162,827 283,438
Accrued interest expense 65,734 10,113
Accrued compensation 180,820 306,065
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Net Cash Provided by Operating Activities (75,918) (378,877)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures -- --
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Net Cash (Used In) Investing Activities -- --
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Common Stock Sales -- --
Proceeds from Bridge Loans -- --
Proceeds from Loans and Notes Payable 72,544 331,964
Payments on Loans and Notes Payable -- (23,722)
Collection on Subscription Receivable -- 39,500
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Net Cash Provided by Financing Activities 72,544 347,742
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NET (DECREASE) IN CASH AND CASH EQUIVALENTS (3,374) (31,135)
Cash at Beginning of Period 3,523 40,369
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 149 $ 9,234
----------- -----------
SUPPLEMENTAL DISCLOSURES:
Cash Paid During the Period for:
Interest 2,151 $ 6,953
Income Taxes $ -- $ --
Non-Cash Transactions:
Discounts on liability settlements $ 1,780 $ --
Common Stock Issued for Services $ 295,040 $ 190,870
Common stock Issued for Note Conversions $ 425,000 $ 160,000
The accompanying notes are an integral part of
these financial statements.
6
Urban Television Network Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(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, 2006, which was filed January 16,
2007 and 10-KSB/A which was filed July 9, 2007. 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, 2007 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, 2007.
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
located at 300 RadioShack Circle, Ste. T3-381, Fort Worth, Texas 76102.
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 acquired by the
Company.
7
Urban Television Network Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
2. Significant Accounting Policies - continued
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.
The Company, unitl it ceased airing programming in April of 2006, was
engaged in the business of supplying programming to broadcast television
stations and cable systems. Formerly the Company's business had been the
marketing of thermal burner systems that utilize industrial and
agricultural waste products as fuel to produce steam, which generates
electricity, air-conditioning or heat.
On September 30, 2005, the Company entered into an agreement with GeoTec
Thermal Generators, Inc. to acquire 200,000 tons of mined coal in exchange
for 100,000 shares of Preferred Stock, which may be converted into the
Company's Common Stock, at the sole discretion of the GeoTec Thermal
Generators, Inc., at any time in an amount equal to the purchase price at
the stock bid price of $.10 on September 30, 2005.
The Company has pursued the sale of the mined coal reserves to utility
companies and other companies that use coal as an alternative fuel, but as
of the date of this quarterly report the Company has not been successful.
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 has pursued buyers for these tax
credits, but as of the date of this quarterly report, the Company has not
been successful. At September 30, 2006, the Company established an
impairment reserve of $4,600,000 against the coal reserves, due to its lack
of operating capital and Geotec's non-compliance with the terms of the
agreement to process the coal reserves and remit the net proceeds to the
Company, and as the result the Company is prepared to contest the issuance
and conversion of the preferred stock.
Accounting Method
The Company records income and expenses on the accrual method.
Revenue Recognition
The Company's sources of revenues has included the 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.
8
Urban Television Network Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
2. Significant Accounting Policies - continued
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. See
impairment of assets disclosure below for impairment provision against the
coal reserves. At September 30, 2006, the Company established an impairment
reserve of $4,600,000 against the coal reserves due to its lack of
operating capital and Geotec's non-compliance with the terms of the
agreement to process the coal reserves and remit the net proceeds to the
Company , and as the result the Company is prepared to contest the issuance
and conversion of the preferred stock.
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. During the quarter
ended June 30, 2007, the Company wrote-off the remaining value ($19,262) of
the network assets consisting of capitalized cost of establishing the
master control facilities as the master control assets have been
sequestered by the secured lender by pre-judgment writ of sequestration. 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.
Impairment of Assets
The Company has adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses the financial
accounting and reporting for the impairment of long-lived assets, excluding
goodwill and intangible assets, to be held and used or disposed of. In
accordance with SFAS No. 144, the carrying values of long-lived assets are
periodically reviewed by the Company and impairments would be recognized if
the expected future operating non-discounted cash flows derived from an
asset were less than its carrying value and if the carrying value is more
than the fair value of the asset. At September 30, 2006, the Company
concluded that the coal reserves acquired for 100,000 shares of preferred
shares and valued at $4,600,000 was impaired and an impairment provision of
$4,600,000 was provided at September 30, 2006 due to the lack of operating
capital and Geotec's non-compliance with the agreement to process the coal
and remit the net proceeds to the Company.
During the quarter ended June 30, 2007, the Company wrote-off the remaining
value ($19,231) of fixed assets as the result of the secured lender
obtaining a pre-judgment writ of sequestration.
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 FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
2. Significant Accounting Policies - continued
Income (Loss) Per Share
Income (loss) per common share is calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share".
Basic Income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Diluted net
income (loss) per share is computed similar to basic net income (loss) per
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were
dilutive. Stock options and warrants are anti-dilutive, and accordingly,
are not included in the calculation of income (loss) per share.
Comprehensive Income
Comprehensive income (loss) and net income (loss) are the same for the
Company.
Cash
For purposes of the statement of cash flows, the Company considers
unrestricted cash and all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash.
Concentration of Credit Risk
The Company at times maintains cash in excess of federally insured limits.
