** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-QSB**

 

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**(MarkOne)**

**ý****  QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended    September 30, 2001**

 

**o****  TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**Forthe transition period from ______ to _____**

 

**Commission file number 000-23105**

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**HISPANIC TELEVISION NETWORK, INC.**

(Exact Name of SmallBusiness Issuer as Specified in Its Charter)

 

| **Delaware**  (State or Other Jurisdiction  of Incorporation or Organization)                     | **75-2504551**  (IRS Employer Identification No.) |
|---------------------------------------------------------------------------------------------------|---------------------------------------------------|
|                                                                                              |                                              |
| **6125 Airport Freeway, Suite 200,  Fort Worth, Texas**  (Address of Principal Executive offices) | **76117**  (Zip Code)                             |
|                                                                                              |                                              |

Issuer’s telephonenumber, including area code: (817) 222-1234

(Former Name,Former Address and Former Fiscal Year, if changed since last report)

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Check whether the issuer: (1) filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or such shorter period that the Registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days. Yes ý   No o

 

State the number of shares outstanding of each of the issuer's classesof common equity as of the latest practicable date. As of November 15, 2001,there were approximately 155,501,250 shares of our common stock issued andoutstanding.

 

Transitional Small Business Disclosure Format: Yes o   No ý

 

**HISPANIC TELEVISION NETWORK, INC.**

**TABLE OF CONTENTS**
|                          |                                                                                                                                       |
|-------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|
| PART I FINANCIAL  INFORMATION |
|                          |
| Item 1.                       | Financial Statements                                                                                                                       |
|                          |                                                                                                                                       |
|                          | Condensed Balance  Sheets as of September 30, 2001 (unaudited) and December 31, 2000                                                       |
|                          |                                                                                                                                       |
|                          | Condensed  Statements of Operations for the three and nine months ended September 30,  2001 (unaudited) and September 30, 2000 (unaudited) |
|                          |                                                                                                                                       |
|                          | Condensed Statements  of Cash Flow for the nine months ended September 30, 2001 (unaudited) and  September 30, 2000 (unaudited)            |
|                          |                                                                                                                                       |
|                          | Statement of  Stockholders’ Equity as of September 30, 2001 (unaudited)                                                               |
|                          |                                                                                                                                       |
|                          | Notes to  Condensed Financial Statements (unaudited)                                                                                       |
|                          |                                                                                                                                       |
| Item  2.                      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                |
|                          |                                                                                                                                       |
| PART  II OTHER INFORMATION    |
|                          |                                                                                                                                       |
| Item 1.                       | Legal Proceedings                                                                                                                          |
| Item 2.                       | Changes in Securities                                                                                                                      |
| Item 3.                       | Defaults Upon  Senior Securities                                                                                                           |
| Item  4.                      | Submission  of Matters to a Vote of Security Holders                                                                                       |
| Item  5.                      | Other  Information                                                                                                                         |
| Item 6.                       | Exhibits and  Reports on Form 8-K                                                                                                          |
|                          |                                                                                                                                       |
|                          | Signatures                                                                                                                                 |

# **PART I**  FINANCIAL INFORMATION

This QuarterlyReport on Form 10-QSB contains forward-looking statements within the meaning ofSection 24A of the Securities Act of 1933 and Section 21E of the SecuritiesExchange Act of 1934. These statements appear in a number of places includingItem 1. “Management’s Discussion and Analysis of Financial Condition andResults of Operations.”Such statements can be identified by theuse of forward-looking terminology such as “believes,” “expects,” “may,”“estimates,” “will,” “should,” “plans” or “anticipates” or the negative thereofor other variations thereon or comparable terminology, or by discussions ofstrategy. Readers are cautioned that any such forward-looking statements arenot guarantees of future performance and involve significant risks and uncertainties,and that actual results could differ materially from those projected in theforward-looking statements. This report identifies factors that could causesuch differences. No assurance can be given that these are all of the factorsthat could cause actual results to vary materially from the forward-lookingstatements

Item 1. FINANCIAL STATEMENTS

 

HispanicTelevision Network, Inc.

CondensedConsolidated Balance Sheets

 
|                                                                                                                                                           |   | **September  30, 2001** |       | **December  31,****2000** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|---------------------------|------------|
|                                                                                                                                                           |   | **(Unaudited)**         |       |                      |       |
| **Assets**                                                                                                                                                     |   |                    |       |                      |       |
| Current Assets                                                                                                                                                 |   |                    |       |                      |       |
| Cash and cash equivalents                                                                                                                                      |   | $                       | 95,686     |                      | $          | 87,235 |   |
| Accounts Receivable (net of allowance for doubtful  accounts of $27,612 at September 30, 2001 and $0 at December 31, 2000)                                     |   | 125,282                 |       | 141,481                   |       |
| Prepaid expenses and other current assets                                                                                                                      |   | 110,198                 |       | 779,571                   |       |
| Total current assets                                                                                                                                           |   | 331,166                 |       | 1,008,287                 |       |
|                                                                                                                                                           |   |                    |       |                      |       |
| Property and equipment, net                                                                                                                                    |   | 4,797,833               |       | 4,773,039                 |       |
| Other assets                                                                                                                                                   |   | 457,971                 |       | 3,059,634                 |       |
| Total assets                                                                                                                                                   |   | $                       | 5,586,970  |                      | $          | 8,840,960 |   |
|                                                                                                                                                           |   |                    | ** ** |                      | ** ** |
| **Liabilities and Stockholders’ Equity**                                                                                                                  |   |                    | ** ** |                      | ** ** |
| Current Liabilities:                                                                                                                                           |   |                    |       |                      |       |
| Accounts Payable                                                                                                                                               |   | $                       | 2,864,439  |                      | $          | 917,730 |   |
| Accrued Liabilities and other                                                                                                                                  |   | 496,849                 |       | 1,631,137                 |       |
| Notes Payable                                                                                                                                                  |   | 3,841,380               |       | 1,053,045                 |       |
| Accrued Interest                                                                                                                                               |   | 1,663,080               |       | 656,075                   |       |
| Deferred Revenue                                                                                                                                               |   | -                       |       | 300,000                   |       |
| Due to Private Placement Participants, net of  discount                                                                                                        |   | 7,304,068               |       | 6,798,091                 |       |
| Programming contracts payable                                                                                                                                  |   | 151,750                 |       | 1,607,000                 |       |
| Obligation under capital lease                                                                                                                                 |   | 351,159                 |       | 392,014                   |       |
| Other                                                                                                                                                          |   | 14,295                  |       | 10,396                    |       |
| Total Liabilities                                                                                                                                              |   | 16,687,020              |       | 13,365,488                |       |
|                                                                                                                                                           |   |                    |       |                      |       |
| **Stockholders’ equity:**                                                                                                                                 |   |                    |       |                      |       |
| Convertible Preferred Stock, $1.00 par value:  Authorized shares – 10,000,000  Issued and outstanding – 38,889                                       |   | 252,774                 |       | 275,774                   |       |
| Common stock pending issuance                                                                                                                                  |   | 1,911,447               |       | 3,887,836                 |       |
| Deferred consulting expense                                                                                                                                    |   | (1,633,332              | )          | -                         |       |
| Deferred interest expense                                                                                                                                      |   | (691,690                | )          | -                         |       |
| Common Stock, par value $0.01: 500,000,000 shares  authorized,  140,857,751 outstanding at September 30, 2001 and 90,822,587  outstanding at December 31, 2000 |   | 1,408,577               |       | 908,226                   |       |
| Additional Capital                                                                                                                                             |   | 48,542,160              |       | 32,353,122                |       |
| Accumulated Deficit                                                                                                                                            |   | (60,889,986             | )          | (41,949,486               | )          |
| Total stockholders’ equity (deficit)                                                                                                                      |   | (11,100,050             | )          | (4,524,528                | )          |
| Total liabilities and stockholders’ equity                                                                                                                |   | $                       | 5,586,970  |                      | $          | 8,840,960 |   |
|                                                                                                                                                           |   |                    |       |                      |       |

*See accompanying notes*

Hispanic TelevisionNetwork, Inc.

Condensed Consolidated Statements of Operations

For the Three andNine Months

Ended September30, 2001 and September 30, 2000

(Unaudited)

 
|                                  |   | **For the Three  Months**Ended September 30, |       | **For the Nine  Months  Ended September 30,** |       |
|---------------------------------------|--------|----------------------------------------------|------------|-----------------------------------------------|------------|
|                                  |   | **2001**                                     |       | **2000**                                      |       | **2001** |   | **2000** |   |
|                                  |   |                                         | ** ** |                                          | ** ** |   | ** ** |   | ** ** |
| Revenue                               |   | $                                            | 223,333    |                                          | $          | 140,845 |   | $ | 1,402,299 |   | $ | 395,704 |   |
|                                  |   |                                         |       |                                          |       |   |   |   |   |
| Expenses:                             |   |                                         |       |                                          |       |   |   |   |   |
| Programming                           |   | 359,187                                      |       | 1,489,558                                     |       | 1,060,479 |   | 2,368,230 |   |
| Satellite rental                      |   | 103,902                                      |       | 182,133                                       |       | 623,613 |   | 626,842 |   |
| Production                            |   | 152,538                                      |       | 86,184                                        |       | 321,265 |   | 263,645 |   |
| Rent                                  |   | 34,013                                       |       | 15,775                                        |       | 172,643 |   | 1,837 |   |
| Administrative                        |   | 340,168                                      |       | 881,824                                       |       | 4,389,093 |   | 1,712,688 |   |
| Salaries and wages                    |   | 1,020,618                                    |       | 1,308,968                                     |       | 2,827,131 |   | 3,200,767 |   |
| Professional fees                     |   | 1,990,781                                    |       | 1,105,305                                     |       | 3,519,378 |   | 1,984,263 |   |
| Depreciation                          |   | 206,407                                      |       | 103,655                                       |       | 559,144 |   | 234,634 |   |
| Amortization                          |   | -                                            |       | 339,843                                       |       | 36,043 |   | 1,010,180 |   |
| Total expenses                        |   | 4,207,614                                    |       | 5,513,245                                     |       | 13,508,789 |   | 11,403,086 |   |
| Loss from operations                  |   | (3,984,281                                   | )          | (5,372,400                                    | )          | (12,106,490 | ) | (11,007,382 | ) |
| Other (Income)/Expense                |   | (35,089                                      | )          |                                          |       | 61,248 |   |   |   |
| Interest expense (net)                |   | 1,727,805                                    |       | 1,753,012                                     |       | 6,772,762 |   | 2,031,100 |   |
| Net Loss                              |   | $                                            | (5,676,997 | )                                             | $          | (7,125,412 | ) | $ | (18,940,500 | ) | $ | (13,038,482 | ) |
|                                  |   |                                         |       |                                          |       |   |   |   |   |
| Basic and diluted net  loss per share |   | $                                            | (0.04      | )                                             | $          | (0.08 | ) | $ | (0.16 | ) | $ | (0.15 | ) |
|                                  |   |                                         |       |                                          |       |   |   |   |   |
| Weighted average shares  outstanding  |   | 133,001,088                                  |       | 90,914,831                                    |       | 115,391,441 |   | 87,860,747 |   |

 

*See accompanying notes*Hispanic Television Network, Inc.

CondensedStatements of Cash Flows

For the NineMonths Ended September 2001 and September 2000

(Unaudited)

 
|                                                                        |   | **2001**   |        | **2000**   |       |
|-----------------------------------------------------------------------------|--------|------------|-------------|------------|------------|
|                                                                        |   |       | ** **  |       | ** ** |
| **Operating  Activities**                                                   |   |       |        |       |       |
| Net loss                                                                    |   | $          | (18,940,500 | )          | $          | (13,038,482 | ) |
| Adjustment to reconcile net loss to net cash used by  operating activities: |   |       |        |       |       |
| Amortization                                                                |   | 36,043     |        | 1,010,180  |       |
| Depreciation                                                                |   | 559,144    |        | 234,634    |       |
| Stock issued for consulting, litigation settlement  and other services      |   | 3,930,737  |        | 437,058    |       |
| Stock and options issued for compensation                                   |   | 766,362    |        | 914,204    |       |
| Deferred consulting costs recognized                                        |   | 816,668    |        | -          |       |
| Expense related to extinguishment of debt                                   |   | -          |        | 237,887    |       |
| Write-off of impaired assets, net of related  liabilities                   |   | 1,649,516  |        | -          |       |
| Interest expense on debt discount                                           |   | 2,017,226  |        | 1,532,156  |       |
|                                                                        |   |       |        |       |       |
| Changes in operating assets and liabilities:                                |   |       |        |       |       |
| Accounts receivable                                                         |   | 16,199     |        | (52,013    | )          |
| Other assets                                                                |   | -          |        | 650,294    |       |
| Prepaid assets                                                              |   | 267,100    |        | (393,169   | )          |
| Accounts payable                                                            |   | 1,946,709  |        | (779,611   | )          |
| Other liabilities                                                           |   | 1,505,787  |        | 2,770,212  |       |
| Accrued interest                                                            |   | 1,007,005  |        | 78,320     |       |
| Deferred revenue                                                            |   | (300,000   | )           |       |       |
| Programming contracts payable                                               |   | (28,000    | )           | -          |       |
| Net cash used by operating activities                                       |   | (4,750,004 | )           | (6,398,330 | )          |
|                                                                        |   |       |        |       |       |
| **Investing Activities**                                                    |   |       |        |       |       |
| Capital expenditures                                                        |   | (112,190   | )           | (2,545,266 | )          |
| Station acquisitions and licenses                                           |   | -          |        | (3,981,298 | )          |
| Purchase of Building                                                        |   | -          |        | (800,000   | )          |
| Net cash used by investing activities                                       |   | (112,190   | )           | (7,326,564 | )          |
|                                                                        |   |       |        |       |       |
| **Financing  Activities**                                                   |   |       |        |       |       |
| Borrowings on notes payable                                                 |   | 3,411,500  |        | 5,723,644  |       |
| Payments under capital leases                                               |   | (40,855    | )           |       |       |
| Proceeds from exercise of stock warrants                                    |   | -          |        | 2,259,000  |       |
| Proceeds from sale of stock                                                 |   | 1,500,000  |        | 9,600,000  |       |
| Net cash provided by financing activities                                   |   | 4,870,645  |        | 17,582,644 |       |
| Net cash increase                                                           |   | 8,451      |        | 3,857,750  |       |
| Cash, beginning of period                                                   |   | 87,235     |        | 52,655     |       |
| Cash at end of period                                                       |   | $          | 95,686      |       | $          | 3,910,405 |   |
| Cash paid for interest                                                      |   | $          | 42,065      |       | $          | 39,001 |   |
| Cash paid for income  taxes                                                 |   | $          | -           |       | $          | - |   |
| Deposits converted to  fixed assets                                         |   | $          | 402,273     |       | $          | - |   |
| Common stock issued for  fixed assets                                       |   | $          | 23,224      |       | $          | - |   |

 

