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UNITED STATES SECURITIES AND EXCHANGE COMMISSION



Form 10-Q

(Mark One)




QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 2001

or



TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from
          to
          .

Commission File Number: 000-30700

Crown Media Holdings, Inc.



|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|                                                               
|                                                               
|                                                               
|                                                               
|Delaware                                                        |  | 84-1524410                           
|(State or Other Jurisdiction
	of Incorporation or Organization) |  | (I.R.S. Employer
	Identification No.)

6430 S. Fiddlers Green Circle,

Suite 500,


Greenwood Village, Colorado 80111




(303) 220-7990



(Former Name, Former Address, and Former Fiscal Year,



As of April 27, 2001, the
number of shares of Class A Common Stock, $.01 par
value outstanding was 34,754,127, and the number of shares of
Class B Common Stock, $.01 par value, outstanding was
30,670,422.



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TABLE OF CONTENTS



|                                                                                              |                                                                         |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- |  |  |  |  |  |  | 
|TABLE OF CONTENTS                                                                            
|PART I. FINANCIAL INFORMATION                                                                
|ITEM 1. Financial Statements (Unaudited)                                                     
|                                                                                              | Introductory Comments                                                  
|                                                                                              | PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS              
|                                                                                              | Managements Discussion and Analysis of Pro Forma Results of Operations
|                                                                                              | CONSOLIDATED BALANCE SHEETS                                            
|                                                                                              | CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS           
|                                                                                              | CONSOLIDATED STATEMENTS OF CASH FLOWS                                  
|                                                                                              | CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                   
|ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                              | Forward-Looking Statements and Risk Factors                            
|ITEM 3. Quantitative and Qualitative Disclosures About Market Risk                           
|PART II: OTHER INFORMATION                                                                   
|                                                                                              | ITEM 6. Exhibits and Reports on Form 8-K                               
|SIGNATURES                                                                                   
|EX-10.1-Amended/Restated Trademark License Agrmt                                             
|EX-10.2-Agreement dated as of 2/22/01                                                        
|Program License Agreement                                                                    
|License Agreement                                                                            
|EX-99-Press Releases dated 3/28, 4/12 & 5/1/01                                               



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##### Table of Contents






TABLE OF CONTENTS

|           |  |                                                                                                                         |    |      |    | 
|---------- |  | ----------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                                                         |    | Page
|           |  |                                                                                                                         |    |     
|Part  I    |  | Financial Information                                                                                                   |    |      | 1  | 
|Item  1    |  | Financial Statements (Unaudited)                                                                                        |    |      |    | 
|           |  | CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES                                                                         |    |      |    | 
|          
|          
|          
|          
|           |  | Introductory Comments                                                                                                   |    |      | 1  | 
|          
|          
|          
|          
|           |  | Pro Forma Condensed Consolidated Statements of Operations
	(Unaudited)  Three Months Ended March 31, 2000
	and 2001    |    |      | 2  | 
|          
|          
|          
|          
|           |  | Managements Discussion and Analysis of Pro Forma Results
	of Operations                                                |    |      | 2  | 
|          
|          
|          
|          
|           |  | Consolidated Balance Sheets  December 31, 2000
	and March 31, 2001 (Unaudited)                                         |    |      | 5  | 
|          
|          
|          
|          
|           |  | Consolidated Statements of Operations and Comprehensive Loss
	(Unaudited)  Three Months Ended March 31, 2000
	and 2001 |    |      | 6  | 
|          
|          
|          
|          
|           |  | Consolidated Statements of Cash Flows (Unaudited) 
	Three Months Ended March 31, 2000 and 2001                         |    |      | 7  | 
|          
|          
|          
|          
|           |  | Condensed Notes to Consolidated Financial Statements                                                                    |    |      | 8  | 
|          
|          
|          
|          
|          
|Item  2    |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations                                  |    |      | 27 | 
|          
|          
|          
|          
|           |  | Forward-Looking Statements and Risk Factors                                                                             |    |      | 33 | 
|          
|          
|          
|          
|          
|Item  3    |  | Quantitative and Qualitative Disclosures About Market Risk                                                              |    |      | 40 | 
|          
|          
|          
|          
|Part  II   |  | Other Information                                                                                                       |    |      | 41 | 
|          
|          
|          
|          
|          
|Item  6    |  | Exhibits and Reports on Form 8-K                                                                                        |    |      | 41 | 
|          
|          
|          
|          
|Signatures |  |                                                                                                                         | 43 |     

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##### Table of Contents



The discussion set forth in this Form 10-Q contains
statements concerning potential future events. Such
forward-looking statements are based on assumptions by Crown
Media Holdings, Inc.s (Crown Media
Holdings) management, as of the date of this
Form 10-Q, including assumptions about risks and
uncertainties faced by Crown Media Holdings. Readers can
identify these forward-looking statements by their use of such
verbs as expects, anticipates,
believes, or similar verbs or conjugations of such
verbs. If any of managements assumptions prove incorrect
or should unanticipated circumstances arise, Crown Media
Holdings actual results, levels of activity, performance,
or achievements could materially differ from those anticipated
by such forward-looking statements. Among the factors that could
cause actual results to differ materially are those discussed in
Item 2 Risk Factors of this Form 10-Q.
Crown Media Holdings will not update any forward-looking
statements in this Form 10-Q to reflect future events or
developments.

In this Form 10-Q, the terms we,
us and our refer to Crown Media
Holdings, and, unless the context requires otherwise, Crown
Media International, Inc. (Crown Media
International), Odyssey Holdings, L.L.C.
(Odyssey Holdings), and
H&H Programming  Asia, L.L.C.
(H&H Programming  Asia or
The Kermit Channel), subsidiaries of Crown Media
Holdings that operate our businesses. The term common
stock refers to our Class A common stock and
Class B common stock, unless the context requires
otherwise.




PART I.  FINANCIAL INFORMATION




ITEM 1.  Financial Statements (Unaudited)




The Consolidated Financial Statements of Crown Media Holdings
included herein have been prepared by us, without audit,
pursuant to the rules and regulations of the United States
Securities and Exchange Commission (SEC). Certain
information and note disclosures normally included in financial
statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations, although we
believe that the disclosures are adequate to enable a reasonable
understanding of the information presented. These Consolidated
Financial Statements should be read in conjunction with the
audited financial statements and the notes thereto for the years
ended December 31, 1999 and 2000, included in our Annual
Report on Form 10-K. Additionally, the Consolidated
Financial Statements should be read in conjunction with
Item 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations included in
this Form 10-Q.

The results of operations for the three months ended
March 31, 2001, are not necessarily indicative of the
results to be expected for the full year 2001.

The following unaudited pro forma consolidated statements of
operations for the quarters ended March 31, 2000 and 2001,
have been derived from the unaudited financial statements of
Crown Media Holdings and its subsidiaries. This pro forma
financial information is qualified in its entirety by reference
to, and should be read in conjunction with, our unaudited
financial statements contained in this Form 10-Q and
related notes thereto for the three months ended March 31,
2000 and 2001, as well as our historical consolidated financial
statements and related notes thereto contained in our Annual
Report on Form 10-K for the year ended December 31,
2000.

The consolidated financial statements of Crown Media Holdings
include the assets, liabilities and results of Crown Media
International for all periods presented. Crown Media Holdings
considers Crown Media International as a predecessor corporation
for financial reporting purposes. The historical consolidated
financial statements of Crown Media Holdings also include the
results of operations for (i) 22.5% common interests in
Odyssey Holdings owned by Crown Media Holdings for the entire
year ended December 31, 2000, (ii) 55% common
interests in Odyssey Holdings since May 9, 2000, when we
completed our initial public offering and acquired those
additional interests, (iii) the remaining 22.5% common
interests in Odyssey Holdings since March 15, 2001, when we
acquired those remaining common interests, and (iv) the
100% interest in H&H Programming  Asia,
since March 15, 2001 when we acquired the remaining
50% interest in that entity not previously owned by us.

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The pro forma financial information stated below presents a
summary of condensed consolidated results of operations of Crown
Media Holdings, Crown Media International, Odyssey Holdings and
H&H Programming  Asia, as if each of these
acquisitions listed above had occurred on January 1 of the
periods presented, along with certain pro forma adjustments to
give effect to the amortization of goodwill and other
intangibles and other adjustments. The pro forma financial
information is not necessarily indicative of the results of
operations had the transactions been effected on the assumed
dates.

The following summary of Crown Media Holdings unaudited
Pro Forma Condensed Consolidated Statements of Operations and
related Managements Discussion and Analysis of Pro Forma
Results of Operations have been included to provide a
comparative basis for users of Crown Media Holdings
financial information.

CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES






PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except per share amounts)


|                                                                   |                               |                    |                              |        |       |         |        |        |        |         |  
|------------------------------------------------------------------ | ----------------------------- | ------------------ | ---------------------------- | ------ | ----- | ------- | ------ | ------ | ------ | ------- | -
|                                                                   |                               |                   
|                                                                   |                               | Three Months Ended
|                                                                   |                               | March 31,         
|                                                                   |                               |                   
|                                                                   |                               | 2000               |                              | 2001  
|                                                                   |                               |                    |                              |       
|                                                                   |                               |                   
|                                                                   |                               | (Unaudited)       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Revenues:                                                          |                               |                    |                              |        |       |         |        |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Subscriber fees               |                    | $                            | 11,071 |       |         | $      | 16,006 |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Advertising                   |                    |                              | 1,716  |       |         |        | 6,069  |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Advertising by Hallmark Cards |                    |                              | 563    |       |         |        | 1,093  |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Other                         |                    |                              | 311    |       |         |        | 22     |       
|                                                                   |                               |                    |                              |        |       |         |        |       
|                                                                   |                               |                    | Total revenues               |        |       | 13,661  |        |        |        | 23,190  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Cost of Services:                                                  |                               |                    |                              |        |       |         |        |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Programming costs:            |                    |                              |        |       |         |        |        |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   |                               | Affiliates         |                              |        | 9,669 |         |        |        | 15,267 |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   |                               | Non-affiliates     |                              |        | 3,528 |         |        |        | 5,643  |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Operating costs               |                    |                              | 10,738 |       |         |        | 14,624 |       
|                                                                   |                               |                    |                              |        |       |         |        |       
|                                                                   |                               |                    | Total cost of services       |        |       | 23,935  |        |        |        | 35,534  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Selling, general and administrative expenses                       |                               |                    | 14,714                       |        |       |         | 18,198 |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Marketing expenses                                                 |                               |                    | 3,448                        |        |       |         | 10,642 |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Amortization of goodwill and other intangibles                     |                               |                    | 5,425                        |        |       |         | 5,425  |       
|                                                                   |                               |                    |                              |        |       |         |        |       
|                                                                   |                               |                    | Loss from operations         |        |       | (33,861 | )      |        |        | (46,609 | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Interest expense, net                                              |                               |                    | (103                         | )      |       |         | (871   | )     
|                                                                   |                               |                    |                              |        |       |         |        |       
|                                                                   |                               |                    | Net loss before income taxes |        |       | (33,964 | )      |        |        | (47,480 | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Income tax provision                                               |                               |                    | (234                         | )      |       |         | (385   | )     
|                                                                   |                               |                    |                              |        |       |         |        |       
|                                                                   |                               |                    | Net loss                     |        | $     | (34,198 | )      |        | $      | (47,865 | )
|                                                                   |                               |                    |                              |        |       |         |        |       
|Weighted average number of Class A and Class B shares
	outstanding |                               |                    | 65,377                       |        |       |         | 65,415 |       
|                                                                   |                               |                    |                              |        |       |         |        |       
|                                                                   |                               |                    | Net loss per share           |        | $     | (0.52   | )      |        | $      | (0.73   | )
|                                                                   |                               |                    |                              |        |       |         |        |       




Managements Discussion and Analysis of Pro Forma
Results of Operations



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Three Months Ended March 31, 2001 Compared to Three
	Months Ended March 31, 2000

Revenues.Total revenues for the three months ended
March 31, 2001, increased by $9.5 million, which
represents an increase of 69.8% over the comparable period in
2000. Subscriber fees revenue increased by $4.9 million for
the three months ended March 31, 2001, which represents an
increase of 44.6% over the comparable period in 2000. The
increased subscriber fees revenue resulted from new market
launches and expanded distribution in existing markets. The
number of subscribers to the Hallmark Channel, operated by

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Consolidated subscriber fees revenue increased at a greater rate
than subscribers primarily as the result of the addition of
certain domestic long-term distribution agreements. However,
subscribers of the Hallmark Channel increased at a higher rate
than subscriber fees revenue primarily because a number of new
subscribers were added during promotional periods in which fees
were temporarily reduced or waived. During the first quarter of
2001, distribution of the Hallmark Channel was expanded in
Taiwan to approximately 4.0 million subscribers and
launched in South Korea to approximately 1.2 million
subscribers. Sixty-three percent of total revenues for the three
months ended March 31, 2001, and 68.3% of total revenues
for the three months ended March 31, 2000, were earned
internationally. Subscribers of the Odyssey Network increased
from 26.7 million as of March 31, 2000, to
29.0 million as of March 31, 2001, due to the
renegotiation of agreements with six of the top nine leading pay
television distributors subsequent to first quarter 2000.
Additionally, rates negotiated for domestic subscriber fees and
advertising revenues increased as we continue to sign new
distribution agreements. International fees per subscriber are
expected to experience downward pressure in the future due to
the competitive nature of the industry, the growth of digital
cable, and the shift in the industry from subscriber fees
revenue to advertising revenue.

Cost of services.Cost of services for the three months
ended March 31, 2001, increased by $11.6 million,
which represents an increase of 48.5% over the comparable period
in 2000. Cost of services as a percent of total revenue
decreased to 153.2% for the three months ended March 31,
2001, as compared to 175.2% for the three months ended 2000.
This decrease was due primarily to the 69.8% increase in total
revenues noted above. Programming costs rose 58.4% as we
invested in additional and higher quality programming, including
the greater use of Hallmark Entertainment titles necessary to
fulfill our programming strategy. Also, we continue to amortize
licensing fees for the domestic rights which we acquired in 2000
from a third-party supplier to the series Dr. Quinn,
Medicine Woman. Additionally, operating costs rose as we
expanded existing markets, such as Taiwan, and launched the
Hallmark Channel in South Korea during the first quarter of
2001. Total cost of services increased reflecting the increased
infrastructure, certain key senior management additions, and
costs associated with supporting new markets.

Selling, general and administrative expenses.Selling,
general and administrative expenses for the three months ended
March 31, 2001, increased by $3.5 million, which
represents an increase of 23.7% over the comparable period in
2000. This increase primarily reflects increased costs
associated with supporting expanded distribution in existing
markets, supporting new markets and the continued development of
a corporate infrastructure to support increased distribution and
advertising, including expansion of the management team and
increased staffing levels. Selling, general and administrative
expenses as a percent of total revenue decreased to 78.5% for
the three months ended March 31, 2001, as compared to
107.7% for the three months ended March 31, 2000. This
decrease is due to the 69.8% increase in total revenues noted
above and decreases in travel and entertainment and consulting
costs.

Marketing expenses.Marketing expenses for the three
months ended March 31, 2001, increased by
$7.2 million, which represents an increase of 208.6% over
the comparable period in 2000. Marketing expenses increased in
the first quarter of 2001 due to aggressive marketing campaigns
for the Odyssey Network and the introduction of our new brand
package, which includes branded theme blocks, a new positioning
line, on-air graphics and signature music. The newly redesigned
brand began a worldwide rollout on November 1, 2000.
Additionally, several original movies were aired during first
quarter 2001, which were supported by aggressive marketing
campaigns to drive consumer awareness. In March 2001, we entered
into an agreement with Hallmark Licensing, Inc. which
allows us to re-launch the Odyssey Network as the Hallmark
Channel. This

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Amortization of goodwill and other intangibles.Amortization of goodwill and other intangibles for each of
three months ended March 31, 2001 and 2000, was
$5.4 million. In conjunction with the acquisition of
Odyssey Holdings on May 9, 2000, we recorded goodwill in
the amount of $248.8 million, which is being amortized over
20 years. In conjunction with the acquisition of EM.TV
& Merchandising AGs (EM.TV) 50%
interest in The Kermit Channel and 22.5% common interests in
Odyssey Holdings on March 15, 2001, we recorded goodwill
and other intangibles in the amount of $91.7 million, which
are being amortized over 10 years.

Loss from operations.Loss from operations for the three
months ended March 31, 2001, increased by
$12.7 million, which represents an increase of 37.6% over
the comparable period in 2000. This increase in loss from
operations for the three months ended March 31, 2001, was
attributable to a combination of the factors discussed above.

Interest expense, net.Net interest expense increased by
$768,000 over the comparable period in 2000. This increase was
primarily due to increased borrowings to fund operations.

Income tax provision.Income tax provision for the three
months ended March 31, 2001, increased by $151,000, which
represents an increase of 64.5% over the comparable period in
2000. This increase was due to the tax on the foreign-based
income resulting from increased international subscriber fees
revenue discussed above.

Net loss.Net loss for the three months ended
March 31, 2001, increased by $13.7 million, which
represents an increase of 40.0% over the comparable period in
2000. This increase in net loss for the three months ended
March 31, 2001, was attributable to a combination of the
factors discussed above.

