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, 2003
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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Commission file number 33-58972
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URBAN TELEVISION NETWORK CORPORATION
-------------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
NEVADA 22-2800078
--------------------------------- ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
18505 Highway 377 South, Fort Worth, TX 76126
-------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number,( 817 ) 512 - 3033
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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: June 30, 2003, 21,729,636 shares of
common stock, $.0001 par value.
Transitional Small Business Disclosure Format
(Check One)
Yes No X
--- ---
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................3
Independent Accountants Review Letter................................4
Balance Sheet (unaudited)............................................5
Statements of Operations (unaudited).................................6
Statements of Stockholders' Equity(unaudited)........................7
Statements of Cash Flows (unaudited).................................8
Notes to Financial Statements........................................9
Item 2. Management's Discussion and Analysis of Plan
of Operation.......................................................15
Item 3. Controls and Procedures..............................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................18
Item 2. Changes in Securities...............................................18
Item 3. Defaults upon Senior Securities.....................................19
Item 4. Submission of Matters to a Vote
of Security Holders.................................................19
Item 5. Other Information...................................................19
Item 6. Exhibits and Reports on Form 8-K....................................19
Signatures....................................................................19
URBAN TELEVISION NETWORK CORPORATION
FORM 10-QSB
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements. (Unaudited)
As prescribed by Item 310 of Regulation S-B, the independent auditor has
reviewed these unaudited interim financial statements of the registrant for the
nine months ended June 30, 2003. The financial statements reflect all
adjustments that are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. The unaudited
financial statements of registrant for the nine months ended June 30, 2003,
follow.
3
Jack F. Burke, Jr.
Certified Public Accountant
P.O. Box 15728
Hattiesburg, Mississippi 39404
Independent Auditor's Letter
Urban Television Network Corporation
18505 S. Hwy 377
Cresson, Texas 76035
I have reviewed the accompanying balance sheet, statement of operations,
statement of stockholders equity and statement of cash flows of Urban Television
Network Corporation and consolidated subsidiaries as of June 30, 2003 and 2002,
and for the nine-month period then ended. These financial statements are the
responsibility of the company's management.
I conducted my review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, I do not express such an opinion.
Based on my review, I am not aware of any material modifications that should be
made to the accompanying financial statements for them to be in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 14 to the
financial statements, the company has suffered losses from operations that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 14. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Jack F. Burke, Jr.
----------------------
Jack F. Burke, Jr.
August 13, 2003
4
PART I - FINANCIAL STATEMENTS
URBAN TELEVISION NETWORK CORPORATION
and Subsidiaries
Consolidated Balance Sheet
June 30, September 30,
2003 2002
Assets (Unaudited) (Audited)
Currents assets
Cash and cash equivalents $ 54,069 $ --
Accounts receivable 19,066 5,766
Prepaid expenses 18,043 --
----------- -----------
Total current assets 91,178 5,766
----------- -----------
Furniture, fixtures and equipment, 45,324 6,122
----------- -----------
Other assets
Network assets 428,566 512,416
Goodwill 867,022 --
Organizational costs 360 --
----------- -----------
Total other assets 1,295,948 512,416
----------- -----------
Total assets $ 1,432,450 $ 524,304
----------- -----------
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 229,322 $ 58,957
Bridge loan payable 306,200 --
Notes payable to stockholder 367,474 188,929
Accrued interest expense 60,434 3,415
Accrued payroll 181,250 --
Accrued payroll taxes payable 14,344 --
----------- -----------
Total current Liabilities 1,159,024 251,301
----------- -----------
Deferred income tax 167,811 --
----------- -----------
Stockholders' equity
Preferred stock, $1 par value, 500,000 shares authorized, none issued -- --
Common stock, $0.0001 par value, 200,000,000 shares authorized;
21,729,636 shares outstanding at June 30, 2003
2,173 --
Common stock, $0.01 par value, 50,000,000 shares authorized;
22,331,667 shares outstanding at September 30, 2002 -- 223,316
Additional paid-in capital 7,764,755 5,362,562
Retained earnings (deficit) (7,068,427) (5,312,875)
----------- -----------
698,501 273,003
Less: Treasury stock (592,886) --
----------- -----------
Total stockholders' equity 105,615 273,003
----------- -----------
Total liabilities and stockholders' equity $ 1,432,450 $ 524,304
----------- -----------
See notes to financial statements.
