UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Amendment No. 1)
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(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended.............................March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission file number 000-23105
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HISPANIC TELEVISION NETWORK, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 75-2504551
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
6125 Airport Freeway, Suite 200, Fort Worth,
Texas 76117
(Address of Principal Executive offices) (Zip Code)
Issuer's telephone number, including area code: (817) 222-1234
American Independent Network, Inc.
(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 by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date. As of April 20, 2000, there
were approximately 88,006,427 shares of our common stock issued and outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
<PAGE>
Effective December 14, 1999, American Independent Network, Inc. merged with
Hispano Television Ventures, Inc. and changed its name to Hispanic Television
Network, Inc. and its Over the Counter Bulletin Board trading symbol to "HTVN."
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HISPANIC TELEVISION NETWORK, INC.
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.............................................1
Condensed Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999.............................................2
Condensed Statements of Operations for the three months ended
March 31, 2000 (unaudited) and March 31, 1999
(unaudited)...................................................3
Statement of Stockholders' Equity as of March 31, 2000
(unaudited) .................................................4
Condensed Statements of Cash Flow for the three months ended
March 31, 2000 (unaudited) and March 31, 1999
(unaudited)...................................................5
Notes to Condensed Financial Statements (unaudited)..............6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................10
PART II OTHER INFORMATION
Item 1. Legal Proceedings...............................................14
Item 2. Changes in Securities...........................................15
Item 3. Defaults Upon Senior Securities.................................15
Item 4. Submission of Matters to a Vote of Security Holders.............15
Item 5. Other Information...............................................15
Item 6. Exhibits and Reports on Form 8-K................................15
Signatures
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PART I FINANCIAL INFORMATION
This Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 24A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements appear in a number of
places including Item 1. "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Such statements can be identified by the
use of forward-looking terminology such as "believes," "expects," "may,"
"estimates," "will," "should," "plans" or "anticipates" or the negative thereof
or other variations thereon or comparable terminology, or by discussions of
strategy. Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results could differ materially from those
projected in the forward-looking statements. This report identifies factors that
could cause such differences. No assurance can be given that these are all of
the factors that could cause actual results to vary materially from the
forward-looking statements
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Item 1. FINANCIAL STATEMENTS
Hispanic Television Network, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2000 1999
------------ ------------
Assets
Current Assets
Cash and cash equivalents $ 2,876,182 $ 52,655
Accounts Receivable 12,500 19,250
Prepaids 952,733 41,666
Trade Credit Receivable 126,073 126,073
------------ ------------
Total current assets 3,967,488 239,644
Property and equipment, net 2,756,828 1,423,826
Goodwill and other assets 9,003,135 2,832,121
------------ ------------
Total assets $ 15,727,451 $ 4,495,591
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable $ 653,297 $ 1,142,697
Accrued Liabilities and other 118,272 66,489
Notes Payable 1,375,494 1,356,299
Accrued Interest 385,553 336,353
Deferred Revenue 300,000 --
Revolving Line of Credit -- 500,000
Due to Private Placement Participants -- 400,000
------------ ------------
Total Liabilities 2,832,616 3,801,838
Stockholders' equity:
Convertible Preferred Stock, $1.00 par value:
Authorized shares - 10,000,000
Issued and outstanding - 42,427 275,774 275,774
Common Stock, 200,000,000 shares
authorized, 88,231,427 issued and
outstanding at March 31, 2000 and 78,101,596
at December 31, 1999 882,314 781,016
Additional Capital 17,616,421 3,074,282
Accumulated Deficit (5,879,674) (3,437,319)
------------ ------------
Total stockholders' equity 12,894,835 693,753
------------ ------------
Total liabilities and stockholders' equity $ 15,727,451 $ 4,495,591
============ ============
See accompanying notes
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Hispanic Television Network, Inc.
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2000
(Unaudited)
2000 1999
------------ ------------
Revenue $ 60,243 $ 8,400
Expenses:
Programming expenses 370,283 --
Satellite rental 209,038 --
Production expenses 97,462 --
Rental expense (net) 8,253 --
Administrative expenses 727,060 10,098
Salaries and Wages 460,310 --
Non-cash compensation - Stock Options 258,548 --
Depreciation 60,772 5,059
Amortization 284,323 1,811
------------ ------------
Total expenses 2,476,049 16,968
------------ ------------
Loss from Operations (2,415,806) (8,568)
Other expenses
Interest expense, net (26,549) --
------------ ------------
Net Loss $ (2,442,355) $ (8,568)
============ ============
Basic and diluted net loss per share (.03) --
============ ============
Weighted average shares outstanding 84,372,484 21,000,000
============ ============
See accompanying notes.
