FNN Facing $48.5-Million Loan Default : Media: A dispute with outside auditors on how to write off a new venture’s start-up costs could severely cut the cable channel’s earnings.

Financial News Network, best known for its 24-hour business news cable channel, said Monday that it may be placed in default on $48.5 million in bank loans because of a dispute with its outside auditors on how to account for start-up costs from a business venture begun earlier this year.

The venture, named FNN: Pro, is a financial news service sold to retail stockbrokers and professional traders that was launched in July. FNN has spent $28 million on FNN: Pro this year in an effort to expand into the highly competitive financial information business. Demand for such services has generally declined in the overall retrenchment of the stock market and securities industry.

FNN said it could not complete its 10-K annual report to the Securities and Exchange Commission for the fiscal year ended June 31 until it had resolved “several accounting issues” relating to FNN: Pro’s start-up costs. Also under review was the value assigned to certain equipment leased by FNN: Data Broadcasting, which provides stock quotes and market information.

Publicly traded FNN is 47% owned by Infotechnology Inc., a New York-based firm that also owns United Press International. FNN is based in Los Angeles.

Mark Reilly, a partner in the investment firm of MacDonald, Grippo, Reilly in New York, said it appeared that Deloitte & Touche, FNN’s outside auditors, were contending that the start-up costs of FNN: Pro should be charged as an expense in the fiscal fourth quarter rather than written off over a longer period of time.

Taking the full charge in the fourth quarter would severely reduce the company’s earnings, Reilly said. Banks typically write covenants into their credit agreements allowing a loan to be called if a company does not meet certain financial goals.

But Earl W. Brian, chairman of FNN and Infotech, denied that there is a dispute between FNN and the auditors and instead termed the problem an “unresolved issue.” Brian said FNN had hired an accounting professor to represent the company in its “discussions” with Deloitte & Touche.

Brian said FNN was trying to restructure its credit agreements. FNN has drawn down $48.5 million of a $50-million credit line provided by Security Pacific and Toronto Dominion banks.

The money was used by FNN over the past year to buy Lotus Information Network Corp. and Shark Information Services Inc. Both companies provided financial market data to investors. Monday’s surprise announcement also points up the labyrinthine ownership interests among FNN, Infotech and affiliated companies.

FNN:Pro is owned by Institutional Research Network, a company that owns the rights to broadcast the meetings of the New York Society of Financial Analysts. IRN, in turn, is 90% owned by IRN management and 10% by Infotech.

Infotech previously announced that it was in discussion with its bankers about restructuring its own $25-million line at Security Pacific and Midlantic banks. Infotech has drawn down about $20 million of that amount, Brian said, which is secured by FNN stock.

Brian said the “company is fundamentally sound. All we’re dealing with here is a start-up business that had some relationship to FNN. Our intention is to restructure our loan agreements as necessary and get on with business.”

For the nine months ended March 31, FNN reported revenue of $61.3 million and a net profit of $4.7 million. Revenue soared 81% in the period due principally to increased subscriber fees paid by local cable system to carry FNN programming.

Bad News For FNN

Financial News Network daily closing price in dollars per share:

Oct. 1: $2.75, down $2.50

Source: Dow Jones