See accountants reew report
5
URBAN TELEVISION NETWORK CORPORATION
and Subsidiaries
Consolidated Statement of Operations
(UNAUDITED)
Three months ended June 30, Nine months ended June 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues $ 123,400 $ 17,965 $ 217,288 $ 17,965
------------ ------------ ------------ ------------
Expenses:
Satellite and uplink services 71,336 37,500 262,908 37,500
Master Control expenses 87,711 8,100 197,711 8,100
Technology expenses 30,104 23,795 91,137 23,795
Stock based compensation 728,750 -- 811,250 --
Administration 205,721 19,656 479,879 26,602
Bad debt expense -- 277,000 -- 277,000
Depreciation and amortization 31,450 200 91,100 200
------------ ------------ ------------ ------------
Total expenses 1,155,072 366,251 1,933,985 373,197
------------ ------------ ------------ ------------
Income (loss) from operations (1,031,672) (348,286) (1,716,697) (355,232)
Other (income) expense
Interest income (expense) (17,272) (10,000) (38,855) (10,000)
Gain on debt reductions
-- -- -- 424,665
------------ ------------ ------------ ------------
Net income (loss) $ (1,048,944) $ (358,286) $ (1,755,552) $ 59,433
------------ ------------ ------------ ------------
Basic earnings (loss) per share $ (0.05) $ (0.42) $ (.016) $ 0.12
Weighted average number of
basic shares outstanding 20,372,969 844,911 11,176,612 489,225
Diluted earnings (loss) per share $ (0.05) $ (0.42) $ (0.15) $ 0.12
Weighted average number of
diluted shares outstanding 20,985,369 844,911 11,789,012 489,225
See notes tofinancial statements.
See accountants review report
6
URBAN TELEVISION NETWORK CORPORATION
and Subsidiaries
Consolidated Statement of Stockholders' Equity
(UNAUDITED)
Additional Retained
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit) Total
----------- ----------- ----------- ----------- -----------
Balance at September 30, 2000 6,207,236 $ 62,072 $ 4,879,134 $(5,361,824) $ (420,618)
Net loss for year ended
September 30, 2001 -- -- -- (82,774) $ (82,774)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 2001 6,207,236 62,072 4,879,134 (5,444,598) $ (503,392)
Contributed capital -- -- 85,428 -- 85,428
Stock issued for asset 16,000,000 160,000 389,000 -- 549,000
Acquisition
Stock issued to Hispanic
Television Network 100,000 1,000 9,000 -- 10,000
Stock issued for prior
year agreements
24,431 244 -- -- 244
Net income for year
September 30, 2002 -- -- -- 131,723 131,723
----------- ----------- ----------- ----------- -----------
Balance September 30, 2002 22,331,667 223,316 5,362,562 (5,312,875) 273,003
Adjust outstanding shares to
reflect reverse stock (21,215,031) (212,150) 212,150 -- --
split
Adjustment to reflect
the restated par value -- (11,054) 11,054 -- --
Issuance of shares for services 7,275,000 727 810,523 -- 811,250
Stock issued for majority interest
in Urban Television of Texas 13,248,000 1,325 1,323,475 -- 1,324,800
Stock issued for conversion of
Bridge Loans 90,000 9 44,991 -- 45,000
Net loss for nine months ended
June 30, 2003 -- -- -- (1,755,552) (1,755,552)
----------- ----------- ----------- ----------- -----------
Balance June 30, 2003 21,729,636 $ 2,173 $ 7,764,755 $(7,068,427) $ 698,501
----------- ----------- ----------- ----------- -----------
See notes to financial statements.
See accountants review report
7
URBAN TELEVISION NETWORK CORPORATION
and Subsidiaries
Consolidated Statement of Cash Flows
(UNAUDITED)
Three months ended June 30, Nine months ended June 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Operating Activities
Net income (loss) $(1,048,944) $ (358,286) $(1,755,552) $ 59,433
(1,755,552) 59,433
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization
31,450 200 91,100 200
Allowance for doubtful accounts
-- 277,000 -- 277,000
Issuance of common stock for services 728,750 -- 811,250 --
Changes in operating assets and liabilities:
Accounts receivable (7,775) (15,000) (13,300) (15,000)
Prepaid expenses -- -- (18,043) --
Accounts payable (14,143) 2,150 167,747 (70,278)
Accrued interest payable 16,372 10,000 38,855 (208,261)
Accrued payroll payable 56,250 -- 181,250 --
Accrued payroll tax payable 4,781 -- 14,344 (2,355)
Bridge loan payable 132,200 -- 351,200 --
Advances from shareholders (52,043) 109,691 203,229 109,691
Notes payable -- -- -- (210,348)
----------- ----------- ----------- -----------
Net cash provided by operating activities (153,012) 25,755 72,080 (59,918)
----------- ----------- ----------- -----------
Investing Activities
Capital expenditures 9,088 (5,755) (18,011) (5,755)
----------- ----------- ----------- -----------
Net cash (used in) investing activities 9,088 (5,755) (18,011) (5,755)
----------- ----------- ----------- -----------
Financing Activities
Contributed capital -- -- -- 85,673
Cancellation of shares -- -- -- --
----------- ----------- ----------- -----------
Net cash provided by financing activities -- -- -- 85,673
----------- ----------- ----------- -----------
Increase (decrease) in cash (144,014) 20,000 54,069 20,000
Cash at beginning of period 198,083 -- -- --
----------- ----------- ----------- -----------
Cash at end of period $ 54,069 $ 20,000 $ 54,069 $ 20,000
----------- ----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 900 $ -- $ -- $ --
Income taxes $ -- $ -- $ -- $ --
Non-cash transactions:
Gain on debtreductions $ -- $ -- $ -- $ 424,665
Cancellation of Shares $ -- $ -- $ -- $ 2,700
See notes to financial statements.