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<TABLE>
Hispanic Television Network, Inc.
Statement of Stockholders' Equity
March 31, 2000
(Unaudited)
Preferred Preferred Common Common Additional Accumulated
Shares Stock Shares Stock Capital Deficit Total
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 42,427 $ 275,774 78,101,596 $ 781,016 $ 3,074,282 $ (3,437,319) $ 693,753
Common stock issued in private
placement -- -- 10,000,000 100,000 9,900,000 -- 10,000,000
Common stock canceled due to
judgment -- -- (475,169) (4,752) 4,752 -- --
Common stock issued as
settlement -- -- 40,000 400 (400) -- --
Common stock issued for
programming services -- -- 100,000 1,000 727,000 -- 728,000
Common stock issued for station
acquisitions -- -- 465,000 4,650 3,652,239 -- 3,656,889
Compensation related to issuance
of stock options -- -- -- -- 258,548 -- 258,548
Net Loss -- -- -- -- -- (2,442,355) (2,442, 355)
------ --------- ------------ --------- ------------ ------------ ------------
Balance at March 31, 2000 42,427 $ 275,774 88,231,427 $ 882,314 $ 17,616,421 $ (5,879,674) $ 12,894,835
====== ========= ============ ========= ============ ============ ============
</TABLE>
See accompanying notes.
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Hispanic Television Network, Inc.
Condensed Statements of Cash Flows
For the Three Months Ended March 31,
(Unaudited)
2000 1999
----------- -----------
Operating Activities
Net loss $(2,442,355) $ (8,568)
Adjustment to reconcile net loss to net cash
used by operating activities:
Compensation expense related to stock options 258,548 --
Amortization 284,323 1,811
Depreciation 60,772 5,059
Changes in operating assets and liabilities:
Accounts receivable 6,750 --
Other assets 73,799 --
Prepaid assets (376,140) --
Accounts payable (489,400) --
Other liabilities 372,609 (2,625)
Accrued Interest 49,200 --
----------- -----------
Net cash used by operating activities (2,201,894) 4,245
----------- -----------
Investing Activities
Capital expenditures (593,774) --
Station acquisitions and licenses (2,700,000) --
Purchase of Building (800,000) --
----------- -----------
Net cash used by investing activities (4,093,774) --
----------- -----------
Financing Activities
Payments under line of credit (500,000) --
Borrowings on notes payable 19,195 20,000
Proceeds from private placement 9,600,000 --
----------- -----------
Net cash provided by financing activities 9,119,195 20,000
----------- -----------
Net cash increase 2,823,527 15,677
Cash, beginning of period 52,655 89
----------- -----------
Cash at end of period $ 2,876,182 $ 15,766
=========== ===========
Cash paid for interest $ 12,894 $ --
=========== ===========
Cash paid for income taxes $ -- $ --
=========== ===========
See accompanying notes.
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Hispanic Television Network, Inc.
Notes to Condensed Financial Statements
March 31, 2000
(Unaudited)
1. General
The financial statements of Hispanic Television Network, Inc. ("the
Company") as of March 31, 2000 and for the three-month periods ended March
31, 2000 and 1999 are unaudited and have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with instructions to Form 10-QSB and Item 3-10 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. While management of the Company believes that the
disclosures presented are adequate, these interim financial statements
should be read in conjunction with the financial statements and notes
included in the Company's 1999 Form 10-KSB. In the opinion of management,
the accompanying unaudited financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's financial statements for the interim periods
presented. The results of operations for the three-month periods ended
March 31, 2000 and 1999 are not necessarily indicative of the results to be
expected for the entire year. The balance sheet at December 31, 1999 has
been derived from the audited financial statements at that date but does
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Organization
Hispanic Television Network, Inc. ("the Company") is the successor entity
formed by the merger on December 15, 1999 of American Independent Network,
Inc. ("AIN") and Hispano Television Ventures, Inc. ("HT Ventures"). AIN, a
publicly held corporation, was incorporated in Delaware on December 11,
1992 under the name Strictly Business, Inc., changing its name to AIN on
September 16, 1993. In March 1994, AIN began providing programming, media
production, and syndication services to television stations. AIN entered
into agreements to provide television broadcast stations with programming
(television shows) for digital television broadcasting. Such agreements
typically provide that the Company retains certain of the advertising time
and advertising revenues generated from the programming. HT Ventures, a
privately held corporation, was incorporated in Texas on February 24, 1998.
The Company's purpose is to provide 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 AIN common 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 common stock of AIN.