*See accompanying notes.*

Hispanic Television Network, Inc

Statement of Stockholders' Equity

September 30, 2001

(Unaudited)

 
|                                                              |   | **Preferred Shares** |   | **Preferred Stock** |   | **Common Shares** |   | **Common Stock** |   | **Additional Capital** |   | **Common****StockPending Issuance** |   | **Deferred Interest** |   | **Deferred Service** |   | **Accumulated Deficit** |   | **Total**    |   |
|-------------------------------------------------------------------|--------|----------------------|--------|---------------------|--------|-------------------|--------|------------------|--------|------------------------|--------|-------------------------------------|--------|-----------------------|--------|----------------------|--------|-------------------------|--------|--------------|--------|
| **Balance at December 31, 1999**                                  |   | 42,427               |   | $275,774            |   | 78,101,596        |   | $781,016         |   | $3,074,282             |   |                                |   |                  |   |                 |   | $(3,437,319             | )      | $693,753     |   |
|                                                              |   |                 |   |                |   |              |   |             |   |                   |   |                                |   |                  |   |                 |   |                    |   |         |   |
| Sale of  common stock and exercise of warrants                    |   | -                    |   | -                   |   | 11,129,500        |   | 111,295          |   | 12,205,205             |   | 200,000                             |   |                  |   |                 |   | -                       |   | 12,516,500   |   |
| Common stock  canceled due to judgement                           |   | -                    |   | -                   |   | (505,169          | )      | (5,052           | )      | 5,052                  |   | -                                   |   |                  |   |                 |   | -                       |   | -            |   |
| Common stock  issued for settlements                              |   | -                    |   | -                   |   | 1,236,449         |   | 12,364           |   | 1,990,982              |   | -                                   |   |                  |   |                 |   | -                       |   | 2,003,346    |   |
| Common stock  issued for legal services                           |   | -                    |   | -                   |   | 226,844           |   | 2,270            |   | 2,556,571              |   | 666,145                             |   |                  |   |                 |   | -                       |   | 3,224,986    |   |
| Common stock  issued for consulting and professional services     |   | -                    |   | -                   |   | 71,161            |   | 711              |   | 533,138                |   | 2,988,793                           |   |                  |   |                 |   | -                       |   | 3,522,642    |   |
| Common stock  issued for charitable contribution                  |   | -                    |   | -                   |   | 27,206            |   | 272              |   | 83,060                 |   | -                                   |   |                  |   |                 |   | -                       |   | 83,332       |   |
| Common stock  issued for programming services                     |   | -                    |   | -                   |   | 100,000           |   | 1,000            |   | 727,000                |   | -                                   |   |                  |   |                 |   | -                       |   | 728,000      |   |
| Compensation  related to issuance of stock and stock options      |   | -                    |   | -                   |   | 20,000            |   | 200              |   | 1,002,919              |   | 32,898                              |   |                  |   |                 |   | -                       |   | 1,036,017    |   |
| Warrants  issued with private placement debt                      |   | -                    |   | -                   |   | -                 |   | -                |   | 3,636,000              |   | -                                   |   |                  |   |                 |   | -                       |   | 3,636,000    |   |
| Common stock  issued/accrued for station acquisitions             |   | -                    |   | -                   |   | 215,000           |   | 2,150            |   | 4,453,913              |   | -                                   |   |                  |   |                 |   | -                       |   | 4,456,063    |   |
| Common stock  and options issued for the acquisition of Televideo |   | -                    |   | -                   |   | 120,000           |   | 1,200            |   | 1,660,600              |   | -                                   |   |                  |   |                 |   | -                       |   | 1,661,800    |   |
| Common stock  issued for affiliate agreement                      |   | -                    |   | -                   |   | 80,000            |   | 800              |   | 424,400                |   | -                                   |   |                  |   |                 |   | -                       |   | 425,200      |   |
| Net Loss                                                          |   | -                    |   | -                   |   | -                 |   | -                |   | -                      |   | -                                   |   |                  |   |                 |   | (38,512,167             | )      | (38,512,167  | )      |
|                                                              |   |                 |   |                |   |              |   |             |   |                   |   |                                |   |                  |   |                 |   |                    |   |         |   |
| **Balance at December 31, 2000**                                  |   | 42,427               |   | $275,774            |   | 90,822,587        |   | $908,226         |   | $32,353,122            |   | $3,887,836                          |   | $-                    |   | $-                   |   | $(41,949,486            | )      | $(4,524,528  | )      |
|                                                              |   |                 |   |                |   |              |   |             |   |                   |   |                                |   |                  |   |                 |   |                    |   |         |   |
| Common stock  issued for programming                              |   | -                    |   | -                   |   | 566,184           |   | $5,662           |   | $526,776               |   | 33,300                              |   |                  |   |                 |   | -                       |   | 565,738      |   |
| Common stock  issued for consulting and legal services            |   | -                    |   | -                   |   | 12,984,022        |   | 129,840          |   | 7,212,996              |   | (2,886,675                          | )      |                  |   | (1,633,332           | )      | -                       |   | 2,822,829    |   |
| Common stock  issued for accounting services                      |   | -                    |   | -                   |   | 663,045           |   | 6,630            |   | 207,753                |   | 243,000                             |   |                  |   |                 |   | -                       |   | 457,383      |   |
| Sale of  common stock and exercise of stock warrants              |   | -                    |   | -                   |   | 8,559,000         |   | 85,590           |   | 1,614,410              |   | (200,000                            | )      |                  |   |                 |   | -                       |   | 1,500,000    |   |
| Common stock  issued for employee compensation                    |   | -                    |   | -                   |   | 888,774           |   | 8,888            |   | 412,288                |   | 297,686                             |   |                  |   |                 |   | -                       |   | 718,862      |   |
| Common stock  issued for building improvements                    |   | -                    |   | -                   |   | 46,449            |   | 464              |   | 22,760                 |   | -                                   |   |                  |   |                 |   | -                       |   | 23,224       |   |
| Common stock  issued for station acquisitions                     |   | -                    |   | -                   |   | 1,000,000         |   | 10,000           |   | (10,000                | )      | -                                   |   |                  |   |                 |   | -                       |   | -            |   |
| Common stock  issued for interest on debt                         |   | -                    |   | -                   |   | 23,078,158        |   | 230,782          |   | 5,705,948              |   | 536,300                             |   | (691,690              | )      |                 |   | -                       |   | 5,781,340    |   |
| Common stock  issued for employee bonus                           |   | -                    |   | -                   |   | 27,500            |   | 275              |   | 27,225                 |   | -                                   |   |                  |   |                 |   | -                       |   | 27,500       |   |
| Common stock  to be issued for settlements                        |   | -                    |   | -                   |   | 920,000           |   | 9,200            |   | 296,000                |   | -                                   |   |                  |   |                 |   | -                       |   | 305,200      |   |
| Common stock  issued for cancellation of contract                 |   | -                    |   | -                   |   | 1,200,000         |   | 12,000           |   | 288,000                |   | -                                   |   |                  |   |                 |   | -                       |   | 300,000      |   |
| Common stock  issued for commissions                              |   | -                    |   | -                   |   | 194,532           |   | 1,945            |   | 43,380                 |   | -                                   |   |                  |   |                 |   | -                       |   | 45,325       |   |
| Cancellation  of stock certificate                                |   | -                    |   | -                   |   | (100,000          | )      | (1,000           | )      | (181,715               | )      | -                                   |   |                  |   |                 |   | -                       |   | (182,715     | )      |
| Common stock  issued for preferred shares                         |   | (3,538               | )      | (23,000             | )      | 7,500             |   | 75               |   | 23,217                 |   | -                                   |   |                  |   |                 |   | -                       |   | 292          |   |
| Net  income/(loss)                                                |   | -                    |   | -                   |   | -                 |   | -                |   | -                      |   | -                                   |   |                  |   |                 |   | (18,940,500             | )      | (18,940,500  | )      |
| **Balance at September 30, 2001**                                 |   | 38,889               |   | $252,774            |   | 140,857,751       |   | $1,408,577       |   | $48,542,160            |   | $1,911,447                          |   | $(691,690             | )      | $(1,633,332          | )      | $(60,889,986            | )      | $(11,100,050 | )      |

 

*Seeaccompanying notes.*

 

Notes to Condensed Financial Statements

September 30, 2001

(Unaudited)

 

**1.     General**

 

The financial statementsof Hispanic Television Network, Inc. (“the Company”) as of September 30, 2001and for the three and nine month periods ended September 30, 2001 and September30, 2000 are unaudited and have been prepared in accordance with accountingprinciples generally accepted in the United States for interim financialinformation and with instructions to Form 10-QSB and Item 3-10 of RegulationS-B.  Accordingly, they do not includeall of the information and footnotes required by generally accepted accountingprinciples for annual financial statements. While management of the Company believes that the disclosures presentedare adequate, these interim financial statements should be read in conjunctionwith the financial statements and notes included in the Company’s 2000 Form10-KSB.  In the opinion of management,the accompanying unaudited financial statements contain all adjustments,consisting only of normal recurring adjustments, necessary for a fairpresentation of the Company’s financial statements for the interim periodspresented.  The results of operationsfor the three-month and nine month periods ended September 30, 2001 andSeptember 30, 2000 are not necessarily indicative of the results to be expectedfor the entire year.  The balance sheetat December 31, 2000 has been derived from the audited financial statements atthat date but does not include all of the information and footnotes required bygenerally accepted accounting principles for complete financialstatements.  The preparation offinancial statements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

 

*Organization*

HispanicTelevision Network, Inc. (“the Company”) is the successor entity formed by themerger on December 15, 1999 of American Independent Network, Inc. (“AIN”) andHispano Television Ventures, Inc. (“HT Ventures”).  AIN, a publicly held corporation, was incorporated in Delaware onDecember 11, 1992.  HT Ventures, aprivately held corporation, was incorporated in Texas on February 24,1998.  The Company’s purpose is toprovide television service to the Hispanic community.

 

On September 2,1999, HT Ventures entered into a transaction (“HT Ventures Transaction”)whereby HT Ventures purchased 11,000,000 previously unissued shares of AINcommon stock for total purchase consideration of $500,000 in cash**.**  As a result, of the HT Ventures Transaction,HT Ventures owned approximately 60% of the then outstanding shares of commonstock of AIN.  Subsequently, on December15, 1999, HT Ventures completed the merger (“the Merger”) with and into AIN,the legal surviving entity, and changed AIN’s name to the Hispanic TelevisionNetwork, Inc. (“the Company”).  Pursuantto the terms of the Merger Agreement, stockholders of HT Ventures received atotal of 70,000,000 shares of AIN common stock in exchange for the then outstandingshares of HT Ventures. As part of the Merger Agreement, the 11,000,000 sharespurchased by HT Ventures on September 2, 1999, in connection with the HTVentures Transaction, were cancelled upon the finalization of the merger onDecember 15, 1999.  The Merger Agreementprovided for AIN to issue 70,000,000 shares of common stock in exchange for allthe outstanding shares of HT Ventures. The common stock exchanged, in addition to the existing AIN preferredand common shares previously outstanding, collectively results in the newcapitalization of Hispanic Television Network, Inc. formerly AmericanIndependent Network, Inc.  Subsequent tothe Merger, HT Ventures stockholders owned approximately 90% of AIN.

 

Accordingly, theMerger was accounted for as a “reverse acquisition” using the purchase methodof accounting with HT Ventures being the “accounting acquirer”.  In a reverse acquisition, the historicalstockholders’ equity of the accounting acquirer prior to the merger isretroactively restated (a recapitalization) for the equivalent number of sharesreceived in the merger after giving effect to any difference in par value ofthe issuers and acquirer’s stock by an offset to paid in capital.  All share and per share information has beenpresented in the accompanying financial statements as if the recapitalizationhad occurred as of the first day presented in the financial statements. Thefinancial statements reflect the operations of AIN and for the periodsubsequent to acquisition on September 2, 1999

 

*Risksand Uncertainties*

In addition to theother information in this report and in the annual report, the following riskfactors, among others, should be considered carefully in evaluating the Companyand its business.

The Company has a severe liquidity shortfall.  Revenues are inadequate to meet currentoperating cash flow requirements and immediate funding is required to continueoperations.  The Company continues toseek sources of funding however no financing arrangements are currently undercontract and there are no assurances that the Company will be able to obtainadequate financing.  Expected operatinglosses, coupled with an acute lack of liquidity cause immediate substantialdoubt about the Company’s ability to continue as a going concern.

 

As of November 15,2001 the Company owes approximately $2,900,000 in trade payables, the majorityof which are beyond the payment terms. Collection procedures have been initiated by many of the vendors andsuppliers and several of these collection procedures have progressed tojudgments against the Company, garnishment of the Company’s bank accounts, andin one case the Company’s failure to pay an obligation has resulted in ahearing being scheduled for January 15, 2002 for appointment of receiver toliquidate the Company.  The Company hasnot determined its course of action if it is unable to satisfy theseobligations but non-payment of these liabilities could cause the Company tocease operations, liquidate assets and/or to seek bankruptcy protection.

In addition to the immediate requirement for financingto continue operations, the Company has approximately $7.3 million ofindebtedness that matured April 30, 2001 and which is secured by all of theassets of the Company.  Despite numerousdiscussions with the lender regarding restructuring the credit facility, atthis time there is not an agreement in place to extend the maturity or torestructure the debt.  Because of theCompany’s inability to repay the indebtedness, failure to restructure this debtcould lead to the immediate demand for repayment.  Because the loan is matured, a demand for repayment could be madeat any time.  In addition, on November1, 2001 the Company received an emergency funding on a demand note that allowsthe lender to compel the Company’s senior lender to take all actions availableto them to accelerate all of the $7.3 million indebtedness.  Unless additional financing is obtained,such a demand would likely cause a cessation of operations, a liquidation ofthe Company’s assets, and/or force the Company into bankruptcy protection.

Unless additional financing is obtained, such a demandwould likely cause a cessation of operations, a liquidation of the Company’sassets, and/or force the Company into bankruptcy protection.

A restructuring or extension of the $7.3 millionindebtedness, if received at all, would likely include terms that wouldmaterially increase the number of shares of the Company’s common stock that areissued and outstanding.  Should thisoccur, the effect would be to substantially dilute or perhaps virtuallyeliminate the ownership interests of the then current shareholders of theCompany, potentially causing the value of any investment in the Company to bereduced or entirely lost.

 

The credit facility of approximately $7.3 millionof indebtedness that matured on April 30, 2001 includes warrants for thepurchase of shares of the Company’s common stock.  In addition to providing for the purchase of shares of commonstock, the warrants also contain a warrant conversion feature that allowswarrants to be converted into shares without payment of cash or any otherconsideration.  The number of sharesthat may be purchased through the exercise of warrants, or received through awarrant conversion is based upon numerous factors.  Recent financing events of the Company, the Company’s failure tomake required repayments on the indebtedness, the market price of the Company’scommon stock, and the continuously increasing interest incurred on the debt,are factors that combine to allow the warrant holders to receive a significantnumber of shares through the exercise of the warrants, and the issuance ofthese shares would be highly dilutive to the then existing shareholders of theCompany.  If these factors are combinedwith an adverse interpretation of the loan documents that is contrary to theCompany’s interpretation thereof, the warrants could be exercised for sharesthat would represent a vast majority of the ownership of the company.  Should the warrants be exercised under thecurrently existing terms of the credit facility, the effect wouldbe to substantially dilute or significantly eliminate the ownership interestsof the then current shareholders of the Company, potentially causing the valueof any investment in the Company to be reduced or entirely lost.

If the Company isable to secure additional financing, common shares that may be issued under theterms of that arrangement would likely be highly dilutive to the number ofshares of common stock outstanding.  Inaddition common shares may also be issued for conversion or settlement of debtand/or payables for equity, future obligations which may be satisfied by theissuance of common shares, and other transactions and agreements which may inthe future result in the issuance of additional common shares.  The common shares that the Company may issuein the future could significantly increase the number of shares outstanding andcould be extremely dilutive or virtually eliminate the ownership interest ofshareholders.

If the Company is ableto obtain the required financing to remain in business, future operatingresults depend upon a number of factors, including but not limited to thestrength of the national economy, the local economies where the Company’sstations and affiliates are located, the amount of advertising spent -especially the amount of advertising spent for television, and the amount ofadvertising directed toward the Hispanic population. The Company’s ability toattract the available advertising  isdependent upon, among other things, its station’s audience rating, its abilityto provide interesting programming, local market competition from othertelevision stations and other advertising media, and its ability to attract andretain television stations to carry its broadcast.

 

The Company has a history of losses, losses are expected in the future,and there can be no assurance that profitability can be attained in thefuture.  Even if  profitability is achieved, the Company maynot sustain profitability on a quarterly or annual basis in the future.