See accountants review report
8
URBAN TELEVISION NETWORK CORPORATION
and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2003
(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. 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, 2002, which was
filed December 31, 2002. In the opinion of the Company, the interim
financial information provided herein reflects all adjustments (consisting
of normal and recurring adjustments) necessary for fair presentation of the
Company's consolidated financial position as of June 30, 2003 and the
results of operations and cash flows for the three-months ended June 30,
2003 and 2002. The results for the three-months ended June 30, 2003 are not
necessarily indicative of the results to be expected for the full year.
ACCOUNTING POLICIES:
There have been no changes in accounting policies used by the Company
during the nine months ended June 30, 2003.
2. Significant Accounting Policies
Organization and Business
Waste Conversion Systems, Inc. was incorporated under the laws of the state
of Nevada on October 21, 1986. On June 10, 2002 the company changed its
name to Urban Television Network Corporation. The name change coincided the
company's acquisition of assets from the Urban Television Network
Corporation, a Texas corporation. Urban Television Network Corporation
("UTVN") and its subsidiaries, together, the "Company") are 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.
Principles of Consolidation
The consolidated financial statements include the account of the company
and those majority-owned subsidiaries in which the company has control. All
significant intercompany accounts and transactions are eliminated in
consolidation. The accounts and results of operations of controlled
subsidiaries where ownership is greater than 50 percent, but less than 100
percent are included in the consolidated results and are offset by a
related minority expense and liability recorded for the minority interest
ownership. The Company owns 100% of Waste Conversion Systems of Virginia,
Inc. which had no assets or liabilities at September 30, 2002 and June 30,
2003 and no revenues or expenses for the year ended September 30, 2002 and
the nine months ended June 30, 2003. The Company owns 100% of Urban
Television Network Corporation, a Texas corporation (See note 5).
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 period. On January 1, 2002, the Company
adopted Statement of Financial Accounting Standards No. 142, Goodwill and
Intangible Assets. This provides that a recognized intangible shall be
amortized over its useful life to the reporting entity unless that life is
determined to be indefinite. The amount of an intangible asset to be
amortized shall be the amount initially assigned to that asset less any
residual value.
Income (Loss) Per Share
Income (loss) per common share is calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share."
Basic Income (loss) per share is computed by dividing 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.
9
URBAN TELEVISION NETWORK CORPORATION
And Subsidiaries
Notes to Consolidated Financial Statements, Continued
June 30, 2003
(UNAUDITED)
2. Significant Accounting Policies (Continued)
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.
Advertising Costs
The Company expenses non-direct advertising costs as incurred. The Company
did not incur any direct response advertising costs for the fiscal year
ended September 30, 2002 and the nine months ended June 30, 2003.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Recent Accounting Standards
The FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." The Statement
provides guidance for determining whether a transfer of financial assets
should be accounted for as a sale or a secured borrowing, and whether a
liability has been extinguished. The Statement is effective for recognition
and reclassification of collateral and for disclosures ending after
December 15, The Statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March
31, 2001. The initial application of SFAS No. 140 will have no impact to
the Company's results of operations and financial position.
In June, 2001 the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" and No. 142
"Goodwill and Other Intangible Assets." These statements prohibit
pooling-of-interest accounting for Transactions initiated after June 30,
2001, require the use of the purchase method of accounting for all
combinations after June 30, 2001, and establish new standards for
accounting for goodwill and other intangibles acquired in business
combinations. The Company does not expect these pronouncements to have a
material affect on its financial statements.
Stock Options
The Company accounts for non-employee stock options under SFAS 123, whereby
option costs are recorded at the fair value of the consideration received
or the fair value of the equity instrument issued, whichever is more
reliable measurement, in accordance with EITF 96-18 "Accounting for Equity"
instruments that are issued to other than employees for acquiring or in
conjunction with selling Goods or Services.
The Company adopted in February 1993 an employee stock option plan. There
are no options outstanding under this plan. This plan will be accounted for
under FAS 123 as described above.
3. Network Assets - Amortization
On May 1, 2002, the Company entered into an agreement with Urban Television
Network Corporation, a Texas corporation, (UTVN-Texas) to acquire the
rights to the UATV Network signal space which included the assignment of
the UATV affiliates for 16,000,0000 shares of common stock with an
estimated fair market value of $559,000. These assets purchased are
referred to as network asset.
10
URBAN TELEVISION NETWORK CORPORATION
And Subsidiaries
Notes to Consolidated Financial Statements, Continued
June 30, 2003
(UNAUDITED)
3. Network Assets - Amortization - Continued
Network assets consist of intangibles other than Goodwill. These assets
automatically renew every year unless either party terminates the agreement
by such notification to the other party. A useful life of five (5) years is
estimated for the assets. These agreements are not expected to be
terminated by either party prior to its useful life period. Total
amortization of these assets has been $102,484 and the amortization for the
period ended September 30, 2002 was $46,584 and for the nine months ended
June 30, 2003 was $83,850.