The amount in excess of the federally insured limits at June 30, 2007 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, 2007 and 2006.
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.
10
Urban Television Network Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
2. Significant Accounting Policies - continued
Recent accounting pronouncements
In July 2006, the FASB issued FASB Interpretation No.48, Accounting for
Uncertainty in Income Taxes (FIN48). FIN 48 clarifies the accounting for
income taxes by prescribing a minimum probability threshold that a tax
position must meet before a financial statement benefit is recognized. The
minimum threshold is defined in FIN48 as a tax position that is more likely
than not to be sustained upon examination by the applicable taxing
authority, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. The tax benefit
to be recognized is measured as the largest amount of benefit that is
greater than fifty percent likely of being realized upon ultimate
settlement. FIN 48 must be applied to all existing tax positions upon
initial adoption. The cumulative effect of applying FIN 48 at adoption, if
any, is to be reported as an adjustment to opening retained earnings for
the year of adoption. FIN 48 is effective for the Company's year end 2007,
although early adoption is permitted. The Company is assessing the
potential effect of FIN 48 on its financial statements.
In 2006, the Financial Accounting Standards Board issued the following:
- SFAS No. 155: Accounting for Certain Hybrid Financial Instruments
- SFAS No. 156: Accounting for Servicing of Financial Assets
- SFAS No. 157: Fair Value Measurements
- SFAS No. 158: Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans
Management has reviewed these new standards and believes that they have no
impact on the financial statements of the Company.
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, 2007, the Company had no accounts receivable and no allowance for
doubtful accounts was recorded.
4. 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, per the agreement, 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
11
Urban Television Network Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
4. Coal Reserves - Continued
substitute coal in these other locations, which the Company may exercise
this right if it for example would expedite the delivery process. In
evaluating the coal assets in accordance with SFAS No. 144 "Accounting for
Impairment or Disposal of Long-Lived Assets" as discussed in Note 1 -
Significant Accounting Policies, the Company has recorded an impairment
reserve of $4,600,000 against the coal assets due to the lack of operating
capital and Geotec's non-compliance with the agreement to process the coal
and remit the net proceeds to the Company , and as the result the Company
is prepared to contest the issuance and conversion of the preferred stock.
5. Related Party Transactions
In May 2002, the Company issued 16,000,000 (800,000 after the 1 for 20
reverse) shares to Urban Television Network Corporation, a Texas
corporation for asset purchase of network assets - See footnote 1.
In fiscal years 2003 and 2004, the Company leased office space from one its
shareholders and director for $2,000 per month. The total rental expense
for the year ended September 30, 2004 was $24,000.
In year 2003, the Company began using the services of a company owned by
shareholders, one being a director of the Company, that provides the
Company with the equipment and master control services to put the Company's
programming on the satellite for the broadcast affiliates to receive and
rebroadcast to their local markets. During the period ended September 30,
2004, the total expense paid out for these services was $430,367.
The Company uses the services of a company owned by shareholders to provide
it with technology services including Internet and affiliate relations.
During the periods ended June 30, 2007 and 2006, the total expense paid out
for these services was $19,840 and $96,914, 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 note payable
to the shareholder. As discussed below, the shareholder agreed to reduce
the Company's 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 8. This note was converted to 1,000,000 shares
of common stock in February of 2005.
The Company executed an interest bearing note with a shareholder of the
Company during the 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.
12
Urban Television Network Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
5. Related Party Transactions - Continued
The Company executed an interest bearing note with a shareholder of the
Company during the year ended September 30, 2004 to pay operating expenses.
During the year ended September 30, 2004 the amounts loaned totaled
$400,000. In September 2005, $228,290 of this note was converted to
2,282,900 shares of common stock by the noteholder and the remaining
balance of $171,710 was extended to March 31, 2006 and the balance at March
31, 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 FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
5. 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 June 30,
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 in various amounts depending on the future stock price of the
Company's stock.
During the fiscal years ended September 30, 2005, Randy Moseley, CFO
advanced the Company $30,900 for operating expenses.
During the fiscal year ended September 30, 2006, Jacob R. Miles, CEO
advanced the Company $30,000 for operating expenses.
During the fiscal year ended September 30, 2006, Randy Moseley, CFO
advanced the Company $43,500 for operating expenses and received
reimbursements of $22,000.
During the nine months ended June 30, 2007, Randy Moseley, CFO advanced the
Company $9,980 for operating expenses.
On September 29, 2006, the Board of Directors voted to terminate the stock
subscription agreement and warrants with Miles Investment Group, LLC due to
non-performance on the payment terms as called for in the subscription
agreement, after allowing Miles Investment Group, LLC a number of extension
to come into compliance with the subscription agreement. The impact of this
action was to (1) remove 67,000,000 shares from the issued $0.0001 par
value common stock, which reduced the number of issued and outstanding from
144,822,277 shares to 77,822,277 shares and (2) cancel the 30,000,000
warrants.
