U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ending March 31, 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: March 31, 2003, 14,664,636 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.......................................................17
Item 3. Controls and Procedures..............................................19
PART II. OTHER INFORMATION
Item 1 Legal Proceedings....................................................20
Item 2 Changes in Securities................................................20
Item 3 Defaults upon Senior Securities......................................20
Item 4 Submission of Matters to a Vote
of Security Holders..................................................20
Item 5 Other Information....................................................20
Item 6 Exhibits and Reports on Form 8-K.....................................20
Signatures.................................................................21-22
URBAN TELEVISION NETWORK CORPORATION
FORM 10-QSB
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements. (Unaudited)
As prescribed by Item 310 of Regulation S-B, the independent auditor has
reviewed these unaudited interim financial statements of the registrant for the
six months ended March 31, 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 six months ended March 31, 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
Fort Worth, Texas 76126
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 March 31, 2003 and 2002,
and for the three-month periods 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.
May 14, 2003
4
PART I - FINANCIAL STATEMENTS
URBAN TELEVISION NETWORK CORPORATION
and Subsidiaries
Consolidated Balance Sheet
March 31, September 30,
2003 2002
Assets (Unaudited) (Audited)
Currents assets
Cash and cash equivalents $ 198,083 $ --
Accounts receivable 11,291 5,766
Prepaid expenses 18,043 --
----------- -----------
Total current assets 227,417 5,766
----------- -----------
Furniture, fixtures and equipment, net 57,912 6,122
----------- -----------
Other assets
Network assets 456,516 512,416
Goodwill 943,721 --
Organizational costs 360 --
----------- -----------
Total other assets 1,400,597 512,416
----------- -----------
Total assets $ 1,685,926 $ 524,304
----------- -----------
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 243,465 $ 58,957
Bridge loan payable 219,000 --
Notes payable to stockholder 419,517 188,929
Accrued interest expense 44,062 3,415
Accrued payroll 125,000 --
9,563 --
----------- -----------
Liabilities 1,060,607 251,301
----------- -----------
Total current
Deferred income tax 182,685
-----------
Minority Interest 61,826
-----------
Stockholders' equity
Preferred stock, $1 par value, 500,000 shares authorized, none issued -- --
Common stock, $0.0001 par value, 200,000,000 shares authorized; 14,664,636
shares outstanding at March 31, 2003 1,467
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 6,991,711 5,362,562
Retained earnings (deficit) (6,019,484) (5,312,875)
----------- -----------
973,694 273,003
Less: Treasury stock (592,886) --
----------- -----------
Total stockholders' 380,808 273,003
----------- -----------
equity
Total liabilities and stockholders' equity $ 1,685,926 $ 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 March 31, Six months ended March 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues $ 43,870 $ -- $ 93,888 $ --
------------ ------------ ------------ ------------
Expenses:
Satellite and uplink services 161,122 -- 301,572 --
Production expenses
36,438 -- 56,554 --
Technology expenses
61,034 -- 132,534 --
Administration 64,688 9,645 228,603 6,945
Depreciation and amortization 34,450 -- 59,650 --
------------ ------------ ------------ ------------
Total expenses 354,732 9,645 778,913 6,945
------------ ------------ ------------ ------------
Income (loss) from operations (310,862) (9,645) (685,025) (6,945)
Other (income) expense
Interest income (expense) (14,357) -- (21,584) --
Gain on extinquishment of debt
-- -- -- 424,665
------------ ------------ ------------ ------------
Net loss $ (325,219) $ (9,645) $ (706,609) $ 417,720
------------ ------------ ------------ ------------
Earnings per share:
Net income (loss) $ (0.03) $ (0.03) $ (0.12) $ 1.37
Weighted average number of common
shares outstanding 10,181,969 311,583 5,732,636 311,583
See notes to financial 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 ended
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 -- --
Adjustment to reflect
restated par value -- (11,054) 11,054 -- --
Issuance of shares for services 300,000 30 82,470 -- 82,500
Stock issued for majority interest in
Urban Television of Texas 13,248,000 1,325 1,323,475 -- 1,324,800
Net loss for six months ended
March 31, 2003 -- -- -- (706,609) (706,609)
----------- ----------- ----------- ----------- -----------
Balance March 31, 2003 14,664,636 $ 1,467 $ 6,991,711 $(6,019,484) $ 973,694
----------- ----------- ----------- ----------- -----------
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 March 31, Six months ended March 31,
2003 2002 2003 2002
--------- --------- --------- ---------
Operating Activities
Net income (loss) $(325,219) $ (9,645) $(706,609) $ 417,720
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 31,450 -- 59,650 --
Issuance of common stock for services rendered -- 82,500
Changes in operating assets and liabilities:
Accounts receivable 3,171 -- (5,525) --
Prepaid expenses -- -- (18,043) --
Accounts payable 107,672 (5,000) 181,890 (72,428)
Accrued interest expense 14,356 -- 22,473 (218,261)
Accrued payroll expense 62,500 -- 125,000 --
Accrued payroll tax expense 4,782 (2,355 9,563 2,355)
Bridge loan payable
219,000 -- 219,000 --
Notes payable 100,500 -- 185,743 (210,348)
--------- --------- --------- ---------
Net cash provided by operating activities 218,212 (17,000) 225,171 (85,672)
--------- --------- --------- ---------
Investing Activities
Capital expenditures (23,145) -- (27,088) --
--------- --------- --------- ---------
Net cash (used in) investing (23,145) -- (27,088) --
--------- --------- --------- ---------
Financing Activities
Issuance of stock for debt extinquishment -- -- -- 2,944
Contributed capital -- 17,000 -- 85,428
Cancellation of shares -- -- -- (2,700)
--------- --------- --------- ---------
-- 17,000 -- 85,672
--------- --------- --------- ---------
Increase (decrease) in cash 195,957 -- 198,083 --
Cash at beginning of period 3,016 -- -- --
--------- --------- --------- ---------
Cash at end of period $ 198,083 $ -- $ 198,083 $ --
--------- --------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ --
Income taxes $ -- $ --
Non-cash transactions:
Extinquishment of debt
Cancellation of shares $ -- $424,665
See notes to financial statements.