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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


(In thousands, except share amounts)


|                                                                                                                                                                                                                                                           |                     |                                            |         |             |         |   |         |          |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ------------------------------------------ | ------- | ----------- | ------- | - | ------- | -------- | ------- | 
|                                                                                                                                                                                                                                                           |                     | As of                                      |         | As of      
|                                                                                                                                                                                                                                                           |                     | December 31,                               |         | March 31,  
|                                                                                                                                                                                                                                                           |                     | 2000                                       |         | 2001       
|                                                                                                                                                                                                                                                           |                     |                                            |         |            
|                                                                                                                                                                                                                                                           |                     |                                            |         | (Unaudited)
|ASSETS                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Cash and cash equivalents                                                                                                                                                                                                                                  |                     | $                                          | 34,274  |             |         | $ | 11,585  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Accounts receivable, less allowance for doubtful accounts of
        $2,917 and $3,655, respectively                                                                                                                                                       |                     |                                            | 18,159  |             |         |   | 23,758  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Program license fees  affiliates, net of accumulated
        amortization                                                                                                                                                                                 |                     |                                            | 25,130  |             |         |   | 28,692  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Program license fees  non-affiliates, net of
        accumulated amortization                                                                                                                                                                             |                     |                                            | 19,885  |             |         |   | 18,233  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Subtitling and dubbing, net of accumulated amortization                                                                                                                                                                                                    |                     |                                            | 1,525   |             |         |   | 1,810   |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Prepaids and other assets                                                                                                                                                                                                                                  |                     |                                            | 3,181   |             |         |   | 4,580   |         
|                                                                                                                                                                                                                                                           |                     |                                            |         |             |         |   |         |         
|                                                                                                                                                                                                                                                           |                     | Total current assets                       |         |             | 102,154 |   |         |          | 88,658  | 
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Restricted cash                                                                                                                                                                                                                                            |                     |                                            | 340     |             |         |   | 340     |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Accounts receivable, net of current portion                                                                                                                                                                                                                |                     |                                            | 3,074   |             |         |   | 3,939   |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Program license fees  affiliates, net of current
        portion                                                                                                                                                                                          |                     |                                            | 86,640  |             |         |   | 85,146  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Program license fees  non-affiliates, net of current
        portion                                                                                                                                                                                      |                     |                                            | 28,750  |             |         |   | 29,384  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Subtitling and dubbing, net of current portion                                                                                                                                                                                                             |                     |                                            | 4,227   |             |         |   | 4,434   |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Subscriber acquisition fees, net of accumulated amortization                                                                                                                                                                                               |                     |                                            | 29,670  |             |         |   | 28,891  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Property and equipment, net of accumulated depreciation                                                                                                                                                                                                    |                     |                                            | 31,067  |             |         |   | 44,664  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Investment in/advances to unconsolidated entity                                                                                                                                                                                                            |                     |                                            | 611     |             |         |   |        |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Goodwill and other intangibles, net of accumulated amortization                                                                                                                                                                                            |                     |                                            | 240,141 |             |         |   | 328,332 |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Prepaids and other assets, net of current portion                                                                                                                                                                                                          |                     |                                            | 3,404   |             |         |   | 3,185   |         
|                                                                                                                                                                                                                                                           |                     |                                            |         |             |         |   |         |         
|                                                                                                                                                                                                                                                           |                     | Total assets                               |         | $           | 530,078 |   |         | $        | 616,973 | 
|                                                                                                                                                                                                                                                           |                     |                                            |         |             |         |   |         |         
|LIABILITIES                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Accounts payable and accrued liabilities                                                                                                                                                                                                                   |                     | $                                          | 22,027  |             |         | $ | 26,218  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Subscriber acquisition fees payable                                                                                                                                                                                                                        |                     |                                            | 27,770  |             |         |   | 28,620  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|License fees payable to affiliates                                                                                                                                                                                                                         |                     |                                            | 92,589  |             |         |   | 105,802 |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|License fees payable to non-affiliates                                                                                                                                                                                                                     |                     |                                            | 16,851  |             |         |   | 17,971  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Payable to affiliates                                                                                                                                                                                                                                      |                     |                                            | 7,023   |             |         |   | 2,998   |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Note and interest payable to non-affiliate                                                                                                                                                                                                                 |                     |                                            |        |             |         |   | 2,817   |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Notes and interest payable to HC Crown                                                                                                                                                                                                                     |                     |                                            | 37,549  |             |         |   | 37,501  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Capital lease obligation                                                                                                                                                                                                                                   |                     |                                            |        |             |         |   | 2,300   |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Deferred compensation                                                                                                                                                                                                                                      |                     |                                            | 4,000   |             |         |   | 1,000   |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Deferred programming revenue                                                                                                                                                                                                                               |                     |                                            | 713     |             |         |   | 451     |         
|                                                                                                                                                                                                                                                           |                     |                                            |         |             |         |   |         |         
|                                                                                                                                                                                                                                                           |                     | Total current liabilities                  |         |             | 208,522 |   |         |          | 225,678 | 
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Accrued liabilities, net of current portion                                                                                                                                                                                                                |                     |                                            | 18      |             |         |   | 18      |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|License fees payable to affiliates, net of current portion                                                                                                                                                                                                 |                     |                                            | 27,309  |             |         |   | 25,047  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|License fees payable to non-affiliates, net of current portion                                                                                                                                                                                             |                     |                                            | 22,421  |             |         |   | 20,114  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Line of credit with HC Crown                                                                                                                                                                                                                               |                     |                                            |        |             |         |   | 22,500  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Capital lease obligation, net of current portion                                                                                                                                                                                                           |                     |                                            |        |             |         |   | 10,659  |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Preferred minority interest                                                                                                                                                                                                                                |                     |                                            | 25,000  |             |         |   | 25,000  |         
|Commitments and contingencies                                                                                                                                                                                                                              |                     |                                            |         |             |         |   |         |         
|STOCKHOLDERS EQUITY                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Class A common stock, $.01 par value;
        150,000,000 shares authorized; issued shares of 34,730,505
        and 34,751,878; outstanding shares of 29,352,784 and 34,751,878
        as of December 31, 2000, and March 31, 2001,
        respectively |                     |                                            | 294     |             |         |   | 348     |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Class B common stock, $.01 par value;
        120,000,000 shares authorized; issued and outstanding
        shares of 30,057,006 and 30,670,422 as of December 31,
        2000, and March 31, 2001, respectively                                          |                     |                                            | 307     |             |         |   | 307     |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Paid-in capital                                                                                                                                                                                                                                            |                     |                                            | 496,697 |             |         |   | 583,427 |         
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|Accumulated other comprehensive loss                                                                                                                                                                                                                       |                     |                                            | (12     | )           |         |   | (479    | )       
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                           | Accumulated deficit |                                            |         | (250,478    | )       |   |         | (295,646 | )      
|                                                                                                                                                                                                                                                           |                     |                                            |         |             |         |   |         |         
|                                                                                                                                                                                                                                                           |                     | Total stockholders equity                 |         |             | 246,808 |   |         |          | 287,957 | 
|                                                                                                                                                                                                                                                           |                     |                                            |         |             |         |   |         |         
|                                                                                                                                                                                                                                                           |                     | Total liabilities and stockholders equity |         | $           | 530,078 |   |         | $        | 616,973 | 
|                                                                                                                                                                                                                                                           |                     |                                            |         |             |         |   |         |         

The accompanying notes are an integral part of these
consolidated financial statements.

5



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES






CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS


(In thousands, except per share amounts)


|                                                                         |                                                      |                    |                              |       |       |         |        |        |        |         |  
|------------------------------------------------------------------------ | ---------------------------------------------------- | ------------------ | ---------------------------- | ----- | ----- | ------- | ------ | ------ | ------ | ------- | -
|                                                                         |                                                      |                   
|                                                                         |                                                      | Three Months Ended
|                                                                         |                                                      | March 31,         
|                                                                         |                                                      |                   
|                                                                         |                                                      | 2000               |                              | 2001 
|                                                                         |                                                      |                    |                              |      
|                                                                         |                                                      |                   
|                                                                         |                                                      | (Unaudited)       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Revenues:                                                                |                                                      |                    |                              |       |       |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Subscriber fees                                      |                    | $                            | 8,662 |       |         | $      | 15,883 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Advertising                                          |                    |                              | 117   |       |         |        | 6,052  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Advertising by Hallmark Cards                        |                    |                              |      |       |         |        | 1,093  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Management fees from unconsolidated entity and other |                    |                              | 515   |       |         |        | 11     |       
|                                                                         |                                                      |                    |                              |       |       |         |        |       
|                                                                         |                                                      |                    | Total revenues               |       |       | 9,294   |        |        |        | 23,039  |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Cost of Services:                                                        |                                                      |                    |                              |       |       |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Programming costs:                                   |                    |                              |       |       |         |        |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                      | Affiliates         |                              |       | 2,880 |         |        |        | 14,590 |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                      | Non-affiliates     |                              |       | 2,099 |         |        |        | 5,623  |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Operating costs                                      |                    |                              | 5,857 |       |         |        | 14,448 |       
|                                                                         |                                                      |                    |                              |       |       |         |        |       
|                                                                         |                                                      |                    | Total cost of services       |       |       | 10,836  |        |        |        | 34,661  |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Selling, general and administrative expenses                             |                                                      |                    | 6,673                        |       |       |         | 17,763 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Marketing expenses                                                       |                                                      |                    | 673                          |       |       |         | 10,455 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Amortization of goodwill and other intangibles                           |                                                      |                    |                             |       |       |         | 3,527  |       
|                                                                         |                                                      |                    |                              |       |       |         |        |       
|                                                                         |                                                      |                    | Loss from operations         |       |       | (8,888  | )      |        |        | (43,367 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Equity in net losses of unconsolidated entities and investment
	expenses |                                                      |                    | (5,194                       | )     |       |         | (655   | )     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Interest expense, net                                                    |                                                      |                    | (303                         | )     |       |         | (760   | )     
|                                                                         |                                                      |                    |                              |       |       |         |        |       
|                                                                         |                                                      |                    | Net loss before income taxes |       |       | (14,385 | )      |        |        | (44,782 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Income tax provision                                                     |                                                      |                    | (2,134                       | )     |       |         | (385   | )     
|                                                                         |                                                      |                    |                              |       |       |         |        |       
|                                                                         |                                                      |                    | Net loss                     |       | $     | (16,519 | )      |        | $      | (45,167 | )
|                                                                         |                                                      |                    |                              |       |       |         |        |       
|Other comprehensive loss:                                                |                                                      |                    |                              |       |       |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Foreign currency translation adjustment              |                    |                              |      |       |         |        | (467   | )     
|                                                                         |                                                      |                    |                              |       |       |         |        |       
|                                                                         |                                                      |                    | Comprehensive loss           |       | $     | (16,519 | )      |        | $      | (45,634 | )
|                                                                         |                                                      |                    |                              |       |       |         |        |       
|Weighted average number of Class A and Class B shares
	outstanding       |                                                      |                    | 34,170                       |       |       |         | 60,993 |       
|                                                                         |                                                      |                    |                              |       |       |         |        |       
|Net loss per share                                                       |                                                      | $                  | (0.51                        | )     |       | $       | (0.74  | )     
|                                                                         |                                                      |                    |                              |       |       |         |        |       

The accompanying notes are an integral part of these
consolidated financial statements.

6



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


|                                                         |                                                                                                       |                                                     |                                                      |                                                      |       |        |        |         |        |         |         |  
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ---------------------------------------------------- | ---------------------------------------------------- | ----- | ------ | ------ | ------- | ------ | ------- | ------- | -
|                                                         |                                                                                                       |                                                    
|                                                         |                                                                                                       | Three Months Ended                                 
|                                                         |                                                                                                       | March 31,                                          
|                                                         |                                                                                                       |                                                    
|                                                         |                                                                                                       | 2000                                                |                                                      | 2001                                                
|                                                         |                                                                                                       |                                                     |                                                      |                                                     
|                                                         |                                                                                                       |                                                    
|                                                         |                                                                                                       | (Unaudited)                                        
|                                                        
|                                                        
|                                                        
|                                                        
|CASH FLOWS FROM OPERATING ACTIVITIES:                    |                                                                                                       |                                                     |                                                      |                                                      |       |        |        |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Net loss                                                                                              |                                                     | $                                                    | (16,519                                              | )     |        | $      | (45,167 | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Adjustments to reconcile net loss to net cash used in Operating
	activities:                          |                                                     |                                                      |                                                      |       |        |        |         |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | Amortization and depreciation                       |                                                      |                                                      | 6,149 |        |        |         | 27,990 |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | Provision for losses on accounts receivable         |                                                      |                                                      | 159   |        |        |         | 818    |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | Equity in net losses of unconsolidated subsidiaries |                                                      |                                                      | 5,194 |        |        |         | 655    |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | Stock-based compensation                            |                                                      |                                                      | 674   |        |        |         | 774    |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | Provision for deferred taxes                        |                                                      |                                                      | 1,900 |        |        |         |       |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | Gain on sale of property and equipment              |                                                      |                                                      |      |        |        |         | (4     | )      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | Changes in operating assets and liabilities:        |                                                      |                                                      |       |        |        |         |        |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       |                                                     | Increase in accounts receivable                      |                                                      |       | (2,334 | )      |         |        | (5,888  | )      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       |                                                     | Decrease in interest receivable                      |                                                      |       | 34     |        |         |        |        |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       |                                                     | Additions to program license fees                    |                                                      |       | (5,930 | )      |         |        | (18,642 | )      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       |                                                     | Increase in subtitling and dubbing                   |                                                      |       | (634   | )      |         |        | (1,088  | )      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       |                                                     | Increase in prepaids and other assets                |                                                      |       | (1,197 | )      |         |        | (1,197  | )      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       |                                                     | Increase in accounts payable and accrued liabilities |                                                      |       | 680    |        |         |        | 3,422   |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       |                                                     | Decrease in deferred compensation                    |                                                      |       |       |        |         |        | (3,000  | )      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       |                                                     | Increase in subscriber acquisition fees payable      |                                                      |       |       |        |         |        | 850     |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       |                                                     | Increase in affiliate license fees payable           |                                                      |       | 3,346  |        |         |        | 2,997   |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       |                                                     | Decrease in payable to affiliates                    |                                                      |       |       |        |         |        | (4,024  | )      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       |                                                     | Decrease in deferred revenue                         |                                                      |       | (415   | )      |         |        | (262    | )      
|                                                         |                                                                                                       |                                                     |                                                      |                                                      |       |        |        |        
|                                                         |                                                                                                       |                                                     |                                                      | Net cash used in operating activities                |       |        | (8,893 | )       |        |         | (41,766 | )
|                                                         |                                                                                                       |                                                     |                                                      |                                                      |       |        |        |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                    |                                                                                                       |                                                     |                                                      |                                                      |       |        |        |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Purchases of property and equipment                                                                   |                                                     |                                                      | (3,509                                               | )     |        |        | (2,725  | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Proceeds from disposition of property and equipment                                                   |                                                     |                                                      |                                                     |       |        |        | 26      |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Acquisition of The Kermit Channel, net of cash                                                        |                                                     |                                                      |                                                     |       |        |        | (482    | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Other investments in and issuance of note receivable                                                  |                                                     |                                                      | (1,543                                               | )     |        |        |        |       
|                                                         |                                                                                                       |                                                     |                                                      |                                                      |       |        |        |        
|                                                         |                                                                                                       |                                                     |                                                      | Net cash used in investing activities                |       |        | (5,052 | )       |        |         | (3,181  | )
|                                                         |                                                                                                       |                                                     |                                                      |                                                      |       |        |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                    |                                                                                                       |                                                     |                                                      |                                                      |       |        |        |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Proceeds from the issuance of common stock due to exercise of
	stock options                          |                                                     |                                                      |                                                     |       |        |        | 190     |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Capital contributions                                                                                 |                                                     |                                                      | 10,000                                               |       |        |        |        |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Borrowings from H.C. Crown note payable                                                               |                                                     |                                                      | 16,172                                               |       |        |        | 23,201  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Repayment of borrowings on H.C. Crown note payable                                                    |                                                     |                                                      |                                                     |       |        |        | (749    | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Repayment of borrowings on non-affiliate note payable                                                 |                                                     |                                                      |                                                     |       |        |        | (75     | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Repayment of borrowings on Odyssey Holdings note payable                                              |                                                     |                                                      | (10,000                                              | )     |        |        |        |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Principal payments under capital lease obligation                                                     |                                                     |                                                      |                                                     |       |        |        | (293    | )     
|                                                         |                                                                                                       |                                                     |                                                      |                                                      |       |        |        |        
|                                                         |                                                                                                       |                                                     |                                                      | Net cash provided by financing activities            |       |        | 16,172 |         |        |         | 22,274  |  
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Effect of exchange rate changes on cash                                                               |                                                     |                                                      |                                                     |       |        |        | (16     | )     
|                                                         |                                                                                                       |                                                     |                                                      |                                                      |       |        |        |        
|                                                         |                                                                                                       |                                                     |                                                      | Net increase (decrease) in cash and cash equivalents |       |        | 2,227  |         |        |         | (22,689 | )
|                                                        
|                                                        
|                                                        
|                                                        
|Cash and cash equivalents, beginning of period           |                                                                                                       |                                                     | 3,866                                                |                                                      |       |        | 34,274 |        
|                                                         |                                                                                                       |                                                     |                                                      |                                                      |       |        |        |        
|Cash and cash equivalents, end of period                 |                                                                                                       | $                                                   | 6,093                                                |                                                      |       | $      | 11,585 |        
|                                                         |                                                                                                       |                                                     |                                                      |                                                      |       |        |        |        
|Supplemental disclosure of cash and non-cash activities: |                                                                                                       |                                                     |                                                      |                                                      |       |        |        |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Interest paid                                                                                         |                                                     | $                                                    |                                                     |       |        | $      | 1,031   |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Income taxes paid                                                                                     |                                                     | $                                                    | 234                                                  |       |        | $      | 385     |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Accretion related to predecessor Class B common stock
	subject to put and call through March 31, 2000 |                                                     | $                                                    | 1,031                                                |       |        | $      |        |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Asset acquired through capital lease obligation                                                       |                                                     | $                                                    |                                                     |       |        | $      | 13,252  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Purchase of The Kermit Channel, net of cash acquired:                                                 |                                                     |                                                      |                                                      |       |        |        |         |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | Accounts receivable and other assets                |                                                      | $                                                    |      |        |        | $       | 1,780  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | Program license fees                                |                                                      |                                                      |      |        |        |         | 2,613  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | Goodwill                                            |                                                      |                                                      |      |        |        |         | 91,717 |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | Accounts payable and other liabilities              |                                                      |                                                      |      |        |        |         | 1,529  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | Note and interest payable to non-affiliate          |                                                      |                                                      |      |        |        |         | 2,892  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | License fees payable  affiliate                    |                                                      |                                                      |      |        |        |         | 5,388  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                       | Issuance of Class A common stock                    |                                                      |                                                      |      |        |        |         | 85,819 |        

The accompanying notes are an integral part of these
consolidated financial statements.

7



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES






CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Three Months Ended March 31, 2000 and 2001


1.  Business and Organization

The Consolidated Financial Statements of Crown Media Holdings
included herein have been prepared by us, without audit,
pursuant to the rules and regulations of the United States
Securities and Exchange Commission (SEC). Certain
information and note disclosures normally included in financial
statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations, although we
believe that the disclosures are adequate to enable a reasonable
understanding of the information presented. These Consolidated
Financial Statements should be read in conjunction with the
audited financial statements and the notes thereto for the years
ended December 31, 1999 and 2000, included in our Annual
Report on Form 10-K. Additionally, the Consolidated
Financial Statements should be read in conjunction with
Item 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations included in
this Form 10-Q.



| |             
| | ------------
| | Organization

On May 9, 2000, Crown Media Holdings completed a
reorganization in which all of Crown Media Holdings outstanding
shares were exchanged for 100% of Crown Media International
formerly known as Crown Media, Inc., and 77.5% of Odyssey
Holdings common interests. At the same time, Crown Media
Holdings completed its initial public offering of
10,000,000 shares of Class A common stock at
$14 per share. The net proceeds from this offering, after
expenses and underwriting discounts and commissions, were
approximately $125.4 million. We are a holding company,
and, prior to the completion of the reorganization and the
offering on May 9, 2000, we had no material assets,
liabilities, contingent liabilities or operations. Crown Media
Holdings considers Crown Media International as a predecessor
corporation.

Our consolidated financial statements include the assets and
liabilities of Crown Media International at their historical
carrying values since both we and Crown Media International are
entities under common control before and after the
reorganization. The accompanying consolidated financial
statements also include the assets and liabilities and results
of operations of Crown Media Holdings other indirect,
wholly and majority-owned subsidiaries.

