**United StatesSecurities and Exchange Commission**

**Washington, D.C. 20549**

**FORM 10-K/A**

**(Amendment No. 1)**

**x**        AnnualReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934

**For the fiscal year ended****December 31, 2005**

**or**

**o**        TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934

**For the transition period from                         to                          **

**Commission file number: 000-17287**

**OUTDOOR CHANNELHOLDINGS, INC.**

(Exact name of registrant as specified inits charter)

| **Delaware**                                                    |   | **33-0074499**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer Identification No.) |

 

**43445 Business Park Dr.,Suite 113, Temecula, California 92590**

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: **(951) 699-4749**

Securities registered pursuant to Section 12 (b) of theAct: **None**

Securities registered pursuant toSection 12 (g) of the Act:

**Common Stock, $0.001 parvalue**

(Title of Class)

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined inRule 405 of the Securities Act. Yes  o  No  x

Indicateby check mark if the registrant is not required to file reports pursuant toSection 13 or Section 15(d) of the Exchange Act. Yes  o  No  x

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes  x  No  o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o  Accelerated filer  x  Non-accelerated filer  o

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes  o  No  x

Theaggregate market value of voting stock held by non-affiliates of the registrantas of June 30, 2005 was approximately $95.1 million computed by referenceto the closing price on such date as reported on The Nasdaq National Market.

OnFebruary 28, 2006, the number of shares of common stock outstanding of theregistrant’s common stock was 24,416,093.

**DOCUMENTS INCORPORATED BY REFERENCE**

The information required byPart III of this report, to the extent not set forth herein, isincorporated herein by reference from the registrant’s definitive proxystatement relating to the Annual Meeting of Stockholders to be held in 2006, whichdefinitive proxy statement shall be filed with the Securities and ExchangeCommission within 120 days after the end of the fiscal year to which thisreport relates.

 

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**EXPLANATORY NOTE**

This amendment on Form 10-K/A reflects therestatement of the consolidated financial statements of Outdoor ChannelHoldings, Inc. and Subsidiaries as of and for the years ended December 31, 2005and 2004, as discussed in Management’s Discussion and Analysis of FinancialCondition and Results of Operations – Effects of Restatement (Item 7) and Note18 to the consolidated financial statements (Item 8) to reflect the effects ofa revised estimate of the useful life of intangible assets attributable to MSOrelationships recorded in connection with the September 8, 2004 acquisition ofall of the outstanding shares of The Outdoor Channel, Inc. by Outdoor ChannelHoldings, Inc. that it did not previously own. Although therevised estimate of the useful life of these assets resulted in adjustments toand the restatement of our consolidated financial statements included in thisForm 10-K/A as of and for the year ended December 31, 2004, we determined thatthe effects of these adjustments were immaterial, individually and in theaggregate, to our annual and quarterly reports filed prior to January 1, 2005and thus we did not amend those filings.

Inaddition, to provide more detail about our operating results and more fullycomply with the Securities and Exchange Commission’s (the “SEC’s”) RegulationS-X, we have modified our presentation of the consolidated statements of operations , as discussed in Management’s Discussion and Analysis of Financial Condition andResults of Operations and Note 2 to the consolidated financialstatements, by reclassifying the amounts originally included under “expenses”in line items under either  “cost ofservices” or “other expenses”. Further, to better match intangible assets withthe segment to which they pertain, we have reclassified the amortizableintangible assets and the goodwill which were recorded in connection with theacquisition on September 8, 2004 along with the related amortization expensefrom “Corporate” to the “TOC” segment. Certain other changes have been made inthe historical consolidated financial statements to conform with currentpresentation.

All of the information in this Form 10-K/Ais as of March 16, 2006, the filing date of the original Form 10-K for the yearended December 31, 2005, and has not been updated for events subsequent to thatdate other than for the effects of the matter discussed above. Unlessotherwise indicated, the exhibits previously filed with the Form 10-K are notfiled herewith but incorporated herein by reference.

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**OUTDOOR CHANNELHOLDINGS, INC.**