 

The Company is controlled by a small group of existing stockholderswhose interest may differ from those of other stockholders.      Our directors, executive officers and their affiliates beneficially own,in the aggregate, a significant percentage of our issued and outstanding commonstock.  As a result, these stockholderscould conceivably be able to control the outcome of all matters requiringstockholder approval, including:

 

        *      the election of our directors;

        *      future issuances of our common stock and other equitysecurities;

        *      our incurrence of debt;

        *      amendments to our certificate of incorporation and bylaws; and

        *      decisions about acquisitions, sales of assets, mergers andsimilar transactions.

 

There may be circumstances in which the interests of these stockholdersmay conflict with the interests of our other stockholders.  In addition, because some investors maychoose not to purchase our common stock because of this control by our existingstockholders, the price of common stock may be depressed.

 

On August 3, 2001 the Company’s common stock began trading on the OTCBulletin Board under the symbol HTVN. Previously the Company’s common stock had traded on the Nasdaq NationalMarket. To be listed on Nasdaq companies must, among other requirements,maintain a minimum bid price of $1.00 and have a minimum of $4 million in nettangible assets. The Company was unable to maintain these requirements andNasdaq delisted its stock.   As a resultof now trading on the OTC Bulletin Board, the liquidity and the volume ofshares traded, the price, and the bid/ask spread for the Company’s common stockcould be adversely affected.

 

*Cashand Cash Equivalents*

Cash and cash equivalents consist of highly liquid investments with anoriginal maturity date of ninety days or less.

 

*Use ofEstimates*

The preparation offinancial statements in conformity with generally accepted accountingprinciples require management to make estimates and assumptions that affect theamounts reported in the financial statements and accompanying notes.  Actual results could differ from theseestimates.

 

*Propertyand Equipment*

Property and equipmentare recorded at cost.  The cost ofproperty and equipment is depreciated over the estimated useful lives of theassets ranging from three to forty years. Improvements are amortized by the straight-line method over the shorterof the estimated useful life of the improvement or the improved asset.  Depreciation is calculated using thestraight-line method.  For the yearended December 31, 2000 the Company incurred $ 305,668 in depreciation expense,including amortization of assets under capital leases.  This amount was $206,407 and $559,144 forthe three and nine months ended September 30, 2001.

 

***Revenue Recognition***

The Company’s primary source of revenue is the sale of airtime on itstelevision stations.  Broadcast revenueis recorded when commercials are aired. Revenues through September 30, 2001 consist of advertising, sale ofairtime and production.  Cableadvertising and subscriber fees will be included in revenues as earned.

 

*StockBased Compensation*

The Company accounts for its stock-based compensation utilizing theprovisions of Accounting Principles Board Opinion No. 25, “Accounting for StockIssued to Employees,” (APB No. 25) and related interpretations and complieswith the disclosure provisions of Statement of Financial Accounting Standards(SFAS 123), “Accounting for Stock-Based Compensation”.  Under APB No. 25, compensation expense isbased upon the difference, if any, on the measurement date between the fairvalue of the Company’s stock and the exercise price.  All equity-based awards to non-employees are accounted for attheir fair value in accordance with SFAS No. 123.  Compensation expense related to fixed stock awards with pro-ratavesting is recognized on a straight-line basis over the vesting period.

 

*Concentrationof Credit Risk*

Financial instruments, which potentially subject the Company toconcentration of credit risk, principally consist of accounts receivable. AtSeptember 30, 2001, no single customer represents a significant portion ofthe total receivable balance.  TheCompany’s billings are due generally in 30 days, and the Company does notrequire collateral on accounts.

 

*Lossper Share*

Basic and dilutednet loss per share is computed based on the loss divided by the weightedaverage number of shares of common stock outstanding during each period.  Potentially dilutive securities totaling17,558,084** additional shares of common stock which may be issued as a resultof the conversion or exercise of preferred stock, stock options and warrantsare not included in the calculation as their effect is antidilutive.

** This amountONLY INCLUDES common shares that may be issued in the future due to theexercise or conversion of currently outstanding preferred shares of stock,outstanding options, and outstanding warrants excluding the number of sharesissuable for the exercise of the Goff Moore Strategic Partners credit facilitywarrants. Common shares that may be issued in the future for conversion of debtand/or payables to equity, future obligations which may be satisfied by theissuance of common shares, common shares that may be issued in a fundingtransaction, common shares that may be issuable to Goff Moore StrategicPartners due to exercise of the warrants that are part of the credit facility,and other transactions and agreements which may in the future result in theissuance of additional common shares ARE NOT INCLUDED in this amount.  The common shares that the Company may issuein the future could significantly increase the number of shares outstanding andcould be extremely dilutive or virtually eliminate the ownership interest ofshareholders.

*Prepaid programming and programmingpayable*

The Company acquiresthe contractual rights to show certain of its programming for a stated periodof time.  The Company records the assetand the contractual payable when the contract is entered into.  The programming is amortized over theduration of the contract while the payable is reduced as payments aremade.  In February 2001 the contractwith a program provider was cancelled resulting in the elimination of an assetvalued at $1,309,646 and the elimination of liabilities totaling$1,332,139.   As of September 30, 2001the Company had programming liabilities of $151,750 under such contracts.  At September 30, 2001 the remaining averagelife of the contracts was approximately 3 years.

 

*FairValue of Financial Instruments*

The Company’s financialinstruments, including accounts receivable, trade credits receivable, accountspayable and notes payable, approximate fair value due to their short termnature.  The Company has classified alloutstanding liabilities as current due to its inability to meet its currentobligations.

 

*Deferred Income Taxes*

The Companyaccounts for income taxes using the asset and liability approach that requiresthe recognition of deferred tax assets and liabilities for the expected futuretax consequences of events that have been recognized in the Company’s financialstatements or tax returns. Valuation allowances are provided for deferred taxassets when their realization is not reasonably assumed.

 

**2.     Liquidityand Future Viability**

 

Near the end of 2000 and continuing into 2001, the Company is experiencingcritical liquidity needs resulting from the following factors:

*      An inability to obtainadequate funds from the public markets;

*      An inability to enter into astrategic partnership;

*      An inability to complete astructured financing;

*      An inability to generatesignificant revenues from its operations; and

*      An inability to reduceexpense levels sufficiently to operate at a profit.

The Company has insignificant revenues under contractfor fiscal 2001, and has a severe liquidity shortfall that impairs its abilityto meet its current operating cash flow requirements.  As of November 15, 2001, it has less than $40,000 in cashavailable to meet its operating cash requirements.  The Company has significantly reduced its recurring cashrequirements.  However, the Companyneeds a cash inflow of approximately $300,000 per month exclusive of scheduleddebt repayments to meet its current monthly obligations and cash flow fromrevenues of approximately $100,000 per month are not sufficient to meet currentcash needs.  The expected operatinglosses, coupled with an acute lack of liquidity cause immediate substantialdoubt about the Company’s ability to continue as a going concern.  The Company is maintaining an on-goingeffort to locate sources of additional funding, without which the Company willnot be able to remain a viable entity. Further, no financing arrangements are currently under contract andthere are no assurances that the Company will be able to obtain adequatefinancing.  As discussed below, the Companyhas approximately $7.3 million of senior indebtedness that was due on April 30,2001.  The Company has not determinedits course of action should financing not be raised or if an extension of thematurity of the $7.3 million indebtedness is not obtained.  While the Company is seeking an extension ofthe maturity or to restructure this indebtedness, because of its inability torepay the indebtedness, failure to secure such an extension or restructuring,or to obtain additional financing could result in the immediate demand forrepayment.  Because the indebtedness ismatured a demand for repayment could occur at any time.  In addition, on November 1, 2001 the Companyreceived an emergency funding on a demand note that allows the lender to compelthe Company’s senior lender to take all actions available to them to accelerateall of the $7.3 million indebtedness.  Ademand would likely cause a cessation of operations, a liquidation of theCompany’s assets, and/or force the Company into bankruptcy protection.

 

If the Company is able to obtain the financingrequired to remain in business, to eventually achieve operating profits willrequire substantially increasing revenues and drastically reducing expensesfrom their current levels.  Previousmanagement intended to build the network and then generate network sales.  During most of fiscal 2000, the Company focused onexpanding through acquisitions. Although the Company still intends to acquire full-power stations inmajor Hispanic markets, in view of the difficulty the Company has encounteredin raising the necessary capital for the acquisitions, the Company is presentlyfocusing on expanding its distribution by increasing the number of affiliatestations that broadcast its programming, and by entering into agreements withcable companies to carry its programming. Affiliations are much less capital intensive and typically requiresignificantly less working capital to begin operations.

Current management has expanded the Company’s revenue generationformula to include local advertising sales for Company owned and operatedstations, while securing network advertising at the best available rate.  Management intends to increase rates asstations are added to the network.  Inaddition, current management has agreed to accept limited paid programming, asource of revenue that was not previously incorporated in the businessplan.  This increased focus ongenerating advertising is expected to have a significant positive affect uponsales.  In addition, the Company has addeda focus to secure carriage agreements with cable and digital distributioncompanies.  Securing distribution on acable system can have the dual benefit of not only increasing viewership (andthus making the network more attractive to advertisers), but many agreementswith cable companies also provide revenue to the network in the form ofsubscriber fees.

 

On the expense side, the Company has reduced its recurring monthlyexpenses in almost every expense category, especially in the areas of payrolland programming where immediate cost reductions have been realized.  Increasing revenue while reducing expenseshas reduced the monthly negative cash flow, excluding repayment of debt andinterest obligations, from $1,500,000 to the current level of approximately$300,000 by these actions. Additionally, current management has restructured the sales departmentto focus on generating sales from all available sources, especially local salesat owned and operated television stations.

 

On February 13, 2001 the Company entered into a strategic relationshipwith a consortium of investors.  Theterms of this relationship obligated the investors to purchase 6,000,000 sharesof common stock, and warrants to purchase 1,500,000 additional shares, for anaggregate price of $1,500,000.  Thewarrants entitle the holder to purchase common stock at a per-share purchaseprice of $1.00 and may be exercised for one year after they are issued.  The terms of the financing also obligatedthe investors to purchase periodically, for an aggregate investment of$5,000,000, a total of 10,000,000 additional shares and 5,000,000 additionalwarrants, also having a $1.00 per-share purchase price and one-year exerciseterm.  These additional shares and warrantswere to be purchased in 10 separate closings occurring 30 days apart, eachinvolving 1,000,000 additional shares and 500,000 additional warrants.   However, after making the initial purchaseof 6 million shares and 1.5 million warrants for $1.5 million, the investorsfailed to make the required subsequent purchases and the Company terminated theagreement on March 30, 2001.

The existing debt financing arrangement provided byGoff Moore Strategic Partners, L.P. and a number of other private investors(collectively “GMSP”) was amended on April 17, 2001 (see Note 3).  The number of shares with respect to which GMSP will begranted warrants was modified, as was the exercise price of such warrants and thematurity date of the credit facility was extended to April 30, 2001.  The Company is currently in discussions with GMSP tofurther extend the maturity and to restructure the indebtedness and the Companymay or may not be successful in these discussions.  As the indebtedness is matured, GMSP could demand immediaterepayment at any time.  As of November15, 2001 the outstanding principal balance is $7,304,068.  As previouslydiscussed, the Company does not have the funds to repay this outstandingindebtedness and the demand for such payment could force the Company to ceaseoperations, liquidate its assets, and/or seek bankruptcy protection.  In addition a restructuring oran extension of the maturity, if received at all, could include terms that maymaterially increase the number of shares of the Company’s common stock that areissued and outstanding or that are issuable by exercising the warrants.  Should this occur, the effect would be tosubstantially dilute or perhaps virtually eliminate the ownership interests ofthe then current shareholders of the Company, potentially causing the value ofany investment in the Company to be reduced or entirely lost.

The credit facilityprovided by GMSP includes warrants for the purchase of shares of the Company’scommon stock.  In addition to providingfor the purchase of shares of common stock, the warrants also contain a warrantconversion feature that allows warrants to be converted into shares withoutpayment of cash or any other consideration. The number of shares that may be purchased through the exercise ofwarrants, or received through a warrant conversion is based upon numerousfactors.  Recent financing events of theCompany, the Company’s failure to make required repayments on the indebtedness,the market price of the Company’s common stock, and the continuously increasinginterest incurred amount, are factors that combine to allow the warrant holdersto receive a significant number of shares through the exercise of the warrantsthat would be highly dilutive to the then existing shareholders of theCompany.  If these factors were combinedwith an adverse interpretation of the loan documents that is contrary to theCompany’s interpretation thereof, the warrants could be exercised for sharesthat would represent a vast majority of the ownership of the company.  Should the warrants be exercised under thecurrently existing terms of the credit facility, the effect wouldbe to substantially dilute or significantly eliminate the ownership interestsof the then current shareholders of the Company, potentially causing the valueof any investment in the Company to be reduced or entirely lost.

 

As discussed below, on February 5, 2001 the Company established a debtfinancing arrangement with a group consisting primarily of existingshareholders of the Company.  Thisagreement was amended on April 24, 2001. The principal amount borrowed totaled $2,632,000 and was payable on orbefore July 5, 2001.  As discussedbelow, the maturity date was extended until January 5, 2002.

 

As discussed below, the Company has entered into several other debtfinancing arrangements, including a funding of $300,000 represented by a demandnote.  Terms of the $300,000 fundingincludes a provision wherein the lender could, at any time, require GMSP totake all actions available to them to accelerate all of the $7.3 millionindebtedness that is due to GMSP.

 

**3.     Debt**

 

In July 2000, the Company entered into an $8,875,001 securedcredit facility with Goff Moore Strategic Partners, L.P. (GMSP) and a number ofother private investors. The Company’s obligation to GMSP is secured by all ofthe assets of the Company.  Pursuant tothe terms of the credit facility, the Company (i) executed promissory notesthat bear interest at a rate of 12% per annum and (ii) issued warrants topurchase shares of the Company's common stock that expire 3 years after the debthas been paid.  The credit facility wasused to fund acquisitions and working capital. Because of the Company’s inability to make payments required by terms ofthe credit facility, there have been numerous amendments and modifications tothe agreement, the most recent being the “Seventh Amendment To Loan Agreementand Amendment To Notes” and the “Second Amendment and Agreement RegardingWarrants” of April 17, 2001 which specified the annual interest rate on thenotes to be 13% beginning February 1, 2001, adjusted the exercise price of thewarrants to $0.01, set the number of shares that could be purchased byexercising warrants to range from 5% to 12.5% based upon when the loan wasfully paid, extended maturity date to April 30, 2001, and provided for furtherextensions of the maturity if certain repayments were made.  Because the Company failed to make therequired repayments certain terms of the credit facility were adjustedincluding:  1) the interest rateincreased to 16% per annum computed on the sum of the outstanding principal andunpaid interest balance compounded daily; and 2) the number of shares of commonstock that may be purchased by exercising the warrants was modified.  Under the current in-effect terms of theagreement as modified and amended, the number of shares of common stock thatmay be purchased by exercising the warrants will be determined by dividing a)the amount of the credit facility plus the total interest incurred thereon byb) the exercise price, which is determinable based upon past and futurefinancing events.  Because the loan wasnot repaid by the dates required by the amended terms of the credit facility,the number of shares of common stock that may be purchased by exercising the warrantsis multiplied by 150% and then by an additional 125%.  The exercise price has been deemed not to exceed $0.41 but couldbe considerably lower as determined by financing events of the Company.  The number of shares of common stock thatmay be purchased by exercising the warrants is highly dilutive to the ownershipinterest of the Company and the number of shares that may be purchasedcontinues to increase until the credit facility is repaid.