Subsequently, on December 15, 1999, HT Ventures completed the merger ("the
Merger") with and into AIN, the legal surviving entity, and changed AIN's
name to the Hispanic Television Network, Inc. ("the Company"). Pursuant to
the terms of the Merger Agreement, stockholders of HT Ventures received a
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total of 70,000,000 shares of AIN common stock in exchange for the then
outstanding shares of HT Ventures. As part of the Merger Agreement, the
11,000,000 shares purchased by HT Ventures on September 2, 1999, in
connection with the HT Ventures Transaction, were cancelled upon the
finalization of the merger on December 15, 1999. The Merger Agreement
provided for AIN to issue 70,000,000 shares of common stock in exchange for
all the outstanding shares of HT Ventures. The common stock exchanged, in
addition to the existing AIN preferred and common shares previously
outstanding, collectively results in the new capitalization of Hispanic
Television Network, Inc. formerly American Independent Network, Inc.
Subsequent to the Merger, HT Ventures stockholders owned approximately 90%
of AIN.
Accordingly, the Merger was accounted for as a "reverse acquisition" using
the purchase method of accounting with HT Ventures being the "accounting
acquirer". In a reverse acquisition, the historical stockholders' equity of
the accounting acquirer prior to the merger is retroactively restated (a
recapitalization) for the equivalent number of shares received in the
merger after giving effect to any difference in par value of the issuers
and acquirer's stock by an offset to paid in capital. All share and per
share information has been presented in the accompanying financial
statements as if the recapitalization had occurred as of the first day
presented in the financial statements. The financial statements reflect the
operations of AIN and for the period subsequent to acquisition on September
2, 1999. Financial statements presented as of March 31, 1999 represent the
historical records of HT Ventures as the accounting acquirer.
Income Taxes
The Company has federal and state net operating loss carryovers in the
amount of approximately $17,000,000 which begin to expire in 2010. The
realization of deferred tax assets with the net operating loss is dependent
on generating sufficient taxable income prior to its expiration. A
significant portion of the federal net operating loss carryover may be
subject to limitations under Internal Revenue Code Section 382 as a result
of the Merger Transaction. Due to the uncertainty of the Company's ability
to generate such future taxable income, management has established a
valuation allowance off setting the deferred tax asset.
2. Debt
Borrowings of $500,000 under the Company's line of credit were paid off on
January 25, 2000. The interest in conjunction with the payoff was $8,480.
3. Stockholders' Equity
Private Placement
The Company closed a Private Placement whereby the Company sold 100 units,
each unit consisting of 100,000 shares of common stock of the Company (the
units were offered pursuant to Rule 506 of Regulation D promulgated under
the Securities and Exchange Act) and 100,000 warrants to purchase one share
of the Company's common stock at an exercise price of $2.00 per share. The
warrants expire one year after the termination of the Private Placement.
The Company received gross proceeds in January 2000 of $9,600,000 to
complete the $10,000,000 offering pursuant to the Private Placement. The
Company had previously received $400,000 of the proceeds in 1999.
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Stock Option Plan
In February 2000, the Company agreed to adopt the 2000 Stock Incentive Plan
(the Plan), subject to stockholder approval. The Board of Directors will
appoint a committee to administer the Plan. At the discretion of the
committee, stock options may be granted to eligible participants, as
defined. The options will generally vest over two to three years and the
exercise price must be equal to or greater than the market value of the
Company's stock on the date of grant.
During the first quarter, the Company issued options to purchase 1,880,500
shares of the Company's Common stock. The options vest over a three-year
period and have exercise prices ranging from $0.01 to $14.88 per share.
Options to purchase 520,000 shares were granted at amounts less than the
fair value of the underlying stock on the grant date, resulting in
$4,158,550 of deferred compensation expense to be recognized over the
remaining vesting term beginning in 2000. During the first quarter,
Company recognized $258,548 of compensation expense related to the
options.
Programming Services
In January 2000, the Company entered into an agreement with a programming
provider. In exchange for programming services, the Company issued 100,000
shares of the Company's common stock. These services were valued at
$728,000, and the expense will be recorded over a six -month period. The
Company recorded approximately $242,667 of programming expense in the
first quarter related to this transaction.
Settlements
In February 2000, for the consideration of $27,500 in cash and 40,000
shares of the Company's common stock, the Company entered into a
settlement agreement with an individual to release the Company of any and
all claims the individual had, has, or may have against the Company.
Canceled Shares
In January 2000, the Company canceled 475,169 shares of its common stock.
The shares were returned to the Company as part of a judgment against an
individual. The Company is still pursuing the individual to recover
remaining property and damages.
Station Acquisitions
In January 2000, the Company entered into an agreement with an individual
for the purchase of the assets of K30ES, including the FCC license,
subject to FCC approval, for 100,000 shares of the Company's common stock
valued at $777,825.