14
Urban Television Network Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
6. Notes Payable and Advances
June 30,
2007
---------
Note payable to stockholder at 20%
interest payable on or before
September 20, 2008 (1) $ 151,580
Notes payable to stockholders at 6% due
upon sale of coal reserves 160,000
Note payable to stockholder at no
interest, payable $15,000 per month,
on 15th of the month, final payment
was due April 15, 2006 90,000
Note payable to vendor at 12% interest
(18% on past due amounts) payable on
April 30, 2006 (2) 63,511
Advances from shareholders (3) 45,545
Advances from a non-related party that has
been assumed by a receiver (4) 665,000
---------
$1,175,636
---------
(1) The holders of the September 20, 2008 note and vendor note have a UCC-1
lien against the Company's assets, expressly subordinated to the Westar
Satellite Services note discussed below.
The September 20, 2008 note originally due on August 31, 2005 has been
extended by the noteholder various times in consideration for the Company
issuing the noteholder 200,000 shares of common stock, which the Company
valued at $20,000 and changing the conversion ratio to the current price of
$.011 per share. In September 2006 the note was made part of an increased
bridge loan of $492,400 of which $358,016 had been advanced at September
30, 2006. The note is associated with a stock subscription agreement with
R.J. Halden Holdings, Inc. discussed in Note 8.
(2) Westar Satellite Services, the superior lienholder, was granted 100,000
warrants at an exercise price $0.12 per share for a period of three years
from November 7, 2005. The noteholder has filed suit against the Company
for payment of this note and accrued interes. The noteholder has also
purported to declare default and accelerate indebtedness under the
satellite services agreement, which the note represented partial repayment
thereof. See Note 10 - Commitments and Contingencies for a discussion of
this liability.
(3) The advances from shareholders are due on demand and do not bear interest.
(4) See Note 10 - Commitments and Contingencies - Legal Matters for a
discussion of the dismissal without predijuce of a lawsuit regarding this
liability by the presiding judge in a receivership case for Mega Fund
Corporation.
15
Urban Television Network Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
7. 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, 2007.
The (provision) benefit for income tax consist of the following:
June 30,
2007
-------------
Current $ 0
Deferred 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, 2006, the Valuation Allowance
increased by approximately $350,000. During the nine months ended June 30,
2007, the Valuation Allowance increased by approximately $200,000.
8. 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.
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.
16
Urban Television Network Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
8. Capital Stock - continued
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 years ended September 30, 2003, 2004, 2005 and 2006 the Company
issued shares of its common stock for consulting, legal and management
services as follows;
Company
Number of Valuation of
Shares Issued Shares Issued
------------- -------------
Year ended September 30, 2003 7,275,000 $ 811,250
Year ended September 30, 2004 21,308,000 $4,771,450
Year ended September 30, 2005 4,150,000 $ 427,000
Year ended September 30, 2006 6,129,000 $ 190,870
During the years ended September 30, 2003, 2004, 2005 and 2006 the Company
issued common stock for Bridge Loan conversions as follows;
Amount of
Number of Bridge Loans
Shares Issued Converted
------------- ---------
Year ended September 30, 2003 1,957,300 $ 978,650
Year ended September 30, 2004 4,135,441 $1,852,648
Year ended September 30, 2005 10,276,100 $1,136,922
Year ended September 30, 2006 2,482,000 $ 85,000
In the fiscal years ended September 30, 2004, 2005 and 2006 the Company
entered into three stock subscription agreements with three different
minority groups for a majority ownership interest in the Company's common
stock have been terminated. Following is a summary of the stock
transactions involved in those agreements, which or more fully described in
Note 5 - Related Party Transactions;
Number of Value
Date of Shares Assigned Note Warrants
Agreement Name of Group Issued To Shares Value Issued
--------- ---------------------- ------------ ------------ ------------ ------------
10/30/03 Wright Entertainment 18,000,000 $ 9,000,000 $ 6,800,000
12/13/04 Wright Entertainment (18,000,000) $ (9,000,000) $ (6,800,000)
12/13/04 World One Media Group 70,000,000 $ 7,000,000 $ 6,750,000 30,000,000
7/26/05 World One Media Group (67,500,000) $ (6,750,000) $ (6,750,000) (30,000,000)
7/29/05 Miles Investment Group 69,000,000 $ 6,900,000 $ 6,690,000 30,000,000
7/29/06 Miles Investment Group (67,000,000) $ (6,700,000) $ (6,690,000) (30,000,000)
------------ ------------ ------------ ------------
Net Effect at 9/30/06 4,500,000 $ 450,000 $ -- --
------------ ------------ ------------ ------------
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.
17
Urban Television Network Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
8. Capital Stock - continued
On September 29, 2006, the Board of Directors voted to terminate the stock
subscription agreement and warrants with Miles Investment Group, LLC due to
non-performance on the payment terms as called for in the subscription
agreement, after allowing Miles Investment Group, LLC a number of extension
to come into compliance with the subscription agreement. The impact of this
action was to (1) remove 67,000,000 shares from the issued $0.0001 par
value common stock, which reduced the number of issued and outstanding from
144,822,277 shares to 77,822,277 shares and (2) cancel the 30,000,000
warrants.
On September 29, 2006, the Board of Directors approved effective as of
September 23, 2006, a subscription agreement R. J. Halden Holdings, Inc.