 

Discussions are ongoing to restructure theindebtedness and further extend the maturity date.  The loan is currently matured and the lenders could requirerepayment at any time.  As of November 15,2001 the outstanding principal balance is $7,304,068.  As previouslydiscussed, the Company does not have the funds to repay this outstandingindebtedness and the demand for such payment could force the Company to ceaseoperations and/or seek bankruptcy protection. In addition an extension of the maturity, if received atall, could include terms that may even further increase the number of shares ofthe Company’s common stock that are issued and outstanding or that are issuableby exercising the warrants.  Should thisoccur, the effect would be to substantially dilute or perhaps virtuallyeliminate the ownership interests of the then current shareholders of theCompany, causing the value of any investment in the Company to be reduced orentirely lost.

 

When issued, the warrants were recorded at their estimated fairvalue of $3.636 million.  The differencebetween the face value of the credit facility and the cash received andallocated to the notes is treated as a discount, resulting in additionalinterest expense over the term of the credit facility. As of September 30,2001, $7,304,068 was outstanding under this debt arrangement and the discounton the debt was fully amortized.

 

On July 11, 2000,the Company acquired 100% of the outstanding stock of Televideo, Inc. and MGBEntertainment, Inc. As a result of the acquisition, the Company assumed thefollowing loans: $100,000 loan, payable to Texas State Bank (TVI Line ofcredit), maturing May 23, 2001, interest payable at 11.5% per annum; and$32,919 loan payable to Texas State Bank (TVI loan), maturing on April 22,2002, at 8.5% per annum.   The $100,000loan is matured and an extension has been requested.  The outstanding balances on these loans as of September 30, 2001were $100,000 and $14,879.  These loansare secured by equipment at Televideo, Inc.

 

On February 5, 2001 the Companyestablished a debt financing arrangement with a group consisting primarily ofexisting shareholders of the Company and amended this arrangement on April 24,2001 to increase the maximum loan amount. The principal amount borrowed under this debt financing arrangementtotaled $2,632,000 and bears interest at the rate of 12% per annum.  Theloan matured on July 5, 2001 and the Company requested the lenders to extendtheir loan to the earlier of the Company receiving a funding of $15 million ormore, receipt of proceeds from the lawsuit that secures the loan, or January 5,2002.  This debt financing arrangement is collateralized by the Company’s65% interest in the station in Beaumont (KO9OVO) and an undivided interest inthe proceeds the Company may receive in its lawsuit against Knapp Petersen& Clark.  The securityinterest of participants in the amended increased loan amount is subordinatedto the security interest of the original lenders.  In connection withthis debt financing arrangement, the lenders were issued (for each $1.00loaned) a warrant to acquire one share of common stock that expires on February5, 2003 at a maximum per-share exercise price of $.75 and four shares of commonstock.  As considerationfor extending the loan maturity for each $1.00 loaned the lenders received twoadditional shares of common stock.

 

The common stock and warrants were recorded at the amountreceived of $2.632 million.  Thedifference between the face value of the loan, and the cash received andallocated to the notes, is treated as a discount resulting in additionalinterest expense over the term of the loan. As of September 30, 2001,$2,632,000 was outstanding under this debt arrangement and the discount on thedebt was fully amortized.  The commonstock that was issued to extend the loans was valued at $2,074,880 and is beingamortized to interest expense over the loan extension period.  As of September 30, 2001the unamortizeddeferred interest amount equals $691,690.

 

On April 17, 2001a related party provided a loan to the Company in the amount of $100,000 andprovided an additional $50,000 on July 6, 2001, all maturing on October 16,2001.  The loans provide for interestpayable with common stock at the rate of one share for each $1.00 loaned forthe first 30 days, 1.1 shares for each $1.00 loaned for the 2ndmonth, and increasing each month to a maximum of 1.6 shares for each $1.00loaned for the 6th month. The shares earned are recorded as interest expense.

On April 30, 2001Mr. Ryffel, the Company’s chairman of the board, provided $112,000 to theCompany to cover a bank overdraft.  Thefunding is evidenced by a promissory note that bears interest at the annualrate of 12% and matures on January 5, 2002. In connection with this financing, Mr. Ryffel received four shares of common stock for each$1.00 of debt financing.  The commonstock was recorded at the amount received of $112,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.

On July 17, 2001 the Company entered into a $100,000 creditfacility with a related party that matures on January 5, 2002 and bearsinterest at the annual rate of 12%.  In connection with this debt financingarrangement, the lender was issued (for each $1.00 loaned) a warrant to acquireone share of common stock that expires on February 5, 2003 at a maximumper-share exercise price of $.75.  Inaddition, the lender was issued eight shares of common stock for each $1.00 ofdebt financing.  The common stock wasrecorded at the amount received of $100,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.  On August 16, 2001 this party loaned anadditional $100,000 to the Company and an additional $100,000 on September 18,2001.  All terms of and the accountingtreatment for the two latter fundings are identical to the terms and theaccounting treatment for the funding of July 17th, except the lenderreceived 10 shares and 16 shares respectively for each $1 loaned.

 

On July 23, 2001 the Company entered into a $50,000 creditfacility with a related party that matures on January 5, 2002 and bearsinterest at the annual rate of 12%.  In connection with this debt financingarrangement, the lender was issued six shares of common stock for each $1.00 ofdebt financing.  The common stock wasrecorded at the amount received of $50,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.

 

On July 31, 2001 the Company entered into a $150,000 creditfacility with two related parties that matures on January 5, 2002 and bearsinterest at the annual rate of 12%.  In connection with arrangement, for each$1.00 of debt financing, the lenders were issued one warrant to acquire oneshare of common stock that expires on February 5, 2003 at a maximum per-shareexercise price of $.75 and 5.6 shares of common stock.  The common stock was recorded at the amountreceived of $150,000.  Thedifference between the face value of the loan, and the cash received andallocated to the notes, is treated as a discount resulting in additionalinterest expense over the term of the loan.

On August 31, 2001Woodcrest Capital Corp., an entity owned by Mr. Ryffel (chairman of the board)and Mr. Miller (director of the Company) loaned $52,500 to the Company.  On September 14, 2001 Woodcrest loaned anadditional $50,000 and on September 20, 2001 an additional $100,000.  The loans bear interest at the annual rateof 12%.  For providing these loans,Woodcrest received two million shares of common stock.  Thecommon stock was recorded at the amount received by the Company.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.

On August 31, 2001 the Company received a $25,000 loan thatmatures on January 5, 2002 and bears interest at the annual rate of 12%.  Inconnection with this debt financing arrangement, the lender was issued onewarrant to acquire one share of common stock that expires on February 5, 2003at a maximum per-share exercise price of $.75 and 5 shares of common stock foreach $1.00 of debt financing.  Thecommon stock was recorded at the amount received of $25,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.

 

On September 28, 2001 the Company received a $10,000 loan thatmatures on January 5, 2002 and bears interest at the annual rate of 12%.  Inconnection with this debt financing arrangement, the lender was issued onewarrant to acquire one share of common stock that expires on February 5, 2003at a maximum per-share exercise price of $.75 and 10 shares of common stock foreach $1.00 of debt financing.  Thecommon stock was recorded at the amount received of $10,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.

 

On September 28, 2001 the Company received a $50,000 loan from arelated party that matures on October 15, 2001.  In connection withthis debt financing arrangement, the lender was issued one warrant to acquireone share of common stock that expires on February 5, 2003 at a maximumper-share exercise price of $.75 and 10 shares of common stock for each $1.00of debt financing.  The common stock wasrecorded at the amount received of $50,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.

 

On October 15, 2001 the Company received a $50,000 loan from Mr.Hector Saldana, a director of the Company that matures on October 31,2001.  In connection with this debt financing arrangement, thelender was issued 10 shares of common stock for each $1.00 of debtfinancing.  The common stock wasrecorded at the amount received of $50,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.

 

On November 1,2001 the Company received a $300,000 loan from SNP General Partners L.P.(SNP).  The debt is evidenced by ademand promissory note that bears interest at the annual rate of 10%.  A Deed of Trust, Security Agreement andFinancing Statement, and an Assignment of Rents and Leases secure theloan.  In addition, GMSP subordinated$300,000 of their senior secured position on all of the assets of the Companyto SNP.  Terms of the $300,000 funding includesa provision wherein the lender could, at any time, require GMSP to take allactions available to them to accelerate all of the $7.3 million indebtednessthat is due to GMSP.

**4.   Stockholders’ Equity**

 

The Company is the successor entity formed by themerger on December 15, 1999 of American Independent Network, Inc. (AIN) andHispano Television Ventures, Inc.  Thecapital structure of the Company includes existing preferred stock from AIN of38,889 shares.  The preferred stock isconvertible into two shares of common stock and receives cumulative interestpayments at the rate of 9% per annum in lieu of dividends.  The Company has accrued dividends in arrearsof $80,357 as of September 30, 2001.

 

*P**rivate Placement*

In January 2000 theCompany completed a Private Placement whereby the Company sold 100 units, eachunit consisting of 100,000 shares of common stock of the Company (the unitswere offered pursuant to Rule 506 of Regulation D promulgated under theSecurities and Exchange Act) and 100,000 warrants to purchase one share of theCompany’s common stock at an exercise price of $2.00 per share.  The warrants expire one year after the terminationof the Private Placement.  This wasamended on December 15, 2000 so that each warrant exercised before December 31,2000 would receive three shares of common stock plus one warrant with anexercise price of $2.00 per share with an expiration date of June 30,2001.  The Company received grossproceeds in January 2000 of $9,600,000 to complete the $10,000,000 offeringpursuant to the Private Placement.  TheCompany had previously received $400,000 of the proceeds in 1999.

 

During2000, the Company received proceeds of $2,516,500 from the exercise of stockwarrants that were a part of the Private Placement of January 2000.  1,129,500 of these shares of common stockdue from the exercise of stock warrants were issued in 2000. The remainingshares were issued in January 2001.  InDecember 2000, the board of directors resolved that for every warrantconverted, each shareholder would receive two additional shares of stock. InJanuary 2001, 2,559,000 additional shares were issued to all shareholders who hadconverted warrants in 2000.

 

From aconsortium of investors the Company received $1,500,000 in January 2001 for 6million common shares and 1.5 million warrants to purchase one share of theCompany’s common stock at an exercise price of $1.00 per share.  The warrants expire February 5, 2002.

 

*Consulting and ProfessionalServices/Charitable Contributions*

In January 2001, theCompany issued 2,004,000 shares to related parties for consulting and legalservices during 2000 and the first quarter of 2001.  $931,745 of the expense relating to these shares was recorded infiscal year 2000.  The remaining$219,050 expense was recognized in January 2001.   In June 2001 the Company issued 996,375 common shares to relatedparties and incurred the obligation to issue an additional common shares forlegal services totaling $471,530.  OnSeptember 19, 2001 1,405,493 common shares were issued to a related party forthe $471,530 obligation that was reflected in the second quarter, plus anadditional $330,558 for legal services during the three months ended September30, 2001.  Also in September 224,500common shares valued at $26,940 were issued for other legal services.  For the three months ended September 30,2001 86,987 shares valued at $29,955 were issued for consulting services,primarily related to programming.

Hispano TelevisionVentures entered into a consulting arrangement with Woodcrest Capital, L.L.C.,which is owned by our Chairman of the Board and one of our directors.  Pursuant to the terms of this May 28, 1999agreement, Woodcrest agreed to provide the Company with business consultingservices.  In exchange for services,Woodcrest receives 1,066,667 shares of common stock per year of HispanoTelevision Ventures common stock that, after a 4:1 stock split by HispanoVentures and a conversion factor of 1.64 for the merger with AIN, is theequivalent of 7 million common shares of the Company.  Woodcrest is also entitled to receive reimbursement for all ofits expenses.  Woodcrest agreed toaccept 1,066,667 common shares of the Company as full common share payment forthe period of May 28, 2000 through May 28, 2001.  For the year ended December 2000, the Company recorded aconsulting expense in the amount $2,723,193 which represents 634,156 commonshares which is the pro rata portion of shares which were earned during theyear.  For the six months ended June 30,2001 the Company recorded a consulting expense of $194,227 that represents thepro rata portion of shares that were earned for the period. These shares were issuedin May 2001.

The consultingarrangement with Woodcrest Capital, L.L.C. automatically renewed for the periodof May 29, 2001 through May 28, 2002. Under this agreement the Company issued 7 million shares to Woodcrest inMay 2001, which had a value of $2,450,000. $816,668 of this was expensed as of September 30, 2001 and the balanceof $1,633,332 is recorded as Deferred Service.

The Company issued100,000 common shares to each of the two independent directors of the Companyin May 2001 for services rendered as members of the board of directors.  An expense of $76,000 was recorded when theshares were issued.

 

*AccountingServices*

The Company has anagreement with its Interim Chief Financial Officer to receive his compensationin common stock of the Company.   Inaccordance with this agreement, 663,045 common shares have been issued as ofSeptember 30, 2001.

 

*Television Stations*

During fiscal year 2000,the Company issued or agreed to issue a total of 1,295,000 shares of commonstock valued at $4,881,263 toward the acquisition of television stations andaffiliate agreements.  One million ofthese common shares were issued in February 2001.  During the year ended December 31, 2000, the Company forfeited$4,725,125 in station acquisition deposits. This amount includes 1,115,000 shares of common stock valued at$1,970,000.  Of the remaining sharesissued or agreed to be issued, 80,000 shares valued at $425,200 were issued foran affiliate agreement with KJLA Los Angeles and 100,000 shares valued at$777,825 were issued for the acquisition of a station in Globe, AZ.

 

*EmployeeCompensation*

During the first andsecond quarters of 2001, the Company issued 434,274 shares of common stock valued at $188,626 to employees asadditional compensation.  Of this$32,898 was reflected as of December 31, 2000 and $155,728 was charged toearnings for the nine months ended September 30, 2001.  During the three months ended September 30,2001 454,500 common shares were issued for severance/settlements to nineemployees who were terminated to reduce operating expenses.  A charge in the amount of $232,550 for thisshare issuance was reflected in the three months ended September 30, 2001.

 

*BuildingImprovements*

Inlieu of cash payment, the Company issued 46,449 shares of common stock valuedat $23,224 for partial payment for building improvements in February 2001.

 

*Settlements*

InMarch 2001, the Company agreed to issue 770,000 shares of the Company's commonstock for settlement agreements with certain individuals, all of whom were shareholders,to release the Company of any and all claims the individuals had or may haveagainst the Company. The settlements were for matters existing with theCompany's predecessor and therefore were treated as an increase in the purchaseprice.  Since goodwill is impaired andwas expensed in 2000, the fair value of the shares in the amount of $273,700was charged to earnings.  In August 2001150,000 common shares were issued as full satisfaction of a note payable andaccrued interest in the amount of $31,500.

 

*Cancellationof Contract*

In June 2001 the Companyissued 1,200,000 common shares in exchange for cancellation of a contract underwhich the Company had previously received $300,000.  The receipt of the funds had been previously recorded as deferredrevenue.

 

*Programming*

During the second quarterof 2001 the Company issued 316,315 common shares valued at $437,485 forprogramming and an additional 249,869 common shares valued at $94,953 wereissued during the three months ended September 30, 2001.

 

*Intereston Debt*

For the nine months endedSeptember 30, 2001 in connection with debt financing arrangements, the Companyhas issued 23,078,158 common shares as interest expense, loan extension feesand additional consideration for providing financing to the Company.  When shares are issued in conjunctionreceiving a loan, the difference between the face value of the loan, and thecash received and allocated to the notes, is treated as a discount on debt thatis amortized as additional interest expense over the term of the loan.  The value of the common shares that wereissued in conjunction with extending the maturity of the loans was classifiedas deferred interest and is amortized to interest expense on a straight-linebasis during the extension period.

 

*Commissions*

TheCompany has an arrangement with ParMedia LP wherein Par Media manages AIN inexchange for 40% of the net revenue of AIN. On September 19, 2001 the Company issued 164,532 common shares valued at$40,125 under this agreement.  InSeptember 2001 30,000 shares of common stock were issued as a finder’s fee forassisting the Company in securing financing. These common shares were valued at $5,200.