On January 21, 2000, the Company executed an agreement to acquire certain
assets associated with KTOU-TV 22 in Oklahoma City, OK from Walter J.
Morris, subject to FCC approval. The purchase price of $1,958,238 was
comprised of $250,000 in cash and 250,000 shares of our common stock
valued at $1,708,238.
In February, 2000 the Company paid $1,000,000 cash as earnest money
towards the purchase of KLDT, Channel 55, Lake Dallas, TX, subject to FCC
approval. In conjunction with this purchase, the Company issued 115,000
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shares of common stock valued at $1,150,000. The remaining balance is due
at closing date that can be extended by making additional deposit payments.
We currently anticipate that we will close this transaction during calendar
2000.
4. Acquisitions of TV Stations
On January 10, 2000, we completed funding of the initial payment of $1.5
million to Carlos Ortiz in connection with the Purchase Agreement, dated
December 15, 1999, pursuant to which we agreed to purchase 10 television
stations in Texas, New Mexico, Oklahoma, and Arizona for an aggregate of
$10.0 million from Carlos Ortiz. The purchase price was comprised of $7.0
million in cash and $3.0 million in shares of our common stock, which
equals 695,652 shares based on our common stock's closing price on December
31, 1999. Currently, we are operating all of these stations under a local
marketing agreement ("LMA") whereby we control all programming, receive all
revenues from and pay all expenses associated with each of these stations
pending the closing of this transaction, which we have the right to
schedule at any time during the two years following the execution of the
purchase agreement. We currently anticipate that we will close this
transaction during calendar 2000. The LMA fee of $1.5 million is being
amortized over the remaining twenty-four month term to close the
transaction.
On March 24, 2000, the Company entered into a strategic arrangement with
Cubico.com, Inc., a Latin based Internet portal that is expected to be
Launched in the second half of 2000, whereby the Company will obtain a 48%
ownership interest in the operations of Cubico. The arrangement further
provides for joint marketing opportunities. For this, the Company will give
Cubico a minority interest in ten of the Company's television stations,
5,000,000 shares of common stock, use of the Company's sales force to sell
advertising for Cubico, sponsorship of educational programs explaining
different aspects of Internet use and Cubico's logo on the Company's
Internet home page. This transaction is expected to close in the second
quarter, 2000.
In February, 2000, the Company acquired the assets of KVAW, including
Rights to the FCC license, from Juan Wheeler for the amount of $150,000,
subject to FCC approval.
5. Legal Proceedings
The Company is involved in various claims and legal actions arising from
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
6. Subsequent Events
On April 24, 2000, we entered into a letter of intent to acquire certain
assets of K64FM in Brownsville/Harlingen, Texas and KKJK in Las Vegas,
Nevada from Brownsville Broadcasting, LLC and Cosmo Communications, LLC
for $4,950,000. We expect this transaction to close during calendar 2000.
On April 24, 2000, we entered into a letter of intent to acquire certain
assets of TV-21 in Orlando, Florida from Galloway & Associates, PA for
$600,000. We expect this transaction to close during calendar 2000.
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On April 28, 2000, we entered into a purchase agreement with Johnson
Broadcasting of Dallas, Inc. to acquire television station KLDT, Channel
55, Lake Dallas, Texas and its auxiliary facilities including all
broadcasting assets for $35 million. We expect this transaction to close
during calendar 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 Television Network, Inc. Originally formed on December
11, 1992, AIN has historically operated as a general market, family-oriented
television network providing programming and other services. We currently
operate two networks, AIN, which has over 35 affiliates, and HTVN, which owns,
operates or has agreements or letters of intent to acquire 20 television
stations in 16 markets of which 11 stations are currently broadcasting HTVN
programming in 9 markets, including 2 that are in the top ten markets ranked by
DMA. We intend, whether through the acquisition of or affiliation with stations,
to acquire a presence in certain of the top 20 markets ranked by Hispanic
population in order to reach approximately 75% of the Hispanic population. The
purpose of the merger was to position the company to become a major Hispanic
media company. The company has been actively growing our distribution networks
by aggressively acquiring owned and operated stations as well as adding
affiliated stations. The company has also been building our sales network and
acquiring quality programming to broadcast across our network.
We are targeting the Mexican Hispanic market because we believe that it
presents vast marketing opportunities and that it is currently under-served by
our competition. With few competitors in this rapidly growing market, we feel
that there are unlimited opportunities to provide a quality broadcasting service
to a Hispanic population that is experiencing an explosive growth rate.