Future amortization of the Network assets at June 30, 2003 will be $428,564
and on an annual basis be as follows:
Year ended September 30, 2003 $ 27,952
Year ended September 30, 2004 $111,804
Year ended September 30, 2005 $111,804
Year ended September 30, 2006 $111,804
Year ended September 30, 2007 $ 65,200
4. Property, Plant and Equipment
The Company acquired equipment totaling $18,011. This was recorded at cost
and depreciation on a straight-line basis over five (5) years. Depreciation
for fiscal year and accumulated at September 30, 2002 was $783.00.
Depreciation for the nine months ended June 30, 2003 was $7,250 and the
accumulated at June 30, 2003 was $10,383.
5. Acquisition
On February 7, 2003, the Company entered into an Exchange Agreement with
the majority shareholders of Urban Television Network Corporation, a Texas
corporation (UTNC). The Company acquired 90% of the issued and outstanding
capital stock of UTNC in Return for 13,248,000 shares of the Company's
common stock valued at $1,324,800. The valuation of the common stock paid
by the Company as consideration was established by the Company at $.10 per
share based on the restricted nature of the stock, the low trading history
of the stock at the time of the acquisition. The acquisition was made to
complete the acquisition of the balance of the UTNC assets including
proprietary broadcast technologies, intellectual property and goodwill. The
acquisition was accounted for under the purchase method. The purchase price
has been allocated to the assets acquired and liabilities assumed based on
their estimated fair market value. Any excess purchase price over the fair
market value of the net assets acquired has been recorded as goodwill. In
this transaction the allocation of the purchase price resulted in goodwill
of $761,036. The estimated fair values of assets acquired and liabilities
assumed are summarized in the following table.
Fair Value of Assets Acquired and Liabilities Assumed
Cash $ 889
Equipment 28,452
Investment in stock of the Company 592,886
Receivable from the Company 258,458
Other assets 360
Goodwill 761,037
Accounts payable ( 2,618)
Loans to stockholders (233,774)
Accrued interest ( 19,064)
Minority Interest ( 61,826)
--------
Total purchase price $1,324,800
---------
11
URBAN TELEVISION NETWORK CORPORATION
And Subsidiaries
Notes to Consolidated Financial Statements, Continued
June 30, 2003
(UNAUDITED)
5. Acquisition - Continued
The following unaudited pro forma information consolidates the balance
sheets of the Company and UTNC at the acquisition date of February 7, 3003.
Deferred income tax of $182,685 was recorded to give effect to $537,311 of
excess book over tax basis for the assets acquired by the Company.
Consolidated
Consolidation Balance
The Company UTNC Entries Sheet
----------- ----------- ----------- -----------
Assets
Current assets $ 44,873 $ 889 -- $ 45,762
Equipment, net 10,260 28,452 -- 38,712
Network assets, net 472,966 472,966
Investment in subsidiary -- 592,886 $ (592,886) --
Receivable from affiliate -- 258,458 (258,458) --
Goodwill and other assets -- 360 943,722 944,082
----------- ----------- ----------- -----------
Total Assets $ 528,099 $ 881,045 $ 272,992 $ 1,501,522
----------- ----------- ----------- -----------
Liabilities and Stockholders' Equity
Accounts payable and other accruals $ 284,741 $ 21,682 $ 306,423
Advances from shareholders 373,701 233,774 $ (258,458) 349,017
Deferred income tax -- -- 182,685 182,685
Minority interest -- -- 61,826 61,826
Common stock 142 1,477 (1,477) 1,466
-- -- 1,324 --
Additional paid-in capital 5,668,236 1,396,307 (1,396,307) 6,991,712
-- -- 1,323,476 --
Accumulated deficit (5,798,721) (772,195) 772,195 (5,798,721)
Treasury stock -- -- (592,886) (592,886)
----------- ----------- ----------- -----------
Total Liabilities and
Stockholders' Equity $ (528,099) $ 881,045 $ 272,992 $ 1,501,522
----------- ----------- ----------- -----------
The Company's consolidated results of operations have incorporated UTNC's
activity from the effective date of the acquisition. The following
unaudited pro forma information combines the consolidated results of
operations of the Company with those of UTNC as if the acquisition had
occurred on October 1, 2001.
Nine months ended Nine months ended Year ended
June 30 2003 June 30, 2002 September 30, 2002
Revenues $ 217,288 $ 54,010 $ 143,742
Net income (loss) $(1,762,882) $(103,136) $(185,427)
Income (loss) per share $ (0.16) $ (0.21) $ (.013)
This pro forma financial information is presented for comparative purposes
only and is not necessarily indicative of the operating results that
actually would have occurred had the UTNC acquisition been consummated on
October 1, 2001. In addition, these results are not intended to be a
projection of future results and do not reflect any synergies that might be
achieved from combined operations.