 

*Cancellation of stock certificate*

TheCompany cancelled 100,000 common shares that had been issued for the purchaseof a television station in Globe, AZ.

 

 

**5.     Legal Proceedings**

 

Currently, we are a party to the following actions:

 

In American Independent Network, Inc. v.Knapp Petersen and Clarke, No. 4-99CV-0124P, U.S. District Court, NorthernDistrict of Texas, Ft. Worth Division, we sued for damages claiming a breach offiduciary duties and the law firm filed a counterclaim seeking fees for legalservices.  This case was transferred tothe Southern District of California. This matter is subject to a binding arbitration agreement.

 

During December 2000, Jerald C. Powell andSusan L. Powell filed a lawsuit in the 342nd District Court of Tarrant County,Texas (case no. 342-185613-00) against us, our predecessor corporations, ATNNetwork, Inc., Bob J. Bryant and Don Shelton (both former directors of ours),and Fred Hoelke.  Plaintiffs assert avariety of claims (including certain claims based on state securities laws)arising out of the alleged merger of ATN Network, Inc. into one of ourpredecessor corporations and certain other related alleged transactions.  All of the defendants have filed an answerin this lawsuit.  This lawsuit iscurrently in the discovery stage.  Webelieve this lawsuit is without merit, and we intend to defend vigorouslyagainst all of Plaintiffs' asserted claims.

 

The Entertainment Search Group, Inc., d/b/a Brad Marks International wona judgment against the Company for unpaid recruiting services in the amount ofapproximately $123.000.  The Company hasbeen unable to reach an agreement with The Entertainment Search Group, and theCompany does not have the ability to pay the judgment.  The Entertainment Search Group has indicatedthey will attempt to execute on their judgment by levy.  A liability in the amount of $123,000 isincluded in the payables of the Company for this obligation.

 

LogisticsInternational, Inc. vs. HTVN, won a judgment against the Company fornon-payment on a promissory note. The judgment amount with interest isapproximately $39,000.00.  The Companyhas not paid the judgment and a hearing been set for January 15, 2002 forPlaintiff’s Motion for Appointment of Receiver to liquidate the Company.  A liability in the amount of $39,000 is included in therecords of the Company for this obligation.

 

In March/April 2001 Mr. Marco Camacho, former Chief Executive Officer,Karen Lincoln, former Chief Operating Officer, and B. Franklin Byrd, formerChief Financial Officer filed lawsuits for unspecified amounts regarding theirdeparture from the Company.  The Companybelieves that the claims are without merit and does not anticipate that asignificant cost will be incurred as a result of these pending actions.  Accordingly a reserve has not beenestablished for these claims.  ShouldMr. Camacho, Ms Lincoln, and/or Mr. Franklin prevail, it cannot be determinedat this time what the amount of the judgment(s) might be.

 

In July 2001 a Cameron County judge issued a Turnover Order for theCompany’s station and FCC license in Eagle Pass, TX relating to Zavaletta v.Wheeler and HTVN.  The Company ispreparing a restraining order and dec action in Maverick County to stayproceeding in Cameron County.  TheCompany believes the Turnover Order violates state and federal law and ifnecessary, the decision will be appealed to a higher court.

 

Ignacio Garcia andNorman Neuweiler vs. Hispanic Television Network, Inc., CC-01-601-C, CC #3,Dallas County, Texas.  This is a claimfrom two former employees, which is not material, and which the Companybelieves has minimal value.

 

Sonoca Corporation,dba Moso Productions vs. Hispanic Television Network, Inc., AmericanIndependent Network, Inc., Fred Hutton, et al. Case No. BC242259, in the Superior Court of the State of California.  We have reached an agreement wherein themoneys owed for programming can be paid out over time.  Total exposure is less than $35,000.00.

 

Grand AvenueIndustrial Properties vs. Hispanic Television Network, Inc., in the SuperiorCourt of the State of Arizona, Maricopa County.  A settlement has been reached in this matter.  The amount in controversy was less than$7,000.00.  The case was set forarbitration; however, the day of the arbitration, the Company reachedsettlement.

 

On October 25, 2001 a judgment was entered against the Company in theamount of $2,546.50 for the benefit of Anixter, Inc. for electronic parts andsupplies that were purchased by the Company and which were not paid for.

 

Producciones Zacarias vs. HTVN. This is a suit out of California District Court filed on June 15,2001.   This is a suit alleging copyrightviolations.  The Company believes thislawsuit is without merit and will not have a material adverse effect on theCompany.

 

Peliculas y Videos vs. HTVN. This is a lawsuit filed on October 1, 2001 in the US District Court forthe Southern District of Texas, Houston Division.  We are in the process of preparing a response to the suit andplan to have it removed to either Fort Worth or San Antonio.  This is a suit alleging copyrightviolations.  The Company believes thislawsuit is without merit and will not have a material adverse effect on theCompany.

 

As of November 15,2001 the Company owes approximately $2,900,000 in trade payables, the majorityof which are beyond the payment terms. Collection procedures have been initiated by many of the vendors andsuppliers and several of these collection procedures have progressed tojudgments against the Company, garnishment of the Company’s bank accounts, andin one case the Company’s failure to pay an obligation has resulted in ahearing being scheduled for January 15, 2002 for appointment of receiver toliquidate the Company.

 

The Company is involved in various other claims and legal actionsarising from the ordinary course of business. In the opinion of management, the ultimate disposition of these matterswill not have a material adverse effect on the Company’s financial condition,results of operations or cash flows.

 

 

**6.     SubsequentEvents**

 

On August 30, 2001the Company entered into an agreement to acquire Cubico.com, Inc. (Cubico), aninteractive Internet community portal for young urban U.S. Latinos that offersfree online services including email, chat, and message boards.  Cubico’s channels:  Estilo, Music, Entertainment, El Campus and Community showcasethe latest in fashion, music, education, and celebrity interviews.  Cubico’s partnership with student andcommunity organizations facilitates their ability to reach young Latinos viamarketing and advertising campaigns on university campuses and at media events.

 

The acquisition ofCubico is a stock transaction wherein each outstanding share of Cubicoimmediately prior to the transaction shall be automatically converted by reasonof the acquisition into one share of the Company’s common stock so that anaggregate of 5,596,334 shares of the Company’s common stock will be issued inconnection with the acquisition.  Inaddition options to purchase an aggregate of 815,000 shares of Cubico commonstock shall be converted to options to purchase the same number of theCompany’s common stock at an exercise price of ten cents per share.  The closing is to occur on or beforeDecember 30, 2001.  There are severalconditions precedent to the closing of the transaction including:  1) no action, suit, or proceeding shall havebeen instituted, pending or threatened seeking to prohibit the merger or toseek damages or other relief; 2) the Company shall have secured a commitmentfor a debt or equity financing of at least $15 million; and 3) the Companyshall have received consent to the merger from its senior lenders (ifrequired).  Under certain circumstances,if the Company terminates the agreement, Cubico is entitled to receive atermination fee of 2,798,167 shares of common stock of the Company.

 

Presented with anopportunity to increase revenues, on November 1, 2001 the Company ceasedbroadcasting American Independent Network programming and assigned the digitaluplink channel previously utilized for AIN to Urban Television NetworkCorporation (UTVN).  AIN had beenunder-performing, had never operated profitably, and the UTVN arrangementpresented greater opportunity for the Company, both immediately and in thefuture.

 

UTVN intends tobecome a minority owned broadcasting television network that airs programmingof interest to the African American community. For a cash payment of $100,000, a promissory note for $1.4 million, andan equity ownership of 10% of UTVN, the Company agreed to provide digitaluplink and master control services to UTVN on the channel and equipmentpreviously utilized by AIN.  Inaddition, beginning February 1, 2002 UTVN will pay to the Company a monthly feeof $100,000 plus 30% of their Net Revenues for the services provided by theCompany.  For purposes of the 30%revenue sharing calculation, Net Revenues is defined as total revenues minus (commissions+ $100,000 per month).   The 30% rate isreduced to 5% once the Company has received $1,000,000 from UTVN in revenuesharing proceeds and terminates in its entirety on October 31, 2004.  The promissory note accrues interest at theannual rate of 12%.  Payments on thenote begin on June 1, 2002 with three monthly payments of $25,000 permonth.  Payments then increase to$50,000 per month until all amounts owing under the note have been paid infull.  UTVN has the right to use thename American Independent Network for a period of six months.  Because UTVN would incur irreparable damagesdue to an interruption of services, should the Company cease to exist as anoperating entity or fail to provide the services required by the agreement, theshares of common stock issued to the Company by UTVN shall be cancelled, thepromissory note shall be considered paid in full, and the monthly fee and therevenue sharing is terminated with no further obligation of UTVN to make anyfurther payments to the Company.

**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYIS OR PLAN OF OPERATION**

**Background**

On December 14, 1999,American Independent Network, or AIN, merged with Hispano Television Ventures,Inc., a producer of Spanish-language programming, and was renamed Hispanic TelevisionNetwork, Inc. Originally formed on December 11, 1992, AIN has historicallyoperated as a general market, family-oriented television network providingprogramming and other services. HispanicTelevision Network, Inc. (the "Company") owns and operates twotelevision networks.  The first of thesenetworks is a Spanish-language television network named "TelevisiónHispana" or HTVN.  This network isfocused primarily on serving Hispanic individuals of Mexican origin (alsoreferred to as Mexican Hispanics). Currently HTVN owns, operates, or has affiliations with 19 televisionstations.  The second of our networks isa general market, family-oriented English-language television network named the"American Independent Network" or AIN.  It provides programming 24 hours a day, seven days a week to morethan 40 affiliate stations located throughout the United States.

 

        The Company has experienced significant operating losses andnegative cash flows in 2001, and expects to incur such losses in theforeseeable future.  Near the end of  2000, the Company experienced criticalliquidity needs resulting from the following factors:

 

*     Aninability to obtain funds from the public markets;

*     Alack of ability to enter into a strategic partnership;

*     Aninability to complete a structured financing;

*     Aninability to generate significant revenues from its operations; and

*     Aninability to reduce expense levels sufficiently to operate at a profit.

The Company has a severeliquidity shortfall.  Revenues areinadequate to meet current operating cash flow requirements and immediatefunding is required to continue operations. The Company is maintaining an on-going effort to locate sources ofadditional funding, without which the Company will not be able to remain aviable entity.  Further, no financingarrangements are currently under contract and there are no assurances that theCompany will be able to obtain adequate financing.  Expected operating losses, coupled with an acute lack ofliquidity cause immediate substantial doubt about the Company’s ability tocontinue as a going concern.

In October the Companyentered into a non-binding term sheet that would provide financing to theCompany.  Discussions continue betweenthe parties however a definitive agreement has not been reached.

If the Company is able to obtain the financingrequired to remain in business, to eventually achieve operating profits willrequire substantially increasing revenues and drastically reducing expensesfrom their current levels.  Previousmanagement intended to build the network and generate network sales.  During most of fiscal 2000, the Company focused onexpanding through acquisitions. Although the Company still intends to acquire full-power stations inmajor Hispanic markets, in view of the difficulty the Company has encounteredin raising the necessary capital for the acquisitions, the Company is presentlyfocusing on expanding its distribution by increasing the number of affiliatestations that broadcast its programming, and by entering into agreements withcable companies to carry its programming. Affiliations are much less capital intensive and typically requiresignificantly less working capital to begin operations.

Current management hasexpanded the Company’s revenue generation formula to include local advertisingsales for Company owned and operated stations, plus securing networkadvertising at the best available rate. Management intends to increase rates as stations are added to thenetwork.  In addition, currentmanagement has agreed to accept up to three hours each day of paid programming,a source of revenue that was not previously incorporated in the businessplan.  This increased focus ongenerating advertising is expected to have a significant positive affect uponsales.  In addition, the Company hasadded a focus to secure carriage agreements with cable and digital distributioncompanies.  Securing distribution on acable system can have the dual benefit of not only increasing viewership (andthus making the network more attractive to advertisers), but many agreementswith cable companies also provide revenue to the network in the form ofsubscriber fees.

On the expense side, the Company has reducedits recurring monthly expenses in almost every expense category, especially inthe areas of payroll and programming where immediate cost reductions have beenrealized.  The monthly negative cashflow has been reduced from $1,500,000 to $300,000 by these actions.  Additionally, current management hasrestructured the sales department to focus on generating sales from allavailable sources, especially local sales at owned and operated televisionstations.

 

The Company has secured cable distributioncontracts with Time Warner Cable (10 years), Satellite Services, Inc. (10years) which purchases programming for AT&T Broadband, Cox Communications,Inc (10 years), National Cable Television Coop (5 years), Liberty Spanish GroupLLC a/k/a Canales N (10 years) which is the Spanish language distributor toComcast Cable, Adelphia Cable, and others. Under the terms of the contracts the cable companies will pay subscriberfees to the Company.  In addition, theincreased distribution via cable should facilitate increased networkadvertising sales.

 

If the Company is able to obtain the requiredfinancing to remain in business, future operating results depend upon a numberof factors, including but not limited to the strength of the national economy,the local economies where the Company’s stations and affiliates are located,the amount of advertising spent - especially the amount of advertising spentfor television, and the amount of advertising directed toward the Hispanicpopulation. The Company’s ability to attract the available advertising isdependent upon, among other things, its station’s audience rating, its abilityto provide interesting programming, local market competition from othertelevision stations and other advertising media, and its ability to attract andretain television stations to carry its broadcast.

# ** **

# **Revenues**

# **Our primary source of revenue is the sale ofadvertising on our networks to national advertisers and on our televisionstations to local and national advertisers. Our revenues are affected primarilyby the advertising rates that we are able to charge on our networks and thatour television stations are able to charge as well as the overall demand forHispanic television advertising time. Advertising rates are determinedprimarily by:**

**•**      themarkets covered by our networks,

**•**      thenumber of competing Hispanic television stations in the same market as ourstations,

**•**      thetelevision audience share in the demographic groups targeted by advertisers,and

**•**      thesupply and demand for Hispanic advertising time.

Historically,our network advertising has been sold targeting direct response and per inquiryadvertisers. Each of our stations will also have account executives that willsolicit local and national advertising directly from advertisers and fromadvertising agencies.  Because ourdistribution is not as vast as our competitors we are offering services andopportunities that our competitors either don’t offer at all or offer on arestricted basis.  For example, we offerpaid programming on a much larger quantity than most of our competitors.  We have also focused on partnering withadvertisers to underwrite original productions and offer the clients productintegration opportunities.  We also areoffering our clients on-air promotional opportunities and marketingopportunities including event sponsorships that are also broadcast on the network.

We market our advertising time to:

•      *Advertising agencies and independent advertisers*.We sell commercial time to advertising agencies and independent advertisers.The monetary value of this time is based upon the estimated size of the viewingaudience; the larger the audience, the more we are able to charge for theadvertising time. To measure the size of a viewing audience networks andstations generally subscribe to nationally recognized rating services, such asNielsen. Currently, a number of AIN’s affiliate stations are located in thesmaller market areas of the country. Our goal is to enter into affiliateagreements with stations located in the top demographic markets in order toobtain Nielsen ratings that justify charging higher rates for our advertisingtime.

•      *Affiliate Stations*. In exchange forproviding programming to our affiliate stations, we retain a portion of theadvertising time and gain access to the affiliate stations’ markets. In atraditional broadcasting contract, an affiliate station would retain allavailable advertising time, which it would then sell to outside advertisers,and the network would receive a fee from the affiliate station. However, webelieve that by selling retained commercial time to outside advertisers, we areable to generate higher revenues than we would otherwise receive in fees fromour affiliate stations.

•      *Program Owners*: In exchange forlicensing rights to select programming, we give the program owner advertisingtime during the broadcast of such programming. The program owner is then ableto sell the advertising time to outside parties.   We typically do not derive any revenue from the advertising timewhich is given to the program provider.