("RJHH"). RJHH is one of the largest, if not largest shareholder in the
Company. The Subscription Agreement calls for RJH to fund $1.5 million on
or before January 31, 2007. RJHH is entitled to purchase 64% interest in
the Company, or a total of 136,104,486 shares. The subscription vest with
pro rata advances in increments of a minimum of 500,000 shares as paid. The
Company's currently authorized shares of 200,000,000 will have to be
amended in the future to allow for the full issuance of the 136,104,486
shares, should R.J. Halden Holdings, Inc. fund the entire $1,500,000. RJH
is currently in material default of the Subscription Agreement, and the
Company may, at any time, elect to terminate the Subscription Agreement and
issue stock as earned by any partial performance.
In December of 2006, the Company issued 3,960,000 shares of its common
stock for consulting and management services, which the Company valued at
$95,041.
In December of 2006, the Company issued 20,231,461 shares of its common
stock to Bridge Loan lenders for the election to convert $225,000 to common
stock.
In January of 2007, the Company issued 18,147,300 shares of its common
stock to Bridge Loan Lenders for the election to convert $200,000 to common
stock.
In March of 2007, the Company issued 10,000,000 shares of its common stock
to Circle R Media in return for space, equipment and personnel at its
facilities. The Company valued the shares at $.02 per share.
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
18
Urban Television Network Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
8. Capital Stock - continued
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. During the nine
months ended June 30, 2007, the Company distributed 3,960,000 of the shares
through grants.
9. 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 (See Note 4 - Coal Reserves), 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.
10. 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 2006
for non-payment by the Company. For the nine months ended June 30, 2007 and
2006, the amounts expensed were $-0- and $125,028, 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 plus taxes. For nine months ended June 30,
2007 and 2006 the amounts expensed for Uplink services were $79,200 and
$79,200, respectively.
Westar Satellite Services, LP has sued the Company for non-payment of this
contract. Future lease payments due during the term of the master service
agreement ending on October 31, 2010 will equal $334,400 and be due as
follows:
Year ended September 30, 2007 $ 26,400
Year ended September 30, 2008 $105,600
Year ended September 30, 2009 $105,600
Year ended September 30, 2010 $ 96,800
19
Urban Television Network Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
10. 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 the lease
renewed automatically with the current lease period scheduled to end on
February 28, 2008 at the rate of $2,569 per month plus a monthly allocation
for water usage. The Company moved out of the space in April of 2007 and
has continued to record the monthly liability until the point that it is
confirmed that the lessor has released the space. For nine months ended
June 30, 2007 and 2006, the amount expensed for this office space lease was
$23,321 and $22,491, respectively.
Future lease payments due through February 28, 2008 should the lessor not
release the space will be approximately $21,480.
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 nine
months ended June 30, 2007 and 2006, the amount expensed for this office
space lease was $-0- and $12,300, respectively.
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 periods ended September 30, 2006 and 2005, $150,000 and $126,000
of Mr. Moseley's annual compensation was accrued as a payable. During the
nine months ended June 30, 2007, $84,160 of Mr. Moseley's annual
compensation was accrued as a payable. At June 30, 2007, a total of
$510,160 in compensation was accrued as a payable to Mr. Moseley. Mr.
Moseley has agreed to the suspension of the accrual of his salary until
such time as the Company recapitalizes and has the funds to pay his salary.
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 September 30,
2006, $142,500 of Mr. Miles' annual compensation was accrued as a payable.
At September 30, 2006, a total of $178,000 in compensation was accrued as a
payable to Mr. Miles. During the nine months ended June 30, 2007, $96,660
of Mr. Miles's annual compensation was accrued as a payable. At June 30,
2007, a total of $274,660 in compensation was accrued as a payable to Mr.
Miles. Mr. Miles has agreed to the suspension of the accrual of his salary
until such time as the Company recapitalizes and has the funds to pay his
salary.
20
Urban Television Network Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 2007
(UNAUDITED)
10. Commitments and Contingencies - continued
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 was party to legal action pending in the United States District
Court for the Northern District of Texas. In a lawsuit styled Michael J.
Quilling, Receiver For MegaFund Corporation and Stanley A. Leitner vs.Urban
Television Network Corporation, the Receiver filed a complaint against the
Company to recover advances in the amount of $665,000 to the Company by
Mega Fund Corporation. The Company recorded these advances as a liability
on its financial statements and on December 6, 2006, the presiding judge
signed an Agreed Order of Dismissal that dismissed without prejudice the
lawsuit of Michael J. Quilling, the Receiver for Mega Fund Corporation.
The Company is party to legal action pending in the 162nd District Court,
Dallas, Texas. The Company has been served with a summons in a civil case
styled Westar Satellite Services, L.P. vs. Urban Television Network
Corporation. The Plaintiff has filed complaint against the Company to
recover amounts due Plaintiff under a promissory note and Master Service
Agreement. The Company has recorded the related liabilities for the
promissory note and master service agreement on its financial statements.
The ultimate disposition could have a material adverse effect on the
Company's consolidated financial position, results of operations and
liquidity, if the Company does not secure adequate working capital.
11. 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,
2007, the Company has raised additional capital of approximately $6,000
from shareholder advances.