Our financial results depend on a number of factors, including the
strength of the national economy and the local economies served by our stations,
total advertising dollars dedicated to the markets served by our stations,
advertising dollars dedicated to the Hispanic consumers in the markets served by
our stations, our stations' audience ratings, our ability to provide interesting
programming, local market competition from other television stations and other
media, and government regulations and policies.
As is common in other media companies, our performance is measured by our
ability to generate broadcast cash flow, EBITDA and after-tax cash flow.
Broadcast cash flow consists of operating income before depreciation,
amortization and corporate expenses. EBITDA consists of earnings before
extraordinary items, net interest expense, income taxes, depreciation,
amortization, and other income and expenses. After-tax cash flow consists of
income before income tax benefit (expense) and extraordinary items, minus the
current income tax provision, plus depreciation and amortization expense.
Although broadcast cash flow, EBITDA and after-tax cash flow are not measures of
performance calculated in accordance with generally acceptable accounting
principals, we feel that broadcast cash flow, EBITDA and after-tax cash flow are
useful in evaluating us because these measures are acceptable by the
broadcasting industry as generally recognized measures of performance and are
used by securities industry analysts who publish reports on the performance of
broadcasting companies. Broadcast cash flow, EBITDA and after-tax cash flow are
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not intended to be substitutes for operating income as determined in accordance
with generally acceptable accounting principles, or alternatives to cash flow
from operating activities (as a measure of liquidity) or net income.
For accounting purposes, the merger was treated as a reverse acquisition
of the Company by Hispanic Television Network, Inc. The following discussion
reflects the material operations of Hispano Television Ventures, Inc. for the
quarter ended March 31, 1999.
Revenues
Our primary source of revenue is the sale of advertising on our networks
to national advertisers and on our television stations to local and national
advertisers. Our revenues are affected primarily by the advertising rates that
we are able to charge on our networks and that our television stations are able
to charge as well as the overall demand for Hispanic television advertising
time. Advertising rates are determined primarily by:
o the markets covered by our networks,
o the number of competing Hispanic television stations in the same
market as our stations,
o the television audience share in the demographic groups targeted by
advertisers, and
o the supply and demand for Hispanic advertising time.
Seasonal fluctuations are also common to the broadcast industry and are due
primarily to fluctuations in advertising expenditures by national and local
advertisers. The first calendar quarter typically produces the lowest broadcast
revenues for the year because of the normal post-holiday decreases in
advertising
Historically, our network advertising has been sold targeting direct
response and per inquiry advertisers. Going forward, we will deploy a network
advertising team consisting of account executives that will solicit advertising
directly from national advertisers as well as soliciting advertising from
national advertising agencies. Each of our stations will also have account
executives that will solicit local and national advertising directly from
advertisers and from advertising agencies.
We market our advertising time on our HTVN and AIN networks to:
o 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 viewing
audience; the larger the audience, the more we are able to charge for
the advertising time. To measure the size of a viewing audience
networks and stations generally subscribe to nationally recognized
rating services, such as Nielsen. Currently, a number of AIN's
affiliate stations are located in the smaller market areas of the
country. Our goal is to enter into affiliate agreements with stations
located in the top demographic market areas for both AIN and HTVN, in
order to obtain Nielsen ratings that justify charging higher rates for
our advertising time.
o AFFILIATE STATIONS. In exchange for providing programming and
advertising time to our affiliate stations, we retain advertising time
and gain access to the affiliate stations' markets. In a traditional
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broadcasting contract, an affiliate station would retain all available
advertising time, which it would then sell to outside advertisers, and
the network would receive a fee from the affiliate station. However,
we believe that by selling retained commercial time to outside
advertisers, we are able to generate higher revenues than we would
otherwise receive in fees from our affiliate stations. Advertising
time is generally a component of the programming contract with
affiliate stations. As a result, we are not required to separately
market the advertising time to our affiliate stations.
o PROGRAM OWNERS. In exchange for licensing rights to select
programming, we give the program owner advertising time during the
broadcast of such programming. The program owner is then able to sell
the advertising time to outside parties. We generally contract with
program owners at the National Association of Television Program
Executives convention and accordingly, are not required to actively
market this segment of our advertising time.
Furthermore, election year advertising is expected to be comprehensive
with coverage targeting broad demographic groups. We believe that this increase
in political advertising expenditures will provide both HTVN and AIN with a
significant opportunity to increase its advertising revenues for 2000.
Expenses
Our most significant expenses are employee compensation, rating services,
advertising and promotional expenses, engineering and transmission expenses and
production and programming expenses. In some cases, we are required to incur
upfront programming expenses when procuring exclusive programming usages and
licenses. In most all cases associated with upfront programming payments, the
upfront payments will be amortized over the applicable contract term.