# ** **

# **Expenses**

 

Ourmost significant expenses are employee compensation, engineering andtransmission expenses, professional services, production and programmingexpenses. Depreciation of fixed assets and amortization of costs associatedwith stations we own are also significant expense items. In some cases, weincur upfront programming expenses when procuring programming usages andlicenses.  These upfront payments areamortized over the applicable contract term. As a result of attracting key officers and personnel to HTVN, we haveoffered stock options as an additional form of compensation. When the strikeprice of the stock option is less than the fair market value of the stock onthe date of grant, the difference is amortized as compensation expense over thevesting period of the stock options.

*** ***

***Advertising***

** **

**       **The majority of allrevenues generated come from the sale of network, national spot and local spotadvertising on our owned and operated stations.

*NetworkAdvertising*. All owned and operated stations as well asaffiliates have a percentage of available commercial time dedicated for“network” sales. The commercials sold on the network are broadcastsimultaneously in all markets that we serve.

*NationalSpot Advertising*. National advertisers have theopportunity to buy “spot” advertising in specific markets. For example, anadvertising agency in New York would use spot advertising to purchasecommercials in San Antonio and Oklahoma City.

*LocalSpot Advertising*. Advertising agencies and businesseslocated in a market will buy commercial air time in their respective market. Thiscommercial time is sold in the market by a local sales force. Local spotadvertising also includes event marketing. In conjunction with a spot buy thestation incorporates events that may be held on the premise of a business oradvertiser for the purpose of driving traffic to that place of business.

***Results of Operations:  for the three and nine months ended September 30, 2001 and 2000*.**

*Revenues*.Revenues are primarily derived from sales of advertising and programming time,and production services.  Revenues forthe three and nine months ended September 30, 2001 were $223,333 and $1,402,299compared to $140,845 and $395,704 for the three and nine months ended September30, 2000.  Sales in the first throughthird quarters of 2000 were derived primarily from AIN as Television Hispaniawas being launched.  Revenues for thesame period of 2001 include advertising on HTVN, AIN, and production sales byTelevideo, which was acquired in July 2000.

* Cost of Operations*. Costsof operations were $4,207,614 and $13,508,789 for the first three and ninemonths of 2001 compared to $5,513,245 and $11,403,086 for the same periods of2000.  Major components of Cost ofOperations for the first three and nine months of 2001include $359,187 and$1,060,479 for programming, $103,902 and $623,613 in satellite rental,professional fees of $1,990,781 and $3,519,378 which includes the cost of theCompany’s independent auditors, legal fees primarily to a related party, andbusiness consulting services provided by a related party and Woodcrest Capital,L.L.C. (which is owned by our Chairman of the Board and one of our directors),and administrative expenses totaling $340,168 and $4,389,093 for the three andnine months ended September 30, 2001.

*Interestexpense* for the three and nine months ended September 30,2001 and September 30, 2000 were $1,727,805 and $6,772,762 compared to$1,753,012 and $2,031,100.  Interestexpense for the first three and nine months of 2001 includes amortization ofloan discounts of $2,660,831 and $3,714,808 and amortization of loan extensionfees of $654,098.

*OperatingResults.* The net losses of $5,676,997 and $18,940,500 for thethree and nine months ended September 30, 2001 compared to a net loss of$7,125,412 and $13,038,482 for the same three and nine month periods of 2000are attributable to the increased expenses detailed above, partially offset bythe increased revenues.

 

*Other income/expenses.* InMarch 2001, the Company agreed to issue 430,000 shares of the Company's commonstock for settlement agreements with certain individuals, all of whom wereshareholders, to release the Company of any and all claims the individuals hador may have against the Company. The settlements were for matters existing withthe Company's predecessor and therefore were treated as an increase in thepurchase price.  Since goodwill isimpaired and was expensed in 2000, the fair value of the shares in the amountof $172,000 was charged to earnings.  Rentalincome of leasing of office space in the Company’s headquarters building of$36,812 and $106,508 for the three and nine months ended September 30, 2001 isincluded in Other Income.

 

*Earnings Per Share of Common Stock.*The net losses per common share are based upon the weighted average ofoutstanding common stock.  The net lossper share of common stock was ($0.04) and ($0.16) for the three and nine monthsended September 30, 2001 compared to a net loss per share of common stock of($0.08) and ($0.15) for the three and nine months ended September 30, 2000.  Potentially dilutive securities totaling17,558,084** additional shares of common stock which may be issued as a resultof the conversion or exercise of preferred stock, stock options and warrantsare not included in the calculation as their effect is antidilutive.

**This amount ONLY INCLUDES common shares that may be issued in the future due tothe exercise or conversion of currently outstanding preferred shares of stock,outstanding options, and outstanding warrants excluding the number of sharesissuable for the exercise of the Goff Moore Strategic Partners credit facilitywarrants. Common shares that may be issued in the future for conversion of debtand/or payables to equity, future obligations which may be satisfied by theissuance of common shares, common shares that may be issued in a fundingtransaction, common shares that may be issuable to Goff Moore StrategicPartners due to exercise of the warrants that are part of the credit facility,and other transactions and agreements which may in the future result in theissuance of additional common shares ARE NOT INCLUDED in this amount.  The common shares that the Company may issuein the future could significantly increase the number of shares outstanding andcould be extremely dilutive or virtually eliminate the ownership interest ofshareholders.

** Liquidity and Capital Resources**

We financed our operations through a combination ofissuing equity securities to private investors, issuing common stock forobligations in lieu of cash payments, issuance of private debt, obtained loansfrom related parties, and cash generated from operations. We have hadcumulative losses of $60,889,986 frominception through September 30, 2001. Current liabilities at September 30, 2001 were $16,687,020, whichexceeds current assets of $331,166** **by $16,355,854.  Financing activities for 2001 include:

1)     We received $1,500,000 from the sale ofcommon stock and warrants.  These fundswere used primarily for working capital needs.

2)     We issued common stock in lieu of cashpayments totaling $8,606,882 for legal and professional services, settlements,consulting services, employee compensation, building improvements, programmingand other miscellaneous expenses.

3)     Common stock valued at $5,936,730 wasissued as additional interest expense or as discount on debt that will beamortized to interest expense over the term of the loan.   Common stock valued at $305,200 was issuedfor settlements related to our predecessor and common stock valued at $300,000was issued for proceeds previously recorded as deferred revenue when thecontract was cancelled.

4)     We received funding of $1,100,000 under aLoan Agreement dated February 5, 2001 from a group comprised primarily ofrelated parties.  The proceeds were usedprimarily for working capital.  Thisloan bears interest at the rate of 12% per annum and matured on July 5,2001.  Most of the lenders have extendedthe maturity to January 5, 2002. Funding of $270,000 received from a related party in December 2000 wassubsequently incorporated into this Loan Agreement.

5)     On April 24, 2001 the LoanAgreement of February 5, 2001 was amended to increase the maximum loanamount.  All other terms of the LoanAgreement remained unchanged.  As of May11, 2001 the Company has received $1,262,000 under the amended Loan Agreement. The proceeds were used for payroll,satellite lease payments, KJLA affiliate fee, and other working capitalrequirements.

6)     On April30, 2001 Mr. Ryffel, the Company’s chairman of the board, provided $112,000 tothe Company to cover a bank overdraft. The loan is unsecured, matures on January 5, 2002, and bears interest atthe annual rate of 12%.  In connection with this debt financingarrangement, the lender received four shares of common stock fro each $1.00loaned.

7)     On April17, 2001 a related party provided a loan to the Company in the amount of$100,000 and increased this amount by an additional $50,000 on July 6,2001.   The loan is unsecured,non-interest bearing, and matures on October 16, 2001.  The lender receives one share of commonstock for each $1.00 loaned for the first month the loan is outstanding asconsideration for providing the loan. The number of shares paid as consideration increases by approximately10% for each month the loan is outstanding.

8)     On July 23, 2001 the Company entered into a$50,000 unsecured credit facility with a related party that matures on January5, 2002 and bears interest at the annual rate of 12%.  In connection withthis debt financing arrangement the lender was issued six shares of commonstock for each $1.00 of debt financing

9)     On July 17, 2001 the Company entered into a$100,000 unsecured credit facility with a related party that matures on January5, 2002 and bears interest at the annual rate of 12%.  In connection withthis debt financing arrangement, the lender was issued (for each $1.00 loaned)a warrant to acquire one share of common stock that expires on February 5, 2003at a maximum per-share exercise price of $.75. In addition, the lender was issued eight shares of common stock for each$1.00 of debt financing.  This partyloaned an additional $100,000 on August 16, 2001 and an additional $100,000 onSeptember 18, 2001.  Terms of theadditional loans were the same as the loan of July 17, 2001 except the lenderreceived 10 and 16 shares of common stock for each $1 loaned.

10)   On July 31, 2001 the Company entered into a$150,000 credit facility with two related parties that matures on January 5,2002 and bears interest at the annual rate of 12%.  In connection witharrangement, for each $1.00 of debt financing, the lenders were issued onewarrant to acquire one share of common stock that expires on February 5, 2003at a maximum per-share exercise price of $.75 and 5.6 shares of common stock.

11)   On August 31, 2001 Woodcrest Capital Corp.,an entity owned by Mr. Ryffel (chairman of the board) and Mr. Miller (directorof the Company) loaned $52,500 to the Company. On September 14, 2001 Woodcrest loaned an additional $50,000 and onSeptember 20, 2001 an additional $100,000. The loans bear interest at the annual rate of 12%.  For providing these loans, Woodcrestreceived two million shares of common stock.

12)   On August 31, 2001 the Company received a$25,000 loan that matures on January 5, 2002 and bears interest at the annualrate of 12%.  In connection with this debt financing arrangement, thelender was issued one warrant to acquire one share of common stock that expireson February 5, 2003 at a maximum per-share exercise price of $.75 and 5 sharesof common stock for each $1.00 of debt financing.

13)   On September 28, 2001 the Company received a$10,000 loan that matures on January 5, 2002 and bears interest at the annualrate of 12%.  In connection with this debt financing arrangement, thelender was issued one warrant to acquire one share of common stock that expireson February 5, 2003 at a maximum per-share exercise price of $.75 and 10 sharesof common stock for each $1.00 of debt financing.

14)   On September 28, 2001 the Company received a$50,000 loan from a related party that matures on October 15, 2001.  In connection with this debt financingarrangement, the lender was issued one warrant to acquire one share of commonstock that expires on February 5, 2003 at a maximum per-share exercise price of$.75 and 10 shares of common stock for each $1.00 of debt financing.

15)   On October 15, 2001 the Company received a$50,000 loan from Mr. Hector Saldana, a director of the Company that matures onOctober 31, 2001.  In connection with this debt financing arrangement, thelender was issued 10 shares of common stock for each $1.00 of debt financing.

16)   On November 1, 2001 the Company received a$300,000 loan from SNP General Partners L.P. (SNP).  The debt is evidenced by a demand promissory note that bearsinterest at the annual rate of 10%.  ADeed of Trust, Security Agreement and Financing Statement, and an Assignment ofRents and Leases secure the loan.  Inaddition, GMSP subordinated $300,000 of their senior secured position on all ofthe assets of the Company to SNP.  Terms of the$300,000 funding includes a provision wherein the lender could, at any time,require GMSP to take all actions available to them to accelerate all of the$7.3 million indebtedness that is due to GMSP.

The Company hasinsignificant revenues under contract for fiscal 2001, and has a severeliquidity shortfall that impairs its ability to meet its current operating cashflow requirements in the near term.  Asof November 15, 2001, the Company has less than $40,000 in cash available tomeet its operating cash requirements. The Company has significantly reduced its recurring cash requirementsfrom previous levels but a cash inflow of approximately $300,000 per monthexclusive of scheduled debt repayments is required to meet its current monthlyobligations.  The cash flow fromrevenues of approximately $100,000 per month is not sufficient to meet currentcash needs.  As of November 15, 2001 the Companyowes approximately $2,900,000 in trade payables, the majority of which arebeyond the payment terms.  Collectionprocedures have been initiated by many of the vendors and suppliers and severalof these collection procedures have progressed to judgments against theCompany, garnishment of the Company’s bank accounts, and in one case theCompany’s failure to pay an obligation has resulted in a hearing beingscheduled for January 15, 2002 for appointment of receiver to liquidate theCompany.

The expected operating losses, coupled with an acutelack of liquidity cause immediate substantial doubt about the Company’s abilityto continue as a going concern.  TheCompany is maintaining an on-going effort to locate sources of additionalfunding, without which the Company will not be able to remain a viableentity.  Further, no financingarrangements are currently under contract and there are no assurances that theCompany will be able to obtain adequate financing.  As discussed below, the Company has approximately $7.3 million ofindebtedness that matured on April 30, 2001 and which is secured by all of theassets of the Company.  While theCompany is seeking an extension of the maturity or a restructuring of the,failure to secure such an extension could lead to the immediate demand forrepayment.  Because the loan is matured,such demand for repayment could occur at any time.  In addition, on November 1, 2001 the Company received anemergency funding on a demand note that allows the lender to compel the seniorlender to take all actions available to them to accelerate all of the $7.3million indebtedness.  A demand wouldlikely cause a cessation of operations, liquidation of its assets, and/or forcethe Company into bankruptcy protection.

If the Company is able to secure additional financing,common shares that may be issued under the terms of that arrangement wouldlikely be highly dilutive to the number of shares of common stockoutstanding.  In addition common sharesmay also be issued for conversion or settlement of debt and/or payables forequity, future obligations which may be satisfied by the issuance of commonshares, and other transactions and agreements which may in the future result inthe issuance of additional common shares. The common shares that the Company may issue in the future couldsignificantly increase the number of shares outstanding and could be extremelydilutive or virtually eliminate the ownership interest of shareholders.

 

In July 2000, the Company entered into an$8,875,001 credit facility with Goff Moore Strategic Partners, L.P. and anumber of other private investors (GMSP). The credit facility was used to fundacquisitions and working capital. Pursuant to the terms of the credit facility, the Company (i) executedpromissory notes that bear interest at a rate of 12% per annum and (ii) issuedwarrants to purchase shares of the Company's common stock that expire 3 yearsafter the debt has been paid.  Becauseof the Company’s inability to make payments required by terms of the creditfacility, there have been numerous amendments and modifications to theagreement, the most recent being the “Seventh Amendment To Loan Agreement andAmendment To Notes” and the “Second Amendment and Agreement Regarding Warrants”of April 17, 2001 which specified the annual interest rate on the notes to be13% beginning February 1, 2001, set the number of shares that could bepurchased by exercising warrants to range from 5% to 12.5% based upon when theloan was fully paid, extended maturity date to April 30, 2001, and provided forfurther extensions of the maturity if certain repayments were made.  Because the Company failed to make therequired repayments certain terms of the credit facility were adjustedincluding:  1) the interest rateincreased to 16% per annum computed on the sum of the outstanding principal andunpaid interest balance compounded daily; and 2) the number of shares of commonstock that may be purchased by exercising the warrants was modified.  Under the current in-effect terms of theagreement as modified and amended, the number of shares of common stock thatmay be purchased by exercising the warrants will be determined by dividing a)the amount of the credit facility plus the total interest incurred thereon byb) the exercise price, which is determinable based upon past and futurefinancing events.  Because the loan wasnot repaid by the dates required by the amended terms of the credit facility,the number of shares of common stock that may be purchased by exercising thewarrants is multiplied by 150% and then by an additional 125%.  Thewarrants contain a warrant conversion feature that allows warrants to beconverted into shares without payment of cash or any other consideration.

