Hispanic Television Network Inc.

founded: 1999 variant name: htvn

Contact Information:

headquarters: 6125 airport fwy, suite 200fort worth, tx 76117 fax: (817)222-9809 phone: (817)222-1234 url: http://www.htvn.net officer: steven mortonson, 49, cfo

OVERVIEW

Hispanic Television Network (HTVN) produces and broadcasts television programs and content for the U.S. Spanish-speaking population. It is the smallest of three Spanish-speaking networks located in the United States. Whereas industry leaders Univision and Telemundo have successfully capitalized on the rapidly growing population of Latinos in the United States, HTVN has been heavily burdened by cash flow problems that have left it struggling to remain viable.

The company's first, and primary, network is a Spanish-language, Televisión Hispana, or HTVN, which produces and distributes television content and programming that targets Hispanic Americans of Mexican heritage. HTVN broadcasts news and news commentary, drama and comedy series, music videos, and children's programming 24 hours a day, seven days a week. HTVN owes and operates two Texas television stations, located in Beaumont and Eagle Pass. Its signal is available via six affiliate stations in the following locations: Spring-dale, Arkansas; Casa Grande, Arizona; San Diego, California; Wichita, Kansas; Reno, Nevada; and Charleston, South Carolina. HTVN is also distributed to the cable television market through contracts with Time Warner Cable, AT&T Broadband, and CNI Canal 40, which is based in Mexico City. Through its stations, affiliates, and cable contracts, HTVN is available in 130 U.S. cities.

HTVN's wholly owned subsidiary, American Independent Network (AIN), targets the general, English-speaking audience and is broadcast 24 hours a day, 7 days a week through 40 affiliate stations throughout the United States with a potential audience of 15 million households. AIN is managed by ParMedia LP, which receives 40 percent of the network's net revenues for its services. HTVN also owns cubico.com, an interactive Internet site that targets young adult Latinos in the United States.

COMPANY FINANCES

As of September 30, 2001, HTVN had $5.59 million in net assets, down from $8.84 million as of December 31, 2000. Over the same period of time, net liabilities grew from $13.37 million to $16.69 million. The increase in liabilities is primarily attributed to an additional $1.94 million in accounts payable, $2.79 million in notes payable, and $1 million in accrued interest. For the first three quarters of 2001, ending September 30, HTVN reported a net loss of $18.94 million, compared to a net loss of $13.04 million for the same period of the previous year.

For the first nine months of 2001, total revenues were $1.4 million, representing a year-over-year increase from $396,000 from 2000. The nearly $6 million increase in net loss despite revenue growth of $1 million during the same period is explained by sharply higher costs in certain areas of expenditures. Although programming costs decreased by more than $1 million and salaries and wages declined by approximately $500,000, HTVN experienced increases of $2.68 million in administrative costs, $1.54 million in professional services, and $4.74 million in interest payments, compounded by an additional $1.1 million loss from operations. Losses for operations were $11.01 million and $12.11 million for the first nine months of 2000 and 2001, respectively.

ANALYSTS' OPINIONS

During 2001 HTVN found itself in the midst of a serious financial crisis. HTVN spent a modest $25 to $30 million to launch its network operations, with expectations that it would engage in a secondary offering of stock. However, the economic downturn in the United States created a near lockdown on investing, which prevented the completion of the second stock offering, causing HTVN to be under funded.

As of November 15, 2001, the company had $2.9 million in accounts payable, most of which were past due. A number of vendors and suppliers began collection proceedings, several of which ended in judgments against HTVN for failure to pay. Matter became so dire that, in one case, a hearing was scheduled for January 15, 2002, to appoint a receiver to liquidate the company. Although the network was able to somehow dodge that fatal blow, with more money going out than coming in, HTVN executives have been in a constant scramble to keep the company afloat.

Along with its inability to pay its suppliers, HTVN defaulted on a credit facility of $7.3 million. While HTVN worked with the lender to find terms to extend or restructure the loan obligation, its failure to pay provided the lender with the legal right to liquidate the company's assets at any moment. In another narrow escape, HTVN was able to work out a revamped repayment schedule and averted bankruptcy.

FAST FACTS: About Hispanic Television Network Inc.

Ownership: Hispanic Television Network is a publicly owned company that trades on the Over-The-Counter Bulletin Board.

Ticker Symbol: HTVNE.OB

Officers: James Ryffel, 42, Chmn. and Interim CEO; Steven Mortonson, 49, CFO; Michael Fletcher, 45, COO

Employees: 44

Principal Subsidiary Companies: HTVN operates the HTVN network, Cubico.com Internet site, and American Independent Network. It also owns and operates two television stations in Texas.

Chief Competitors: HTVN is the third largest Spanish-language network, but lags far behind industry leaders, Telemundo and Univision.