21
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 Quarterly 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 and Form
10-KSB/A for the period ended September 30, 2006 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 Quarterly 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 located at 300
Radio Shack Circle, Suite T3-381, Fort Worth, Texas 76102.
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.
22
The consideration exchanged in Stock Exchange Agreement was negotiated between
the Company and Urban-Texas in a transaction with management. The management of
the Company and Urban- Texas, were the same individuals. The transaction did not
represent an arms-length transaction.
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 and (4)
cancel the 5,000,000 shares that had been authorized for Dr. Ajibike Akinkoye
for services to be rendered.
On July 29, 2005, we entered into a stock subscription agreement with Miles
Investment Group, Inc., a Texas limited liability company controlled by Jacob R.
Miles III, a shareholder and the Company's Chief Executive Officer. The
agreement called 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. Additionally, Miles Investment Group,
LLC had the right to warrants for 30,000,000 shares of restricted common stock
that could be exercised for $.01 per share in varying amounts depending on the
Company's stock price on the OTCBB exchange.
23
On September 29, 2006, the Board of Directors voted to terminate the stock
subscription agreement and warrants with Miles Investment Group, LLC due to non-
performance on the payment terms as called for in the subscription agreement,
after allowing Miles Investment Group, LLC a number of extension to come into
compliance with the subscription agreement. The impact of this action was to (1)
remove 67,000,000 shares from the issued $0.0001 par value common stock, which
reduced the number of issued and outstanding from 144,822,277 shares to
77,822,277 shares and (2) cancel the 30,000,000 warrants.
On September 29, 2006, the Board of Directors approved effective as of September
23, 2006, a subscription agreement R. J. Halden Holdings, Inc. ("RJHH"). RJHH is
one of the largest, if not the largest shareholder in the Company. The
Subscription Agreement called for RJHH to fund $1.5 million on or before January
31, 2007. RJHH is entitled to purchase 64% interest in the Company, or a total
of 136,104,486 shares. The subscription vest with pro rata advances in
increments of a minimum of 500,000 shares as paid.
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 plan continues to be the suppling of 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 plan is to provide 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 2006 included approximately 74 broadcast
television station affiliates in various parts of the country. Upon successfully
securing new financing to resume airing programming 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 plan to target 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. The Company did not apply for renewal
of the certification after it expired on January 31, 2007.
Our financial results depend on a number of factors, including the ability to
attract new financing for the Company's relaunch and growth, maintaining a
Nielsen Market Research agreement, 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.
24
Management, assuming that it can attract new capital for a relaunch of the
network, 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's
plan is 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 seek
affiliations with independent full power stations that have must carry
privileges with cable and digital distribution companies, but do not have the
financial capability to subscribe to Nielsen ratings in its local market.
Revenues
The Company's business plan, assuming that it can attract new capital for a
relaunch of the network, 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 potential 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.
25
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 plan, assuming that the Company receives sufficient funding to relaunch, to
market our advertising time on the Urban Television network to:
o Advertising agencies and independent advertisers. We market commercial
time to advertising agencies and independent advertisers. The monetary
value of this time is based upon the estimated size of the viewing
audience; the larger the audience, the more we are able to charge for
the advertising time.
To measure the size of a viewing audience, networks and stations
generally subscribe to nationally recognized rating services, such as
Nielsen. We 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, assuming that it receives
sufficient funding to relaunch, 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
26
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.
3. Multi-Platform Strategy in Wireless and other Digital Applications
After over five years of operations of the Urban Television Network, the
Company believes upon successfully obtaining new financing for a relaunch of the
network, 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 when the Company is uplinking
programming to the satellite for distribution to affiliates 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. Assuming that the Company is
successful in attracting new capital for a relaunch, it 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.
-----------------------------
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.
27
In the process 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.
Assuming that the Company is successful in attracting new capital, it we
anticipate that 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, 2007 and 2006.
REVENUES. Revenues have been primarily derived from sales of advertising and
programming time. Revenues for the three months and nine months ended June 30,
2007 were $ -0- and $3,997 compared to $20,155 and $80,182 for the three months
and nine month periods ended June 30, 2006. The reason for the decreases in the
three and nine months ended June 30, 2007 compared to the same periods for 2006
is that the Company stopped airing programming to its affiliates in April of
2006. The Company at the time of going dark in April of 2006 included
approximately 70 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
70 affiliates along with independent full power stations as affiliates.
The Company is currently not operating its network operations and the Company is
dependent upon working capital derived from management, significant shareholders
and private investors to provide sufficient working capital to maintain the
Company's existence. There is no assurance, however, that the Company will be
able to generate the necessary working capital needs from these sources.