Historically, significant exclusive programming usages and licenses have not
been procured. We will maintain tight controls over our operating expenses by
centralizing our master control, network programming, finance, human resources
and management information system functions. Depreciation of fixed assets and
amortization of costs associated with the acquisition of additional stations are
also significant elements in determining our total expense level.
As a result of attracting key officers and personnel to HTVN, we have
offered stock options as an alternate form of compensation. In the event that
the strike price of the stock option is less than the fair market value of the
stock on the date of grant, any difference will be amortized as compensation
expense over the vesting period of the stock options.
Our monthly operating expense level will vary from month to month due
primarily to the timing of significant advertising and promotion expenses. We
will incur significant advertising and promotion expenses associated with the
ramp up of HTVN and with the establishment of our presence in new markets
associated with our new station acquisitions. Increased advertising revenue
associated with these advertising and promotional expenses typically lag behind
the incurrence of these expenses.
Advertising
The majority of all revenues generated come from the sale of network,
national spot and local spot advertising on our owned and operated stations.
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NETWORK ADVERTISING. All owned and operated stations as well as affiliates
have a percentage of available commercial time dedicated for "network" sales.
The commercials sold on the network are broadcast simultaneously in all markets
that we serve.
NATIONAL SPOT ADVERTISING. National advertisers have the opportunity to
buy "spot" advertising in specific markets. For example, an advertising agency
in New York would use spot advertising to purchase commercials in San Antonio
and Oklahoma City.
LOCAL SPOT ADVERTISING. Advertising agencies and businesses located in a
market will buy commercial air time in their respective market. This commercial
time is sold in the market by a local sales force. Local spot advertising also
includes event marketing. In conjunction with a spot buy the station
incorporates events that may be held on the premise of a business or advertiser
for the purpose of driving traffic to that place of business.
Our in-house sales department will generate our Network and National spot
advertising sales. They will be located in all major markets that have a large
concentration of advertising agencies targeting the Hispanic market. The sales
of our local spot advertising will be generated by the local sales staff
established at each of our television stations.
Results of Operations
Three Months Ended March 31, 2000 and 1999
Revenues. Revenues are primarily derived from our programming services,
sales of advertising and programming time, and leasing of digital satellite
channels. Revenues for the three months ended March 31, 2000 were $60,243
compared to $8,400 for the comparable three month period in 1999, an increase of
$51,843. The increase in revenues is primarily the result of the sale of
programming time.
Cost of Operations. For the three months ended March 31, 2000 and March
31, 1999, costs of operations were $2,476,049 and $16,968. Cost of operations
has significantly increased over prior years as a result of rapid expansion and
positioning of our networks.
General and Administrative. General and administrative expenses for the
three months ended March 31, 2000 were $727,060 and for the three months ended
March 31, 1999 were $10,098. General and administrative expenses are comprised
primarily of taxes, insurance, rent and office related expenses.
Interest expense for the three months ended March 31, 2000 was $26,549 and
for the comparable period in 1999 was $0. The increase in interest expense for
the three months ended March 31, 2000 is due primarily to outstanding notes
payable.
Operating Results. We had a net operating loss of $2,442,355 for the three
months ended March 31, 2000 compared to a net operating loss of $8,568 for the
comparable period in 1999. The increased loss for 2000 was a result of the rapid
expansion and positioning of our networks.
Earnings Per Share of Common Stock. The net losses per common share are
based upon the weighted average of outstanding common stock. For the three
months ended March 31, 2000, the net loss per share of common stock was $(0.03).
The loss is reflective of the rapid expansion and positioning of our networks.
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Liquidity and Capital Resources
We have financed our operations through a combination of the issuance of
equity securities to private investors, issuance of private debt, loans from
affiliates, and cash flow from operations. We have had cumulative losses of
$5,879,674 from inception through March 31, 2000.
Current liabilities at March 31, 2000 were $2,832,616. Current assets of
$3,967,488 exceeds current liabilities by $1,134,872. As of December 31, 1999,
the two largest components of current liabilities consisted of accounts payables
and notes payables which approximated $2.0 million.
Financing activities included a private placement which closed in January
2000. The Company raised $10 million from the sale of 10 million shares of
common stock and warrants to purchase an equivalent number of shares at $2.00
per share. These funds were used primarily for the acquisition of television
stations, programming, repayment of debt and working capital needs. These
private placement investors have the ability to exercise their warrants up until
one year after the private placement.