Crown Media International, a Delaware corporation, owns and
operates the Hallmark Channel, a pay television channel
dedicated to high quality family programming that is distributed
internationally in more than 100 countries. Crown Media
International also owned 50% of H&H Programming 
Asia, which operated The Kermit Channel, a pay television
channel, until March 15, 2001, when the remaining 50% of
H&H Programming  Asia owned by EM.TV was
acquired by Crown Media Holdings. Crown Media International
began operations in June 1995 and was a majority-owned
subsidiary of Hallmark Entertainment, Inc. (Hallmark
Entertainment).

On November 13, 1998, Odyssey Holdings entered into an
amended and restated operating agreement (the Company
Agreement) with its members, which was subsequently
amended on March 27, 2001. The Company Agreement provided
for the admittance of Henson Cable Networks, Inc.
(HCN), a wholly-owned subsidiary of The Jim Henson
Company, Inc. (The Jim Henson Company), and
Crown Media International, through a wholly-owned subsidiary.
Under the terms of the Company Agreement, HCN and Crown Media
International each agreed to pay $50.0 million, payable in
installments, for a 22.5% common equity interest in Odyssey
Holdings. As a result of these transactions, the common equity
interest for VISN Management Corp., VGI, The Jim Henson Company
and Crown Media International were 22.5%, 32.5%, 22.5% and
22.5%, respectively.

Odyssey Holdings initially operated the Odyssey Network as a pay
television channel in the United States dedicated primarily to
religious programming. In April 1999, Odyssey Holdings
relaunched the Odyssey Network as a channel dedicated to
high-quality family programming.

8



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The assets and liabilities of Odyssey Holdings and its
subsidiaries relating to Crown Media Internationals
original 22.5% interest in Odyssey Holdings which are owned
indirectly by us following the reorganization were included in
Crown Media Holdings consolidated financial statements at
their historical carrying values, until March 15, 2001,
when Crown Media Holdings acquired The Jim Henson Companys
22.5% common interests in Odyssey Holdings. The acquisition of
Liberty Medias 32.5% interest in Odyssey Holdings and the
National Interfaith Cable Coalitions (NICC)
22.5% interest in Odyssey Holdings, both of which were acquired
in connection with the reorganization, are included in our
consolidated financial statements at their fair market value
using purchase accounting as of the date of the reorganization.



| |                   
| | ------------------
| | Recent Acquisition

On March 15, 2001, Crown Media Holdings acquired from The
Jim Henson Company the remaining 22.5% common interests in
Odyssey Holdings and the remaining 50% interest in H&H
Programming  Asia which we did not previously own,
for approximately $85.8 million. In consideration for these
ownership interests, we issued 5,377,721 shares of our
Class A common stock to The Jim Henson Company, a wholly
owned subsidiary of EM.TV. The acquisition was recorded at fair
market value using purchase accounting as of March 15, 2001.



| |          
| | ---------
| | Liquidity



| |        
| | -------
| | General

In connection with our growth strategy, we expect that we will
continue to make significant investments in programming,
distribution and technology, as well as additional investments
in infrastructure and facilities. We are currently committed to
spend more than $50.0 million for programming over the next
12 months. We are also committed to four quarterly payments
of $6.8 million commencing on April 1, 2001, for
subscriber acquisition fees payable. We anticipate the need for
external financing. A line of credit with HC Crown Corp., a
subsidiary of Hallmark Cards (HC Crown), for
$150 million is in place to cover our anticipated needs
through March 31, 2002, with a remaining amount available
of $127.5 million, as of March 31, 2001. This line of
credit with HC Crown is payable no later than April 1,
2002. The lenders obligation to make loans under the line
of credit is backed up by a letter of credit issued by Bank of
America. We believe that, without taking into account the films
transaction described below, the line of credit, together with
cash generated from operations and cash on hand, will be
sufficient for our liquidity needs through March 31, 2002.

Whether or not the films transaction described below is
completed, we will seek during the next 12 months
additional funds to operate and expand our businesses. Any
additional equity financings could result in dilution to our
existing investors. Any debt financings will likely increase our
interest expense and may impose restrictive covenants.



| |                           
| | --------------------------
| | Proposed Films Transaction

We have entered into an agreement for the purchase by us from
Hallmark Entertainment Distribution, LLC (Hallmark
Entertainment Distribution)(the films
transaction) of made-for-television movies, specials,
theatrical films, mini-series, series and made-for-video product
consisting of 702 titles, along with related film properties and
rights (the film assets). The film assets will be
subject to any contractual rights previously granted to third
parties. The purchase price for the film assets consists of the
following:



| |   |                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The number of shares of Class A Common Stock calculated as
	follows with the average stock price meaning the
	average of the closing price per share of the Class A
	Common Stock as reported on the Nasdaq National Market System on
	each trading day during the period beginning on November 6,

9



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |  |                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 2000 (the date on which we publicly announced we were
	investigating the possibility of a transaction) and ending on
	the trading date immediately prior to the closing date for the
	films transaction:



| |     |                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | if the average stock price is less than $17.00, then
	35,294,118 shares;                                                                                            
|
| | (2) | if the average stock price is greater than $18.70, then
	32,085,562 shares;  or                                                                                     
|
| | (3) | if the average stock price is at least $17.00, but not greater
	than $18.70, then the number of shares shall equal $600,000,000
	divided by the average stock price;



| |   |                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our assumption or payment of $120 million of debt related
	to the film assets payable by Hallmark Entertainment, Inc.
	and certain of its affiliates to J.P. Morgan
	Chase & Company (J.P. Morgan Chase)
	and other lenders under a credit and security agreement; 
	and
|
| |  | Our assumption of $100 million of payables related to the
	film assets.                                                                                                                                                                                                   

Based on an average stock price of $18.09 from November 6,
2000, to April 10, 2001, when we signed the purchase and
sale agreement, we would issue 33,169,794 shares. Based on
the average stock price of $18.35 from November 6, 2000, to
April 30, 2001, we would issue 32,697,548 shares. The value
of the stock, based on this average price, would be
$600 million, resulting in a total purchase price for the
film assets of approximately $820 million. The closing
price of shares of Class A common stock on the closing date
may be higher or lower than the average stock price used in
calculating the number of shares of Class A common stock we
will issue in the transaction.

In connection with the purchase of the film assets, we will
enter into additional agreements, including a service agreement
with Hallmark Entertainment regarding the administration,
distribution and exploitation of the film assets, and amended
program agreements between Hallmark Entertainment Distribution
and each of Crown Media International and Odyssey Holdings. We
and Hallmark Entertainment Distribution will also enter into a
registration rights agreement regarding the shares issued in the
films transaction.

The films transaction is subject to stockholder approval at our
annual meeting of stockholders scheduled to be held on
June 7, 2001. The films transaction will be described in
definitive proxy materials mailed to stockholders on or about
May 7, 2001.



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Contemplated Financing Arrangements Resulting from the
	Proposed Library Transaction

One of the conditions to our closing the films transaction is
that we enter into an agreement to assume $120 million of
debt relating to the film assets or that we pay off that debt.
We currently intend to arrange for a line of credit, which will
include the $120 million to be assumed or paid by us. The
proposed line of credit will also be used to repay the existing
line of credit with HC Crown, to repay two demand notes
(dated November 19, 1999, and February 22, 2000,
respectively) for a total amount of $37.8 million
(including accrued interest at December 31, 2000) payable
to HC Crown and to provide working capital to operate and
expand our business.

The existing line of credit with HC Crown is for up to
$150 million and is payable no later than April 1,
2002. Proceeds from borrowing under the HC Crown line of
credit of $22.5 million have also been used in our working
capital.

We plan to arrange the line of credit with a group of banks, for
which JP Morgan Chase will be the agent bank. We anticipate
that the terms of this new line of credit will include an
interest rate at a certain percentage over the London Interbank
Offered Rate, and collateral consisting of the film assets and
most or all of our other assets. We also anticipate that the
line of credit will include financial and other covenants.
However, these terms are subject to final negotiations with the
group of banks.

10



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

We believe that the films transaction, if completed, will
provide more flexibility for our future financings. Accordingly,
we plan to file with the Securities and Exchange Commission in
early June 2001 a shelf registration statement which would allow
us to make over time one or more offerings in an aggregate total
amount of up to $500 million of our securities. We expect
that the securities covered by the registration statement will
include our common stock, preferred stock, debt securities
(which may or may not be convertible) and warrants to purchase
stock. We are exploring the possibility of selling equity and
debt securities for part of the total amount during 2001 using
this registration statement, depending on market conditions, our
projected cash needs and other factors. Proceeds from any such
offerings in 2001 would be used to reduce our bank debt and
other then existing indebtedness and to fund working capital.
(This information does not constitute an offer of any securities
for sale.)

2.  Summary of Significant Accounting Policies



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include the consolidated
accounts of Crown Media Holdings and those of its majority-owned
and controlled subsidiaries. Investments in entities that are
not majority-owned and controlled by Crown Media Holdings are
accounted for under the equity method. All significant
intercompany balances and transactions have been eliminated in
consolidation.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Crown Media Holdings considers all highly liquid instruments
purchased with an initial maturity of three months or less to be
cash equivalents. The carrying value of Crown Media
Holdings cash equivalents approximates cost at each
balance sheet date.



| |                
| | ---------------
| | Restricted Cash

Restricted cash includes amounts deposited to secure letters of
credit in accordance with certain lease agreements.



| |                            
| | ---------------------------
| | Subscriber Acquisition Fees

Crown Media Holdings has entered into distribution agreements
with six of the top nine United States pay television
distributors which carry the Odyssey Network on some of their
cable systems. The terms of the agreements range from June 1999
through February 2007. Crown Media Holdings is obligated to pay
subscriber acquisition fees, if certain subscriber levels are
met, as defined in certain of these agreements, and one-time
subscriber fees to carry Crown Media Holdings channels.

During the three months ended March 31, 2001, Crown Media
Holdings recorded an additional $0.9 million in subscriber
acquisition fees and recorded amortization of $1.7 million
for such fees, resulting in a balance of $28.9 million. As
of March 31, 2001, the balance sheet also reflected
subscriber acquisition fees payable of $28.6 million, due
primarily in four quarterly installments of $6.8 million
beginning April 1, 2001.



| |                     
| | --------------------
| | Program License Fees

Program license fees are the rights to air programs acquired
from others. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 63,
Financial Reporting by Broadcasters, program rights
are deferred and then amortized on a straight-line basis over
their license periods (the airing windows) or
anticipated usage, whichever is shorter. At the inception of
these contracts and periodically thereafter, Crown Media
Holdings evaluates the recoverability of these costs versus the
revenues directly associated with the programming and related
expense. Where an evaluation indicates that a programming
contract will ultimately result in a loss, additional
amortization is provided to currently recognize that loss.

11



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

SFAS No. 63 also requires an entity providing programming
to report an asset and liability for the rights licensed under a
programming agreement only when the license period begins and
when certain other defined requirements are met.



| |                       
| | ----------------------
| | Subtitling and Dubbing

Subtitling and dubbing costs represent costs incurred to prepare
programming for airing in international markets. These costs are
capitalized as incurred and are amortized over the shorter of
the programs airing window for programming licensed from
unaffiliated third-parties, the programs estimated life
for programming licensed from Hallmark Entertainment
Distribution, or 10 years. Accumulated amortization related
to subtitling and dubbing as of December 31, 2000, and
March 31, 2001, was $2.9 million and
$3.2 million, respectively.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are recorded at cost. Depreciation of
property and equipment are provided for by the straight-line
method over the estimated useful lives of the respective assets,
ranging from three to five years. Leasehold improvements are
amortized over the life of the lease. When property is sold or
otherwise disposed of, the cost and related accumulated
depreciation and amortization are removed from the accounts and
any resulting gain or loss is included in income. The costs of
normal maintenance and repairs are charged to expense when
incurred.



| |                    
| | -------------------
| | Revenue Recognition

Subscriber fees are recognized as revenue when programming is
provided to pay television distributors and collectibility is
reasonably assured. Subscriber fees are recorded net of
amortization of subscriber acquisition fees.

Advertising revenues are recognized as earned in the period in
which the advertising commercials or infomercials are telecast.
Advertising revenues are recorded net of agency commissions and
estimated advertising deficiency reserves.

In 1999, the Emerging Issues Tax Force (EITF) Issue
No. 99-17, Accounting for Advertising Barter
Transactions was issued. EITF No. 99-17 establishes
accounting and reporting standards for bartering advertising
transactions. Crown Media Holdings records advertising revenue
and expenses in barter transactions at the fair value of the
advertising to be provided. The fair value is determined based
upon Crown Media Holdings historical practice of receiving
cash for similar ads from buyers unrelated to the other party in
the current barter transaction. When the barter advertising
revenue does not meet the requirements of the rule, no revenue
is recognized. For the three months ended March 31, 2001,
Crown Media Holdings reported revenue from advertising barter
transactions of $497,000 and corresponding barter expenses of
$497,000, included as a component of advertising revenue and
marketing expenses in the accompanying consolidated statements
of operations. No barter revenue or related barter expense was
recorded for the three months ended March 31, 2000.

Revenues from foreign sources for the three months ended
March 31, 2000 and 2001, represented 100% and 78.1%,
respectively, of total subscribers fee revenue. Such revenues,
generally denominated in United States dollars, were primarily
from sales to customers in Australia, Benelux, Italy,
New Zealand, South Africa, Spain and certain countries in
Asia, the Middle East and Latin America, during both periods
presented, and the United States for the three months ended
March 31, 2001.

12



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                 
| | ----------------
| | Cost of Services

Cost of services includes programming distribution expenses and
amortization of program license fees, subtitling and dubbing.



| |                  
| | -----------------
| | Minority Interest

The minority interest in the net income or loss of Crown Media
Holdings non wholly-owned, consolidated subsidiaries is
insignificant and therefore not separately reflected in the
accompanying consolidated financial statements. To the extent
the minority interest in the net losses of Crown Media
Holdings consolidated subsidiaries exceeds the minority
investment in those subsidiaries, such excess losses are charged
to Crown Media Holdings. See note 5 for a discussion of
minority interest related to the preferential interest in
Odyssey Holdings.



| |                   
| | ------------------
| | Comprehensive Loss

Crown Media Holdings adopted SFAS No. 130, Reporting
Comprehensive Income, during 1998. This statement
establishes standards for the reporting and presentation of
comprehensive income (loss) and its components in financial
statements and thereby reports a measure of all changes in
equity of an enterprise that result from transactions and other
economic events other than transactions with owners. No tax
benefit has been provided on the foreign currency translation
loss component for any period.



| |                                
| | -------------------------------
| | Translation of Foreign Currency

The balance sheets and statements of operations of certain Crown
Media Holdings foreign subsidiaries are measured using
local currency as the functional currency. Revenues and expenses
of such subsidiaries are translated into United States dollars
at the average exchange rates prevailing during the period.
Assets and liabilities are translated at the rates of exchange
at the balance sheet date. Translation gains and losses are
deferred as a component of stockholders equity. Aggregate
foreign currency transaction gains and losses are included in
determining net income.



| |                   
| | ------------------
| | Net Loss Per Share

Basic net loss per share is computed by dividing the net loss
available to common stockholders for the period by the weighted
average number of common shares outstanding during the period.
Diluted net loss per share is computed based on the weighted
average number of common shares and potentially dilutive common
shares outstanding. The calculation of diluted net loss per
share excludes potential common shares if the effect is
anti-dilutive. Potential common shares consist of incremental
common shares issuable upon the exercise of stock options.
Approximately 2.4 million and 5.7 million stock
options have been excluded from the calculations below for the
three months ended March 31, 2000 and 2001, respectively,
as their effect would have been anti-dilutive. Accordingly,
diluted loss per share equals basic loss per share.

13



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The computation of basic and diluted net loss per share consists
of the following:

|                                                                                                      |                                               |                           |         |        |   |   |         |        |  
|----------------------------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------- | ------- | ------ | - | - | ------- | ------ | -
|                                                                                                      |                                               |                          
|                                                                                                      |                                               | Three Months Ended       
|                                                                                                      |                                               | March 31,                
|                                                                                                      |                                               |                          
|                                                                                                      |                                               | 2000                      |         | 2001  
|                                                                                                      |                                               |                           |         |       
|                                                                                                      |                                               |                          
|                                                                                                      |                                               | (In thousands, except per
|                                                                                                      |                                               | share amounts)           
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Net loss                                                                                              |                                               | $                         | (16,519 | )      |   | $ | (45,167 | )     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Accretion related to predecessor Class B common stock
	subject to put and call through March 31, 2000 |                                               |                           | (1,031  | )      |   |   |        |       
|                                                                                                      |                                               |                           |         |        |   |   |         |       
|                                                                                                      |                                               | $                         | (17,550 | )      |   | $ | (45,167 | )     
|                                                                                                      |                                               |                           |         |        |   |   |         |       
|Denominator:                                                                                          |                                               |                           |         |        |   |   |         |       
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      | Weighted average common shares outstanding(1) |                           |         | 34,170 |   |   |         | 60,993 |  
|                                                                                                      |                                               |                           |         |        |   |   |         |       
|Net loss per share:                                                                                   |                                               |                           |         |        |   |   |         |       
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                      | Basic and diluted net loss per share          |                           | $       | (0.51  | ) |   | $       | (0.74  | )
|                                                                                                      |                                               |                           |         |        |   |   |         |       



---



|    |                                                                          
|--- | -------------------------------------------------------------------------
|(1) | Number of shares recalculated to include initial public offering
	shares.



| |                         
| | ------------------------
| | Stock-Based Compensation

The Company accounts for stock-based awards to employees using
the intrinsic value method in accordance with APB Opinion
No. 25, Accounting For Stock Issued to Employees.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires Crown Media Holdings 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.



| |           
| | ----------
| | Fair Value

The carrying amounts of financial instruments, including amounts
payable and receivable, are reasonable estimates of their fair
value. The fair values were estimated using the current rates at
which loans would be made to Crown Media Holdings for similar
remaining maturities. Investments in private companies and
partnerships are recorded at fair value as of the date of
investment. Crown Media Holdings periodically reviews the fair
value of its investments. If a review indicates that the
carrying value of an asset is not recoverable, the carrying
value is reduced to its estimated fair value.



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Financial instruments, which potentially subject Crown Media
Holdings to a concentration of credit risk, consist primarily of
cash, restricted cash, cash equivalents and accounts receivable.
Generally, Crown Media Holdings does not require collateral to
secure receivables. The Company has no significant financial
instruments with off-balance sheet risk of accounting losses,
such as foreign exchange contracts, options contracts, or other
foreign currency hedging arrangements.



| |                                          
| | -----------------------------------------
| | Recently Issued Accounting Pronouncements

In June 1998, SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities was issued. This
statement was subsequently amended by SFAS No. 137,
Accounting for Derivative Instruments

14



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and Hedging Activities  Deferral of the Effective
Date of FASB Statement No. 133, which changed the
effective date to fiscal years beginning after June 15,
2000. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities. Crown Media Holdings has not used derivative
instruments nor does it engage in hedging activities and thus
the adoption in 2001 did not have a material effect on its
financial statements.



| |                  
| | -----------------
| | Reclassifications

Certain reclassifications have been made to conform prior
periods data to the current presentation. These
reclassifications have no effect on reported net loss.