**FORM 10-K/ATABLE OF CONTENTS**
|            | PART I                                                                                                             |   |
|------------|-------------------------------------------------------------------------------------------------------------------------|--------|
| Item 1.    | Business                                                                                                                |   |
| Item  1A.  | Risk  Factors                                                                                                           |   |
| Item 1B.   | Unresolved Staff Comments                                                                                               |   |
| Item  2.   | Properties                                                                                                              |   |
| Item 3.    | Legal Proceedings                                                                                                       |   |
| Item 4.    | Submission of  Matters to a Vote of Security Holders                                                                    |   |
|       |                                                                                                                    |   |
|       | PART II                                                                                                            |   |
| Item 5.    | Market for the  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |   |
| Item 6.    | Selected  Consolidated Financial Data                                                                                   |   |
| Item 7.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                             |   |
| Item 7A.   | Quantitative  and Qualitative Disclosures About Market Risk                                                             |   |
| Item 8.    | Financial  Statements and Supplementary Data                                                                            |   |
| Item 9.    | Changes in and Disagreements  with Accountants on Accounting and Financial Disclosure                              |   |
| Item 9A.   | Controls and Procedures                                                                                                 |   |
| Item 9B.   | Other Information                                                                                                       |   |
|       |                                                                                                                    |   |
|       | PART III                                                                                                           |   |
| Item 10.   | Directors and  Executive Officers of the Registrant                                                                     |   |
| Item 11.   | Executive Compensation                                                                                                  |   |
| Item 12.   | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                        |   |
| Item 13.   | Certain  Relationships and Related Transactions                                                                         |   |
| Item 14.   | Principal  Accountant Fees and Services                                                                                 |   |
|       |                                                                                                                    |   |
|       | PART IV                                                                                                            |   |
| Item 15.   | Exhibits,  Financial Statement, and Schedules                                                                           |   |
|       |                                                                                                                    |   |
| SIGNATURES |                                                                                                                    |   |

 

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**PART I**

**ITEM 1.                  BUSINESS.**

As used in this annual report on Form 10-K, the terms “we,” “us,” “our”and the “Company” refer to Outdoor Channel Holdings, Inc. and itssubsidiaries as a combined entity, except where noted or where the contextmakes clear the reference is only to Outdoor Channel Holdings, Inc. or oneof its subsidiaries.

**Forward-Looking Statements**

The information contained in this report may includeforward-looking statements. Our actual results could differ materially fromthose discussed in any forward-looking statements. The statements contained inthis report that are not historical are “forward-looking statements” within themeaning of Section 27A of the Securities Act of 1933, as amended (the “SecuritiesAct”), and Section 21E of the Securities Exchange Act of 1934, as amended(the “Exchange Act”), including statements, without limitation, regarding ourexpectations, beliefs, intentions or strategies regarding the future. We intendthat such forward-looking statements be subject to the safe-harbor provisionscontained in those sections. Such forward-looking statements relate to, amongother things: (1) expected revenue and earnings growth and changes in mix;(2) anticipated expenses including advertising, programming, personnel andothers; (3) Nielsen Media Research, which we refer to as Nielsen,estimates regarding total households and cable and satellite homes subscribingto and viewers (ratings) of The Outdoor Channel; and (4) other matters. Weundertake no obligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events or otherwise.

These statements involve significant risks and uncertainties andare qualified by important factors that could cause our actual results todiffer materially from those reflected by the forward-looking statements. Suchfactors include but are not limited to risks and uncertainties which arediscussed below under “Item 1A Risk Factors” and other risks and uncertaintiesdiscussed elsewhere in this report. In assessing forward-looking statementscontained herein, readers are urged to read carefully all cautionary statementscontained in this Form 10-K and in our other filings with the Securitiesand Exchange Commission. For these forward-looking statements, we claim theprotection of the safe harbor for forward-looking statements inSection 27A of the Securities Act and Section 21E of the ExchangeAct.

**CompanyOverview**

We own and operate The Outdoor Channel®, a national televisionnetwork devoted to traditional outdoor activities such as hunting, fishing andshooting sports, as well as off-road motor sports and other outdoor relatedlifestyle programming. Our target audience is comprised of sportsmen andoutdoor enthusiasts throughout the U.S. According to a survey by theU.S. Fish and Wildlife Service, in 2001 there were over 82 millionoutdoor enthusiasts throughout the U.S. who spent in excess of$100 billion in pursuit of their outdoor activities. As ofDecember 2005, we had relationships or agreements with over 5,800 cableand satellite service providers to carry The Outdoor Channel, including the 10largest in the U.S. Through these arrangements, we believe The OutdoorChannel is available to, and could potentially be subscribed by, over77.6 million U.S. households. According to estimates by Nielsen, TheOutdoor Channel was subscribed to by approximately 25.7 million householdsin December 2005.

The Outdoor Channel was established in 1993 and began broadcasting24 hours a day in May 1994. Since inception, we have been committedto providing excellent programming and customer service to our distributionpartners. In recognition of our efforts, The Outdoor Channel was namedProgrammer of the Year in 2003 by the National Cable Television Cooperative. Webelieve The Outdoor Channel provides viewers with a unique destination forauthentic, informative and entertaining outdoor programming. As a result, webelieve that our viewers tend to be more loyal and spend more time watching TheOutdoor Channel than other networks that offer outdoor programming. We alsobelieve that The Outdoor Channel has become a desirable network for advertisersof products and services used by outdoor enthusiasts.