Our continued growth will require additional funds that may come from a
variety of sources, including equity or debt issuances, bank borrowings and
capital lease financings. We currently intend to use any funds raised through
these sources to fund various aspects of our continued growth, including to
acquire new stations, to perform digital upgrades of acquired stations, to fund
key programming acquisitions, to perform station capital upgrades, to secure
cable connections, to fund master control / network equipment upgrades, to make
strategic investments and to fund our working capital needs.
We had net losses of $2,442,355 in the three months ended March 31, 2000
and $8,568 in the three months ended March 31, 1999. We expect these losses to
continue as we incur significant capital expenditures and operating expenses to
acquire new television stations and convert them to a Hispanic format. We
currently anticipate that our revenues as well as cash from financings will be
sufficient to satisfy operating expenses by the end of 2000. We may need to
raise additional funds, however. If adequate funds are not available on
acceptable terms, our business, results of operations and financial condition
could be materially adversely affected.
Impact of inflation
Management does not believe that general inflation has had or will have a
material effect on operations.
Recent Developments
On April 24, 2000, we entered into a letter of intent to acquire certain
assets of K64FM in Brownsville/Harlingen, Texas and KKJK in Las Vegas, Nevada
from Brownsville Broadcasting, LLC and Cosmo Communications, LLC for $4,950,000.
We expect this transaction to close in calendar 2000.
On April 24, 2000, we entered into a letter of intent to acquire certain
assets of TV-21 in Orlando, Florida from Galloway & Associates, PA for $600,000.
We expect this transaction to close in calendar 2000.
On April 28, 2000, we entered into a purchase agreement with Johnson
Broadcasting of Dallas, Inc. to acquire television station KLDT, Channel 55,
Lake Dallas, Texas and its auxiliary facilities including all broadcasting
assets for $35 million. We currently anticipate that we will close this
transaction during calendar 2000.
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On May 2, 2000, we announced the election of two new board of director
members, David Hayden, founder of Critical Path, and Hector Saldana, former
General Manager of the Latin American division for Apple Computer. Hector
Saldana is the co-founder of enCommerce and has over 15 years of notable
accomplishments as a senior management professional in the high-tech industry
marked by strong international business experience and relationships. David
Hayden founded Critical Path and continues to serve as the Company's Chairman
and provides strategic business and product vision.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Currently, we are a party to the following actions:
1. In American Independent Network, Inc. v. Knapp Petersen and Clarke, No.
4-99CV-0124P, U.S. District Court, Northern District of Texas, Ft. Worth
Division, we sued for damages claiming a breach of fiduciary duties and the
law firm filed a counterclaim seeking fees for legal services. This case
was transferred to the Southern District of California. This matter is
subject to a binding arbitration agreement.
2. In American Independent Network, Inc. v. John Priscella, et al., Civil
Action No. 4:99-CV-850-Y, U.S. District Court, Northern District of Texas,
Fort Worth Division, we sued John Priscella, Data West and others for the
recovery of (1) 680,000 shares of common stock issued to Data West and John
Priscella in connection with financing that was never provided, (2) certain
personal property and (3) other damages as well as cancel any rights John
Priscella had to obtain an interest in stations KSAA LP and K09VO. We have
recovered all 680,000 shares of common stock, which we subsequently
cancelled, and certain personal property, however, we intend to pursue our
claims against Data West and John Priscella to recover our remaining
property and damages.
3. In Telemundo of Houston-Galveston, Inc. v. Marco Camacho, Hispanic
Television Network, Inc. and Rodney Rodriguez, Cause No. 348-182124-00,
348th District Court, Tarrant County, Texas, Telemundo is seeking an
injunction against us and Marco Camacho to prevent us from hiring any of
their Houston station employees. Telemundo obtained a temporary restraining
order to this effect in March 2000. Although, we were able to reach an oral
settlement agreement with Telemundo in which we agreed to refrain from
hiring any of their Houston station Telemundo employees for a period of six
months. As a result, this matter is still pending.
Item 2. CHANGES IN SECURITIES
In January 2000, the Company completed a Private Placement whereby
the Company sold 100 units, each unit consisting of 100,000 shares of common
stock of the Company (the units were offered pursuant to Rule 506 of Regulation
D promulgated under the Securities and Exchange Act) and 100,000 warrants to
purchase one share of the Company's common stock at an exercise price of $2.00
per share. The warrants expire one year after the termination of the Private
Placement. The Company received gross proceeds in December 1999 of $400,000 and
in January 2000 of $10,000,000 pursuant to the Private Placement. The use of
these proceeds will be used over the next six to twelve months to (1) acquire
and produce its our programming, (2) acquire broadcasting stations, (3) purchase
equipment and gear and (4) operating / working capital.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On February 15, 2000, we filed an application with the National
Association of Securities Dealers to have our common stock listed on the Nasdaq
National Market. Audited financials were subsequntly submitted when the
company's 10K was completed in April. We expect that the Nasdaq National Market
will notify us with the next 30 days regarding our application.