6. Other Income
Gain on Debt Reductions
Since Waste Conversion Systems, Inc. ceased operations in 1996, it did not
pay any of its obligations, related to previous operations. For those trade
creditors and note holders that did not extend the statute of limitations
on collection of their accounts through legal actions, the Company has been
taking the write off of the payables into income as the statutory period
for collection expires. The income was $424,665 ($0.014 per share) and
$8,880 (less than $0.01 per share)for fiscal 2002 and 2001, respectively.
7. Related Party Transactions
In May 2002, the Company issued 16,000,000 shares to Urban Television
Network Corporation for asset purchase of network assets. (See Note 3,
Network Assets)
The Company leases office space from one its shareholders and director for
$2,000 per month. The total rental expense for year ended September 30,
2002 was $12,000 and for the nine months ended June 30, 2003 was $12,000.
12
URBAN TELEVISION NETWORK CORPORATION
and Subsidiaries
Notes to Consolidated Financial Statements, Continued
June 30, 2002
(UNAUDITED)
8. Notes Payable
Notes payable consist of:
June 30, September 30,
2003 2002
------------- -------------
Notes payable to stockholders at 10%
interest payable on September 30, 2004 $ 367,474 $ 188,929
------------- -------------
9. Convertible Bridge Loan
Convertible bridge loan consist of:
June 30, September 30,
2003 2002
------------- -------------
Convertible bridge loan payable to
individuals at 6% interest payable
on February 14, 2004 $ 306,200 $ --
------------- -------------
The convertible bridge loans are convertible at any time before the
maturity date into the Company's common stock at the rate of two shares of
common stock for each dollar of convertible bridge loan plus accrued
interest through the date of conversion
10. Income Tax
The Company has, for income tax purposes, approximately $4,950,000 in net
operating loss carryforwards at September 30, 2002, available to offset
future years' taxable income and expiring in varying amounts through the
year 2015. A deferred tax asset of approximately $2,032,000 has been offset
by a 100% valuation allowance. The annual utilization of the loss
carryforward will be limited under Internal Revenue Code Section 382
provisions due to the recent stock issuances. The Company accounts for
income taxes pursuant to the Statement of Financial Accounting Standards
No.109. The Company has a deferred income tax liability of $167,811
resulting from the acquisition described in note 5.
11. Capital Stock
In May 2002, the Company issued 16,000,000 shares to Urban Television
Network Corporation for asset purchase of network assets. (See Note 3
Network Assets)
In September 2002, the Company issued 100,000 shares to Hispanic Television
Network, Inc. as part of the mutual settlement agreement between the two
companies to cancel the Satellite Transponder Service Agreement and notes
payable/receivable.
On November 21, 2002 the Company completed a 1:20 reverse stock split and
amended its Articles of Incorporation to increase its authorized common
shares to 200,000,000 and adjust its par value to $0.0001 per share.
In December 2002, the Company issued 300,000 shares of its common stock for
consulting and legal services, which the Company valued at $82,500.
On February 7, 2003, the Company entered into an Exchange Agreement with
the majority shareholders of Urban Television Network Corporation, a Texas
corporation (UTNC). The Company acquired 90% of the issued and outstanding
capital stock of UTNC in return for 13,248,000 shares of the Company's
common stock, which the Company valued at $1,324,800. (See Note 5 -
Acquisitions)
In May 2003, the Company issued 5,075,000 shares of its common stock for
consulting Services, which the Company valued at $253,750.
In June 2003, the Company issued 1,900,000 of its common stock for employee
Compensation, consulting services and legal services, which the Company
valued at $475.000.
In June 2003, the Company issued 90,000 shares of its common stock to
Bridge Loan Lenders who elected to convert $45,00 of bridge loans to common
stock at the rate of 2 shares for each dollar of bridge loan converted.
13
URBAN TELEVISION NETWORK CORPORATION
and Subsidiaries
Notes to Consolidated Financial Statements, Continued
June 30, 2002
(UNAUDITED)
12. Preferred Stock
The Articles of Incorporation of the Company authorize issuance of a
maximum of 500,000 shares of nonvoting preferred stock with a par value of
$1.00 per share. The Articles of Incorporation grant the Board of Directors
of the Company authority to determine the designations, preferences, and
relative participating, optional or other special rights of any preferred
stock issued.
No preferred shares had been issued as of June 30, 2003.
13. Commitments
Satellite Transponder Lease
The Company entered into a Satellite space segment service agreement with
Loral Skynet on November 20, 2002 for 6 MHz of satellite bandwidth on
Telstar 5 for a period of three year ending on November 21, 2005. For the
nine months ended June 30, 2003, the amount expensed was $126,301.