We also own and operate two national membership organizations,Gold Prospector’s Association of America, LLC, or GPAA, and LDMA-AU, Inc.,or Lost Dutchman’s. The theme of these organizations is the search for golddeposits and treasures while enjoying the outdoors. Initially, we created TheOutdoor Channel to market memberships in these organizations by airingprogramming related to these activities. Through this process, we discoveredthat members in these organizations were veryenthusiastic about their activities which resulted in a strongconsumer demand for The Outdoor Channel. We believe by airing programsassociated with our membership organizations and other membership, or affinity,organizations, such as the National Rifle Association and the North AmericanHunting and Fishing Clubs, we enhance consumer demand and consequently provideopportunities to increase the number of subscribers to The Outdoor Channel.

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**2005 Developments**

During 2005, we undertookstrategic initiatives intended to grow The Outdoor Channel’s subscriber baseand increase our long-term profitability. First, we purchased a new buildingand began building out this property for use as our state-of-the-art broadcastfacility in the future. We are currently planning on moving our broadcastoperations into this facility sometime in March 2006. Second, we launcheda second network – Outdoor Channel 2 HDSM  thatoffers programming similar to The Outdoor Channel produced entirely in highdefinition format. Third, we continued to produce more programming in-house.Fourth, we expanded our advertising sales office in New York. Finally, onJuly 1, 2005, we completed a public offering of our shares of common stockin which the net proceeds to the Company was approximately $43,350,000. Weintend to use the majority of these net proceeds to expand our marketing andsales efforts to increase the number of subscribers to The Outdoor Channel. Weexpect to use the remainder of the net proceeds to purchase programming fromthird parties, increase the amount of our internally produced programming andfor general corporate purposes. Although we anticipate undertaking theseinitiatives will increase our costs in the near term, we believe such strategicpursuits will ultimately enhance our performance.

As described further in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations –Effects of Restatement” and “Note 18 of the notes to the consolidated financialstatements”, this Form 10-K/A amends our previously filed Form 10-K for theyear ended December 31, 2005 to reflect adjustments to the consolidatedfinancial statements as of December 31, 2005 and 2004 arising from the effectsof a reclassification of all of the amounts originally allocated to the cost ofmulti-system cable operator (“MSO”) relationships from other non-amortizableintangible assets to amortizable intangible assets and the determination thatthey have an estimated useful life of 21 years and 4 months. The adjustmentsare a result of a correction of the accounting treatment for the portion of theexcess of the cost of the minority interest over the fair value of theunderlying interest in the net identifiable assets acquired related to theacquisition of the remaining minority interest in The Outdoor Channel, Inc. (“TOC”)that we did not previously own on September 8, 2004 that was allocated to theMSO relationships. The adjustments were based on a review in the third quarterof 2006 of the facts and circumstances, the nature of our business, ourexperience with the MSOs and the proclivities of our industry as of September8, 2004. Although the revised estimate of the useful life of theseassets resulted in adjustments to and the restatement of our consolidatedfinancial statements included in this Form 10-K/A as of and for the year endedDecember 31, 2004, we determined that the effects of these adjustments wereimmaterial, individually and in the aggregate, to our annual and quarterlyreports filed  prior to January 1, 2005and thus we did not amend those filings.

The cost allocatedto MSO relationships and originally included in other non-amortizableintangible assets as of December 31, 2005 and 2004 was $10,573,000. Theconsolidated balance sheets included in this Form 10-K/A have been restated toreflect, among other things, reductions in the carrying value of the MSOrelationships to $9,912,000 and $10,408,000 as a result of recordingaccumulated amortization of $661,000 and $165,000 as of December 31, 2005 and2004, respectively. The consolidated statements of operations included in thisForm 10-K/A have been restated to reflect, among other things, additionalamortization expense for the MSO relationships of $496,000 and $165,000, areduction in the income tax provision and the income tax benefit of $196,000and $65,000 and a reduction in net income and an increase in net loss of$300,000 and $100,000 in 2005 and 2004, respectively. The adjustments alsoreduced the net income or increased the net loss for each of the quarters in2005 and 2004 shown in the unaudited quarterly financial information includedin the notes to the consolidated financial statements in this Form 10-K/A. 

In addition, toprovide more detail about our operating results and to more fully comply withthe Securities and Exchange Commission’s (“SEC”) Regulation S-X, we havemodified our presentation of the consolidated statements of operations byreclassifying the amounts originally under “expenses” in line items undereither “cost of services” or “other expenses”. Further, to better matchintangible assets with the segment to which they pertain, we have reclassifiedthe amortizable intangible assets and the goodwill which were recorded inconnection with the acquisition on September 8, 2004 along with the relatedamortization expense from “Corporate” to the “TOC” segment. Certain otherchanges have been made in the historical consolidated financial statements toconform with the current presentations. 