OPERATING RESULTS. For the three months ended June 30, 2007 and 2006 the Company
had operating cost of $76,400 and $91,617, respectively. For the nine months
ended June 30, 2007 and 2006, the Company had operating cost of $186,107 and
$523,917, respectively. The major components of cost of operations for the three
month and nine month periods ended June 30, 2007 and 2006 were as follows:
Three months ended Nine months ended
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
Satellite and uplink services $ 26,400 $ 54,031 $ 99,600 $252,933
Master control and production 50,000 12,733 66,667 98,047
Affiliate relations -- (521) -- 31,028
Programming cost -- 374 -- 19,996
Technology expenses -- 25,000 19,840 121,913
-------- -------- -------- --------
Total $ 76,400 $ 91,617 $186,107 $523,917
-------- -------- -------- --------
The expense for satellite and uplink services decreased by $27,631 and $153,333
during the three months and nine months ended June 30, 2007, respectively, as
compared to the same periods ended June 30, 2006, primarily because the Company
has not been on the air since April of 2006. The expense for the three months
and nine months ended June 30, 2007 is an accrual under an uplink contract that
has an expiration date of October 31, 2010.
28
The Company was not on the air during the three and nine months ended June 30,
2007 and did not incur any costs for master control operations, production,
affiliate relations and programming during the three months and nine months
periods ending June 30, 2007, except for the $50,000 of amortization of its
agreement with Circle R Media for equipment and space which was exchanged for
the Company's common stock.
Technology costs decreased by $25,000 and $102,073 during the three months and
nine months ended June 30, 2007, respectively, as compared to the same periods
ended June 30, 2006, primarily because the Company has not been on the air since
April of 2006 and did not require the level of technology support that is
required when the network is airing programming to an affiliate base.
Administration expenses of $9,750 for the three months ended June 30, 2007
decreased by $200,443 or 95% from the administrative expenses of $210,193 for
the three months ended June 30, 2006.
Administration expenses of $375,021 for the nine months ended June 30, 2007
decreased by $344,531 or 48% from the administrative expenses of $719,552 for
the nine months ended June 30, 2006.
Following is a comparative of the major expense categories for the three month
and nine month periods ending June 30, 2007 and 2006.
Three months ended Nine months ended
-------------------- ---------------------
2007 2006 2007 2006
------- -------- -------- ---------
Administrative management $ -- $ 136,250 $ 220,420 $ 348,500
Stock based compensation -- 7,950 79,200 150,450
Consulting -- __ -- 11,000
Nielsen Market Research -- 32,194 -- 42,303
Payroll taxes -- 850 -- 8,990
Taxes - Other 4,000 -- 11,999 4,215
Travel, conventions -- 5,937 1,740 21,434
Accounting fees 3,000 4,000 19,450 14,137
Public relations costs -- 375 -- 3,285
Transfer Agent, permit fees 1,000 1,000 3,100 6,086
Rent and utilities expense 1,707 10,675 25,698 54,959
Internet costs -- 2,933 5,300 10,408
Supplies -- 183 500 4,511
Telephone -- 5,746 5,877 23,132
Postage and shipping -- 673 -- 4,202
Other 43 1,427 1,737 11,940
------- ------- ------- -------
TOTAL $ 9,750 $ 210,193 $ 375,021 $ 719,552
------- ------- ------- -------
The expense for administrative management and stock based compensation decreased
by $144,200 and $199,330 during the three months and nine months ended June 30,
2007, respectively, as compared to the same periods ended June 30, 2006,
primarily because the Company reduced the number of management personnel during
2007 and executives agreed to discontinue the accrual of salaries until the
Company is successful in successful in attracting new capital and relaunching
its programming to an affiliate base.
The Company did not incur any costs for consulting, Nielsen Market Research,
payroll taxes, public relations, postage and shipping, Internet and supplies
during the three months and nine months periods ending June 30, 2007 because the
it was not on the air during these periods.
Travel and conventions expenses decreased by $5,937 and $19,694, respectively
for the three and nine months periods ended June 30, 2007 as compared to the
same periods in 2006 due to the Company not being on the air during these
periods in 2007 and to the Company's reduced travel related cost associated with
the minority ownership no longer being located in Las Vegas, Nevada.
29
The accounting fees increased by $5,313 for the nine months periods ended June
30, 2007 as compared to the same period for 2006,the increase was due primarily
to the increase in cost associated with annual audits and quarterly reviews
associated with SEC filings.
Transfer agent and permit fees decreased by $-0- and $2,986, respectively for
the three and nine months periods ended June 30, 2007 as compared to the same
periods in 2006 due to the Company not having the activity in the issuance of
stock certificates in the periods in 2007 as compared to 2006.
Rent and utilities expenses decreased by $8,968 and $29,261, respectively for
the three and nine months periods ended June 30, 2007 as compared to the same
periods in 2006 due to the Company not renewing the lease for production
facilities in 2007.
Telephone expense decreased by $5,746 and $17,255, respectively for the three
and nine months periods ended June 30, 2007 as compared to the same periods in
2006 due to the Company not being not on the air during these periods in 2007.
Other expense decreased by $1,384 and $10,203, respectively for the three and
nine months periods ended June 30, 2007 as compared to the same periods in 2006
due to the Company not being not on the air during these periods in 2007.
Operating Results:
Operating Results. We had a net operating losses of $96,337 and $302,264, for
the three months ended June 30, 2007 and 2006, respectively. The decreased loss
of $205,927 for 2007 was primarily attributed to the Company not being on the
air during the three months ended June 30, 2007 and reducing costs in all of its
operating expenses as shown above in the discussions of operating expenses and
administrative expenses.