Future lease payments due during the term of the lease ending on November
21, 2005 will equal $523,247 and be due as follows:
Year ended September 30, 2003 $ 54,129
Year ended September 30, 2004 $216,516
Year ended September 30, 2005 $216,516
Year ended September 30, 2006 $ 36,086
The Company entered into a Full Time Broadcast Agreement with Verestar,
Inc. on November 21, 2002 for a full time redundant 6 MHz digital C-band
uplink service for a period of three years ending on November 21, 2005. For
the nine months ended June 30, 2003 the amount expensed was $56,000.
Future lease payments due during the term of the lease ending on November
21, 2005 will equal $232,000 and be due as follows:
Year ended September 30, 2003 $24,000
Year ended September 30, 2004 $96,000
Year ended September 30, 2005 $96,000
Year ended September 30, 2006 $16,000
14. Going Concern
The Company has suffered recurring losses from operations. In order for the
Company to sustain operations and execute its television broadcast and
programming business plan , capital will need to be raised to support
operations as the company executes its business plan. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern.
The Company may raise additional capital through the sale of its equity
securities, or debt securities.
14
Item 2. Management's Discussion and Analysis or Plan of Operation.
On May 1, 2002, the Company entered into an agreement with Urban Television
Network Corporation, a Texas corporation, (UTVN_- Texas) to acquire the rights
to the UATV Network signal space which included the assignment of the UATV
affiliates. The Company operates a family-oriented television network providing
primarily urban programming 24 hours a day, seven days a week to approximately
70 affiliate broadcast television stations throughout the United States.
Management is implementing a revenue generation plan that includes local
advertising sales, for company operated stations, securing network advertising
at the best available rate, plus implementing a Technology plan to assist its
affiliates with sale of their local advertising time. Management intends to
increase rates as affiliate stations are added to the network. The
implementation of this comprehensive plan is expected to have a significant
positive affect upon sales revenues. In addition, the Company has added a focus
to secure carriage agreements with cable and digital distribution companies.
Future operating results depend upon a number of factors, including but not
limited to the strength of the national economy, the local economies where the
Company's stations and affiliates are located, the amount of advertising spent -
especially the amount of advertising spent for television, and the amount of
advertising directed toward the Urban market. The Company's ability to attract
the available advertising is dependent upon, among other things, its stations'
audience ratings, its ability to provide interesting programming, local market
competition from other television stations and other advertising media, and its
ability to attract and retain television stations to carry its broadcast.
OPERATIONS. The Company had revenues of $17,965 for the three and nine months
ended June 30, 2002. For the three and nine months ended June 30, 2003 the
Company had revenues of $123,400 and $217,288, respectively. The years 2002 and
2003 revenues are related to the UATV Television Network being acquired by the
Company in May of 2002. The operations are still in the growth stages and the
Company is dependent upon working capital derived from management, significant
shareholders and private investors to provide sufficient working capital. There
is no assurance, however, that the company will be able to generate the
necessary working capital needs from these sources.
OPERATING RESULTS. For the three months and nine months ended June 30, 2002 the
company had operating cost of $366,251 and $373,197, respectively. The majority
of these costs are attributable to the company's acquisiton of the television
network assets in the quarter ended June 30, 2002. The major components of cost
of operations for the three months ended June 30, 2002 were $37,500 for
satellite space and uplinking, $23,795 for technology expense, $19,656 for
administrative expenses and $277,000 recognition of an impairment loss on
assets. For the three months and nine months ended June 30, 2003, the Company
had operating costs of $1,155,072 and $1,933,985, respectively. Major components
of cost of operations the three and nine months ended June 30, 2003 include
$71,336 and $262,908 for satellite and uplink expenses, $87,711 and $197,711 for
production and master control expenses, $30,104 and $91,137 for technology
expenses, $205,721 and $479,879 for administration expenses which includes the
Company's independent auditors, legal fees and business consulting services and
$728,750 and $811,250 for stock based compensation.
The Company had operating losses for the three and nine months ended June
30, 2003 of $1,048,944 and $1,755,552, respectively. These losses relate to the
continued growth of the UATV Television Network acquired by the Company in May
of 2002. The Company had no operations during the first six months of the
current fiscal year. During the three months ended June 30, 2002, the Company
had a net loss of $358,286 which was attributable to the growth stage of the
UATV Television Network acquired in May of 2002. For the nine months ended June
30, 2002 the Company had $427,365 of income derived from $424,665 in gains
resulting from the reduction of liabilities and $2,700 of income derived from
the cancellation of shares previously issued for consulting services that were
never performed. These two income items when added to the loss from operations
gave the Company a net income of $59,433 for the nine months ended June 30,
2002.
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 $0.05 for the three months ended June 30, 2003 compared to a
basic and diluted net loss of $0.42 for the three months ended June 30, 2002.
For the nine months ended June 30, 2003, the Company had a net basic and diluted
loss of $0.16 and $0.15, respectively, per share compared to net basic and
diluted income of $0.12 per share for the nine months ended June 30, 2002. The
2002 weighted average of outstanding common shares has been adjusted for the
1:20 reverse stock split in November of 2002.