Except for the related corrections toNotes 2, 3, 7, 10, 13 and 17, and certain other immaterial corrections, theremaining Items required by Form 10-K are not amended hereby, but are includedherewith for ease of the reader. Except as expressly noted herein, this reportcontinues to speak as of the date of the original filing, and we have notupdated the disclosures in this report to speak as of a later date.

Except as otherwise expressly notedherein, this Form 10-K/A does not reflect events occurring after the March 16,2006 filing of our Annual Report on Form 10-K in any way, except those requiredto reflect the effects of this restatement of our consolidated financialstatements for the periods presented or as deemed necessary in connection withthe completion of restated financial statements.  

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Whilethis report primarily relates to the historical periods covered, events mayhave taken place since the original filing that might have been reflected inthis report if they had taken place prior to the original filing.

**Industry**

Historically, television broadcasters have transmitted signalsthrough the airwaves and households received the signals through antennas at nocost. This method of broadcasting signals had several disadvantages. The signalcould not reach many areas due to signal strength, remoteness of manycommunities and topography. In addition, for those households that couldreceive the signal, it often produced poor picture and sound quality.

Unlike traditional television broadcasters which deliver theirprogramming without charge, cable companies provide subscription televisionservice for a fee. These service providers transmit signals through coaxialcable connected directly to individual homes. In most markets, this servicedelivers a much improved picture and sound quality and offers an increasednumber and wider variety of channels as compared to broadcast television. Inaddition to using cable for connectivity, companies use satellite technology toprovide subscription television service directly to households. This industryof providing television service to households for a fee, or on a subscriptionbasis, is typically referred to as “pay television.”

The pay television industry is comprised primarily of twosegments: service providers and networks.

Service Providers. Paytelevision service providers, also commonly referred to as distributors, areprimarily comprised of two types: cable and satellite. These service providersown and operate the platforms they use to deliver television programming tosubscribers. Cable and satellite service providers compete against each otherfor subscribers. These service providers attempt to create a mix of channels,or tiers, that will be attractive to the households in the markets they servein an effort to attract and retain these households as subscribers. Serviceproviders generate revenue primarily by selling television service tohouseholds. They also make many of the programming decisions, including whichchannels to carry and in which packaged offering, or tier, a channel should beincluded.

* Cable Systems.* Pay television cable systemsconsist of two groups: independent cable providers and multi-system cableoperators, or MSOs. Independent cable providers are smaller, individual systemsthat deliver the television signal to households in only one or a limitednumber of regions. Generally, independent cable service providers operate indistinct markets that range from large metropolitan centers to small ruralareas and do not compete directly with each other in their respective markets.In comparison, MSOs are companies that are affiliated with, or control, anumber of regional or individual cable systems. Examples of MSOs include TimeWarner Cable and Comcast Cable Communications. In many instances, channels needto establish a relationship with an MSO in order to pursue carriage on itsaffiliated regional cable systems. As of December 2005, cable providersdelivered pay television to approximately 71.5 millionU.S. households, according to Nielsen estimates.

* **Satellite Systems.*Pay television satellite systems deliver television signals tohouseholds via orbiting satellites using digital technology. Unlike cable,where the service providers generally do not compete against each other,satellite service providers compete against each other directly becausereception from any one satellite service provider is generally available tosubstantially all viewers wishing to subscribe to it. Examples of satelliteservice providers include DIRECTV® and DISH NetworkTM. As ofDecember 2005, there were approximately 22.9 million homes receivingpay television using some means other than cable, according to Nielsen. Webelieve that most of these households subscribe to a satellite service.

Networks. Networks, also commonly referred to as television channels, bringtogether television programs and package them into a branded schedule ofentertainment. The two types of networks include broadcast networks, which areavailable to households through traditional broadcast free of charge, and paytelevision networks, which are only available to households through cable andsatellite service providers. Most networks are owned by MSOs or mediaconglomerates. In order to secure the content necessary for a cohesiveschedule, channels can produce programming internally and acquire third-partyprogramming from production companies. Broadcast networks, which are regulatedby the Federal Communications Commission, or the FCC, generate revenueprimarily by selling advertising whereas pay television networks generaterevenue by both selling advertising included in their programming and throughsubscription fees paid by service providers for the right to deliver thenetwork to their customers.