The Company had operating losses for the nine months ended June 30, 2007 and
2006 of $596,924 and $1,225,114, respectively. The decreased loss of $628,190
for 2007 was primarily attributed to the Company not being on the air during the
nine months ended June 30, 2007 and reducing costs in all of its operating
expenses as shown above in the discussions of operating expenses and
administrative expenses.
EARNINGS PER SHARE OF COMMON STOCK. Income (loss) per common share is calculated
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." Basic Income (loss) per share is computed by dividing the
net income (loss) by the weighted average number of common shares outstanding.
Diluted net income (loss) per share is computed similar to basic net income
(loss) per share, except that the denominator is increased to include the number
of additional common shares that would have outstanding if the potential common
shares had been issued and if the additional common shares were dilutive. Stock
options and warrants are anti-dilutive, and accordingly, are not included in the
calculation of income (loss) per share. The basic and diluted net loss per share
of common stock was $0.002 and $0.004 for the three months June 30, 2007 and
2006, respectively. The basic and diluted net loss per share of common stock was
$0.01 and $0.02 for the nine months June 30, 2007 and 2006, 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 $25,489,865 from
the inception of the Company through June 30, 2007.
30
Current liabilities at June 30, 2007 were $3,237,900 which exceeded current
assets of $153,682 by $3,084,218. The Company's cash position at June 30, 2007
was $149, a decrease of $3,374 from the position at September 30, 2006. 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
will be materially adversely affected. In a worse case scenario, 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 satellite space and uplinking services which in turn has resulted in the
Company not being able to transmit programming to an affiliate network and in
fact seizing to air programming as of April of 2006. The Company has laid-off
its master control, production, programming and affiliate relations employees
while it seek financing. Management personnel still with the Company are working
without pay to seek new financing to relaunch the Company.
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 August 1, 2007, the
Company had cash on hand of approximately $134 and as of June 30, 2007, a net
working capital deficit of approximately $3,084,000. The Company has a
promissory loan agreement with Westar Satellite Services LP totaling
approximately $81,000 secured by a blanket lien upon the Company's assets that
matured in April 2006 and is now in default and as described in the June 30,
2007 financial statements presented in this Quarterly Form 10-QSB report. Westar
Satellite Services, Inc. has filed a lawsuit against the Company for nonpayment
of the promissory note plus a master service contract and filed to seize the
Company's assets. The ultimate disposition could have a material adverse effect
on the Company's consolidated financial position, results of operations and
liquidity, if the Company does not secure adequate working capital.
The total outstanding indebtedness, including future contractual obligations, as
of August 1, 2007 is approximately $4,353,000. The Company's ability to continue
its operations and execute on its business plan will require significant
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
and the Company might not be able to remain a viable entity.
Our continued growth, will require significant additional funds that may come
from a variety of sources, including the stock subscription agreement with R.J.
Halden Holdings, Inc., shareholder loans, equity or debt issuances, bank
borrowings, capital lease financings, and the sale of the Company's coal
reserves, should Geotec Thermal Generators, Inc., the seller, perform in
accordance with the Agreement and process, sell and remit the net proceeds to
the Company. As discussed in Note 4 to the Consolidated Financial Statements,
the Company has established an impairment reserve against the coal assets due to
the Company not having the financial ability to clean the coal and Geotec
Thermal Generators, Inc. declining to perform on the terms of the exchange
agreement. The Company has not been able to sell the coal reserves as they
exist. 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 at such time as the coal is processed and sold. The
uncertaintity of the coal being processed and sold has been the major reason for
not being successful in selling these credits. Should we be successful in
obtaining any funds raised through these sources our intent is to fund various
aspects of our relaunch of the network, including paying past due notes payable
and accounts payable, funding our working capital needs, funding key programming
acquisitions, funding sales and marketing, securing cable connections, funding
master control/ network equipment upgrades, making strategic investments.
31
However, management has no basis to believe that the Coal Assets will ever be
monetized.
Assuming that the Company is successful in attracting new capital for a relaunch
of the network, the Company expects licensing agreements with program suppliers
to be generally for a term of 13 to 52 weeks and be cancelable by either party
upon thirty (30)days written notice. These license agreements will provide the
Company with a source of revenue by the Company's right to share in the
commercial spots during the programs. The Company's policy will be to recognize
the revenue associated with these sources of revenue at the time that it inserts
the advertising spots or airs the long-form program at the network or local
level. 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.
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 will enter 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.
In summary, until the Company is in a position to generate sufficient cash from
the sale of advertising revenue, we will need to rely upon private and
institutional sources of debt and equity financing. We will require significant
additional cash from the issuance of equity or debt securities in the year
ending September 30, 2007 to relaunch the network and finance operations and
strategic objectives. No assurances can be given that we will successfully
obtain liquidity sources necessary to fund our relaunch and operations to
profitability and beyond.
Going Concern
Due to our continuing to be off the air and not having generated revenues, in
their notes to our financial statements for the year ended September 30, 2006,
our independent auditors included an explanatory paragraph regarding concerns
about our ability to continue as a going concern.
The continuation of our business is dependent upon obtaining financing and/or
capital to relaunch the network and achieving a break even or profitable level
of operations. The issuance of additional equity securities by us could result
in a significant dilution in the equity interests of our current or future
stockholders.