HISTORY

HTVN was formed in 1999, when American Independent Network Inc. (AIN) and Hispano Television Ventures Inc. (HTV). AIN, a publicly owned company, was incorporated in Delaware on December 11, 1992. AIN is involved in the general market, family-oriented television network by providing programming and related services. HTV, a privately owned corporation that produced Spanish-language television programming, was incorporated in Texas on February 28, 1998. In September 1999 HTV purchased 11 million previously unissued shares of AIN common stocks for $500,000 in cash payment, which gave HTV ownership of approximately 60 percent of AIN's then outstanding common stocks. On December 15, 1999, HTV completed the integration of the two companies by merging into AIN, the surviving entity. As laid out by the merger agreement, AIN issued 70 million shares of common stock in exchange for all outstanding shares of HTV stock. Through this reverse acquisition, the emerging new corporation, renamed Hispanic Television Network Inc., underwent recapitalization.

On July 11, 2000, HTVN acquired full ownership of TeleVideo Inc. and MGB Entertainment Inc. The San Antonio-based companies produce English- and Spanish-language programming. On August 30, 2001, HTVN purchased all outstanding interest in Cubico.com Inc., an interactive Web site targeting young urban Latinos in the United States. Prior to the acquisition, HTVN had maintained a 48-percent interest in the Internet portal since 2000. Cubico.com offers free online services such as email, chat rooms, and message boards. Its main channels include Estilo, Music, Entertainment, El Campus, and Community.

Near the close of 2000, HTVN began to experience a critical shortage of operating funds due to ongoing significant operating losses and negative cash flow. Its financial problems stemmed from an inability to obtain funds from public markets, enter into a strategic partnership, or obtain credit financing. The fact that incoming revenues did not meet the level of outgoing expenses only served to exacerbate the situation. Throughout 2001 HTVN searched for a way out, namely, a strategic partner that could provide the company with a significant influx of cash. By the end of the second quarter of 2002, no such partnership had emerged, leaving the company continuing to scramble to keep creditors at bay and operations running.

STRATEGY

To remain a viable entity HTVN will be required to significantly increase revenues and decrease costs. At its inception, the corporate strategy was to grow the network through the purchase of television stations. As it became obvious that HTVN could not sustain this strategy, the company shifted its focus to growing its affiliate base and long-term contracts with cable operators. Although HTVN considers growth through acquisition an important strategy, the company's financial situation precludes any substantial purchases in the foreseeable future.

By increasing the number of affiliates and contracting with more cable providers, HTVN will expand its viewing audience. As the viewing audience grows, the company will be able to increase its advertising rates, thus boasting revenues at a disproportionally higher rate than its increased broadcast coverage. HTVN also decided to run limited amounts of paid programming that would become a direct source of revenues not yet tapped by the company.

Expanding its presence on cable systems provides HTVN with a dual benefit. First, the increase in audience numbers allows for the increase in advertising revenues as airtime becomes more valuable. Second, HTVN receives subscriber fees from the cable companies. HTVN has secured ten-year contracts for cable and satellite distribution with Time Warner Cable; Satellite Services Inc., the program operations unit for AT&T Broadband, Cox Communications, Inc.; Liberty Spanish Group LLC a/k/a Canales ñ, the Spanish-language distributor for Comcast Cable; and Adelphia Cable, as well as a five-year contract with National Cable Television Coop. Because subscription fees are not paid until the end of the contract year, despite its numerous contracts, HTVN did not begin receiving any monetary benefit until well into 2002.

CHRONOLOGY: Key Dates for Hispanic Network Television Inc.

1992:

American Independent Network (AIN) is incorporated as a publicly held company

1998:

Privately owned Hispano Television Ventures (HTV) is formed

1999:

AIN and HTV merge to form Hispanic Network Television Inc. (HTVN)

2000:

HTVN begins to suffer cash flow shortages

2001:

HTVN defaults on a $7.3 million loan and more than $2 million in accounts payable; company is de-listed from NASDAQ

2002:

HTVN continues search for strategic partner to remain viable; stock prices fall to $0.01 per share

This expansion strategy should lead to increased revenues, but HTVN has dug a financial hole for itself that it will need help to get out of. Thus, the company continues to search for a strategic partnership that would provide an influx of approximately $10 million, which would place the network on firm footing again and provide the company an opportunity to become profitable in the foreseeable future. It appeared HTVN had found such a partner in February of 2001 when C-Networks agreed to provide a strategic investment in HTVN. To attract C-Networks' interest, several major founding shareholders returned a majority of their shares to the company, and HTVN allowed C-Networks' president and chief executive officer, Emilio Goritti, to become a member of HTVN's board and chief executive officer. However, when C-Networks failed to fulfill its cash influx commitments, HTVN negated the deal and terminated Goritti. Spanish Network Partners showed interest in working with HTVN; however, for reasons undisclosed in February of 2002, after signing a letter of intent, HTVN and Spanish Network Partners terminated discussions.