To gain distribution to households, new networks need to establishcarriage agreements with service providers. In order to initiate or improvecarriage, many networks, and in particular those networks not affiliated withany major service provider, may need to offer launch incentives, which caninclude marketing support, upfront cash payments or other forms of incentives.These incentives or payments are typically made on a per-subscriber basis andgenerally before receiving any subscriber fee revenues.

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***Trendsin Pay Television***

Transition from Analog to Digital in Cable Systems. Cable distribution has been undergoing dramatic changes in thetechnologies that are used to deliver programming and services includingdigital transmission technology. Digital transmission enables improved pictureand sound quality, faster signal transmission and additional channel capacity.Cable system operators can now offer additional services such as pay-per-view,video-on-demand and connectivity for Internet and telephone service. We believehouseholds that receive a digital signal account for over one-third of thehouseholds reached by cable providers.

Emergence of High Definition Television. Digital transmission technology, whether used by cable orsatellite systems, provides a platform for a new content category:high-definition television, which is commonly referred to as HD TV. HD TVoffers a clearer and sharper picture and enhanced sound, as compared tostandard definition television. In addition, HD TV provides a wider fieldof vision than a standard definition television. In order to deliver HD TV,service providers have invested and are expected to continue to invest inHD-enabled infrastructure. The number of U.S. households that are expectedto be viewing HD TV is projected to grow to 41.6 million by year-end 2007,according to the Yankee Group.

Channel Proliferation. Increased system capacity has enabled service providers to carrychannels that offer programming on more focused subject matter and themes.These channels can capture an audience that is interested in a particularsubject and chooses to watch dedicated and consistently themed programming. Webelieve the audience demographics of these specialized channels tend to be morehighly concentrated than those of general entertainment or broadcast channels.As a result, such specialized channels offer advertisers an opportunity tocommunicate with a highly targeted and relevant audience. Based on an analysisof Nielsen data by the Cabletelevision Advertising Bureau, from 1992 through2003 cable television attracted viewers as viewership of national commercialbroadcast networks declined, and during the 2003/04 official TV season, moreviewers watched television on cable networks than on broadcast networks ABC,CBS, NBC and FOX.

Focused and Segmented Advertising. We believe many advertisers have become increasingly dissatisfiedwith the results of broadcasting to a broad audience and have becomeincreasingly focused on maximizing the returns generated per advertisingdollar. We believe that individual, specialized channels on pay televisionoffer advertisers the opportunity to reach a more focused demographic ascompared to broadcast television. To this end, we believe many advertisers havebegun dedicating portions of their advertising budgets towards channels focusedon targeted market segments.

** **OurCompetitive Strengths

We believe thefollowing strengths enable us to offer a network that is appealing to viewers,service providers and advertisers.

*** ****Authentic,Informative and Entertaining Outdoor Programming*

We believe that The Outdoor Channel is a preferred destination fortelevision viewers seeking high-quality, traditional outdoor programming. Weare differentiated from other television networks categorized as sportsnetworks that offer outdoor programming through our focus on traditionaloutdoor activities such as hunting, fishing and shooting sports, as well asoff-road motor sports and other outdoor related lifestyle programming. Ourprogramming does not include team sports or “extreme sports” that othernetworks offer, which we believe dilutes the interest of our target audience.We believe this strategy has enabled us to build a loyal audience that tends towatch The Outdoor Channel instead of other channels that offer outdoorprogramming.

*** AttractiveViewer Demographics***

We believe that The Outdoor Channel delivers a television audiencethat may not be available through other networks and is particularlydesirable for advertisers seeking to target a large and concentrated audienceof outdoor enthusiasts. We believe The Outdoor Channel audience consistsprimarily of males between the ages of 25 and 54, representing a demographicfor which many advertisers allocate a portion of their budgets. According tostudies by Mediamark Research Inc., in 2005, approximately 79% of the viewersof The Outdoor Channel were male. Nielsen indicates that in December 2005the majority of our viewers in primetime did not watch competing specializedsports channels, such as The Golf Channel, ESPN2, OLN or Speed Channel.

*** ****LargeOutdoor-Focused Market*

We believe our programming appeals to traditional outdoor sportsenthusiasts, including those who hunt and fish. According to the U.S. Fishand Wildlife Service’s latest survey conducted in 2001, there were estimated tobe over 82 million people who participated in outdoor recreation and spentin excess of $100 billion pursuing these activities. Of this amount,people who participated in fishing or hunting collectively spent approximately$70 billion in pursuit of these activities. In 

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addition,we believe our programming, which also includes off-road motor sports and otheroutdoor related lifestyle programming, appeals to an even broader audience. Wealso believe that our programming appeals to viewers that may haveparticipated in traditional outdoor sports in the past or desire to do so inthe future. As we continue to increase our subscriber base, we believe thatnational accounts will advertise on The Outdoor Channel to reach our focusedaudience of outdoor enthusiasts.