Recentfinancing events of the Company, the Company’s failure to make requiredrepayments on the indebtedness, the market price of the Company’s common stock,and the continuously increasing interest incurred amount, combine to allow thewarrant holders to receive a significant number of shares of common stock thatis potentially highly dilutive to the shareholders of the Company.  Further GMSP and the Company do not agree onthe interpretation of the documents as it relates to the exercise price andtherefore to the number of shares that are issuable for the exercise of thewarrants.  Given an adverseinterpretation of the loan documents, which could occur, the warrants could beexercised for a number of shares that would represent a vast majority of theownership of the company.  Should thewarrants be exercised based upon GMSP’s interpretation of the documents, theeffect would be to substantially dilute or significantly eliminate theownership interests of the shareholders of the Company, likely resulting in thevalue of any investment in the Company to be significantly reduced or entirelylost.

 

Discussions areongoing to further extend the maturity date. As ofNovember 15, 2001 the outstanding principal balance is $7,304,068.  As previously discussed, the Company doesnot have the funds to repay this outstanding indebtedness and the demand forsuch payment could force the Company to cease operations, liquidate assets,and/or seek bankruptcy protection.  Inaddition an extension of the maturity, if received at all, could include termsthat may materially increase the number of shares of the Company’s common stockthat are issued and outstanding or that are issuable by exercising thewarrants.  Should this occur, the effectwould be to substantially dilute or perhaps virtually eliminate the ownershipinterests of the shareholders of the Company.

 

OnFebruary 5, 2001 the Company established a debt financing arrangement with agroup consisting primarily of existing shareholders of the Company and amendedthis arrangement on April 24, 2001 to increase the maximum loan amount.  The principal amount borrowed under thisdebt financing arrangement totaled $2,632,000 and bears interest at the rate of12% per annum.  Theloan matured on July 5, 2001 and the Company requested the lenders to extendtheir loan to the earlier of the Company receiving a funding of $15 million ormore, receipt of proceeds from the lawsuit that secures the loan, or January 5,2002.  This debt financing arrangement is collateralized by the Company’s65% interest in the station in Beaumont (KO9OVO) and an undivided interest inthe proceeds the Company may receive in its lawsuit against Knapp Petersen& Clark.  The securityinterest of participants in the amended increased loan amount is subordinatedto the security interest of the original lenders.  In connection withthis debt financing arrangement, the lenders were issued (for each $1.00loaned) a warrant to acquire one share of common stock that expires on February5, 2003 at a maximum per-share exercise price of $.75 and four shares of commonstock.  In exchange forextending the loan maturity the lenders were issued two additional shares ofcommon stock for each $1.00 loaned.

 

On February 13, 2001 the Company securedfinancing from a consortium of investors. The terms of this financing obligated the investors to purchase, for anaggregate investment of $1,500,000, a total of 6,000,000 shares of common stock("shares") and warrants ("warrants") to purchase 1,500,000additional shares at a per-share purchase price of $1.00.  The warrants may be exercised for one yearafter they are issued.  The terms of thefinancing also obligated the investors to make 10 additional periodic purchasesoccurring 30 days apart, each involving 1,000,000 additional shares and 500,000additional warrants.  However, aftermaking the initial purchase of 6 million shares and 1.5 million warrants for$1.5 million, the investors failed to make the required subsequent purchasesand the Company terminated the agreement on March 30, 2001.

On April 17, 2001a related party provided a loan to the Company in the amount of $100,000 andprovided an additional $50,000 on July 6, 2001, all maturing on October 16,2001.  The loans provide for interestpayable with common stock at the rate of one share for each $1.00 loaned forthe first 30 days, 1.1 shares for each $1.00 loaned for the 2ndmonth, and increasing each month to a maximum of 1.6 shares for each $1.00loaned for the 6th month. The shares earned are recorded as interest expense.

On April 30, 2001Mr. Ryffel, the Company’s chairman of the board, provided $112,000 to theCompany to cover a bank overdraft.  Thefunding is evidenced by a promissory note that bears interest at the annualrate of 12% and matures on January 5, 2002. In connection with this financing, Mr. Ryffel received four shares of common stock for each$1.00 of debt financing.  The commonstock was recorded at the amount received of $112,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.

On July 17, 2001 the Company entered into a$100,000 credit facility with a related party that matures on January 5, 2002and bears interest at the annual rate of 12%. In connection with this debtfinancing arrangement, the lender was issued (for each $1.00 loaned) a warrantto acquire one share of common stock that expires on February 5, 2003 at amaximum per-share exercise price of $.75. In addition, the lender was issued eight shares of common stock for each$1.00 of debt financing.  The common stockwas recorded at the amount received of $100,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of theloan.  On August 16, 2001 this partyloaned an additional $100,000 to the Company and an additional $100,000 onSeptember 18, 2001.  All terms of andthe accounting treatment for the two latter fundings are identical to the termsand the accounting treatment for the funding of July 17th, exceptthe lender received 10 shares and 16 shares respectively for each $1 loaned.

 

On July 23, 2001 the Company entered into a$50,000 credit facility with a related party that matures on January 5, 2002and bears interest at the annual rate of 12%. In connection with this debtfinancing arrangement, the lender was issued six shares of common stock foreach $1.00 of debt financing.  Thecommon stock was recorded at the amount received of $50,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as a discountresulting in additional interest expense over the term of the loan.

 

On July 31, 2001 the Company entered into a$150,000 credit facility with two related parties that matures on January 5,2002 and bears interest at the annual rate of 12%.  In connection witharrangement, for each $1.00 of debt financing, the lenders were issued onewarrant to acquire one share of common stock that expires on February 5, 2003at a maximum per-share exercise price of $.75 and 5.6 shares of common stock.  The common stock was recorded at the amountreceived of $150,000.  Thedifference between the face value of the loan, and the cash received andallocated to the notes, is treated as a discount resulting in additionalinterest expense over the term of the loan.

 

On August 31, 2001Woodcrest Capital Corp., an entity owned by Mr. Ryffel (chairman of the board)and Mr. Miller (director of the Company) loaned $52,500 to the Company.  On September 14, 2001 Woodcrest loaned anadditional $50,000 and on September 20, 2001 an additional $100,000.  The loans bear interest at the annual rateof 12%.  For providing these loans,Woodcrest received two million shares of common stock.  Thecommon stock was recorded at the amount received by the Company.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.

On August 31, 2001 the Company received a$25,000 loan that matures on January 5, 2002 and bears interest at the annualrate of 12%.  In connection with this debt financing arrangement, thelender was issued one warrant to acquire one share of common stock that expireson February 5, 2003 at a maximum per-share exercise price of $.75 and 5 sharesof common stock for each $1.00 of debt financing.  The common stock was recorded at the amount received of $25,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.

 

On September 28, 2001 the Company receiveda $10,000 loan that matures on January 5, 2002 and bears interest at the annualrate of 12%.  In connection with this debt financing arrangement, thelender was issued one warrant to acquire one share of common stock that expireson February 5, 2003 at a maximum per-share exercise price of $.75 and 10 sharesof common stock for each $1.00 of debt financing.  The common stock was recorded at the amount received of $10,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.

 

On September 28, 2001 the Company receiveda $50,000 loan from a related party that matures on October 15, 2001.  Inconnection with this debt financing arrangement, the lender was issued onewarrant to acquire one share of common stock that expires on February 5, 2003at a maximum per-share exercise price of $.75 and 10 shares of common stock foreach $1.00 of debt financing.  Thecommon stock was recorded at the amount received of $10,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.

 

On October 15, 2001 the Company received a$50,000 loan from Mr. Hector Saldana, a director of the Company that matures onOctober 31, 2001.  In connection with this debt financing arrangement, thelender was issued 10 shares of common stock for each $1.00 of debtfinancing.  The common stock wasrecorded at the amount received of $50,000.  The difference between the face value of theloan, and the cash received and allocated to the notes, is treated as adiscount resulting in additional interest expense over the term of the loan.

 

On November 1,2001 the Company received a $300,000 loan from SNP General Partners L.P.(SNP).  The debt is evidenced by ademand promissory note that bears interest at the annual rate of 10%.  A Deed of Trust, Security Agreement andFinancing Statement, and an Assignment of Rents and Leases secure theloan.  In addition, GMSP subordinated$300,000 of their senior secured position on all of the assets of the Companyto SNP.  Terms of the $300,000 funding includesa provision wherein the lender could, at any time, require GMSP to take allactions available to them to accelerate all of the $7.3 million indebtednessthat is due to GMSP.

***Impactof inflation***

**Managementdoes not believe that general inflation has had or will have a material effecton operations.**

**OtherEvents**

On February 20, 2001,Emilio Gorriti was appointed to the position of Chief Executive Officer andboard member of the Company.  Mr. Gorritifilled the position upon the resignation of James A. Ryffel, the Company'sChairman of the Board, who was Interim Chief Executive Officer of theCompany.  Mr. Gorriti headed theconsortium of investors that entered into an agreement on February 13, 2001 toprovide financing to the Company.  Aftermaking the initial purchase of 6 million shares of common stock and 1.5 millionwarrants for $1.5 million, the consortium failed to perform as required by theagreement.   As such, the Companyterminated the agreement on March 30, 2001.  On April 16, 2001 Mr. EmilioGorriti was terminated as President, Chief Executive Officer, and board member.

Also on February 20, 2001, MichaelFletcher was appointed to the position of Chief Operating Officer of HispanicTelevision Network, Inc. Mr. Fletcher has been with the Company since July 11,2000 where he has been acting as Executive Vice President of HTVN and Presidentof HTVN owned Televideo. Mr. Fletcher fills the Chief Operating Officerposition vacated by Karen Lincoln.

On February 28, 2001, the Company wasawarded a full power license from the Federal Communications Commission for itsfull-power television station, KVAW Ch. 16 located in Eagle Pass, Texas.

On March 30, 2001 Steven Mortonson joinedthe Company as Interim Chief Financial Officer replacing B. Franklin Byrd whoresigned for personal reasons.

Although there were no disagreements with Ernst &Young LLP, on May 7, 2001 we dismissed Ernst & Young LLP as our independentauditor.  On May 9, 2001 Weaver and Tidwellwas retained as the Company’s new independent auditor.

 

        In January 2001 the Company’s board ofdirectors approved the Hispanic Television Network, Inc. Year 2001 ConsultantCompensation Plan (the “Plan”) that was created to award and issue shares ofthe Company’s common stock to selected outside consultants of the Company.  A total of three million common shares wereauthorized under the Plan.  On August10, 2001 the Plan was amended so that the number of common shares that could beissued under the Plan was increased from three million to thirteen million.

 

**Recent Developments**

On August 30, 2001 theCompany entered into an agreement to acquire Cubico.com, Inc. (Cubico), aninteractive Internet community portal for young urban U.S. Latinos that offersfree online services including email, chat, and message boards.  Cubico’s channels:  Estilo, Music, Entertainment, El Campus and Community showcasethe latest in fashion, music, education, and celebrity interviews.  Cubico’s partnership with student and communityorganizations facilitates their ability to reach young Latinos via marketingand advertising campaigns on university campuses and at media events.

 

The acquisition of Cubicois a stock transaction wherein each outstanding share of Cubico immediatelyprior to the transaction shall be automatically converted by reason of theacquisition into one share of the Company’s common stock so that an aggregateof 5,596,334 shares of the Company’s common stock will be issued in connectionwith the acquisition.  In additionoptions to purchase an aggregate of 815,000 shares of Cubico common stock shallbe converted to options to purchase the same number of the Company’s commonstock at an exercise price of ten cents per share.  The closing is to occur on or before December 30, 2001.  There are several conditions precedent tothe closing of the transaction including: 1) no action, suit, or proceeding shall have been instituted, pending orthreatened seeking to prohibit the merger or to seek damages or other relief;2) the Company shall have secured a commitment for a debt or equity financingof at least $15 million; and 3) the Company shall have received consent to themerger from its senior lenders (if required). Under certain circumstances, if the Company terminates the agreement,Cubico is entitled to receive a termination fee of 2,798,167 shares of commonstock of the Company.

 

Presented with anopportunity to increase revenues, on November 1, 2001 the Company ceasedbroadcasting American Independent Network programming and assigned the digitaluplink channel previously utilized for AIN to Urban Television NetworkCorporation (UTVN).  AIN had beenunder-performing, had never operated profitably, and the UTVN arrangementpresented greater opportunity for the Company.

 

UTVN intends to become aminority owned broadcasting television network that airs programming ofinterest to the African American community. For a cash payment of $100,000, a promissory note for $1.4 million, andan equity ownership of 10% of UTVN, the Company agreed to provide digitaluplink and master control services to UTVN on the channel and equipmentpreviously utilized by AIN.  Inaddition, beginning February 1, 2002 UTVN will pay to the Company a monthly feeof $100,000 plus 30% of their Net Revenues for the services provided by theCompany.  For purposes of the 30%revenue sharing calculation, Net Revenues is defined as total revenues minus(commissions + $100,000 per month).  The 30% rate is reduced to 5% once the Company has received $1,000,000from UTVN in revenue sharing proceeds and terminates in its entirety on October31, 2004.  The promissory note accruesinterest at the annual rate of 12%. Payments on the note begin on June 1, 2002 with three monthly paymentsof $25,000 per month.  Payments thenincrease to $50,000 per month until all amounts owing under the note have beenpaid in full.  UTVN has the right to usethe name American Independent Network for a period of six months.  Because UTVN would incur irreparable damagesdue to an interruption of services, should the Company cease to exist as anoperating entity or fail to provide the services required by the agreement, theshares of common stock issued to the Company by UTVN shall be cancelled, thepromissory note shall be considered paid in full, and the monthly fee and therevenue sharing is terminated with no further obligation of UTVN to make anyfurther payments to the Company.

 

**PART II OTHER INFOMATION**

** **

**ITEM 1.  LEGAL PROCEEDINGS**

 

Currently, we are aparty to the following actions:

 

                InAmerican Independent Network, Inc. v. Knapp Petersen and Clarke, No.4-99CV-0124P, U.S. District Court, Northern District of Texas, Ft. WorthDivision, we sued for damages claiming a breach of fiduciary duties and the lawfirm filed a counterclaim seeking fees for legal services.  This case was transferred to the SouthernDistrict of California.  This matter issubject to a binding arbitration agreement.

 

                DuringDecember 2000, Jerald C. Powell and Susan L. Powell filed a lawsuit in the342nd District Court of Tarrant County, Texas (case no. 342-185613-00) againstus, our predecessor corporations, ATN Network, Inc., Bob J. Bryant and DonShelton (both former directors of ours), and Fred Hoelke.  Plaintiffs assert a variety of claims(including certain claims based on state securities laws) arising out of thealleged merger of ATN Network, Inc. into one of our predecessor corporationsand certain other related alleged transactions.  All of the defendants have filed an answer in this lawsuit.  This lawsuit is currently in the discoverystage.  We believe this lawsuit iswithout merit, and we intend to defend vigorously against all of Plaintiffs'asserted claims.

 

        The Entertainment SearchGroup, Inc., d/b/a Brad Marks International won a judgment against the Companyfor unpaid recruiting services in the amount of approximately $123.000.  The Company has been unable to reach anagreement with The Entertainment Search Group, and the Company does not havethe ability to pay the judgment.  TheEntertainment Search Group has indicated they will attempt to execute on theirjudgment by levy.  A liability in theamount of $123,000 is included in the payables of the Company for thisobligation.

 

                Logistics International, Inc.vs. HTVN, won a judgment against the Company for non-payment on a promissorynote. The judgment amount with interest is approximately $39,000.00.  The Company has not paid the judgment and ahearing been set for January 15, 2002 for Plaintiff’s Motion for Appointment ofReceiver to liquidate the Company.  A liability in theamount of $39,000 is included in the records of the Company for thisobligation.

 

        In March/April 2001 Mr.Marco Camacho, former Chief Executive Officer, Karen Lincoln, former ChiefOperating Officer, and B. Franklin Byrd, former Chief Financial Officer filedlawsuits for unspecified amounts regarding their departure from theCompany.  The Company believes that theclaims are without merit and does not anticipate that a significant cost willbe incurred as a result of these pending actions.  Accordingly a reserve has not been established for theseclaims.  Should Mr. Camacho, Ms Lincoln,and/or Mr. Franklin prevail, it cannot be determined at this time what theamount of the judgment(s) might be.