3.  Program license fees

Program license fees are comprised of the following:

|                                                            |                               |                    |         |                 |  |   |         |         | 
|----------------------------------------------------------- | ----------------------------- | ------------------ | ------- | --------------- |  | - | ------- | ------- | 
|                                                            |                               | As of December 31, |         | As of March 31,
|                                                            |                               |                    |         |                
|                                                            |                               | 2000               |         | 2001           
|                                                            |                               |                    |         |                
|                                                            |                               |                   
|                                                            |                               | (In thousands)    
|                                                           
|                                                           
|                                                           
|                                                           
|Program license fees  Hallmark Entertainment
	Distribution |                               | $                  | 107,028 |                 |  | $ | 113,290 |        
|                                                           
|                                                           
|                                                           
|                                                           
|Program license fees  The Jim Henson Company               |                               |                    | 20,963  |                 |  |   | 22,124  |        
|                                                           
|                                                           
|                                                           
|                                                           
|Program license fees  NICC                                 |                               |                    |        |                 |  |   | 5,306   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Program license fees  other affiliates                     |                               |                    | 10,622  |                 |  |   | 12,050  |        
|                                                           
|                                                           
|                                                           
|                                                           
|Program license fees  non-affiliates                       |                               |                    | 53,031  |                 |  |   | 54,441  |        
|                                                           
|                                                           
|                                                           
|                                                           
|Prepaid program license fees                                |                               |                    | 6,870   |                 |  |   | 7,173   |        
|                                                            |                               |                    |         |                 |  |   |         |        
|                                                            | Program license fees, at cost |                    |         | 198,514         |  |   |         | 214,384 | 
|                                                           
|                                                           
|                                                           
|                                                           
|Accumulated amortization                                    |                               |                    | (38,109 | )               |  |   | (52,929 | )      
|                                                            |                               |                    |         |                 |  |   |         |        
|                                                            | Program license fees, net     |                    | $       | 160,405         |  |   | $       | 161,455 | 
|                                                            |                               |                    |         |                 |  |   |         |        

License fees payable are comprised of the following:

|                                                            |                      |                    |         |                 |  |   |         |         | 
|----------------------------------------------------------- | -------------------- | ------------------ | ------- | --------------- |  | - | ------- | ------- | 
|                                                            |                      | As of December 31, |         | As of March 31,
|                                                            |                      |                    |         |                
|                                                            |                      | 2000               |         | 2001           
|                                                            |                      |                    |         |                
|                                                            |                      |                   
|                                                            |                      | (In thousands)    
|                                                           
|                                                           
|                                                           
|                                                           
|License fees payable  Hallmark Entertainment
	Distribution |                      | $                  | 109,859 |                 |  | $ | 122,072 |        
|                                                           
|                                                           
|                                                           
|                                                           
|License fees payable  The Jim Henson Company               |                      |                    | 10,039  |                 |  |   | 3,476   |        
|                                                           
|                                                           
|                                                           
|                                                           
|License fees payable  NICC                                 |                      |                    |        |                 |  |   | 3,972   |        
|                                                           
|                                                           
|                                                           
|                                                           
|License fees payable  other affiliates                     |                      |                    | 21      |                 |  |   | 1,329   |        
|                                                           
|                                                           
|                                                           
|                                                           
|License fees payable  non-affiliates                       |                      |                    | 39,251  |                 |  |   | 38,085  |        
|                                                            |                      |                    |         |                 |  |   |         |        
|                                                            | License fees payable |                    | $       | 159,170         |  |   | $       | 168,934 | 
|                                                            |                      |                    |         |                 |  |   |         |        

15



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

4.  Property and Equipment

Property and equipment are comprised of the following:

|                                          |                                 |                    |        |                 |  |   |        |        | 
|----------------------------------------- | ------------------------------- | ------------------ | ------ | --------------- |  | - | ------ | ------ | 
|                                          |                                 | As of December 31, |        | As of March 31,
|                                          |                                 |                    |        |                
|                                          |                                 | 2000               |        | 2001           
|                                          |                                 |                    |        |                
|                                          |                                 |                   
|                                          |                                 | (In thousands)    
|                                         
|                                         
|                                         
|                                         
|Technical equipment and computers         |                                 | $                  | 19,702 |                 |  | $ | 32,140 |       
|                                         
|                                         
|                                         
|                                         
|Transponder                               |                                 |                    |       |                 |  |   | 13,252 |       
|                                         
|                                         
|                                         
|                                         
|Leasehold improvements                    |                                 |                    | 2,485  |                 |  |   | 6,390  |       
|                                         
|                                         
|                                         
|                                         
|Furniture, fixtures and equipment         |                                 |                    | 1,765  |                 |  |   | 1,922  |       
|                                         
|                                         
|                                         
|                                         
|Construction-in-progress                  |                                 |                    | 15,109 |                 |  |   | 104    |       
|                                          |                                 |                    |        |                 |  |   |        |       
|                                          | Property and equipment, at cost |                    |        | 39,061          |  |   |        | 53,808 | 
|                                         
|                                         
|                                         
|                                         
|Accumulated depreciation and amortization |                                 |                    | (7,994 | )               |  |   | (9,144 | )     
|                                          |                                 |                    |        |                 |  |   |        |       
|                                          | Property and equipment, net     |                    | $      | 31,067          |  |   | $      | 44,664 | 
|                                          |                                 |                    |        |                 |  |   |        |       

Construction-in-progress as of December 31, 2000 consisted
primarily of costs incurred for an advanced global Network
Operations Center at our Greenwood Village, Colorado,
headquarters. Technical equipment, computers and leasehold
improvements were reclassified from construction-in-progress to
their related captions during the first quarter 2001 in
conjunction with the launch of our Network Operations Center.
Depreciation and amortization expense for the three months ended
March 31, 2000 and 2001, was $660,000 and
$2.4 million, respectively.

5.  Investments in and Advances to Unconsolidated
Entities



| |                   
| | ------------------
| | The Kermit Channel

In May 1998, Crown Media International formed H&H
Programming  Asia, a New York limited liability
company, with The Jim Henson Company, a New York corporation,
for the purpose of developing, owning and operating pay
television programming services called The Kermit Channel in
Latin America and Asia. In October 2000, we collapsed The Kermit
Channel in Asia, but maintained the channel in India, and in
lieu of a separate channel, we introduced a six-hour programming
block dedicated to the childrens market on the Hallmark
Channel in our Asian feed. As of January 1, 2001, we
completed the collapse of The Kermit Channel, introducing a
block of childrens programming on the Hallmark Channel in
India.

Each of Crown Media International and The Jim Henson Company
held a 50% interest in The Kermit Channel through March 15,
2001. Crown Media Holdings investment in The Kermit
Channel was reflected in the consolidated financial statements
using the equity method of accounting until March 15, 2001,
the date of the acquisition (see note 1), at which time it
became a consolidated subsidiary. Crown Media Holdings
equity in the net loss of The Kermit Channel was approximately
$1.4 million and $655,000 for the three months ended
March 31, 2000, and the two and a half months ended
March 15, 2001, respectively.

Crown Media Holdings investment in The Kermit Channel,
through the date of the acquisition, exceeded the underlying
equity in the net assets of The Kermit Channel as of the date of
the investment. The goodwill and other intangibles are being
amortized over 10 years.

Crown Media Holdings provided services to The Kermit Channel in
exchange for a management fee as provided in an agreement
between Crown Media International and The Kermit Channel. This
fee, which was approximately $515,000 for the three months ended
March 31, 2000, included direct and indirect costs incurred
on behalf of The Kermit Channel, as provided by the agreements.
No fees were recorded for the three months ended March 31,
2001, nor do we expect to earn management fees in the future.

16



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Crown Media International made capital contributions, through
cash advances and/or conversion of receivables in The Kermit
Channel, of $2.5 million during 2000.



| |                               
| | ------------------------------
| | Investment in Odyssey Holdings

In November 1998, Crown Media International entered into an
agreement to acquire a 22.5% common equity interest in Odyssey
Holdings. Odyssey Holdings was formed to develop, own and
operate the Odyssey Network. The purchase price for Crown Media
Internationals interest in Odyssey Holdings was
$50.0 million. Pursuant to the terms of the agreement,
Crown Media International paid $20.0 million of this
purchase price in November 1998, an additional
$20.0 million in May 1999 and the final payment of
$10.0 million in February 2000.

Crown Media International funded its 1998 capital contribution
to Odyssey Holdings with the proceeds of additional investments
of $17.8 million and $2.2 million in Crown Media
International by its stockholders, Hallmark Entertainment and
J.P. Morgan Partners (BHCA), L.P. (formerly known as Chase
Equity Associates, LP (J.P. Morgan),
respectively. Hallmark Entertainment and J.P. Morgan were
issued 44.444 shares of predecessor Class A common
stock and 5.555 shares of predecessor Class B common
stock, respectively, related to the additional funding. In May
1999, Hallmark Entertainment and J.P. Morgan provided Crown
Media International with additional funding of
$17.8 million and $2.2 million, respectively, to fund
Crown Media Internationals additional capital contribution
to Odyssey Holdings. In connection with this funding, Crown
Media International issued 44.444 shares of predecessor
Class A common stock to Hallmark Entertainment and
5.555 shares of predecessor Class B common stock to
J.P. Morgan. The predecessor Class B shares issued in
connection with this funding provided by J.P. Morgan were
subject to a put and call arrangement.

Crown Media International funded its February 2000 capital
contribution to Odyssey Holdings with the proceeds of additional
investments of $8.9 million and $1.1 million in Crown
Media International by its stockholders, Hallmark Entertainment
and JP Morgan, respectively. Hallmark Entertainment and
J.P. Morgan were issued 22.222 shares of predecessor
Class A common stock and 2.7775 shares of predecessor
Class B common stock, respectively, related to the
additional funding.

Crown Media Holdings investment in Odyssey Holdings was
reflected in the consolidated financial statements using the
equity method of accounting until May 9, 2000, the date of
the reorganization (see note 1), at which time it became a
consolidated subsidiary. Crown Media Holdings equity in
the net loss of Odyssey Holdings was approximately
$3.8 million for the three months ended March 31,
2000. This amount is included in the consolidated statements of
operations as a component of equity in net losses of
unconsolidated entities. Crown Media Holdings investment
in Odyssey Holdings, through the date of the reorganization,
exceeded the underlying equity in the net assets of Odyssey
Holdings as of the date of the investment. This goodwill was
being amortized over 20 years.

In connection with the November 1998 investments by Crown Media
International and The Jim Henson Company, VISN Management Corp.
received a redeemable preferred interest of $25.0 million,
which ranks senior to the common equity interests of Odyssey
Holdings. Odyssey Holdings has the right to redeem the preferred
interest in whole (but not in part) for cash at 100% of the
Preferred Liquidation Preference, as defined by the agreement.
This amount is classified as preferred minority interest in the
accompanying consolidated balance sheets. If during any fiscal
three months subsequent to January 1, 2005 and prior to
December 31, 2009, Odyssey Holdings has net profits in
excess of $10.0 million and the preferred interest has not
been redeemed, Odyssey Holdings will redeem the preferred
interest in an amount equal to the lesser of such excess, or
$5.0 million, or the Preferred Liquidation Preference.
Odyssey Holdings shall redeem the entire preferred interest at
the Preferred Liquidation Preference on the redemption date of
December 31, 2010.

17



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On March 15, 2001, Crown Media Holdings acquired the
remaining 22.5% common interests in Odyssey Holdings and 50%
interest in The Kermit Channel for $85.8 million.



|   |                                                                                             
|-- | --------------------------------------------------------------------------------------------
|6. | Acquisition and Summarized Financial Information of Odyssey
	Holdings and The Kermit Channel

The following unaudited pro forma consolidated statements of
operations for the quarters ended March 31, 2000 and 2001,
have been derived from the unaudited financial statements of
Crown Media Holdings and its subsidiaries. This pro forma
financial information is qualified in its entirety by reference
to, and should be read in conjunction with, our unaudited
financial statements contained in this Form 10-Q and
related notes thereto for the three months ended March 31,
2000 and 2001, as well as our historical consolidated financial
statements and related notes thereto contained in our Annual
Report on Form 10-K for the year ended December 31,
2000.

The consolidated financial statements of Crown Media Holdings
include the assets, liabilities and results of Crown Media
International for all periods presented. Crown Media Holdings
considers Crown Media International as a predecessor corporation
for financial reporting purposes. The historical consolidated
financial statements of Crown Media Holdings also include the
results of operations for (i) 22.5% common interests in
Odyssey Holdings owned by Crown Media Holdings for the entire
year ended December 31, 2000, (ii) 55% common
interests in Odyssey Holdings since May 9, 2000 when we
completed our initial public offering and acquired those
additional interests, (iii) the remaining 22.5% common
interests in Odyssey Holdings since March 15, 2001, when we
acquired those remaining common interests, and (iv) the
100% interest in H&H Programming  Asia, since
March 15, 2001 when we acquired the remaining 50% interest
in that entity not previously owned by us.

In connection with our acquisition of The Jim Henson
Companys interest in Odyssey Holdings in March, 2001,
Odyssey Holdings entered into a program license agreement with
EM.TV. Under the agreement, Odyssey Holdings licenses family
programming from EM.TV for use on our channels, with the
programs to be determined by Odyssey Holdings and EM.TV, for a
minimum of approximately $1.6 million in license fees
during each year of the term of the agreement. The agreement has
a term of three years. Concurrently, Odyssey Holdings licensed,
under a separate agreement with The Jim Henson Company, the
non-exclusive, royalty-free right to use in the United States
the trademark Kermit to identify the program block
in which the programming licensed from The Jim Henson Company
and EM.TV is broadcast. The agreement also has a term which is
co-terminus with the EM.TV program license agreement.

The pro forma financial information stated below presents a
summary of condensed consolidated results of operations of Crown
Media Holdings, Crown Media International, Odyssey Holdings and
H&H Programming  Asia, as if each of these
acquisitions discussed above had occurred on January 1 of the
periods presented, along with certain pro forma adjustments to
give effect to the amortization of goodwill and other
intangibles and other adjustments. The pro forma financial
information is not necessarily indicative of the results of
operations as they would have been had the transactions been
effected on the assumed dates.

18



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


|                                                                   |                               |                    |                              |        |       |         |        |        |        |         |  
|------------------------------------------------------------------ | ----------------------------- | ------------------ | ---------------------------- | ------ | ----- | ------- | ------ | ------ | ------ | ------- | -
|                                                                   |                               |                   
|                                                                   |                               | Three Months Ended
|                                                                   |                               | March 31,         
|                                                                   |                               |                   
|                                                                   |                               | 2000               |                              | 2001  
|                                                                   |                               |                    |                              |       
|                                                                   |                               |                   
|                                                                   |                               | (Unaudited)       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Revenues:                                                          |                               |                    |                              |        |       |         |        |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Subscriber fees               |                    | $                            | 11,071 |       |         | $      | 16,006 |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Advertising                   |                    |                              | 1,716  |       |         |        | 6,069  |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Advertising by Hallmark Cards |                    |                              | 563    |       |         |        | 1,093  |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Other                         |                    |                              | 311    |       |         |        | 22     |       
|                                                                   |                               |                    |                              |        |       |         |        |       
|                                                                   |                               |                    | Total revenues               |        |       | 13,661  |        |        |        | 23,190  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Cost of Services:                                                  |                               |                    |                              |        |       |         |        |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Programming costs:            |                    |                              |        |       |         |        |        |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   |                               | Affiliates         |                              |        | 9,669 |         |        |        | 15,267 |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   |                               | Non-affiliates     |                              |        | 3,528 |         |        |        | 5,643  |        
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Operating costs               |                    |                              | 10,738 |       |         |        | 14,624 |       
|                                                                   |                               |                    |                              |        |       |         |        |       
|                                                                   |                               |                    | Total cost of services       |        |       | 23,935  |        |        |        | 35,534  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Selling, general and administrative expenses                       |                               |                    | 14,714                       |        |       |         | 18,198 |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Marketing expenses                                                 |                               |                    | 3,448                        |        |       |         | 10,642 |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Amortization of goodwill and other intangibles                     |                               |                    | 5,425                        |        |       |         | 5,425  |       
|                                                                   |                               |                    |                              |        |       |         |        |       
|                                                                   |                               |                    | Loss from operations         |        |       | (33,861 | )      |        |        | (46,609 | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Interest expense, net                                              |                               |                    | (103                         | )      |       |         | (871   | )     
|                                                                   |                               |                    |                              |        |       |         |        |       
|                                                                   |                               |                    | Net loss before income taxes |        |       | (33,964 | )      |        |        | (47,480 | )
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Income tax provision                                               |                               |                    | (234                         | )      |       |         | (385   | )     
|                                                                   |                               |                    |                              |        |       |         |        |       
|                                                                   |                               |                    | Net loss                     |        | $     | (34,198 | )      |        | $      | (47,865 | )
|                                                                   |                               |                    |                              |        |       |         |        |       
|Weighted average number of Class A and Class B shares
	outstanding |                               |                    | 65,377                       |        |       |         | 65,415 |       
|                                                                   |                               |                    |                              |        |       |         |        |       
|                                                                   |                               |                    | Net loss per share           |        | $     | (0.52   | )      |        | $      | (0.73   | )
|                                                                   |                               |                    |                              |        |       |         |        |       

19



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

7.  Capital Lease

Crown Media Holdings leases a combined uplink and space segment
under a long-term lease agreement. In accordance with SFAS
No. 13, Accounting for Leases, the lease was
capitalized. Future minimum lease payments for the asset under
the capital lease at March 31, 2001 are as follows:

|                                            |                              |                 |        |        | 
|------------------------------------------- | ---------------------------- | --------------- | ------ | ------ | 
|                                            |                              | As of March 31,
|                                            |                              |                
|                                            |                              | 2001           
|                                            |                              |                
|                                            |                              | (in thousands) 
|                                           
|                                           
|                                           
|                                           
|2001                                        |                              | $               | 1,725  |       
|                                           
|                                           
|                                           
|                                           
|2002                                        |                              |                 | 2,300  |       
|                                           
|                                           
|                                           
|                                           
|2003                                        |                              |                 | 2,300  |       
|                                           
|                                           
|                                           
|                                           
|2004                                        |                              |                 | 2,300  |       
|                                           
|                                           
|                                           
|                                           
|2005                                        |                              |                 | 2,300  |       
|                                           
|                                           
|                                           
|                                           
|Thereafter                                  |                              |                 | 6,900  |       
|                                            |                              |                 |        |       
|                                            | Total minimum lease payments |                 |        | 17,825 | 
|                                           
|                                           
|                                           
|                                           
|Less amount representing interest           |                              |                 | (4,866 | )     
|                                            |                              |                 |        |       
|Present value of net minimum lease payments |                              |                 | 12,959 |       
|                                           
|                                           
|                                           
|                                           
|Less current maturities                     |                              |                 | (2,300 | )     
|                                            |                              |                 |        |       
|Longterm obligation                        |                              | $               | 10,659 |       
|                                            |                              |                 |        |       

8.  Predecessor Class B Common Stock Subject to Put
and Call

On May 28, 1998, Crown Media International obtained
financing through the sale and issuance of 125 shares of
predecessor Class B Common Stock to J.P. Morgan. The
125 shares of nonvoting predecessor Class B common
stock, comprising 100% of the total predecessor Class B
common stock issued and outstanding and representing an 11.11%
equity interest in Crown Media International, were sold to J.P.
Morgan for $50.0 million. Prior to the transaction,
Hallmark Entertainment was the sole stockholder of Crown Media
International, and Hallmark Entertainment continued to hold
1,088.9 shares of the total outstanding predecessor
Class A common stock, representing an 88.89% equity
interest in Crown Media International.