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).
10.01 Stock disbursement agreement by and between Hispano Television
Ventures, Inc., Patrick Alan Luckett, Victoria O. Luckett and Victor
Mantecon, dated June 9, 1998 (Incorporated by reference to Exhibit
10.01 of our Annual Report on Form 10-KSB, dated April 24, 2000).
10.02 Letter Agreement & Asset Transfer Agreement, between Hispano
Television Ventures, Inc. and American Independent Network, Inc.
(Incorporated by reference to Exhibit 10.02 of our Annual Report on
Form 10-KSB, dated April 24, 2000).
10.03 Promissory Note, dated November 17, 1998, made by American Independent
Network, Inc., in favor of Bob J. Bryant (Incorporated by reference to
Exhibit 10.03 of our Annual Report on Form 10-KSB, dated April 24,
2000).
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10.04 Agreement and Bill of Sale by and between ATN Network, Inc., and
Hispano Television Ventures, Inc., dated May 28, 1999 (Incorporated by
reference to Exhibit 10.04 of our Annual Report on Form 10-KSB, dated
April 24, 2000).
10.05 Employment Agreement by and between P. Alan Luckett and Hispano
Television Ventures, Inc., dated May 28, 1999 (Incorporated by
reference to Exhibit 10.05 of our Annual Report on Form 10-KSB, dated
April 24, 2000).
10.06 Consulting Agreement by and between Hispano Television Ventures, Inc.
and Woodcrest Capital, L.L.C., dated May 28, 1999 (Incorporated by
reference to Exhibit 10.06 of our Annual Report on Form 10-KSB, dated
April 24, 2000).
10.07 Bill of Sale by and between Hispano Television Ventures, Inc., P. Alan
Luckett, and Victoria O. Luckett, dated May 28, 1999 (Incorporated by
reference to Exhibit 10.07 of our Annual Report on Form 10-KSB, dated
April 24, 2000).
10.08 Letter agreement by and between Bob J. Bryant and Hispano
Television Ventures, Inc., dated May 28, 1999 (Incorporated by
reference to Exhibit 10.08 of our Annual Report on Form 10-KSB,
dated April 24, 2000).
10.09 Stock Option Agreement, dated November 8, 1999, between Hispanic
Television Network, Inc. and James A. Ryffel (Incorporated by
reference to Exhibit 10.09 of our Annual Report on Form 10-KSB, dated
April 24, 2000).
10.10 Asset Purchase Agreement, dated December 15, 1999, between Carlos
Ortiz and Hispanic Television Network, Inc. (Incorporated by reference
to Exhibit 10.10 of our Annual Report on Form 10-KSB, dated April 24,
2000).
10.11 Agreement for Sale, dated February 14, 2000, by and between Van
Eynsbergen and Holland Partnership, and Hispanic Television Network,
Inc. (Incorporated by reference to Exhibit 10.11 of our Annual Report
on Form 10-KSB, dated April 24, 2000).
10.12 Form of Assignment and Assumption of Leases by and between Van
Eynsbergen and Holland Partnership in Texas and Hispanic Television
Network, Inc. (Incorporated by reference to Exhibit 10.12 of our
Annual Report on Form 10-KSB, dated April 24, 2000).
10.13 Agreement Establishing Strategic Relationship, dated March 16, 2000,
between Cubico.com and Hispanic Television Network, Inc. (Incorporated
by reference to Exhibit 10.13 of our Annual Report on Form 10-KSB,
dated April 24, 2000).
10.14* Purchase and Sales Agreement by and between Johnson Broadcasting of
Dallas, Inc. and Hispanic Television Network, Inc., dated April 24,
2000, for the sale of KLDT-TV, Channel 55, Lake Dallas, Texas.
27* Financial Data Schedule (included in SEC-filed copy only).
*Filed herewith.
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(b) REPORTS ON FORM 8-K.
During the first quarter of 2000, we filed the following Current Reports on
Form 8-K:
1. On January 24, 2000 regarding the financial statements required for
our merger with Hispano Television Ventures, Inc. and related
transactions; and
2. On March 15, 2000 reporting a change in our certifying accountant
from Jack F. Burke, Jr. to Ernst & Young LLP; and
3. On March 23, 2000 incorporating a letter from Jack F. Burke, Jr.
regarding the change in certifying accountant.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HISPANIC TELEVISION NETWORK INC.
Date: June 30, 2000 By: /S/ JAMES A. RYFFEL
---------------------------------
James A. Ryffel
Chairman of the Board