 

        In July 2001 a Cameron Countyjudge issued a Turnover Order for the Company’s station and FCC license inEagle Pass, TX relating to Zavaletta v. Wheeler and HTVN.  The Company is preparing a restraining orderand dec action in Maverick County to stay proceeding in Cameron County.  The Company believes the Turnover Orderviolates state and federal law and if necessary, the decision will be appealedto a higher court.

 

                Ignacio Garcia and NormanNeuweiler vs. Hispanic Television Network, Inc., CC-01-601-C, CC #3, DallasCounty, Texas.  This is a claim from twoformer employees, which is not material, and which the Company believes hasminimal value.

 

                Sonoca Corporation, dba MosoProductions vs. Hispanic Television Network, Inc., American IndependentNetwork, Inc., Fred Hutton, et al.  CaseNo. BC242259, in the Superior Court of the State of California.  We have reached an agreement wherein themoneys owed for programming can be paid out over time.  Total exposure is less than $35,000.00.

 

                Grand Avenue IndustrialProperties vs. Hispanic Television Network, Inc., in the Superior Court of theState of Arizona, Maricopa County.  Asettlement has been reached in this matter. The amount in controversy was less than $7,000.00.  The case was set for arbitration; however,the day of the arbitration, the Company reached settlement.

 

On October 25, 2001 a judgment was entered against theCompany in the amount of $2,546.50 for the benefit of Anixter, Inc. forelectronic parts and supplies that were purchased by the Company and which werenot paid for.

 

                Producciones Zacarias vs. HTVN.  This is a suit out of California DistrictCourt filed on June 15, 2001.   This isa suit alleging copyright violations. The Company believes this lawsuit is without merit and will not have amaterial adverse effect on the Company.

 

                Peliculas y Videos vs. HTVN.  This is a lawsuit filed on October 1, 2001in the US District Court for the Southern District of Texas, HoustonDivision.  We are in the process ofpreparing a response to the suit and plan to have it removed to either FortWorth or San Antonio.  This is a suitalleging copyright violations.  TheCompany believes this lawsuit is without merit and will not have a materialadverse effect on the Company.

 

 

        TheCompany is involved in various other claims and legal actions arising from theordinary course of business.  In theopinion of management, the ultimate disposition of these matters will not havea material adverse effect on the Company’s financial condition, results ofoperations or cash flows.

 

**ITEM 2.  CHANGES IN SECURITIES**

 

        During2000, the Company received proceeds of $2,516,500 from the exercise of stockwarrants that were a part of the Private Placement of January 2000.  1,129,500 of these shares of common stockdue from the exercise of stock warrants were issued in 2000. The remainingshares were issued in January 2001.  InDecember 2000, the board of directors resolved that for every warrantconverted, each shareholder would receive two additional shares of stock. InJanuary 2001, 2,559,000 additional shares were issued to all shareholders whohad converted warrants in 2000.

 

        Froma consortium of investors the Company received $1,500,000 in January 2001 for 6million common shares and 1.5 million warrants to purchase one share of theCompany’s common stock at an exercise price of $1.00 per share.  The warrants expire February 5, 2002.

 

*Consultingand Professional Services/Charitable Contributions*

        InJanuary 2001, the Company issued 2,004,000 shares to related parties forconsulting and legal services during 2000 and the first quarter of 2001.  $931,745 of the expense relating to theseshares was recorded in fiscal year 2000. The remaining $219,050 expense was recognized in January 2001.   In June 2001 the Company issued 996,375common shares to related parties and incurred the obligation to issue anadditional common shares for legal services totaling $471,530.  On September 19, 2001 1,405,493 commonshares were issued to a related party for the $471,530 obligation that wasreflected in the second quarter, plus an additional $330,558 for legal servicesduring the three months ended September 30, 2001.  Also in September 22 4,500 common shares valued at $26,940 wereissued for other legal services.  Forthe three months ended September 30, 2001 86,987 shares valued at $29,955 wereissued for consulting services, primarily related to programming.

Hispano TelevisionVentures entered into a consulting arrangement with Woodcrest Capital, L.L.C.,which is owned by our Chairman of the Board and one of our directors.  Pursuant to the terms of this May 28, 1999agreement, Woodcrest agreed to provide the Company with business consultingservices.  In exchange for services,Woodcrest receives 1,066,667 shares of common stock per year of HispanoTelevision Ventures common stock which, after a 4:1 stock split by HispanoVentures and a conversion factor of 1.64 for the merger with AIN, is theequivalent of 7 million common shares of the Company.  Woodcrest is also entitled to receive reimbursement for all ofits expenses.  Woodcrest agreed toaccept 1,066,667 common shares of the Company as full common share payment forthe period of May 28, 2000 through May 28, 2001.  For the year ended December 2000, the Company recorded aconsulting expense in the amount $2,723,193 which represents 634,156 commonshares which is the pro rata portion of shares which were earned during theyear.  For the six months ended June 30,2001 the Company recorded a consulting expense of $194,227 that represents thepro rata portion of shares which were earned for the period. These shares wereissued in May 2001.

The consultingarrangement with Woodcrest Capital, L.L.C. automatically renewed for the periodof May 29, 2001 through May 28, 2002. Under this agreement the Company issued 7 million shares to Woodcrest inMay 2001, which had a value of $2,450,000. $816,668 of this was expensed as of September 30, 2001 and the balanceof $1,633,332 is recorded as Deferred Service.

The Company issued100,000 common shares to each of the two independent directors of the Companyin May 2001 for services rendered as members of the board of directors.  An expense of $76,000 was recorded when theshares were issued.

 

*Accounting Services*

        TheCompany has an agreement with its Interim Chief Financial Officer to receivehis compensation in common stock of the Company.   In accordance with this agreement, 663,045 common shares havebeen issued as of September 30, 2001.

 

*TelevisionStations*

        Duringfiscal year 2000, the Company issued or agreed to issue a total of 1,295,000shares of common stock valued at $4,881,263 toward the acquisition oftelevision stations and affiliate agreements. One million of these common shares were issued in February 2001.  During the year ended December 31, 2000, theCompany forfeited $4,725,125 in station acquisition deposits.  This amount includes 1,115,000 shares ofcommon stock valued at $1,970,000.  Ofthe remaining shares issued or agreed to be issued, 80,000 shares valued at$425,200 were issued for an affiliate agreement with KJLA Los Angeles and100,000 shares valued at $777,825 were issued for the acquisition of a stationin Globe, AZ.

 

*Employee Compensation*

        Duringthe first and second quarters of 2001, the Company issued 434,274 shares ofcommon stock valued at $188,626 to employees as additional compensation.  Of this $32,898 was reflected as of December31, 2000 and $155,728 was charged to earnings for the nine months endedSeptember 30, 2001.  During the threemonths ended September 30, 2001 454,500 common shares were issued forseverance/settlements to nine employees who were terminated to reduce operatingexpenses.  A charge in the amount of$232,550 for this share issuance was reflected in the three months endedSeptember 30, 2001.

 

*Building Improvements*

        Inlieu of cash payment, the Company issued 46,449 shares of common stock valuedat $23,224 for partial payment for building improvements in February 2001.

 

*Settlements*

        InMarch 2001, the Company agreed to issue 770,000 shares of the Company's commonstock for settlement agreements with certain individuals, all of whom wereshareholders, to release the Company of any and all claims the individuals hador may have against the Company. The settlements were for matters existing withthe Company's predecessor and therefore were treated as an increase in thepurchase price.  Since goodwill isimpaired and was expensed in 2000, the fair value of the shares in the amountof $273,700 was charged to earnings.  InAugust 2001 150,000 common shares were issued as full satisfaction of a notepayable and accrued interest in the amount of $31,500.

 

*Cancellation of Contract*

        In June2001 the Company issued 1,200,000 common shares in exchange for cancellation ofa contract under which the Company had previously received $300,000.  The receipt of the funds had been previouslyrecorded as deferred revenue.

 

*Programming*

        Duringthe second quarter of 2001 the Company issued 316,315 common shares valued at$437,485 for programming and an additional 249,869 common shares valued at$94,953 were issued during the three months ended September 30, 2001.

 

*Interest on Debt*

        For thenine months ended September 30, 2001 in connection with debt financingarrangements, the Company has issued 23,078,158 common shares as interestexpense, loan extension fees and additional consideration for providingfinancing to the Company.  When sharesare issued in conjunction receiving a loan, the difference between the facevalue of the loan, and the cash received and allocated to the notes, is treatedas a discount on debt that is amortized as additional interest expense over theterm of the loan.  The value of thecommon shares that were issued in conjunction with extending the maturity ofthe loans was classified as deferred interest and is amortized to interest expenseon a straight-line basis during the extension period.

 

*Commissions*

        The Company has an arrangement with ParMedia LP wherein ParMedia manages AIN in exchange for 40% of the net revenue of AIN.  On September 19, 2001 the Company issued164,532 common shares valued at $40,125 under this agreement.  In September 2001 30,000 shares of commonstock were issued as a finder’s fee for assisting the Company in securingfinancing.  These common shares werevalued at $5,200.

 

*Cancellationof stock certificate*

        The Company cancelled 100,000 common shares that had beenissued for the purchase of a television station in Globe, AZ.

 

 

**ITEM 3.  DEFAULTS UPON SENIOR SECURITIES**

 

The credit facility providedby Goff-Moore Strategic Partners L.P. and a number of other private investors(GMSP), which is secured by virtually all of the assets of the Company, maturedon April 30, 2001.  As of November 15,2001 the outstanding principal balance is $7,304,068.  Despite numerous discussions with GMSP regarding restructuringthe credit facility, at this time there is not an agreement with GMSP to extendor to restructure their credit facility and GMSP could demand repayment at anytime.  The Company does not have thefunds to repay this indebtedness. Because the credit facility is secured by virtually all of the assets ofthe Company, demand for such repayment could lead to liquidation of theCompany’s assets, and/or could cause the Company to cease operations or seekbankruptcy protection.

 

**ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

**       **On August 31, 2001 the Company began mailingto shareholders of record as of August 24, 2001 a Proposed Amendment to theCompany’s Certificate of Incorporation. The Proposed Amendment was to amend the Company’s Certificate of Incorporationto increase the number of authorized shares of common stock from 200 million to500 million shares with the request that the consent be returned to the Companyon or before September 20, 2001.  At theclose of business on the record date the Company had 135,541,352 issued andoutstanding shares of common stock with each share of common stock entitled toone vote on the Proposed Amendment, with a majority of the shareholdersconsenting to the Proposed Amendment for it to pass.  The results were:

 

|                      |   | **FOR**    |   | **AGAINST** |   | **ABSTAIN/**** NO RESPONSE** |   |
|---------------------------|--------|------------|--------|-------------|--------|-----------------------------------|--------|
|                      |   |       |   |        |   |                              |   |
| Number                    |   | 96,260,254 |   | 4,042,955   |   | 35,238,143                        |   |
| Percentage of issued and  |   |       |   |        |   |                              |   |
| outstanding common shares |   | 71.02      | %      | 2.98        | %      | 26.00                             | %      |

 

**ITEM 5.  OTHER INFORMATION**

 

On August 3, 2001 the Company’s common stock begantrading on the OTC Bulletin Board under the symbol HTVN.  Previously the Company’s common stock hadtraded on the Nasdaq National Market. To be listed on Nasdaq companies must, among other requirements,maintain a minimum bid price of $1.00 and have a minimum of $4 million in nettangible assets. The Company was unable to maintain these requirements andNasdaq delisted its stock.   As a resultof now trading on the OTC Bulletin Board, the liquidity and the volume ofshares traded, the price, and the bid/ask spread for the Company’s common stockcould be adversely affected.

 

** **

**ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K**

#### **(a)   Exhibits**

 
| Exhibit No. |   | Description and  Method of Filing                                                                                                                                                                                                                                                                                                                                     |
|-------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1         |   | Merger Agreement with  Hispano Television Ventures, Inc., dated October 15, 1999 (Incorporated by  reference to Exhibit 10.1 of our Current Report on Form 8-K, dated December  30, 1999).                                                                                                                                                                            |
| 3.1         |   | Certificate of  Incorporation (Incorporated by reference to Exhibit 2.1 of American  Independent Network, Inc.’s General Form for Registration of Small Business  Issuers on Form 10-SB, dated September 18, 1997), amended by a Certificate of  Merger (Incorporated by reference to Exhibit 10.3 of our Current Report on  Form 8-K, dated December 30, 1999). |
| 3.2         |   | Bylaws (Incorporated by  reference to Exhibit 2.2 of American Independent Network, Inc.’s General Form  for Registration of Small Business Issuers on Form 10-SB, dated September 18,  1997), with a Bylaw Amendment (Incorporated by reference to Exhibit 3.2 of  our Current Report on Form 8-K, dated December 30, 1999).                                     |
| 4.1         |   | Certificate of  Designation Preferences, Rights and Limitations of Series B Preferred Stock  of American Independent Network, Inc. (Incorporated by reference to Exhibit  4.1 of our Annual Report on Form 10-KSB, dated April 24, 2000).                                                                                                                             |
| 10.1        |   | Distribution Agreement with National Cable Television Co-op dated May  1, 2001                                                                                                                                                                                                                                                                                        |
| 10.2        |   | Affiliation Agreement with Time Warner dated March 5, 2001                                                                                                                                                                                                                                                                                                            |

 
| Exhibit No. |   | Description and  Method of Filing                                                                                  |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------|
| 10.3        |   | Affiliation Agreement dated April 19, 2001 with Satellite Services,  Inc.                                          |
| 10.4*       |   | Acquisition of 220 Spanish language motion pictures from Reel Media  International                                 |
| 10.5*       |   | Agreement with ParMedia to manage American Independent Network                                                     |
| 10.6*       |   | Seventh Amendment to Loan Agreement with Goff Moore Strategic Partners  and other lenders dated April 17, 2001.    |
| 10.7*       |   | Second Amendment to Warrants with Goff Moore Strategic Partners and  other lenders dated April 17, 2001.           |
| 10.8*       |   | Satellite transponder agreement with Urban Television Network dated  October 29, 2001                              |
| 10.9*       |   | Agreement with Urban Television Network dated October 29, 2001                                                     |
| 10.10*      |   | Promissory note from Urban Television network dated October 29, 2001                                               |
| 10.11*      |   | Agreement and Plan of Merger between Hispanic Television Network, Inc.  and Cubico.com, Inc. dated August 30, 2001 |
| 11.0*       |   | Loss per share                                                                                                     |

----

*Filed herewith.

#### **(b)   Reports on Form 8-K.**

During the firstthrough third quarters of 2001, we filed the following Current Reports on Form8-K:

 

##### 1.     January 10, 2001 announcing resignation of David Hayden fromboard of directors.

##### 2.     February 6, 2001 Marco Camacho resigned as CEO of the Company

##### 3.     February 13, 2001 Emilio Gorriti wasappointed CEO and president of the Company

##### 4.     April 19, 2001 Emilio Gorriti was terminated as CEO andpresident of the Company and the agreement with C-Networks was cancelled.

##### 5.     April 27, 2001 the agreement to purchase48% of Cubico.com, Inc. was cancelled

6.     May 7, 2001 Ernst & Young LLP was dismissed as the Company’scertifying auditors and replaced by Weaver and Tidwell.

 

##### **SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                           | HISPANIC TELEVISION NETWORK INC.                                |
|--------------------------------|-----------------------------------------------------------------|
|                           |                                                            |
| Date:   November 16, 2001 | By:                                                             | /s/ James A. Ryffel |
|                           | James A. Ryffel                                                 |
|                           | Chairman of the Board and  Interim Chief Executive Officer |