See accountants review report
8
URBAN TELEVISION NETWORK CORPORATION
and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 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, all adjustments,
including normal recurring adjustments necessary to present fairly the
financial position of Urban Television Network Corporation as of March 31,
2003 and the results of its Operations and cash flows for the six months
then ended, have been included. The results of operations for the interim
period are not necessarily indicative of the results for the full year.
ACCOUNTING POLICIES:
There have been no changes in accounting policies used by the Company
during the six months ended March 31, 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 March 31,
2003 and no revenues or expenses for the year ended September 30, 2002 and
the six months ended March 31, 2003. The Company owns 90% of Urban
Television Network Corporation, a Texas corporation (See note ).
9
URBAN TELEVISION NETWORK CORPORATION
And Subsidiaries
Notes to Consolidated Financial Statements, Continued
March 31, 2003
(UNAUDITED)
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 computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Stock options and
warrants are anti-dilutive, and accordingly, are not included in the
calculation of income (loss) per share.
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.
2. Significant Accounting Policies (Continued)
Advertising Costs
The Company expenses non-direct advertising costs as incurred. The Company
did not incur any direct response advertising costs for the fiscal year
ended September 30, 2002 and the six months ended March 31, 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.
10
URBAN TELEVISION NETWORK CORPORATION
And Subsidiaries
Notes to Consolidated Financial Statements, Continued
March 31, 2003
(UNAUDITED)
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.
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 six months ended
March 31, 2003 was $255,900.
Future amortization of the Network assets at December 31, 2002 will be
$484,466 and on an annual basis be as follows:
Year ended September 30, 2003 $ 55,904
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
11
URBAN TELEVISION NETWORK CORPORATION
And Subsidiaries
Notes to Consolidated Financial Statements, Continued
March 31, 2003
(UNAUDITED)
4. Property, Plant and Equipment
The Company acquired equipment totaling $64,795. 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 six months ended March 31, 2003 was $3,750 and the
accumulated at March 31, 2003 was $6,883.
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
---------
12
URBAN TELEVISION NETWORK CORPORATION
And Subsidiaries
Notes to Consolidated Financial Statements, Continued
March 31, 2003
(UNAUDITED)
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 -- 360 973,722 761,397
----------- ----------- ----------- -----------
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
----------- ----------- ----------- -----------
13
URBAN TELEVISION NETWORK CORPORATION
And Subsidiaries
Notes to Consolidated Financial Statements, Continued
March 31, 2003
(UNAUDITED)
5. Acquisition (Continued)
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.
Six months ended Six months ended Year ended
March 31, 2003 March 31, 2002 September 30,2002
Revenues $ 93,888 $ 36,045 $ 143,742
Net income (loss) $(713,939) $ 255,151 $(185,427)
Income (loss) per share $ (.049) $ .017 $ (.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
Extinguishment of Debt
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 six months ended March 31, 2003 was $6,000.
14
URBAN TELEVISION NETWORK CORPORATION
And Subsidiaries
Notes to Consolidated Financial Statements, Continued
March 31, 2003
(UNAUDITED)
8. Notes Payable
Notes payable consist of:
March 31, September 30,
2002 2002
------------- -------------
Notes payable to stockholders at 10%
interest payable on September 30, 2004 $ 419,517 $ 188,929
------------- -------------
9. Convertible Bridge Loan
Convertible bridge loan consist of:
March 31, September 30,
2002 2002
------------- -------------
Convertible bridge loan payable to
individuals at 6% interest payable
on February 14, 2004 $ 219,005 $ --
------------- -------------
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 no current or deferred income tax component.
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.
15
URBAN TELEVISION NETWORK CORPORATION
And Subsidiaries
Notes to Consolidated Financial Statements, Continued
March 31, 2003
(UNAUDITED)
In December 2002, the Company issued 300,000 shares of its common stock for
consulting and legal Services.