J.P. Morgan had the option to put its predecessor Class B
common stock to Crown Media International within 120 days
after December 31, 2001, at the then fair market value of
the shares or at a price to provide J.P. Morgan with a defined
rate of return. J.P. Morgan was able to also put the shares at
any time upon the occurrence of certain triggering events, as
defined by the Securities Purchase Agreement. At March 31,
2000, $1.0 million had been cumulatively accreted related
to this put.

Pursuant to the terms of the Securities Purchase Agreement,
Crown Media International had the right to call the securities
held by J.P. Morgan at the then fair market value. The put and
call options expired upon the completion of the initial public
offering on May 9, 2000.

9.  Related Party Transactions



| |                                               
| | ----------------------------------------------
| | Costs Incurred on Crown Media Holdings Behalf

Since inception, Hallmark Entertainment has paid certain costs
related to payroll and benefits, insurance, operational and
financing expenditures and capital expenditures on behalf of
Crown Media International. These transactions are recorded in
the books and records of Crown Media International. For the
three months ended March 31, 2000 and 2001, respectively,
no amounts were paid to Hallmark Entertainment. Unreimbursed
costs of $5.4 million and $1.2 million are included in
payable to affiliates in the accompanying consolidated balance
sheets as of December 31, 2000, and March 31, 2001,
respectively.

20



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                    
| | -------------------------------------------------------------------
| | Program License Agreement with Hallmark Entertainment
	Distribution

The primary supplier of programming to Crown Media Holdings is
Hallmark Entertainment Distribution. Crown Media International
has a program agreement with Hallmark Entertainment Distribution
through December 31, 2004, which is renewable through
December 31, 2009. Under the terms of the agreement, Crown
Media International has the exclusive right to exhibit Hallmark
Entertainment Distributions programming in the territories
in which Crown Media International operates during three
distinct 18-month time periods. Crown Media International also
has the exclusive right to exhibit programming in markets where
it does not currently operate, subject to any third party
agreement existing at the time Crown Media International
launches in those markets. In addition, under the agreement,
Hallmark Entertainment Distribution is generally obligated to
sell to Crown Media International and Crown Media International
is obligated to purchase all of the programming it produces
during the term of the agreement.

Odyssey Holdings also licenses programming for distribution in
the United States from Hallmark Entertainment Distribution under
a program license agreement, dated November 13, 1998. Under
the program agreement, Odyssey Holdings generally licenses
made-for-television movies and miniseries owned or controlled by
Hallmark Entertainment Distribution, as well as all programming
produced by or on behalf of Hallmark Entertainment Distribution
for Odyssey Holdings. The program agreement has a term of five
years and is automatically renewable for additional three year
periods, subject to rate adjustments, so long as Hallmark
Entertainment Distribution, as applicable, or its affiliates,
own 10% or more of Odyssey Holdings. In the event that Hallmark
Entertainment Distribution owns less than 10% of Odyssey
Holdings, the remaining term of the applicable program agreement
will be two years from the date its ownership reaches that level.

Programming costs related to the program agreement were
$2.9 million and $11.0 million, respectively, for the
three months ended March 31, 2000 and 2001, respectively.
As of December 31, 2000, and March 31, 2001,
$109.9 million and $122.1 million, respectively, are
included in license fees payable to affiliates in the
accompanying consolidated balance sheets. We are not paying
Hallmark Entertainment Distribution under the terms of our
agreements.



| |                                 
| | --------------------------------
| | Services Agreement with Hallmark

Hallmark, its subsidiaries and various affiliates, provide Crown
Media Holdings with services that include payroll, legal,
financial, tax and other general corporate services. As of
December 31, 2000, and March 31, 2001, Crown Media
Holdings has accrued $500,000 and $125,000, respectively, under
the agreement. At both December 31, 2000, and
March 31, 2001, unpaid accrued service fees of
$3.5 million and $1.8 million, respectively, were
included in payable to affiliates in the accompanying
consolidated balance sheets.



| |            
| | -----------
| | Demand Note

From November 1999 through April 2000, Crown Media Holdings
entered into a series of agreements with HC Crown, under
which HC Crown agreed to lend Crown Media Holdings up to
$40.0 million. Amounts borrowed under this agreement bear
interest at 130% of the Applicable Federal Rate as set forth in
the Internal Revenue Code (7.96% and 6.34% as of
December 31, 2000, and March 31, 2001, respectively),
with the interest compounding on an annual basis. Amounts
outstanding are due on demand. As of both December 31,
2000, and March 31, 2001, principal borrowings under the
note were approximately $36.8 million, respectively, with
accrued interest of $749,000, respectively, both of which are
included in notes and interest payable to HC Crown on the
accompanying consolidated balance sheets.

On February 12, 2001, Crown Media Holdings entered into an
agreement with HC Crown under which HC Crown agreed to
lend Crown Media Holdings up to $150.0 million.
HC Crowns obligation to make loans under this
agreement is supported by an irrevocable letter of credit from
Bank of America. The line of credit bears an interest rate equal
to the London Interbank Offered Rate published on the first day
of each quarter in

21



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CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Wall Street Journal, plus 1.2% to 2.2% depending on the
ratio of Crown Media Holdings total debt to EBITDA. The
interest rate increases by 0.25% if the note has not been fully
repaid by September 1, 2001 and by 0.5% if the note has not
been paid by December 31, 2001. Interest is payable
quarterly, and the principal amount with any accrued interest is
due April 1, 2002. As of March 31, 2001, principal
borrowings under the line of credit were approximately
$22.5 million, with accrued interest of $71,000, included
in the line of credit with HC Crown and notes and interest
payable to HC Crown on the accompanying consolidated
balance sheets, respectively. The line of credit also contains a
covenant regarding financial information and limitations on
additional indebtedness in excess of $10 million, liens for
amounts in excess of $5 million, sales or other disposition
of assets other than in the ordinary course of business and a
merger or consolidation with a third party. The covenants also
provide that the Company is to obtain minimum quarterly levels
of subscribers, revenues and EBITDA.



| |                     
| | --------------------
| | Class B Common Stock

Hallmark Entertainment controls all of our outstanding shares of
Class B common stock, representing approximately 90% of the
voting power on all matters submitted to our stockholders. The
Class B common stock has certain preferential rights with
respect to the conversion and voting. Each share of Class B
common stock is convertible at the option of the holder into one
share of Class A common stock. Shares of Class B
common stock are generally automatically convertible into
Class A common stock upon sale or other transfer by the
selling stockholder. In addition, Class B common
stockholders are entitled to 10 votes per share as compared to
the holders of Class A common stock, who receive one vote
per share of Class A common stock. With the exception of
the voting and conversion rights, share of Class A common
stock and shares of Class B common stock are identical.



| |                        
| | -----------------------
| | NICC License Agreements

On November 13, 1998, Odyssey Holdings entered into an
amended and restated operating agreement (the Company
Agreement) with its members and also entered into a
program license agreement with NICC (NICC Program License
Agreement) under which Odyssey Holdings licensed
programming from NICC for distribution within the United States.
NICC was obligated to furnish a minimum of 200 hours of
programming each year under the NICC Program License Agreement.

Under the NICC Program License Agreement and the Company
Agreement, Odyssey Holdings agreed to advance amounts to NICC
for the production of programming for Odyssey Holdings. The
advance was treated as an advance payment against the license
fees which would be payable for this programming. The advance
was equal to the sum of $5 million with certain annual
escalations.

Pursuant to a February 2001 amendment, the foregoing advance
will still be paid and treated as a license fee for certain
existing programming provided by NICC to Odyssey Holdings.
However, Odyssey Holdings will additionally fund a portion of
the costs of new programming produced by or with NICC. Odyssey
Holdings will also assist NICC in launching and operating a new
channel, which will be distributed by satellite and cable. This
assistance will include the provision to NICC of management and
operational services, with some services provided at no cost and
some services provided for a fee. The term of the obligations
contained in the February 2001 amendment expire on
March 26, 2006, but may be terminated earlier if NICC sells
more than 50% of the Crown Media Holdings shares it owned on
February 22, 2001. In addition, six months prior to the
expiration of the agreement, Odyssey Holdings must negotiate in
good faith with NICC regarding a continuation of the programming
and funding commitment to NICC. If agreement is not reached and
Odyssey Holdings does not continue the NICC programming and
funding commitments at the same levels, NICC is entitled to
compel Crown Media Holdings to buy all of NICCs Crown
Media Holdings shares at their then-current market value no
later than 60 days following the expiration of the
amendment. Odyssey Holdings, however, can nullify this put by
NICC by electing to continue the NICC programming and funding
commitments at the same levels.

22



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Odyssey Holdings also licenses programming for distribution in
the United States from The Jim Henson Company under a program
license agreement, dated November 13, 1998. Under this
program agreement, Odyssey Holdings generally licenses
made-for-television movies and miniseries owned or controlled by
The Jim Henson Company, as well as all programming produced by
or on behalf of The Jim Henson Company for Odyssey Holdings. The
program agreement has a term of five years and is automatically
renewable for an additional three-year period, subject to rate
adjustments, so long as The Jim Henson Company, as applicable,
or its affiliates, own at least 1,962,027 shares of Class A
Common Stock, subject to certain adjustments, of Crown Media
Holdings. In the event that The Jim Henson Company owns less
than this number of shares of Crown Media Holdings, the
remaining term of the applicable program agreement will be two
years from the date its ownership reaches that level. At
December 31, 2000, and March 31, 2001, license fees
payable to The Jim Henson Company of $10.0 million and
$3.5 million, respectively, were included in license fees
payable to affiliates in the accompanying balance sheet.

Films Transaction

Note 1 contains a description of the proposed films transaction
with Hallmark Entertainment Distribution.

10.  Income Taxes

Crown Media Holdings accounts for income taxes using the
liability method. Under this method, Crown Media Holdings
recognizes deferred tax assets and liabilities for future tax
consequences attributable to the difference between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.

Since its inception and through May 9, 2000, Crown Media
Holdings and its predecessor were included in the consolidated
federal income tax return of Hallmark Cards. Crown Media
Holdings and its predecessor were also included in combined
state income tax returns of Hallmark or Hallmark Entertainment.
Crown Media Holdings and its predecessor did not have a tax
sharing agreement with Hallmark or Hallmark Entertainment.
Hallmark has used all federal tax losses and foreign tax credits
relating to Crown Media Holdings and its predecessor. Hallmark
and Hallmark Entertainment have used state tax losses relating
to Crown Media Holdings and its predecessor in combined state
income tax returns. Hallmark and Hallmark Entertainment will not
reimburse Crown Media Holdings for the use of such tax benefits.

Effective May 10, 2000, Crown Media Holdings is no longer
included in the consolidated federal income tax return of
Hallmark. Crown Media Holdings may be included in certain
combined state income tax returns of Hallmark or Hallmark
Entertainment. Consequently, Hallmark Entertainment and Crown
Media Holdings entered into a tax sharing agreement. Under the
tax sharing agreement, where Hallmark and Crown Media Holdings
do file consolidated, combined or unitary tax returns, Crown
Media Holdings will make tax sharing payments to (or receive
payments from) Hallmark Entertainment equal to the taxes (or tax
refunds) that Crown Media Holdings would have paid (or received)
if it filed on a stand-alone basis. Such payments will be
computed based on Crown Media Holdings income (loss) and
other tax items beginning the day following the May 9, 2000
reorganization.

Crown Media Holdings has not recorded a tax benefit for federal
or state tax losses. Crown Media Holdings has recorded a tax
provision related to foreign taxes. Crown Media Holdings has
established a deferred tax asset, consisting primarily of net
operating losses generated after May 9, 2000, and a
deferred tax liability as required for certain timing items.
Crown Media Holdings has provided a full valuation allowance on
the net deferred tax asset because of uncertainty regarding its
realizability.

23



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The income tax provision is comprised of the following:

|          |                 |                    |   |       |       |  |   |     |     | 
|--------- | --------------- | ------------------ | - | ----- | ----- |  | - | --- | --- | 
|          |                 |                   
|          |                 | Three Months Ended
|          |                 | March 31,         
|          |                 |                   
|          |                 | 2000               |   | 2001 
|          |                 |                    |   |      
|          |                 |                   
|          |                 | (In thousands)    
|         
|         
|         
|         
|Current:  |                 |                    |   |       |       |  |   |    
|         
|         
|         
|         
|          | Federal         |                    | $ |      |       |  | $ |    |    
|         
|         
|         
|         
|          | Foreign         |                    |   | 234   |       |  |   | 385 |    
|         
|         
|         
|         
|          | State and local |                    |   |      |       |  |   |    |    
|          |                 |                    |   |       |       |  |   |    
|          |                 | Total current      |   |       | 234   |  |   |     | 385 | 
|         
|         
|         
|         
|Deferred: |                 |                    |   |       |       |  |   |    
|         
|         
|         
|         
|          | Federal         |                    |   | 1,900 |       |  |   |    |    
|         
|         
|         
|         
|          | State and local |                    |   |      |       |  |   |    |    
|          |                 |                    |   |       |       |  |   |    
|          |                 | Total deferred     |   |       |      |  |   |     |    | 
|          |                 |                    |   |       |       |  |   |    
|          |                 | Total              |   | $     | 2,134 |  |   | $   | 385 | 
|          |                 |                    |   |       |       |  |   |    

The following table reconciles the income tax provision at the
U.S. statutory rate to the provision per the financial
statements:

|                                                         |                      |                    |        |        |   |   |         |     | 
|-------------------------------------------------------- | -------------------- | ------------------ | ------ | ------ | - | - | ------- | --- | 
|                                                         |                      |                   
|                                                         |                      | Three Months Ended
|                                                         |                      | March 31,         
|                                                         |                      |                   
|                                                         |                      | 2000               |        | 2001  
|                                                         |                      |                    |        |       
|                                                         |                      |                   
|                                                         |                      | (In thousands)    
|                                                        
|                                                        
|                                                        
|                                                        
|Taxes computed at 35%                                    |                      | $                  | (5,035 | )      |   | $ | (15,674 | )  
|                                                        
|                                                        
|                                                        
|                                                        
|Net operating losses not benefiting Crown Media Holdings |                      |                    | 3,135  |        |   |   |        |    
|                                                        
|                                                        
|                                                        
|                                                        
|Goodwill                                                 |                      |                    |       |        |   |   | 1,249   |    
|                                                        
|                                                        
|                                                        
|                                                        
|Valuation allowance                                      |                      |                    |       |        |   |   | 14,425  |    
|                                                        
|                                                        
|                                                        
|                                                        
|Additional tax on foreign income                         |                      |                    | (234   | )      |   |   | 385     |    
|                                                         |                      |                    |        |        |   |   |         |    
|                                                         | Income tax provision |                    | $      | (2,134 | ) |   | $       | 385 | 
|                                                         |                      |                    |        |        |   |   |         |    

The components of Crown Media Holdings deferred tax assets
and liabilities are comprised of the following:

|                          |                              |                                |   |           |      |   |   |         |      |  
|------------------------- | ---------------------------- | ------------------------------ | - | --------- | ---- | - | - | ------- | ---- | -
|                          |                              | As of                          |   | As of    
|                          |                              | December 31,                   |   | March 31,
|                          |                              | 2000                           |   | 2001     
|                          |                              |                                |   |          
|                          |                              |                               
|                          |                              | (In thousands)                
|                         
|                         
|                         
|                         
|Deferred tax assets:      |                              |                                |   |           |      |   |   |        
|                         
|                         
|                         
|                         
|                          | Deferred revenue             |                                | $ | 285       |      |   | $ | 180     |     
|                         
|                         
|                         
|                         
|                          | Bad debt reserve             |                                |   | 941       |      |   |   | 1,462   |     
|                         
|                         
|                         
|                         
|                          | Accrued compensation         |                                |   | 2,314     |      |   |   | 1,114   |     
|                         
|                         
|                         
|                         
|                          | Net operating loss           |                                |   | 25,463    |      |   |   | 39,406  |     
|                         
|                         
|                         
|                         
|                          | Unconsolidated entity losses |                                |   | 2,699     |      |   |   | 6,025   |     
|                         
|                         
|                         
|                         
|                          | Other                        |                                |   | 399       |      |   |   | 399     |     
|                         
|                         
|                         
|                         
|                          | Valuation allowance          |                                |   | (31,593   | )    |   |   | (48,078 | )   
|                          |                              |                                |   |           |      |   |   |        
|                          |                              | Total deferred tax assets      |   |           | 508  |   |   |         | 508  |  
|                         
|                         
|                         
|                         
|Deferred tax liabilities: |                              |                                |   |           |      |   |   |        
|                         
|                         
|                         
|                         
|                          | Depreciation                 |                                |   | (508      | )    |   |   | (508    | )   
|                         
|                         
|                         
|                         
|                          | Other                        |                                |   |          |      |   |   |        |     
|                          |                              |                                |   |           |      |   |   |        
|                          |                              | Total deferred tax liabilities |   |           | (508 | ) |   |         | (508 | )
|                          |                              |                                |   |           |      |   |   |        
|                          |                              | Net deferred taxes             |   | $         |     |   |   | $       |     |  
|                          |                              |                                |   |           |      |   |   |        

24



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2000, and March 31, 2001,
cumulative net tax operating losses are approximately
$63.7 million and $98.5 million and expire in 2020 and
2021, respectively.

11.  Operations in Different Geographic Areas

Crown Media Holdings adopted SFAS No. 131,
Disclosures About Segments of an Enterprise and Related
Information in 1998. This statement requires companies to
report in their financial statements certain information about
operating segments, their services, the geographic areas in
which they operate and their major customers.

All of Crown Media Holdings material operations are part
of the domestic and international pay television programming
service industry and, therefore, Crown Media Holdings reports as
two industry segments. Until March 15, 2001, Crown Media
Holdings did not have operating decision authority as prior to
that date it did not have a controlling interest in The Kermit
Channel (see note 5). Consequently, selected operating and
asset data of The Kermit Channel are not included in the
following table until March 16, 2001.