There are no assurances that we will be able to either (1) achieve a level of
revenues adequate to generate sufficient cash flow from operations; or (2)
obtain additional financing through either private placements, public offerings
and/or bank financing necessary to support our working capital requirements. To
the extent that funds generated from operations and any private placements,
public offerings and/or bank financing are insufficient, we will have to seek
additional working capital. No assurance can be given that additional financing
will be available, or if available, will be on terms acceptable to us. If
adequate working capital is not available we may not be able to continue as an
entity.
These conditions raise substantial doubt about our ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might be necessary should we be unable to
continue as a going concern.
32
Contractual Obligations
Future payments due on the Company's contractual obligations as of June 30, 2007
are as follows:
Total 2007 2008-2010
----- ---- ---------
Operating lease -office space $ 21,505 $ 8,055 $ 13,450
Advances by shareholders 45,545 45,545 --
Loans from shareholders 487,891 280,755 207,136
Loans from vendors 80,685 80,685 --
Advances from non-related party 665,000 665,000 --
Contractual obligations 1,913,570 1,099,070 814,500
--------- --------- -------
Total $ 3,214,196 $2,179,110 $1,035,086
--------- --------- ---------
We do not believe that inflation has had a material impact on our business or
operations.
We are not a party to any off-balance sheet arrangements and do not engage in
trading activities involving non-exchange traded contracts. In addition, we have
no financial guarantees, debt or lease agreements or other arrangements that
could trigger a requirement for an early payment or that could change the value
of our assets, other than those disclosed in this quarterly report.
We had net losses $158,538 and $310,209 for the three months ended June 30, 2007
and 2006, respectively and $ 703,312 and $1,246,362 for the nine months ended
June 30, 2007 and 2006, respectively. We expect these losses to continue as the
Company is currently off the air and we continue to incur operating expenses in
maintaining marginal operations and seek new capital to relaunch the network. At
this time we cannot anticipate when the Company might begin receiving revenues.
Thus, we will need to raise additional funds from financing and equity sales. If
adequate funds are not available on acceptable terms, our business, results of
operations and financial condition will be materially adversely affected.
Financing activities for the three months ended June 30, 2007 include:
During the three months ended June 30, 2007, management advanced the
Company approximately $1,800 for operating costs.
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.
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.
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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 and Form 10-KSB/A, as filed with
the Securities and Exchange Commission on January 16, 2007 and July 9,_2007,
respectively.
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 anticipates that its sources of revenues will include the sale of
short-term national and local spot advertising and long-form program time slots.
The Company's policy is to recognize the revenue associated with these sources
of revenue at the time that it inserts the short-form advertising spots or airs
the long-form program at the network or local level.
Non Goodwill Intangible Assets
Intangible assets other than goodwill consist of network assets acquired by
purchase. They are being amortized over their expected lives of 5 years and are
reviewed for potential impairment whenever events or circumstances indicate that
carrying amounts may not be recoverable. No impairment loss was recognized
during the reporting periods. On January 1, 2002, the Company adopted Statement
of Financial Accounting Standards No. 142, Goodwill and Intangible Assets. This
provides that a recognized intangible shall be amortized over its useful life to
the reporting entity unless that life is determined to be indefinite. The amount
of an intangible asset to be amortized shall be the amount initially assigned to
that asset less any residual value.
Stock Based Compensation
The Company accounts for equity instruments issued to employees for services
based on the fair value of the equity instruments issued and accounts for equity
instruments issued to other than employees based on the fair value of the
consideration received or the fair value of the equity instruments, whichever is
more reliably measurable. The determined value is recognized as an expense in
the accompanying consolidated statements of operations.
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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, 2006 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, 2007, 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.
35
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
filed a 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. The Company recorded these
advances as a liability on its financial statements and believes that the
ultimate disposition will not have a material adverse effect on the Company's
consolidated financial position, results of operations and liquidity. On
December 6, 2006, the presiding judge for the United States District Court For
the Northern District of Texas, Dallas Division, signed an Agreed Order Of
Dismissal that dismissed without prejudice the lawsuit of Michael J. Quilling,
Receiver for Megafund Corporation and Stanley A. Leitner.
The Company is party to legal action pending in the 162nd District Court,
Dallas, Texas. The Company has been served with a summons in a civil case styled
Westar Satellite Services, L.P. vs.Urban Television Network Corporation. The
Plaintiff has filed complaint against the Company to Recover amounts due
Plaintiff under a promissory note and Master Service Agreement. The Company has
recorded the related liabilities for the promissory note and master service
agreement on its financial statements and believes that the ultimate disposition
will have a material adverse effect on the Company's consolidated financial
position, results of operations and liquidity, if the Company does not receive
sufficient new capital to satisfy its debts and relaunch the Company.
36
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
During the quarter ending June 30, 2007, 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.
None
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 third quarter of the fiscal year covered by
this report.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description and Method of Filing
---------- --------------------------------
31.1 Certification by Chief Executive Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification by Chief Financial Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification by Chief Executive Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Filed with previous filing
(b) Reports on Form 8-K.
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: August 20, 2007
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
37