*** ****ExtensiveService Provider Relationships*

We have relationships or affiliate agreements with the majority ofpay television service providers, including the 10 largest in the U.S. Infact, The Outdoor Channel was carried by the highest percentage of cableoperators among those networks with 40 million or less subscribers,according to a November 2005 survey by Beta Research Corporation.According to Nielsen, The Outdoor Channel had approximately 25.7 millionsubscribers in December 2005. Based on our estimates, The Outdoor Channelis currently available to, and could potentially be subscribed by, over77.6 million households.

*** ****HighlyLeverageable Business Model*

We anticipate that we will be able to transmit our programming toadditional subscribers with little or no incremental delivery costs. We alsobelieve that our programming, focused on traditional outdoor activities andrecorded in natural settings, tends to be less expensive to produce thanprogramming that requires elaborate sets, soundstages, highly compensatedactors and a large production staff. Furthermore, the timeless nature of ouroutdoor programming allows us to rebroadcast and use our programming foradditional purposes.

** *Experienced and CommittedManagement Team***

The members of our senior management team and our board ofdirectors have significant experience in the cable television sector and manyof them have been associated with us for a considerable amount of time. TheOutdoor Channel was founded by outdoor enthusiasts for outdoor enthusiasts. Webelieve that our thorough knowledge of the market for, and our activeparticipation in, outdoor activities fosters an unwavering commitment toprogramming that is relevant to our viewers, producers, advertisers andsponsors.

** Our Business GrowthStrategies**

The principal components of our strategy to grow our business areas follows.

*** Seek to GrowOur Subscriber Base***

As a result of our focused content and affinity group marketinginitiatives, we have been successful in increasing our subscriber base toapproximately 25.7 million households in December 2005, as estimatedby Nielsen, from our estimate of approximately 5.3 million households in1999. We intend to seek new opportunities to continue to grow our subscriberbase through the following initiatives:

·                  Expand distribution relationships. We intend to expand our marketing and sales efforts to grow oursubscriber base. Through our existing relationships with carriers, we intend tooffer service providers incentives to migrate our channel from premium packagesto more affordable basic or expanded basic service packages with a greaternumber of subscribers. In addition, we plan to continue to pursue agreementswith additional service providers. The incentives we intend to offer to serviceproviders may include, but are not limited to, the following:

·                  local marketing support, such as promotional materials and sharingof costs for local advertising;

·                  training support for customer service representatives;

·                  subscription fee waivers for a limited time; and

·                  upfront payments to service providers, in the form of cash orour securities.

·                  Adopt HD technology early–Outdoor Channel 2 HDSM. In March 2005, we began broadcasting a new channel calledOutdoor Channel 2 HD with similar but different programs, produced entirely inhigh definition. This channel was formally launched on July 1, 2005. Webelieve that HD television complements our outdoor-themed content andrepresents a significant opportunity for us to expand our distribution andsubscriber base. The audio and visual characteristics of HD substantiallyenhance the experience and sense of adventure provided by our programming. As avalidation of the high quality, visually compelling nature of our HDprogramming, through an arrangement with Premier Retail Networks, Inc., weprovide branded HD content being used to promote the sales of HD televisionsets in well known retail stores, such as Wal-Mart, Circuit 

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City and Best Buy. As an early adopter ofHD TV technology, we are ready to assist service providers as they migratetheir offerings to HD TV by providing quality HD TV programming, therebygaining distribution to this new customer segment early in its development. Inaddition, in an effort to increase distribution of The Outdoor Channel, weintend to offer price incentives to those service providers desiring todistribute both The Outdoor Channel and Outdoor Channel 2 HD.

·                  Broaden our consumer-focused marketing*.* Our consumer marketing strategy is designed to increase consumer,or subscriber, demand. We currently have working relationships with numerousaffinity organizations whose members are interested in outdoor activities suchas hunting, fishing and shooting sports, off-road motor sports and otheroutdoor related lifestyle activities. We plan to strengthen these currentrelationships and to seek opportunities to enter into similar relationshipswith additional affinity groups and membership organizations interested intraditional outdoor activities and related pursuits. We also plan to increaseconsumer demand by expanding our marketing efforts to include broader-basedadvertising to enhance awareness of The Outdoor Channel and reach new viewersinterested in outdoor activities. We believe that increased consumer awarenessof our programming will create additional demand for The Outdoor Channel andencourage service providers to offer The Outdoor Channel within their mostwidely subscribed programming packages.