Information relating to Crown Media Holdings continuing
operations is set forth in the following table (operating loss
is defined as total revenues less cost of services; selling,
general and administrative expenses; and amortization of
goodwill and other intangibles. Home office costs are reflected
in the domestic operating losses and are not allocated
internationally):

|                                   |                                                   |                           |      |              |  |           |     |              |  |   |       |       |   |  |       |       |       | 
|---------------------------------- | ------------------------------------------------- | ------------------------- | ---- | ------------ |  | --------- | --- | ------------ |  | - | ----- | ----- | - |  | ----- | ----- | ----- | 
|                                   |                                                   | Revenue from              |      | Revenue from |  |           |     |             
|                                   |                                                   | Unrelated                 |      | Related      |  | Operating |     | Identifiable
|                                   |                                                   | Entities                  |      | Entities     |  | Loss      |     | Assets      
|                                   |                                                   |                           |      |              |  |           |     |             
|                                   |                                                   |                          
|                                   |                                                   | (In millions)            
|                                  
|                                  
|                                  
|                                  
|Three Months Ended March 31, 2000: |                                                   |                           |      |              |  |           |     |              |  |   |       |       |   |  |       |      
|                                  
|                                  
|                                  
|                                  
|                                   | Domestic                                          |                           | $    |             |  |           | $   | 0.5          |  |   | $     | (8.7  | ) |  | $     | 13.1  |      
|                                  
|                                  
|                                  
|                                  
|                                   | International                                     |                           |      | 8.8          |  |           |     |             |  |   |       | (0.2  | ) |  |       | 25.0  |      
|                                   |                                                   |                           |      |              |  |           |     |              |  |   |       |       |   |  |       |      
|                                   |                                                   | $                         | 8.8  |              |  | $         | 0.5 |              |  | $ | (8.9  | )     |   |  | 38.1  |      
|                                   |                                                   |                           |      |              |  |           |     |              |  |   |       |       |   |  |       |      
|Assets not allocated to segments:  |                                                   |                           |      |              |  |           |     |              |  |   |       |       |   |  |       |      
|                                  
|                                  
|                                  
|                                  
|                                   | Cash and cash equivalents                         |                           |      |              |  |           |     |              |  |   |       |       |   |  |       | 6.1   |      
|                                  
|                                  
|                                  
|                                  
|                                   | Accounts receivable                               |                           |      |              |  |           |     |              |  |   |       |       |   |  |       | 12.5  |      
|                                  
|                                  
|                                  
|                                  
|                                   | Investment in/advances to unconsolidated entities |                           |      |              |  |           |     |              |  |   |       |       |   |  |       | 31.5  |      
|                                   |                                                   |                           |      |              |  |           |     |              |  |   |       |       |   |  |       |      
|                                   |                                                   | Consolidated total assets |      |              |  |           |     |              |  |   |       |       |   |  |       | $     | 88.2  | 
|                                   |                                                   |                           |      |              |  |           |     |              |  |   |       |       |   |  |       |      
|Three Months Ended March 31, 2001: |                                                   |                           |      |              |  |           |     |              |  |   |       |       |   |  |       |      
|                                  
|                                  
|                                  
|                                  
|                                   | Domestic                                          |                           | $    | 7.5          |  |           | $   | 1.1          |  |   | $     | (36.0 | ) |  | $     | 138.2 |      
|                                  
|                                  
|                                  
|                                  
|                                   | International                                     |                           |      | 14.4         |  |           |     |             |  |   |       | (7.4  | ) |  |       | 82.0  |      
|                                   |                                                   |                           |      |              |  |           |     |              |  |   |       |       |   |  |       |      
|                                   |                                                   | $                         | 21.9 |              |  | $         | 1.1 |              |  | $ | (43.4 | )     |   |  | 220.2 |      
|                                   |                                                   |                           |      |              |  |           |     |              |  |   |       |       |   |  |       |      
|Assets not allocated to segments:  |                                                   |                           |      |              |  |           |     |              |  |   |       |       |   |  |       |      
|                                  
|                                  
|                                  
|                                  
|                                   | Cash and cash equivalents                         |                           |      |              |  |           |     |              |  |   |       |       |   |  |       | 11.9  |      
|                                  
|                                  
|                                  
|                                  
|                                   | Accounts receivable                               |                           |      |              |  |           |     |              |  |   |       |       |   |  |       | 27.7  |      
|                                  
|                                  
|                                  
|                                  
|                                   | Subscriber acquisition fees                       |                           |      |              |  |           |     |              |  |   |       |       |   |  |       | 28.9  |      
|                                  
|                                  
|                                  
|                                  
|                                   | Goodwill and other intangibles                    |                           |      |              |  |           |     |              |  |   |       |       |   |  |       | 328.3 |      
|                                   |                                                   |                           |      |              |  |           |     |              |  |   |       |       |   |  |       |      
|                                   |                                                   | Consolidated total assets |      |              |  |           |     |              |  |   |       |       |   |  |       | $     | 617.0 | 
|                                   |                                                   |                           |      |              |  |           |     |              |  |   |       |       |   |  |       |      

The Asia Pacific market, Latin America market, Turkey and Russia
have experienced illiquidity, volatile currency exchange rates
and interest rates, volatile political and economic conditions,
and reduced economic activity. Crown Media Holdings will be
affected in the foreseeable future by economic conditions in
these regions, although it is not possible to predict the extent
of such impact.

25



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##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

No customer accounted for more than 10% of Crown Media
Holdings total revenues for the three months ended
March 31, 2000 and 2001.

12.  Subsequent Events

Crown Media Holdings Board of Directors appointed a
committee of independent directors (the Committee)
to consider, evaluate and negotiate the proposed film assets
transaction (see note 1). The Committee consisted of five
directors independent of Hallmark Entertainment. The Committee
engaged Salomon Smith Barney as its financial adviser to assist
with the transaction. The Committee passed resolutions on
April 10, 2001, approving the proposed final agreements,
authorizing the execution of the final purchase and sale
agreement and stating its belief that the films transaction at
the price stated in the purchase and sale agreement and in
accordance with the terms and conditions of the purchase
agreement and related agreements is fair to, and in the best
interest of, Crown Media Holdings and its stockholders.

Crown Media Holdings will present the proposed transaction to
the stockholders at the 2001 annual meeting, scheduled to be
held on June 7, 2001. The transaction must be approved by
the holders of a majority of the outstanding shares other than
shares owned beneficially by Hallmark Entertainment Distribution
and its affiliates (including Hallmark Entertainment and
Hallmark Cards). Currently, Hallmark Cards and Hallmark
Entertainment own approximately 31 million shares of Crown
Media Holdings, or approximately 47% of the shares outstanding,
which control approximately 90% of the voting power. Upon the
completion of the transaction, Hallmark Cards, Hallmark
Entertainment and Hallmark Entertainment Distribution will own
approximately 63 million shares of Crown Media Holdings, or
approximately 65% of the shares outstanding, which control
approximately 91% of the voting power.

26



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##### Table of Contents








|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|ITEM 2. | Managements Discussion and Analysis of Financial
	Condition and Results of Operations

Overview

The following discussion should be read in conjunction with the
attached consolidated financial statements.

Crown Media International and Odyssey Holdings were historically
operated as separate entities until May 9, 2000. The
results of Odyssey Holdings have been reported on a consolidated
basis with Crown Media International, our predecessor, since
May 9, 2000. Crown Media Holdings accounted for Odyssey
Holdings, of which it owned a 22.5% interest through May 9,
2000, and H&H Programming-Asia, of which it owned a 50%
interest until March 15, 2001, in the consolidated
financial statements using the equity method of accounting.

Further, on March 15, 2001, Crown Media Holdings acquired
the remaining 22.5% common interests in Odyssey Holdings and the
other 50% interest in H&H Programming-Asia. Commencing
March 16, 2001, we have consolidated H&H
Programming-Asia with us.



| |         
| | --------
| | Revenues

Our revenues consist primarily of subscriber fees and
advertising revenues. Subscriber fees are generally payable to
us on a per subscriber basis by pay television distributors for
the right to carry our channels. Subscriber fees revenue is
recorded net of promotional subscribers and amortization of
subscriber acquisition fees. In the United States, we pay
certain television distributors one-time subscriber acquisition
fees to carry our channels. However, internationally, the
markets generally do not require us to pay these fees.
Subscriber acquisition fees paid are capitalized and amortized
over the term of the applicable distribution agreement. At the
time we sign a distribution agreement, and periodically
thereafter, we evaluate the recoverability of the costs we incur
against the revenues directly associated with each agreement.
Prices vary according to:



| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | market;                                                                 
|
| |  | the relative position in the market of the distributor and the
	channel;
|
| |  | the packaging arrangements for the channel; and                         
|
| |  | other commercial terms such as platform exclusivity and length
	of term.

In some circumstances, distributors provide minimum revenue
guarantees.

Our channels growth in subscriber fees has been driven
primarily by:



| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | expansion of our channels into new markets;                           
|
| |  | new distribution agreements for our channels in existing
	markets; and
|
| |  | growth in the number of multi-channel homes.                          

Advertising sales are generally made on the basis of a price per
advertising spot or per unit of audience measurement (for
example, a ratings point). Prices vary on a market-by-market
basis. Rates differ within markets depending on audience
demographics.

In markets where regular audience measurements are available,
our advertising rates are calculated on the basis of an agreed
upon price per unit of audience measurement in return for a
guaranteed investment level by the advertiser. In these
countries, we commit to provide advertisers certain rating
levels in connection with their advertising. Revenue is recorded
net of estimated shortfalls, which are usually settled by
providing the advertiser additional advertising time. In other
markets, our advertising rates are calculated on the basis of
cost per advertising spot or package of advertising spots, and
the price varies by audience level expected (but not measured)
during a particular time slot. This is the predominant
arrangement in the countries outside the United States in which
we sell advertising time. Advertising rates also vary by time of
year based on seasonal changes in television viewership.

27



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##### Table of Contents





| |                 
| | ----------------
| | Cost of Services

Crown Media Holdings cost of services consists primarily
of program license fees and the cost of signal distribution,
dubbing and subtitling, and creating the promotional segments
that are aired between programs. New market launches can require
significant up front investments in program license fees, signal
distribution, dubbing and subtitling, marketing, and promotional
segments and creative production. Initial revenues from new
market launches generally trail expenses by three to six months.
We expect cost of services to continue to increase in the future
as we enter new markets and expand programming to support our
advertising strategy.



| |                               
| | ------------------------------
| | Goodwill and Other Intangibles

As a result of the acquisitions of all common interests in
Odyssey Holdings and The Kermit Channel, we have generated a
significant amount of goodwill and other intangibles, which we
are amortizing on a straight-line basis over 20 years and
10 years, respectively. The amount of goodwill and other
intangibles that we amortize in any given year will be treated
as a charge against earnings under the accounting principles
generally accepted in the United States. If we are required to
write-off our goodwill and other intangibles or accelerate the
amortization of our goodwill and other intangibles, our results
of operations, stockholders equity or profitability could
be materially adversely affected.

We engaged an independent firm to complete a valuation of
Odyssey Holdings and The Kermit Channel as a basis for the
allocation of their purchase prices. Our calculations of
goodwill and other intangibles reflect estimated fair values as
of the acquisition dates; however, the calculations are subject
to further adjustments under the provisions of Accounting
Principles Board Opinion 16 and related accounting
pronouncements.



| |                     
| | --------------------
| | Income Tax Provision

We account for income taxes using the liability method. Under
this method, we recognize deferred tax assets and liabilities
for future tax consequences attributable to the difference
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.

Prior to the reorganization on May 9, 2000, Crown Media
Holdings did not record a tax benefit for federal or state tax
losses since these losses were used by our parent and were not
available to us. Crown Media Holdings has recorded a tax
provision related to foreign taxes and established a deferred
tax liability as required for certain timing items.

Subscriber fees are subject to withholding tax in many of the
foreign jurisdictions in which we currently operate at rates
ranging from 5% to 20%. Crown Media Holdings attempts to take
advantage of reduced withholding rates pursuant to any treaties
between the United States and foreign taxing jurisdictions to
the extent available.

Foreign withholding tax may be claimed as a credit against Crown
Media Holdings United States tax liability, subject to
certain limitations. Any amounts not allowed as a credit in the
year generated may be carried back to the two preceding tax
years and then forward to the five succeeding tax years.
Alternatively, if taxes cannot be claimed as a credit during
these carry back and carryover periods, an election may be made
to claim these taxes as a deduction, thus resulting in a tax
benefit to the extent of Crown Media Holdings tax rate and
its ability to use such deductions. Tax losses may only be used
to offset taxable income. To the extent losses are limited, such
excess losses may be carried back to the two preceding tax years
and then forward to the 20 succeeding tax years.

Crown Media Holdings has generated tax losses since its
inception and there is no certainty that Crown Media Holdings
will generate taxable income in the future. Crown Media
Holdings policy is to establish a valuation allowance
against its tax credits and tax losses until such time that
realization is reasonably assured.

Goodwill and other intangibles generated as a result of the
acquisition of Odyssey Holdings and the 50% interest in H&H
Programming  Asia not owned by us, and any
amortization of such goodwill and other

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As result of the reorganization on May 9, 2000, Odyssey
Holdings was initially consolidated for financial reporting
purposes but not for tax purposes. Odyssey Holdings was treated
as a partnership for tax purposes, and members of Odyssey
Holdings were allocated income and losses pursuant to the
amended and restated company agreement of Odyssey Holdings. As a
result of the acquisition of The Jim Henson Companys 22.5%
interest in Odyssey Holdings on March 15, 2001, Odyssey
Holdings is consolidated with us for tax purposes.



| |                                        
| | ---------------------------------------
| | Foreign Currency Exchange and Inflation

We have not entered into hedging transactions to reduce our
exposure to foreign currency exchange rate risks. Accordingly,
we may experience economic loss and a negative effect on
earnings and equity with respect to our holdings solely as a
result of foreign currency exchange rate fluctuations. We plan
to enter into hedging transactions during second quarter 2001.
See Risk Factors  We are subject to the risks
of doing business outside the United States.

The functional currency for our operations generally is the
United States dollar. Assets and liabilities of foreign
subsidiaries are translated at the exchange rates in effect at
year-end, and the statements of operations are translated at the
average exchange rates during the period. Exchange rate
fluctuations in translating foreign currency financial
statements into United States dollars result in unrealized gains
or losses that are not material. Transactions denominated in
currencies other than the local currency are recorded based on
exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses
which are reflected in income as realized upon settlement of the
transactions.

We have not been materially affected by inflation.

Results of Operations



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Three Months Ended March 31, 2001 Compared to Three
	Months Ended March 31, 2000

Overview.The actual results of operations reflect the
predecessor entity, Crown Media International, for the three
months ended March 31, 2000. Therefore, significant
variances exist as a result of the reorganization of Odyssey
Holdings as of May 9, 2000, as well as the acquisitions of
remaining common interests of Odyssey Holdings and The Kermit
Channel on March 15, 2001.

Revenues.Total revenues for the three months ended
March 31, 2001 increased by $13.7 million, which
represents an increase of 147.9% over the comparable period in
2000. Subscriber fees revenue increased by $7.2 million for
the three months ended March 31, 2001, which represents an
increase of 83.4% over the comparable period in 2000. The
increased subscriber fees revenue resulted from new market
launches and expanded distribution in existing markets. The
number of subscribers to the Hallmark Channel, operated by Crown
Media International, and the Odyssey Network, operated by
Odyssey Holdings, as of March 31, 2001, increased by 200.4%
to 67.6 million, compared to 22.5 million as of
March 31, 2000. As international subscriber fees continue
to experience downward pressure (for the reasons described
below) and our subscriber base expands, we continue to focus on
increasing advertising revenues. Advertising revenues increased
by $7.0 million for the three months ended March 31,
2001, over the comparable period in 2000. This increase in
advertising revenues reflects our growing subscriber base,
expanding sales of advertising time primarily in the United
States, Latin America and the United Kingdom, and higher
advertising rates. We received management fees from The Kermit
Channel during the three months ended March 31, 2000. As a
result of the purchase of The Jim Henson Companys
interests and the collapsing of The Kermit Channel into a block
on the Hallmark Channel, we did not earn management fee revenues
for the three months ended March 31, 2001, nor do we expect
to earn these fees in the future.

Subscribers of the Hallmark Channel increased at a higher rate
than subscriber fees revenue as a number of new subscribers were
added with promotional periods. During the first quarter of
2001, distribution of the Hallmark Channel was expanded in
Taiwan to approximately 4.0 million subscribers and
launched in South Korea to approximately 1.2 million
subscribers. Rates negotiated for domestic subscriber fees and
advertising

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Cost of services.Cost of services for the three months
ended March 31, 2001, increased by $23.8 million,
which represents an increase of 219.9% over the comparable
period in 2000. Cost of services as a percentage of total
revenue increased to 150.4% for the three months ended
March 31, 2001, as compared to 116.6% for the three months
ended March 31, 2000. This increase was due primarily to a
$15.2 million increase in programming costs and a
$8.6 million increase in operating costs for the
aforementioned period. Programming costs rose as we invested in
additional and higher quality programming, including the greater
use of Hallmark Entertainment titles necessary to fulfill our
programming strategy. Also, we continue to amortize licensing
fees for the domestic rights which we acquired in 2000 from a
third-party supplier to the series Dr. Quinn, Medicine
Woman. Additionally, operating costs rose as we expanded
existing markets, such as Taiwan, and launched the Hallmark
Channel in South Korea during the first quarter 2001. Total cost
of services increased reflecting the increased infrastructure,
certain key senior management additions, and costs associated
with supporting new markets.

Selling, general and administrative expenses.Selling,
general and administrative expenses for the three months ended
March 31, 2001, increased by $11.1 million, which
represents an increase of 166.2% over the comparable period in
2000. Selling, general and administrative expenses as a percent
of total revenue increased to 77.1% for the three months ended
March 31, 2001, as compared to 71.8% for the three months
ended March 31, 2000. This increase primarily reflects
increased costs associated with supporting new markets and the
continued development of a corporate infrastructure to support
increased distribution and advertising, including expansion of
the management team and increased staffing levels.

Marketing expenses.Marketing expenses for the three
months ended March 31, 2001, increased by
$9.8 million, over the comparable period in 2000. Marketing
expenses increased in the first quarter of 2001 due to
aggressive marketing campaigns for the Odyssey Network and the
introduction of our new brand package, which includes branded
theme blocks, a new positioning line, on-air graphics and
signature music. The newly redesigned brand began a worldwide
rollout on November 1, 2000. Additionally, several original
movies were aired during first quarter 2001, which were
supported by aggressive marketing campaigns to drive consumer
awareness. In March 2001, we entered into an agreement with
Hallmark Licensing, Inc. which allows us to re-launch the
Odyssey Network as the Hallmark Channel. This change will be
effective August 6, 2001, and will be backed by a
multi-million dollar promotion and advertising campaign which
will result in continuing, substantial marketing expenses.