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
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 December 31, 2002.
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
six months ended March 31, 2003, the amount expensed was $72,172.
Future lease payments due during the term of the lease ending on November
21, 2005 will equal $577,376 and be due as follows:
Year ended September 30, 2003 $108,258
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 six months ended March 31, 2002 the amount expensed was $32,000.
Future lease payments due during the term of the lease ending on November
21, 2005 will equal $256,000 and be due as follows:
Year ended September 30, 2003 $ 48,000
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.
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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 no revenues for the six months ended March 31, 2002.
For the three and six months ended March 31, 2003 the Company had revenues of
$43,870 and $93,888, respectively. The year 2003 revenues are related to the
UATV Television Network 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. The Company had no operations for the six months ended March
31, 2002. For the three months and six months ended March 31, 2003, the Company
had operating costs of $354,732 and $778,913, respectively. Major components of
cost of operations the three and six months ended March 31, 2003 include
$161,122 and $301,572 for satellite and uplink expenses, $36,438 and $56,554 for
production and master control expenses, $61,034 and $132,534 for technology
expenses and $61,688 and $228,603 for administration expenses which includes the
Company's independent auditors, legal fees and business consulting services.
The Company had operating losses for the three and six months ended March 31,
2003 of $325,219 and $706,609, respectively. These losses relate to the
continued growth of the UATV Television Network acquired by the Company in May
of 2002. During the three months ended December 31, 2001, the Company did have
$427,365 of income derived from $424,665 in gains resulting from the
extinguishment of liabilities and $2,700 of income derived from the cancellation
of shares previously issued for consulting services that were never performed.
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EARNINGS PER SHARE OF COMMON STOCK. The net income or loss per common share is
based upon the weighted average of outstanding common stock during the period.
The net loss per share of common stock was $0.3 for the three months ended March
31, 2003 compared to a net loss of $.03 for the three months ended March 31,
2002. For the six months ended March 31, 2003, the Company had a net loss of
$.12 per share compared to net income of $1.37 per share for the six months
ended March 31, 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 six months ended March 31, 2002, the Company settled lawsuits,
judgments and liabilities totaling $428,609 for $21,000 and 224,420 shares of
its common stock.
As of March 31, 2003, the Company's assets were $1,503,241 which exceeded
outstanding liabilities by $442,634.
Financing activities for the six months ended March 31, 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.
Financing activities for the six months ended March 31, 2003 include:
1) Issuance of common stock in lieu of cash payments totaling $82,500 for
legal and professional services and consulting services.
2) Loans of $185,743 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 March 31, 2003, a total of $219,000 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.
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.
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Other Events
On May 12, 2003, Jacob R. Miles III was appointed as President of the Urban
America Television Network which operates as a division of the Company.
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 March 31, 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 recoreded, 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.
(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.
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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
indentified in the code of violations of our Code of Ethical Conduct;
and
5. Accountability for adherence to the Code.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities
Recent Sales of Securities
On February 7, 2003, the Company entered into an Exchange Agreement with
the majority shareholders Of Urban Television Network Corporation, a Texas
corporation (UTNC) to acquire 90% of the issued and Outstanding capital stock of
UTNC in return for 13,248,000 shares of the Company's common stock.
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. As of March 31, 2003, the total of $219,000 had been advanced on the
agreement. The lenders have the right to advance up to $1,500,000 over a twelve
month period. Additionally, the lenders may convert their loans, including
accrued interest, to our common stock at the rate of two (2) shares for each
dollar owed, at any time prior to maturity or February 14, 2004. The Loan
Agreement constitutes a limited offering of convertible securities offered and
sold exclusively to Arkansas residents.
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.
The Company acted on matters authorized by a vote of the majority
shareholder holding 71.9% of the voting stock, in lieu of a special meeting of
the shareholders. The effective date of the action taken by the Company was
November 28, 2002. The Company filed an amendment to its Articles of
Incorporation implementing a change in its capital. Additionally, the Company
was authorized to acquire Urban Television Network Corporation, a Texas
corporation, from its shareholders in a share exchange transaction. The Company
provided its shareholders with an information Statement on Schedule 14C. These
actions were disclosed in a Current Report filed on Form 8-K on December 2,
2002.
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Item 5. Other Information
On May 12, 2003, Jacob R. Miles III was appointed as President of the Urban
America Television Network which operates as a division of the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description and Method of Filing
---------- --------------------------------
10.0 Loan Agreement dated as of February 14, 2003 between certain
lenders And Urban Television Network Corporation
20.1 Code of Ethical Conduct
99.1 Certification by Chief Executive Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
99.2 Certification by Chief Financial Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
99.3 Certification by Chief Executive Officer, pursuant to 18 USC
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.4 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.
On December 2, 2002, the Company filed an 8K Report detailing Item 5,
titled, "Other Events".
On February 25, 2003, the Company filed an 8K Report detailing Item 2,
titled, "Acquisition or Disposition of Assets".
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: May 14, 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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