While attempting to increase revenues and locate outside assistance, HTVN has undergone a dynamic cost-cutting campaign, reducing expenditures in almost every category, particularly in payroll and programming. Excluding debt and interest payments, these measures have reduced the monthly negative cash flow from $1.5 million to $300,000.

HTVN's primary source of revenues during the first three years of its operations were generated by sale of advertising airtime on its television stations. Advertising time is marketed to advertising agencies and independent advertisers, affiliate stations, and program owners. The rate for commercial airtime sold to advertising agencies and independent advertisers is based on the estimated size of the viewing audience. Because a larger audience can justify higher prices for advertising time, HTVN has committed to securing new affiliate relationships for AIN, which broadcasts in numerous smaller markets, in areas that are demographically favorable. The primary goal is to obtain as high a Nielsen rating as possible, thus justifying higher advertising rates.

HTVN benefits from relationships from affiliate stations by retaining a portion of advertising time as well as gaining access to the affiliates' viewing audience. Traditionally, affiliate stations work with networks under a standard fee agreement; however, by trading fee for commercial airtime, which HTVN then sells to outside advertisers, the network hopes to generate higher returns than would be obtains through a flat fee contract.

HTVN works with program owners by providing them with advertising time during the broadcast of their programs, which they sell to outsider advertisers for a profit. In return, HTVN obtains licensing rights to broadcast the programs, but does not receive any direct compensation.

Advertising categories include network advertising, national spot advertising, and local spot advertising. Network advertising is placed in slots that broadcast simultaneously across all of the network's markets. Every station, including affiliates, has a percentage of time dedicated to network advertising. National advertisers can purchase geographically specific "spot" advertising time. If a company wishes to target a particular demographic area or areas, those markets can be singled out and air-time sold. Local spot advertising is purchased by businesses that operate within a specific broadcast area. Basically, local companies advertising within their local markets.

O PARTNER, WHERE ART THOU?

HTVN is in desperate need of forming a strategic partnership that would jumpstart the company back to profitability, but it has failed to find willing investors. Previously trading its common stock on the NASDAQ National Market, HTVN's stocks were de-listed in August 2001 due to the company's failure to retain a minimum of $4 million in net tangible assets and because its stock price fell below a minimum bid price of $1.00 for more than 30 consecutive trading days—both of which are requirements for maintaining a NASDAQ listing. On August 3, 2001, HTVN began trading on the Over-the-Counter Bulletin Board. In May 2002, stocks, which traded as high as $20 per share during 2001, were selling for slightly more than $0.01 per share.

PRODUCTS

HTVN provides a variety of programming that fills its continuous broadcast. For example, Kolita, which airs weekday mornings, is a children's program featuring games, contests, and music. Bandazo airs music videos during mornings and late-night time slots. Afternoon programming includes Agua y chocolate, a family drama centered around cooking show; Explosivo Musical, a music show with comedy skits and interviews; and Mexico de mis amores, a travel show featuring Mexican locations. De Nueve A Diez, which airs interviews with Latino entertainers, Galeria, an investigative series, and Best of Las Nueve Y Sereno, which provides Victor Trujillo's talk and entertainment program are among HTVN's prime time program offerings. HTVN also airs four movies daily, as well as a special concert and biographical series. News airs via CNI Noticias, and Septimo Dia provides live political discussion. AIN's programming is made up of movies, classic sit-coms, sports, and network specials.

SOURCES OF INFORMATION

Bibliography

"canales to distribute htvn in more than 130 u.s. cities." business wire, 18 july 2001.

chunovic, louis. "hispanic tv network faces daunting odds." electronic media, 14 january 2002.

fox, valerie, and lisa y. taylor. "hispanic network grows." dallas business journal, 31 december 1999.

"hispanic television network acquires televideo, inc. and mgb entertainment, inc." business wire, 8 august 2000.

"hispanic television network begins trading otcbb today." pr newswire, 3 august 2001.

"hispanic television network receives strategic investment from c-networks." business wire, 13 february 2001.

"hispanic television network takes steps to strengthen balance sheet." business wire, 19 december 2000.

"htvn and spanish network partners terminate funding discussions." pr newswire, 11 february 2002.

"htvn and time warner cable sign long term distribution contract." business wire, 21 march 2001.

"htvn moving ahead with expansion initiatives." pr newswire, 11 september 2001.

"htvn to get strategic investment." dallas business journal, 24 october 2001.

nicholson, gilbert. "hispanic television net seeking funds." mediaweek, 8 january 2001.

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. hispanic television network inc.'s primary sics are:

4833 television broadcasting

4841 cable networks and other program distribution

also investigate companies by their north american industry classification system codes, also known as naics codes. hispanic television network inc.'s primary naics codes are:

513120 television broadcasting

513210 cable networks

513220 cable and other program distribution