Amortization of goodwill and other intangibles.Amortization of goodwill and other intangibles for the three
months ended March 31, 2001, was $3.5 million. In
conjunction with the acquisition of Odyssey Holdings on
May 9, 2000, and the acquisition of the remaining common
interests in Odyssey Holdings and The Kermit Channel on
March 15, 2001, we recorded goodwill in the amount of
$248.8 million and $91.7 million, which are being
amortized over 20 years and 10 years, respectively.

Loss from operations.Loss from operations for the three
months ended March 31, 2001, increased by
$34.5 million, which represents an increase of 387.9% over
the comparable period in 2000. This increase in loss from
operations for the three months ended March 31, 2001, was
attributable to a combination of the factors discussed above.

Equity in net losses of unconsolidated entities and
investment expenses. Equity in net losses of unconsolidated
entities and investment expenses for the three months ended
March 31, 2001, decreased by $4.5 million, which
represents a decrease of 87.4% over the comparable period in
2000. This decrease was primarily due to the acquisition of
Odyssey Holdings on May 9, 2000, and the acquisition of the
remaining common interests in Odyssey Holdings and The Kermit
Channel on March 15, 2001. We commenced consolidation of
Odyssey Holdings and The Kermit Channel on the dates of the
acquisition. Net losses derived

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Interest expense, net.Net interest expense increased by
$457,000, which represents an increase of 150.8% over the
comparable period in 2000. This increase was primarily due to
increased borrowings to fund operations.

Income tax provision.Income tax provision for the three
months ended March 31, 2001, decreased by
$1.7 million, which represents a decrease of 82.0% over the
comparable period in 2000. This decrease was attributable to a
reversal of deferred tax liabilities related to the increase in
ownership of Odyssey Holdings during 2000.

Net loss.Net loss for the three months ended
March 31, 2001, increased by $28.6 million, which
represents an increase of 173.4% over the comparable period in
2000. This increase in net loss for the three months ended
March 31, 2001, was attributable to a combination of the
factors discussed above.

Liquidity and Capital Resources

As of March 31, 2001, we had obligations representing
license fees for programming to Hallmark Entertainment
Distribution, NICC, and The Jim Henson Company of
$122.1 million, $4.0 million and $3.5 million,
respectively. Additionally, we also had obligations as of
March 31, 2001, representing notes payable, a line of
credit and interest payable to HC Crown of $60.0 million,
and subscriber acquisition fees payable of $28.6 million to
a third-party. As of March 31, 2001, receivables were
$23.8 million, the current portion of program license fees
was $52.5 million and cash and cash equivalents were
$11.6 million.

Cash used in operating activities was $41.8 million and
$8.9 million for the three months ended March 31, 2001
and 2000, respectively. Net cash used in operating activities
was used primarily to fund operating expenditures related to net
losses of $45.2 million and $16.5 million for the
three months ended March 31, 2001 and 2000, respectively.
The increases in net losses and cash used in operating
activities were due to our additional investment in higher
quality programming to fulfill our programming strategy,
increasing expenses associated with our expanding management
team and staffing levels, and marketing expenses anticipating
our re-launch of the Odyssey Network as the Hallmark Channel
effective August 6, 2001.

Cash used in investing activities was $3.2 million and
$5.1 million for the three months ended March 31, 2001
and 2000, respectively. The decrease in cash used in investing
activities is attributed to managements reduction in
capital expenditures.

Cash provided by financing activities was $22.3 million and
$16.2 million for the three months ended March 31,
2001 and 2000, respectively. The increase in cash provided by
financing activities was due to the $22.5 million increase
in borrowings from HC Crown in order to fund our operations.



| |        
| | -------
| | General

In connection with our growth strategy, we expect that we will
continue to make significant investments in programming,
distribution and technology, as well as additional investments
in infrastructure and facilities. We are currently committed to
spend more than $50.0 million for programming over the next
12 months. We are also committed to four quarterly payments
of $6.8 million commencing on April 1, 2001, for
subscriber acquisition fees payable. We anticipate the need for
external financing. A line of credit with HC Crown for
$150 million is in place to cover our anticipated needs
through March 31, 2002, with a remaining amount available
of $127.5 million, as of March 31, 2001. This line of
credit with HC Crown is payable no later than April 1,
2002. The lenders obligation to make loans under the line
of credit is backed up by a letter of credit issued by Bank of
America. We believe that, without taking into account the films
transaction described below, the line of credit, together with
cash generated from operations and cash on hand, will be
sufficient for our liquidity needs through March 31, 2002.

Whether or not the films transaction described below is
completed, we will seek during the next 12 months
additional funds to operate and expand our businesses. Any
additional equity financings could

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| |                           
| | --------------------------
| | Proposed Films Transaction

We have entered into an agreement for the purchase by us from
Hallmark Entertainment Distribution, LLC (the films
transaction) of made-for-television movies, specials,
theatrical films, mini-series, series and made-for-video product
consisting of 702 titles, along with related film properties and
rights (the film assets). The film assets will be
subject to any contractual rights previously granted to third
parties. The purchase price for the film assets consists of the
following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The number of shares of Class A common Stock calculated as
	follows with the average stock price meaning the
	average of the closing price per share of the Class A
	Common Stock as reported on the Nasdaq National Market System on
	each trading day during the period beginning on November 6,
	2000 (the date on which we publicly announced we were
	investigating the possibility of a transaction) and ending on
	the trading date immediately prior to the closing date for the
	films transaction:



| |     |                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | if the average stock price is less than $17.00, then
	35,294,118 shares;                                                                                            
|
| | (2) | if the average stock price is greater than $18.70, then
	32,085,562 shares;  or                                                                                     
|
| | (4) | if the average stock price is at least $17.00, but not greater
	than $18.70, then the number of shares shall equal $600,000,000
	divided by the average stock price;



| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our assumption or payment of $120 million of debt related
	to the film assets payable by Hallmark Entertainment, Inc.
	and certain of its affiliates to J.P. Morgan
	Chase & Company and other lenders under a credit and
	security agreement; and
|
| |  | Our assumption of $100 million of payables related to the
	film assets.                                                                                                                                                                           

Based on an average stock price of $18.09 from November 6,
2000, to April 10, 2001, when we signed the purchase and
sale agreement, we would issue 33,169,794 shares. Based on
the average stock price of $18.35 from November 6, 2000 to
April 30, 2001, we would issue 32,697,548 shares. The
value of the stock, based on this average price, would be
$600 million, resulting in a total purchase price for the
film assets of approximately $820 million. The closing
price of shares of Class A common stock on the closing date
may be higher or lower than the average stock price used in
calculating the number of shares of Class A common stock we
will issue in the transaction.

In connection with the purchase of the film assets, we will
enter into additional agreements, including a service agreement
with Hallmark Entertainment regarding the administration,
distribution and exploitation of the film assets, and amended
program agreements between Hallmark Entertainment Distribution
and each of Crown Media International and Odyssey Holdings. We
and Hallmark Entertainment Distribution will also enter into a
registration rights agreement regarding the shares issued in the
films transaction.

The films transaction is subject to stockholder approval at our
annual meeting of stockholders scheduled to be held on
June 7, 2001. The films transaction will be described in
definitive proxy materials mailed to stockholders on or about
May 7, 2001.



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Contemplated Financing Arrangements Resulting from the
	Proposed Library Transaction

One of the conditions to our closing the films transaction is
that we enter into an agreement to assume $120 million of
debt relating to the film assets or that we pay off that debt.
We currently intend to arrange for a line of credit, which will
include the $120 million to be assumed or paid by us. The
proposed line of credit will also be used to repay the existing
line of credit with HC Crown to repay two demand notes (dated
November 19, 1999, and February 22, 2000,
respectively) for a total amount of $37.8 million
(including accrued interest at December 31, 2000) payable
to HC Crown and to provide working capital to operate and expand
our business.

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The existing line of credit with HC Crown is for up to
$150 million and is payable no later than April 1,
2002. Proceeds from borrowing under the HC Crown line of
credit of $22.5 million have also been used in our working
capital.

We plan to arrange the line of credit with a group of banks, for
which JP Morgan Chase will be the agent bank. We anticipate
that the terms of this new line of credit will include an
interest rate at a certain percentage over the London Interbank
Offered Rate, and collateral consisting of the film assets and
most or all of our other assets. We also anticipate that the
line of credit will include financial and other covenants.
However, these terms are subject to final negotiations with the
group of banks.

We believe that the films transaction, if completed, will
provide more flexibility for our future financings. Accordingly,
we plan to file with the Securities and Exchange Commission in
early June 2001 a shelf registration statement which would allow
us to make over time one or more offerings in an aggregate total
amount of up to $500 million of our securities. We expect
that the securities covered by the registration statement will
include our common stock, preferred stock, debt securities
(which may or may not be convertible) and warrants to purchase
stock. We are exploring the possibility of selling equity and
debt securities for part of the total amount during 2001 using
this registration statement, depending on market conditions, our
projected cash needs and other factors. Proceeds from any such
offerings in 2001 would be used to reduce our bank debt and
other then existing indebtedness and to fund working capital.
(This information does not constitute an offer of any securities
for sale.)




Forward-Looking Statements and Risk Factors

We have made some statements which constitute forward-looking
statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual
results, levels of activity, performance, or achievements to be
materially different from any results, levels of activity,
performance or achievements expressed or implied by any
forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as
may, will, should,
could, expects, intends,
plans, anticipates,
believes, estimates,
predicts, potential, or
continue or the negative of these terms or other
comparable terminology. Although we believe that the
expectations reflected in forward-looking statements are
reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Actual results could
differ materially from those in the forward-looking statements.
Among the factors that could cause actual results to differ
materially are those discussed below and in other parts of this
report. We are under no duty to update any of the
forward-looking statements.

If we do not successfully address the risks described below, our
business, prospects, financial condition, results of operations
or cash flow could be materially adversely affected. The trading
price of our Class A common stock could decline because of
any of these risks.

Risks Relating to Our Business



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Our business has incurred net losses since inception and may
	continue to incur losses.

The Hallmark Channel and the Odyssey Network both have a history
of net losses and we expect to continue to report net losses for
the foreseeable future. As of March 31, 2001, we had an
accumulated deficit of approximately $295.6 million and net
goodwill and other intangibles of approximately
$328.3 million. Amortization of goodwill and other
intangibles resulted in a $3.5 million charge to earnings
for the three months ended March 31, 2001.

As a result of the foregoing, we may not achieve or sustain
profitability. If we are not able to achieve or sustain
profitability, the trading price of our Class A common
stock may fall significantly. We may seek during the next
12 months and thereafter additional funds to operate and
expand our businesses. Any additional equity financings could
result in dilution to our existing investors. Any debt
financings will likely increase our interest expense and may
impose restrictive covenants. However, we could experience
increased capital needs in the future if our losses are greater,
or continue for longer, than we anticipate. See
Managements

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In order to diminish our losses and become profitable, it is
imperative that we substantially increase our revenues,
particularly advertising revenues. This in turn involves the
distribution of our channels, attracting viewers to our channels
and marketing our channels to advertisers, among other things.
Risks associated with these areas of our business are described
below.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | We may seek in the next 12 months or thereafter to raise
	additional funds, which may not be available.

We currently have in place a line of credit with HC Crown,
for up to $150 million payable no later than April 1,
2002. The obligations of HC Crown under this line is
supported by an irrevocable letter of credit with Bank of
America. We contemplate replacement of this line of credit with
a credit facility from a group of banks on or before
March 31, 2002. We may also need to raise other external
funds to operate and expand our business. We may not be able to
obtain the replacement line of credit or obtain the needed
additional funds, through borrowings or the issuance of
additional equity, on acceptable terms or at all. It is a
condition to closing the films transaction that we enter into an
agreement to assume $120 million of debt relating to the
film assets or that we pay off that debt. We currently intend to
arrange for a line of credit, which will include the
$120 million to be assumed or paid by us, and the repayment
of the line of credit described above and certain demand notes
payable to HC Crown. Further, whether or not the films
transaction is completed, we may seek during the next
12 months and thereafter additional funds to operate and
expand our businesses.

If we cannot raise needed funds on acceptable terms, we may not
be able to:



| |   |                                                                    
| | - | -------------------------------------------------------------------
| |  | complete the films transaction;                                    
|
| |  | expand our domestic and international distribution as
	anticipated;
|
| |  | grow our advertising revenues;                                     
|
| |  | continue our current operations;                                   
|
| |  | remain current with evolving industry standards;                   
|
| |  | take advantage of future opportunities; or                         
|
| |  | respond to competitive pressure.                                   



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because we depend on Hallmark Entertainment for a significant
	portion of our programming, the loss or interruption of that
	programming would severely disrupt our operations and
	services.

We may be unable to implement our operating strategy
successfully without the continued availability and commercial
success of programming from Hallmark Entertainment. Under our
program agreements with Hallmark Entertainment Distribution, we
are required to license substantially all of the programming
owned or controlled by Hallmark Entertainment for the markets in
which we operate during the five three-month terms of the
agreements. If this programming were to become unavailable or
unsuccessful for any reason during the term of the program
agreements, we could be unable to obtain alternative programming
of equivalent quality and popularity or on terms as favorable to
us. Consequently, any significant interruption in the supply of
programming from Hallmark Entertainment for any reason could
hinder our ability to attract and retain subscribers, generate
revenues and achieve profitability.

If the films transaction is completed, our program agreements
with Hallmark Entertainment Distribution will be amended to,
among other things, exclude the acquired film assets from the
agreements. Although this will lessen our dependence on Hallmark
Entertainment for programming to some extent, we will continue
to be dependent on Hallmark Entertainment for new programming
and for films not being acquired by us.

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| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to obtain programming from parties other
	than Hallmark Entertainment, we may be unable to increase our
	subscriber base.

We compete with other pay television channel providers for the
acquisition of programming. If we fail to continue to obtain
programming on reasonable terms for any reason, including as a
result of competition, we could be forced to incur additional
costs of acquiring alternative programming and the growth of our
subscriber base could be hindered.



| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | If our programming declines in popularity, our subscriber
	fees and advertising revenue could fall.

The success of our programming depends partly upon unpredictable
and volatile factors beyond our control, such as viewer
preferences, competing programming and the availability of other
entertainment activities. A shift in viewer preferences could
cause our programming to decline in popularity, which could
cause a decline in both advertising and subscriber fees revenue.
We may not be able to anticipate and react effectively to shifts
in tastes and interests in our markets. In particular, our
ability to react effectively may be limited by our obligation to
license programming from Hallmark Entertainment Distribution,
The Jim Henson Company and the National Interfaith Cable
Coalition, each of which has standards that limit the types of
programming that they will provide to us. In addition, our
competitors may have more flexible programming arrangements, as
well as greater volumes of production, distribution and capital
resources, and may be able to react more quickly to shifts in
tastes and interests. We may be unable to maintain the
commercial success of any of our current programming, or to
generate sufficient demand and market acceptance for our new
programming.



| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | If we are unable to increase our advertising revenue, we may
	be unable to achieve profitability.

If we fail to increase our advertising revenue, we may be unable
to achieve and sustain profitability, or expand our business. We
expect that over time the portion of our revenues derived from
the sale of advertising time on our channels will increase. We
have a limited history of marketing and selling advertising
time. Our ability to achieve advertising revenue growth in the
future will depend in large part on our ability to expand our
sales and marketing organization. We may be unable to identify,
attract and retain experienced sales and marketing personnel
with relevant experience, and our sales and marketing
organization may be unable to successfully compete against the
significantly more extensive and well-funded sales and marketing
operations of our current or potential competitors. Success in
increasing our advertising revenue also depends upon the number
and coverage of distributors who make available our channels,
our number of subscribers, and the viewership ratings for our
programming.



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Hallmark Entertainment, Inc. controls us and this
	control could create conflicts of interest or inhibit potential
	changes of control.

Hallmark Entertainment controls all of our outstanding shares of
Class B Common Stock, representing approximately 90% of the
voting power on all matters submitted to our stockholders.
Hallmark Entertainments control could discourage others
from initiating potential merger, takeover or other change of
control transactions that may otherwise be beneficial to our
businesses or holders of Class A Common Stock. As a result,
the market price of our Class A Common Stock or our
business could suffer. Hallmark Entertainments control
relationship with us also could give rise to conflicts of
interest, including:



| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | conflicts between Hallmark Entertainment, as our controlling
	stockholder, and our other stockholders, whose interests may
	differ with respect to, among other things, our strategic
	direction or significant corporate transactions;
|
| |  | conflicts related to corporate opportunities that could be
	pursued by us, on the one hand, or by Hallmark Entertainment or
	its other affiliates, on the other hand; or                                                               
|
| |  | conflicts related to existing or new contractual relationships
	between us, on the one hand, and Hallmark Entertainment and its
	affiliates, on the other hand.                                                                        

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In addition, persons serving as directors, officers or employees
of both us and Hallmark Entertainment may have conflicting
duties to each. For example, it is currently contemplated that
Robert A. Halmi, Jr. will continue in his current
positions as our Chairman of the Board and as President and
Chief Executive Officer of Hallmark Entertainment, which could
create potential conflicts of interest. As a result, it is
possible that we may receive less favorable contractual terms
from Hallmark Entertainment than if none of our officers or
directors had any affiliation with Hallmark Entertainment.



| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | We could lose the right to use the name Hallmark
	because we have limited-duration trademark license agreements,
	which could harm our business.

We license various uses of the name Hallmark from
Hallmark Cards, including naming each of our international and
domestic channels the Hallmark Channel. The two-year license
agreement for our international channel, dated as of
December 1, 2000, permits the use of the Hallmark
trademarks outside the United States and Canada so long as
Hallmark Cards and its wholly-owned subsidiaries collectively
own at lease 51% of the voting interest and at least 35% of the
equity interest in Crown Media Holdings and designate a majority
of our board of directors, and so long as there is no event of
default under the agreement. The license agreement for our
domestic channel, dated as of March 27, 2001, permits the
use of the Hallmark trademarks in the United States through
August 30, 2003, under terms substantially similar to the
terms applicable to the license of our international channel. If
Hallmark Cards fails to renew the trademark license agreement
for any reason, including our failure to meet minimum
programming thresholds dependent on programming provided by its
affiliates or to comply with Hallmark Cards programming
standards as determined in its sole discretion, we would be
forced to significantly revise our business plan and operations,
and could experience a significant erosion of our subscriber
base and revenues.



| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our third-party suppliers fail to provide us with network
	infrastructure services on a timely basis or if our Network
	Operations Center fails, our costs could increase and our growth
	could be hindered.

We currently rely on third parties to supply key network
infrastructure services, including uplink, playback,
transmission and satellite services to certain of our markets,
which are available only from limited sources. We have
occasionally experienced delays and other problems in receiving
communications equipment, services and facilities and may, in
the future, be unable to obtain such services, equipment or
facilities on the scale and within the time frames required by
us on terms we find acceptable, or at all. If we are unable to
obtain, or if we experience a delay in the delivery of, such
services, we may be forced to incur significant unanticipated
expenses to secure alternative third party suppliers or adjust
our operations, which could hinder our growth and reduce our
revenues and profitability.