*** ****IncreaseSales and Marketing Efforts to Attract National Advertisers*

We plan to attract additional national advertisers to The OutdoorChannel, and we believe it will become easier to do so if we are successful inour efforts to grow our subscriber base. Over the past several years, we haveincreased our efforts to demonstrate the benefits of advertising on The OutdoorChannel to companies that advertise nationally. A significant portion of theincrease in our advertising revenue over the last two years is attributable toincreases in national advertising on The Outdoor Channel.

Currently, national advertisers such as Ace Hardware, Arctic Cat,Cabela’s, Dickies, Enterprise Rent-a-Car, Geico Insurance, Gateway Computer,Jack Daniel’s, Remington, Sprint, and the U.S. Army regularly advertise onThe Outdoor Channel. We believe our viewer demographics are attractive to theseand many other national advertisers. In an effort to increase our advertisingrevenue, we have established a New York advertising sales office and plan to increaseour visibility to national advertisers.

We also offer national advertisers the opportunity to sponsorseveral hours of themed programming as a means to increase brand awareness andvisibility to a targeted audience. These opportunities, which we refer to asblock-programming sponsorships, enable advertisers to embed advertisingmessages and products in the programming itself in addition to purchasingtraditional commercial spots. Our current block-programming sponsorshipsinclude Monday Night Fishing sponsored by Cabela’s, Tuesday Night Huntingsponsored by Mossy Oak and Wednesday Night Horsepower sponsored by OptimaBatteries.

*** ****Createand Acquire High-Quality, Popular Programs*

Historically, we have contracted with third-party producers toprovide a majority of our programming. These third-party producers retainownership of their programming that we air and typically purchase from us ablock of the advertising time available during the airing of their programmingwhich they then resell to advertisers or use themselves. We currently produceapproximately 22% of our programming schedule. In the future, we intend toproduce more in-house programming and acquire ownership of programs produced bythird parties by entering into exclusive, multi-year agreements. We believethis will allow us to retain and sell more advertising time for our own accountat higher rates.

We believe our programming has qualities that will provideopportunities for rebroadcast or additional uses in the future. As we developin-house programming and acquire additional programming, we expect to develop alibrary of standard definition and HD programs that may be re-broadcastwith little incremental cost. As a secondary use, we intend to seekopportunities to sell the airing rights to portions of footage captured in thenormal course of our program production to production companies in need ofnatural setting footage. In addition, we believe that by owning the contentthat we air on The Outdoor Channel, we can better leverage other potentialopportunities that may exist such as DVD sales and internationalsyndication.

*** Expand theMembership in Our Club Organizations***

We originally founded The Outdoor Channel in an attempt to moreeffectively market our club organizations, the theme of which is the search forsmall gold deposits and other treasure. In an effort to increase the membershipbase of GPAA and Lost Dutchman’s, we intend to continue to market to viewers ofThe Outdoor Channel and by producing programs that are specifically directed towardstheir interests. We will present to such viewers the benefits of membership inGPAA and Lost Dutchman’s while promoting subscriptions to our GoldProspector & Treasure Hunters in the Great Outdoors magazine. In 

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addition,we promote and market these two club organizations through direct mailcampaigns and our promotion and sponsorship throughout the country ofexpositions dedicated to gold prospecting, treasure hunting and relatedinterests. We also offer introductory outings at our campsites in an effort toincrease membership sales in our national gold prospecting campground club andto increase the number of participants attending our unique expeditions heldnear Nome, Alaska and in the Motherlode area of California.

** Sources of Revenue**

No single customer of ours accounts for greater than 10% of ourtotal revenue. Our revenues from The Outdoor Channel are derived primarily fromtwo sources, advertising fees and subscriber fees, as discussed below.

** **AdvertisingFees

We have two forms of advertising fees, short-form andlong-form.

Short-form Advertising. We sell short-form advertisements on The Outdoor Channelfor commercial products and services, usually in 30 second increments. Thetotal inventory for our short-form advertising consists of seven minutesper half hour. Of this available advertising time, one minute is reserved forthe local service providers who may preempt the advertisement we insertinto the program with a local advertisement. Of the remaining six minutes, weeither sell it to advertisers for our own account or to third-party producerswho then resell this time to advertisers for their own account or use itthemselves.

Advertisers purchase from us the one minute of advertising timeper half hour that is reserved for the local service providers at a discountunderstanding that some of the service providers will superimpose their ownspots over the advertising that we have inserted in the program, causing theseadvertisements to be seen by less than all of the viewers of any program. Allof this advertising time is sold to direct response advertisers. Directresponse advertisers rely on direct appeals to our viewers to purchase productsor services from toll-free telephone numbers or websites and generally paylower rates than national advertisers.