LIQUIDITY AND CAPITAL RESOURCES
Waste Conversion Systems, Inc., now known as Urban Television Network
Corporation, ceased operations in August 1996 and had no operations until May of
2002 when the Company acquired the UATV Television Network.
During the nine months ended June 30, 2002, the Company settled lawsuits,
judgments and liabilities totaling $428,609 for $21,000 and 224,420 shares of
its common stock.
As of June 30, 2003, the Company's assets were $1,432,450 which exceeded
outstanding liabilities by $105,615.
Financing activities for the nine months ended June 30, 2003 include a
combination of issuance of common stock in lieu of cash payments, issuance of
private debt, loans from management and significant shareholders, and cash
generated from operations. These funds were used to fund the operations of the
Company.
15
Financing activities for the nine months ended June 30, 2003 include:
1) Issuance of common stock in lieu of cash payments totaling $811,250 for
legal and professional services, employee compensation and consulting services.
2) Loans of $133,700 from management and significant shareholders that bear
interest at the rate of ten percent (10%) per annum and mature on September 30,
2004.
3) The Company entered into a $1,500,000 convertible bridge loan agreement
with interest at the rate of six percent (6%) per annum with a consortium of
private investors. At June 30, 2003, a total of $351,200 had been advanced on
this loan agreement. The terms of this financing allows the investors to advance
the $1,500,000 over a twelve month period with $250,000 being advance on 60 day
intervals. The investors have the option to convert their loans before the
maturity date of February 14, 2004 into common stock of the Company at the rate
of two shares of common stock for every dollar invested. As of June 30, 2003,
bridge loan holders of $45,000 had elected to convert their bridge loan to
90,000 shares of common stock.
In addition common stock may also be issued for conversion or settlement of
debt and/or payables for equity, future obligations which may be satisfied by
the issuance of common shares, and other transactions and agreements which may
in the future result in the issuance of additional common shares. The common
shares that the Company may issue in the future could significantly increase the
number of shares outstanding and could be extremely dilutive.
Impact of Inflation
Management does not believe that general inflation has had or will have a
material effect on operations.
Other Events
On May 12, 2003, Jacob R. Miles III was appointed as Executive Vice
President of Network Operations for the Company's UATV Network that provides
programming to independent broadcast television stations across the country. Mr.
Miles is also currently President of Grapevine Entertainment Services and
Production, Inc., which position he has held since 2002. Prior to 2002, Mr.
Miles served as President and CEO of Urban Cool Network, Inc., an Internet
Portal targeted at the Urban Community from 1997 to 2002. Mr. Miles also serves
as President of the Dallas-Fort Worth chapter of the National Association of
Minorities in Cable.
On June 17,2003 Justin A. Nemec was appointed to fill a vacancy on the
Company's Board of Directors. Mr. Nemec has served as President of Preferred
Real Services, Inc. since 2000. Previously, Mr. Nemec served as an officer of
the Bright Banc Savings Association in Dallas, Texas from 1997 to 2000.
This Form 10-QSB contains statements that constitute "forward-looking
statements." These forward-looking statements can be identified by the use of
predictive, future-tense or forward-looking terminology, such as "believes,"
"anticipates," "expects," "estimates," "plans," "may," "will," or similar terms.
These statements appear in a number of places in this report and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things: (i) trends
affecting the Company's financial condition or results of operations for its
limited history; (ii) the Company's business and growth strategies; (iii) the
Internet and Internet commerce; and, (iv) the Company's financing plans.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may differ materially from those
projected in the forward- looking statements as a result of various factors.
Factors that could adversely affect actual results and performance include,
among others, the Company's limited operating history, dependence on key
management, financing requirements, government regulation, technological change
and competition. Consequently, all of the forward-looking statements made in
this Form 10-QSB are qualified by these cautionary statements and there can be
no assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequence to or effects on the Company or its business or operations.
The Company assumes no obligations to update any such forward-looking
statements.
Item 3. Controls and Procedures.
(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, 2003, 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. Based upon
the evaluation, the Chairman and the Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company required to be included in the
Company's periodical SEC filings.
16
(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.
CODE OF ETHICAL CONDUCT
On May 14, 2003, our board of directors adopted our code of ethical conduct
that applies to all of our employees and directors, including our principal
executive officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions.
We believe the adoption of our Code of Ethical Conduct is consistent with
the requirements of the Sarbanes-Oxley Act of 2002.
Our Code of Ethical Conduct is designed to deter wrongdoing and to promote:
1. Honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships;
2. Full, fair, accurate, timely and understandable disclosure in reports
and documents that we file or submit to the Securities & Exchange
Commission and in other public communications made by us;
3. Compliance with applicable governmental laws, rules and regulations,
4. The prompt internal reporting to an appropriate person or persons
identified in the code of violations of our Code of Ethical Conduct;
and
5. Accountability for adherence to the Code.
17
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a party to various legal actions and claims arising in the
ordinary course of its business. In the Company's opinion, the Company has
adequate legal defenses for each of the actions and claims, and believes that
their ultimate disposition will not have a material adverse effect on the
Company's consolidated financial position, results of operations and liquidity.