We commenced operations at our Network Operations Center (the
NOC) in February 2001. We are currently using the
NOC for the origination and playback of signals for the Hallmark
Channel internationally in Europe, Latin America, Africa and the
Middle East and intend to expand our use of the NOC as existing
contracts with third-party vendors expire. Like other
single-point facilities, the NOC is subject to interruption from
fire, tornados, lightning and other unexpected natural causes.
Although we have redundant systems in place, equipment failure,
employee misconduct or outside interference could also disrupt
the NOCs services. Some broadcasters have duplicate
broadcast centers; we currently do not have and are not planning
such a duplicate facility. Any significant interruption at the
NOC affecting the broadcast of our channels could have an
adverse effect on our operating results and financial condition.



| |                                                                         
| | ------------------------------------------------------------------------
| | Our contract with a third-party supplier includes a
	preemptable clause.

Our C-3 satellite (transponder 5) is currently the
only integrated domestic source for our domestic signal. Our use
of transponder 5 can be preempted by users of other
so-called protected transponders on the C-3
satellite. Thus, it is possible that our domestic signal could
be removed from time to time from the C-3 satellite. Any such
interruptions could materially affect viewership of our channels
and thus have a material adverse effect on our revenues.

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Our C-3 satellite currently has a projected end of life in late
2004 or early 2005. We will need to replace this satellite with
an equally reliable satellite. Further, although the C-3
satellite has been stable and reliable since commencing
operation in 1992, any technological or other issues with the
satellite could affect our ability to transmit our programming.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | We do not have complete control over Odyssey Holdings, which
	could hinder our ability to expand that business.

A stockholder agreement originally signed prior to the
completion of our May 9, 2000, initial public offering and
amended in February 2001 requires:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | that we broadcast at least 15 1/2 hours of weekly faith and
	values programming;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | that the National Interfaith Cable Coalition will produce for
	Odyssey Holdings up to six holiday specials per year;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | that Odyssey Holdings will assist the National Interfaith Cable
	Coalition in launching and operating a new channel, including
	providing management and operation services, with some services
	at no cost and some services for fees;                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | that we require any party to which we transfer our interests in
	Odyssey Holdings to either assume those programming obligations
	to NICC or, at NICCs election, to buy all of the shares of
	Crown Media Holdings held by NICC at their then current market
	value. This may limit our ability to implement
	strategies; and                                                                                                                                                                                                                                                                                                    
|
| |  | that if, after good faith negotiation between Odyssey Holdings
	and the National Interfaith Cable Coalition, agreement is not
	reached and Odyssey Holdings does not elect to continue the
	agreement beyond the expiration date of March 2006, the National
	Interfaith Cable Coalition is entitled to compel us to buy all
	of the shares of Crown Media Holdings held by it at their then
	current market value no later than 60 days following the
	expiration of the agreement. Odyssey Holdings, however, can
	nullify this put by NICC by electing to continue the programming
	and funding commitments at the same levels.



| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our programming could be affected by a possible strike of the
	Screen Actors Guild, the American Federation of Television and
	Radio Artists, or the Writers Guild of America.

The current contract of the Screen Actors Guild
(SAG) and American Federation of Television and
Radio Artists (AFTRA) with the motion picture and
television producers expires on June 30, 2001. The parties
have discussed issues involved in the contract, including
residuals and other economic issues. The Writers Guild of
Americas (WAG) contract with producers expired
on May 1, 2001, although the parties continue to negotiate.
We do not know whether renewal agreements can be negotiated
without a strike. Others in the entertainment business might
join any strike. If the SAG, AFTRA or WAG strike, the strike
could affect our ability to acquire programs or the costs of
those programs. Any interruption in programming or an increase
in costs could have a material adverse effect on our results of
operations or financial condition.



| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | We may have to incur significant capital expenditures in
	order to adapt to technological change.

The pay television industry has been, and is likely to continue
to be, subject to:



| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | rapid and significant technological change, including continuing
	developments in technology which do not presently have widely
	accepted standards;  and
|
| |  | frequent introductions of new services and alternative
	technologies, including new technologies for providing video
	services.                          

We expect that new technologies will emerge that may be superior
to, or may not be compatible with, some of our current
technologies, which may require us to make significant capital
expenditures to remain competitive. Our future success will
depend, in part, on our ability to anticipate and adapt to
technological

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| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | If we are unable to retain key executives and other
	personnel, our growth could be inhibited and our business
	harmed.

Our success depends on the expertise and continued service of
our executive officers and key employees of our subsidiaries,
and on our ability to hire additional personnel to accommodate
our anticipated growth. If we fail to attract, hire or retain
the necessary personnel, or if we lose the services of our key
executives, we may be unable to implement our business plan or
keep pace with developing trends in our industry. We do not
carry key person life insurance on all of our personnel, nor is
the insurance that we do carry necessarily sufficient to cover
the losses that we would incur in the event we lose one of our
key executives to death or disability.



| |                                                                          
| | -------------------------------------------------------------------------
| | We are subject to the risks of doing business outside the
	United States.

Historically, a significant portion of our revenues have been
generated from foreign operations. In order to maintain or
expand our presence in foreign markets, we have entered and may
in the future enter into joint ventures or other strategic
relationships with local operators in those markets. Such
relationships may, among other things, require us to issue
additional equity, make minimum capital contributions, or
inhibit our ability to make decisions with respect to operations
in those markets. Certain foreign laws, regulations and judicial
procedures may not be as protective of programmer rights as
those which apply in the United States. In addition, many
foreign countries have currency and exchange laws regulating the
international transfer of currencies. To the extent that
significant currency fluctuations result in materially higher
costs to any of our foreign customers, those customers may be
unable or unwilling to make the required payments. We are
subject to delays in access to courts and to the remedies local
laws impose in order to collect our payments and recover our
assets. In the future, we may experience problems with
collecting accounts due from foreign customers, which would
adversely affect our revenues and income. Our growth and
profitability may also suffer as a result of, among other
matters, competitive pressures on video delivery, labor
stoppages, recessions and other political or economic events
adversely affecting world or regional trading markets or
affecting a particular customer.



| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | Our current and future operations in emerging markets may be
	harmed by the increased political and economic risks associated
	with these markets.

We currently broadcast in several foreign markets where market
economies have only recently begun to develop, and we may expand
these operations in the future. If the governments in these
markets adopt more restrictive economic policies, we may not be
able to continue operating, or to implement our expansion plans,
in those markets. More generally, we are exposed to certain
risks, many of which are beyond our control, inherent in
operating in emerging market countries. These risks include
changes in laws and policies affecting trade, investment and
taxes (including laws and policies relating to the repatriation
of funds and to withholding taxes), differing degrees of
protection for intellectual property and the instability of
emerging market economies, currencies and governments.



| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | The amount of our goodwill and other intangibles may hinder
	our ability to achieve profitability.

As a result of the reorganization and acquisition in May 2000,
our acquisition in March 2001 of the remaining common ownership
interests in Odyssey Holdings and the 50% interest in
H&H Programming  Asia not previously owned
by us, we generated a significant amount of goodwill and other
intangibles which we are amortizing on a straight-line basis
over 20 years and 10 years, respectively. The amount
of goodwill and other intangibles that we amortize in any given
period is treated as a charge against earnings under accounting
principles generally accepted in the United States; as a result,
the amortization of our goodwill and other

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Risks Relating To Our Industry



| |                                                                      
| | ---------------------------------------------------------------------
| | Competition could reduce our channel revenues and our
	profitability.

We operate in the pay television business, which is highly
competitive. If we are unable to compete effectively with large
diversified entertainment companies that have substantially
greater resources than we have, our operating margins and market
share could be reduced, and the growth of our business
inhibited. In particular, we compete for distribution with other
pay television channels and, when distribution is obtained,
compete for viewers and advertisers with pay television
channels, broadcast television networks, radio, the Internet and
other media. We also compete, in varying degrees, with other
leisure-time activities such as movie theaters, television, the
Internet, radio, print media, personal computers and other
alternative sources of entertainment and information. In
addition, future technological developments may affect
competition within this business.

A continuing trend towards business combinations and alliances
in both the domestic and foreign communications industry may
create significant new competitors for us. Many of these
combined entities will have resources far greater than ours.
These combined entities may provide bundled packages of
programming, delivery and other services that compete directly
with the products we offer. These entities may also offer
services sooner and at more competitive rates than we do. In
addition, these alliances may benefit from both localized
content and the local political climate.

We may need to reduce our prices or license additional
programming to remain competitive, and we may be unable to
sustain future pricing levels as competition increases. Our
failure to achieve or sustain market acceptance of our
programming at desired pricing levels could impair our ability
to achieve profitability or positive cash flow, which would harm
our business.



| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | New distribution technologies may fundamentally change the
	way we distribute our channels and could significantly decrease
	our revenues.

The advent of digital technology is likely to accelerate the
convergence of broadcast, telecommunications, Internet and other
media and could result in material changes in the economics,
regulations, intellectual property usage and technical platforms
on which our business relies, including lower retail rates for
video services. These changes could fundamentally affect the
scale, source and volatility of our revenue streams, cost
structures and profitability, and may require us to
significantly change our operations. There is a risk that our
business and prospects will be harmed by these changes or that
we will not identify or adapt to them as quickly as our
competitors do.



| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | The expansion of digital distribution in our markets may
	increase competition for viewers, ratings and related
	advertising revenues.

The increased capacity of digital distribution platforms,
including the introduction of digital terrestrial television,
may reduce the competition for the right to carry channels and
allow development of extra services at low incremental cost.
Therefore, increased digital capacity could lower barriers to
entry for competing channels, and place pressure on our
operating margins and market position. A greater number of
channels would likely increase competition among channels for
viewers and advertisers, which could affect our ability to
attract advertising and new distribution at desired pricing
levels, and could therefore hinder or prevent the growth of our
subscriber base.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | If we fail to comply with applicable government regulations,
	our business could be harmed.

If, as a provider of television channels, we fail to comply with
applicable present or future government regulations in any
markets in which we operate, we could be prohibited from
operating in those markets and

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Moreover, broadcasting regulations are generally subject to
periodic and on-going governmental review and legislative
initiatives which may, in the future, affect the nature of
programming we are able to offer and the means by which it is
distributed. The timing, scope or outcome of these reviews could
be unfavorable to us, and any changes to current broadcasting
legislation or regulations could require adjustments to our
operations.






|        |                                                            
|------- | -----------------------------------------------------------
|ITEM 3. | Quantitative and Qualitative Disclosures About Market
	Risk

We do not use derivative financial instruments in our investment
portfolio. We only invest in instruments that meet high credit
and quality standards, as specified in our investment policy
guidelines. These instruments, like all fixed income
instruments, are subject to interest rate risk. The fixed income
portfolio will fall in value if there were an increase in
interest rates. If market interest rates were to increase
immediately and uniformly by 10% from levels as of
March 31, 2001, the decline of the fair value of the fixed
income portfolio would not be material. We do not currently
engage in any currency hedging transactions.

As of March 31, 2001, our cash, restricted cash, cash
equivalents and short-term investments had a fair value of
$11.9 million. Of that amount, all was invested in cash and
short-term commercial paper. The primary purpose of these
investing activities has been to preserve principal until the
cash is required to fund operations. Consequently, the size of
this portfolio fluctuates significantly as cash is raised and
used in our business.

The value of certain investments in this portfolio can be
impacted by the risk of adverse changes in securities and
economic markets and interest rate fluctuations. At
March 31, 2001, all of our investments in this category
were in fixed rate instruments or money market type accounts. A
decrease in interest rates has the effect of reducing our future
annual interest income from this portfolio, since funds would be
reinvested at lower rates as the instruments mature. Over time,
any net percentage decrease in our interest rates could be
reflected in a corresponding net percentage decrease in our
interest income. For the three months ended March 31, 2001,
the impact of interest rate fluctuations, changed business
prospects and all other factors did not have a material impact
on the fair value of this portfolio, or on our income derived
from this portfolio.

We have not used derivative financial instruments for
speculative purposes. We have not hedged or otherwise protected
against risks associated with any of our investing or financing
activities.

As of March 31, 2001, we estimated the fair value of our
debt and other notes payable, excluding accrued interest, to be
approximately $8.2 million using quoted market prices where
available, or discounted cash flow analyses. The fair value of
our debt is affected by fluctuations in interest rates. A
hypothetical 10% decrease in assumed interest rates would
increase the fair value of our debt by approximately $773,000. A
hypothetical 10% increase in assumed interest rates would
increase our interest expense by $650,000. These calculations
include the assumption that the balance of our outstanding debt
as of March 31, 2001, would not change during the three
months and that a yearly interest rate was used. To the extent
interest rates increase, our costs of financing would increase
at such time as we are required to refinance our debt.



| |                               
| | ------------------------------
| | We are exposed to market risk.

We are exposed to market risk, including changes to interest
rates, foreign currency exchange rates and equity investment
prices. To reduce the volatility relating to these exposures, we
plan to enter into various

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Though we intend to use risk management control policies, there
will be inherent risks that may only be partially offset by our
hedging programs should there be any unfavorable movements in
interest rates, foreign currency exchange rates or equity
investment prices.

The estimated exposure discussed below is intended to measure
the maximum amount we could lose from adverse market movements
in interest rates, foreign currency exchange rates and equity
investment prices, given a specified confidence level, over a
given period of time. Loss is defined in the value at risk
estimation as fair market value loss.



| |                                                                    
| | -------------------------------------------------------------------
| | Our interest expense is subject to fluctuations in interest
	rates.

Our material interest bearing assets, or interest bearing
portfolio consisted of cash equivalents, restricted cash, and
short-term investments. The balance of our interest bearing
portfolio was $11.9 million, or 1.9% of total assets, as of
March 31, 2001. Net interest expense related to this
portfolio was $760,000, or 3.3% of our total revenues. Our net
interest expense is sensitive to changes in the general level of
interest rates, primarily U.S. interest rates. In this
regard, changes in U.S. interest rates affect the interest
bearing portfolio.



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | We are exposed to risks relating to foreign currency exchange
	rates and foreign economic conditions.

We will evaluate our foreign currency exposure on a net basis.
We receive subscriber fees revenue from countries throughout the
world. Increasingly, however, these revenues are being offset by
expenses arising from our foreign facilities as well as
non-U.S. dollar expenses. Currently, our foreign expenses
exceed our revenues. As a result, our financial results could be
significantly affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in the
foreign markets in which our services are sold. We are exposed
to changes in exchange rates in Latin America, Europe, Asia, and
Africa. Our exposure to foreign exchange rates primarily exists
with the British pound. When the U.S. dollar strengthens
against the currencies in these countries, the U.S. dollar
value of non-U.S. dollar-based revenues decreases; when the
U.S. dollar weakens, the U.S. dollar value of
non-U.S. dollar-based revenues increases. Accordingly,
changes in exchange rates, and in particular, a strengthening of
the U.S. dollar, may adversely affect our revenues as
expressed in U.S. dollars.




PART II:  OTHER INFORMATION




ITEM 6.  Exhibits and Reports on
Form 8-K

(a)

|        |      |  |  |             |  |                                                                                                                                                                                                                                       
|------- | ---- |  |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |  |            
|Number  |      |  |  | Description
|        |      |  |  |            
|        | 10.1 |  |  |            |  | Amended and Restated Trademark License Agreement, dated
	March 27, 2001, between Hallmark Licensing, Inc. and
	Odyssey Holdings, LLC.                                                                                                 
|        | 10.2 |  |  |            |  | Agreement dated as of February 22, 2001, among Odyssey
	Holdings, LLC, National Interfaith Cable
	Coalition, Inc. and VISN Management Corp.                                                                                           
|        | 10.3 |  |  |            |  | Purchase and Sale Agreement dated April 10, 2001, between
	Crown Media Holdings, Inc. and Hallmark Entertainment
	Distribution, LLC, incorporated by reference to
	Appendix A to preliminary proxy materials filed on
	April 13, 2001.
|        | 10.4 |  |  |            |  | Program License Agreement, dated March 14, 2001, between
	EM.TV Merchandising AG and Odyssey Holdings, L.L.C.                                                                                                                         

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|        |      |  |  |             |  |                                                                                                            
|------- | ---- |  |  | ----------- |  | -----------------------------------------------------------------------------------------------------------
|Exhibit |      |  |  |            
|Number  |      |  |  | Description
|        |      |  |  |            
|        | 10.5 |  |  |            |  | License Agreement, dated March 14, 2001, between The Jim
	Henson Company, Inc. and Odyssey Holdings, L.L.C.
|        | 99   |  |  |            |  | Press Releases of Crown Media Holdings, Inc. dated
	March  28, 2001, April 12, 2001, and May 1, 2001.      

(b)  Reports on Form 8-K

During the quarter ended March 31, 2001, we filed a
Form 8-K Report on March 28, 2001 concerning
Item 5 Other Events.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

Date: May 3, 2001

| |                                   
| | ----------------------------------
| | CROWN MEDIA HOLDINGS, INC.        
|
| | /s/ DAVID J. EVANS                
| |                                   
| | David J. Evans                    
| | President, Chief Executive Officer
| | and Director                      
| | Crown Media Holdings, Inc.        
| | (Principal Executive Officer)     

Date: May 3, 2001

| |                             
| | ----------------------------
| | /s/ WILLIAM J. ALIBER       
| |                             
| | William J. Aliber           
| | Executive Vice President and
| | Chief Financial Officer     
| | Crown Media Holdings, Inc.  
| | (Principal Financial and    
| | Accounting Officer)         

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INDEX TO EXHIBITS

|        |      |  |  |             |  |                                                                                                                                                                                                                                       
|------- | ---- |  |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |  |            
|Number  |      |  |  | Description
|        |      |  |  |            
|        | 10.1 |  |  |            |  | Amended and Restated Trademark License Agreement, dated
	March 27, 2001, between Hallmark Licensing, Inc. and
	Odyssey Holdings, LLC.                                                                                                 
|        | 10.2 |  |  |            |  | Agreement dated as of February 22, 2001, among Odyssey
	Holdings, LLC, National Interfaith Cable
	Coalition, Inc. and VISN Management Corp.                                                                                           
|        | 10.3 |  |  |            |  | Purchase and Sale Agreement dated April 10, 2001, between
	Crown Media Holdings, Inc. and Hallmark Entertainment
	Distribution, LLC, incorporated by reference to
	Appendix A to preliminary proxy materials filed on
	April 13, 2001.
|        | 10.4 |  |  |            |  | Program License Agreement, dated March 14, 2001, between
	EM.TV & Merchandising AG and Odyssey Holdings, L.L.C.                                                                                                                       
|        | 10.5 |  |  |            |  | License Agreement, dated March 14, 2001, between The Jim
	Henson Company, Inc. and Odyssey Holdings, L.L.C.                                                                                                                           
|        | 99   |  |  |            |  | Press Releases of Crown Media Holdings, Inc. dated
	March  28, 2001, April 12, 2001, and May 1, 2001.