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
During the second quarter of 2003, the Company offered and sold the
following securities pursuant to securities transaction exemption from the
registration requirements of the Securities Act of 1933, as amended.
On May 12, 2003, we issued 300,000 shares to the law firm of Loper &
Seymour for services valued at $15,000.
On May 12, 2003, we issued Clear Fork Communications, L.L.C. 400,000 shares
for master control services in uplinking the Company's signal to the satellite.
The services were valued at $20,000.
On May 12, 2003, we issued Patrick Halden 400,000 shares for business
consulting services provided by Rick Halden, his father, pursuant to his
instruction. The business consulting services were related to the termination of
the Hispanic Television Network $1,500,000 promissory note and Satellite
Transponder Service Agreement. The services were valued at $$20,000.
On May 12, 2003, we issued Timothy Halden 600,000 shares for business
consulting services relating to the termination of the Hispanic Television
Network $1,500,000 promissory note and Satellite Transponder Service Agreement.
The services were valued at $30,000.
On May 12, 2003, we issued Travis Yingling 800,000 shares for business
consulting services relating to the termination of the Hispanic Television
Network $1,500,000 promissory note and Satellite Transponder Service Agreement.
The services were valued at $40,000.
On May 12, 2003, we issued Clear Fork Investments, L.L.C. 1,500,000 shares
for business consulting services relating to the termination of the Hispanic
Television Network $1,500,000 promissory note and Satellite Transponder Service
Agreement. The services were valued at $75,000. Clear Fork Investments, LLC is a
company owned and controlled by Randy Moseley, the registrant's President and
member of the board of directors.
On May 12, 2003, we issued Bob Bryant 500,000 shares for business
consulting services valued at $25,000.
On May 12, 2003, we issued Jacob Miles 50,000 shares for business
consulting services valued at $2,500.
On May 12, 2003, we issued Dale Smith and Tony Brown 25,000 shares each for
programming services valued at $2,500.
On May 12, 2003, we issued Bryan Covey 50,000 shares for television
engineering services valued at $2,500.
On May 12, 2003, we issued Brett Abram 300,000 shares for business
consulting services valued at $15,000.
On May 12, 2003, we issued Ray Gebauer 100,000 shares for business
consulting services valued at $ 5,000.
18
We believe shares issued above were issued in a private transactions
pursuant to Section 4(2) of the Securities Act of 1933, as amended, (the
"Securities Act"). These shares are considered restricted securities and may not
be publicly resold unless registered for resale with appropriate governmental
agencies or unless exempt from any applicable registration requirements.
On February 14, 2003, we entered into a $1,500,000 Loan Agreement between
certain lenders and our Company. The Loan Agreement provides for the periodic
advance of monies with interest payable at the rate of six (6%) percent per
annum. During the quarter ended June 30, 2003, a total of $132,200 was advanced
on the agreement. The lenders may convert their loans, including accrued
interest, to our common stock at the rate of two (2) shares for each dollar
loaned, at any time prior to maturity on February 14, 2004.
These securities that have been and will be issued above were issued in a
private transaction pursuant to Section 4(2) of the Securities Act of 1933, as
amended, (the "Securities Act"). These convertible securities are considered
restricted securities and may not be publicly resold unless registered for
resale with appropriate governmental agencies or unless exempt from any
applicable registration requirements.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders, through the
solicitation of proxies or Otherwise, during the third quarter of the fiscal
year covered by this report.
Item 5. Other Information
On May 12, 2003, Jacob R. Miles III was appointed as Executive Vice
President of Network Operations for the Company's UATV Network that provides
programming to independent broadcast television stations across the country. Mr.
Miles is also currently President of Grapevine Entertainment Services and
Production, Inc., which position he has held since 2002. Prior to 2002, Mr.
Miles served as President and CEO of Urban Cool Network, Inc., an Internet
Portal targeted at the Urban Community from 1997 to 2002. Mr. Miles also serves
as President of the Dallas-Fort Worth chapter of the National Association of
Minorities in Cable.
On June 17,2003 Justin A. Nemec was appointed to fill a vacancy on the
Company's Board of Directors. Mr. Nemec has served as President of Preferred
Real Services, Inc. since 2000. Previously, Mr. Nemec served as an officer of
the Bright Banc Savings Association in Dallas, Texas from 1997 to 2000.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description and Method of Filing
---------- --------------------------------
31.10 Certification by Chief Executive Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.20 Certification by Chief Financial Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.10 Certification by Chief Executive Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.20 Certification by Chief Financial Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
"No reports were filed during the quarter covered by this report."
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 13, 2003
Urban Television Network Corporation
By: /s/ Randy Moseley By: /s/ Stanley Woods
------------------ ------------------
Randy Moseley Stanley Woods
Title: President Title: Secretary
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