For the advertising time that we retain for our own account, weendeavor to sell this time to national marketing firms and advertisingagencies. The price we are able to charge for this advertising time isdependent on market conditions, perceived desirability of our viewers and, asestimated by Nielsen, the number of households subscribing to The OutdoorChannel and ratings. If we are unable to sell all of this advertising time tonational firms and agencies, we sell the remaining time to direct responseadvertisers. We have been successful in increasing the amount of revenuegenerated from national advertisers in the last two years. The majority of ourrevenue from short-form advertising is a result of arrangements withadvertising agencies, for which we pay a commission. However, we have somerelationships with marketers who buy directly from us.

For the advertising time that we sell to third-party producers, wereceive revenue directly from the producers. This revenue is often at a lowerrate than we may have received if we were to retain such time and sell itourselves. The producers then resell this advertising time to others or usethis time to advertise their own products or services.

Our advertising revenue tends to reflect seasonal patterns ofadvertising expenditures, which is common in the broadcast industry. Typically,our advertising revenue from short-form advertising during the secondquarter is greater than the first quarter, and the fourth quarter is greaterthan the third quarter of each year.

Long-form Advertising. Long form advertisements areinfomercials that we typically run for 30 minutes, the majority of whichare during the overnight hours. In the future, we may reduce theprogramming time used for infomercials by replacing it with traditional outdoorprogramming. 

**SubscriberFees**

Cable and satellite service providers typically pay monthlysubscriber fees to us for the right to broadcast our channel. Our serviceprovider contracts typically range from 5 to 10 years and contain anannual increase in the monthly subscriber fees. Our contracts also containvolume discounts for increased distribution by any one service provider.

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** Programming**

The Outdoor Channel’s programming emphasizes traditional outdooractivities such as hunting, fishing and shooting sports, as well as off-roadmotor sports and other outdoor related lifestyle programming. Some examples ofour programs are:
| **Hunting/ Shooting**     | ** ** | **Fishing**                          | ** ** | **Special Interest**            |
|--------------------------------|------------|--------------------------------------|------------|--------------------------------------|
|                           |       |                                 |       |                                 |
| Ted Nugent  Spirit of the Wild |       | Mark Sosin’s  Saltwater Journal |       | World of Outlaws  Sprint Car Racing* |
| Jim Zumbo  Outdoors*           |       | Randy Jones  Strike Zone*            |       | Monsters of  Destruction*            |
| Guns and Ammo TV               |       | World  Class Sportfishing*      |       | Four Wheeler TV                      |

 

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*            Designates programs that are produced or ownedby The Outdoor Channel, Inc.

We either acquire or produce a program in-house or we license aprogram from a third party. We have been producing in-house programs since ourfounding in 1993, and in 2005 we produced and aired on The Outdoor Channel 20regularly scheduled programs. Third-party programming license agreementstypically provide that the producers retain ownership of the programming andthat The Outdoor Channel is entitled to air each episode several times per weekfor periods ranging from three months to three years. Substantially all of ourprogramming contracts with third parties allow us exclusive U.S. rightsand non-exclusive foreign rights during the term of the licensing agreement. In2005, we produced approximately 22% of our programs in-house and licensed the remaining78% of our programs from third-party producers.

** Sales and Marketing**

Our sales and marketing efforts are focused on: (a) addingsubscribers both through improved positioning with those service providersalready carrying The Outdoor Channel and through new agreements with serviceprovider systems not currently carrying The Outdoor Channel,(b) increasing demand from the viewing audience for both accessibility toThe Outdoor Channel and for viewership of our programming and(c) cultivating existing and pursuing new advertising clients.

*** ******Service Providers***

Generally, our sales and marketing efforts to increasedistribution focus on developing strong relationships with existing andpotential cable and satellite service providers through multiple points ofcontact including traditional sales visits, a dedicated customer service staff,an active local event team and the use of a dedicated web site. In addition tobuilding strong relationships with our service providers, we are involved witha wide variety of traditional marketing efforts including advertising in tradepublications, participating in industry trade shows, and supporting industryrelated associations. We anticipate that the widespread adoption of the digitaland high definition products offered by our service providers will provide uswith additional opportunities to grow and develop The Outdoor Channel andOutdoor Channel 2 HD. In order to strengthen the sales efforts ofthese service providers, we offer a wide variety of market specific supportincluding the opportunity to partner with local outdoor clubs, localpromotions, direct mail campaigns and integration into existing consumermarketing initiatives.

*** Consumers***

We market The Outdoor Channel to potential viewers to both createbrand awareness and to drive consumer requests for carriage, or for moreaccessible packaging, by the service providers. These consumer-directedmarketing efforts are coordinated with and may be funded in part bythe service providers. These efforts often include traditional marketingcampaigns consisting of print and radio advertising. We also use our website tomarket and promote The Outdoor Channel through schedule information, showsynopses, games and contests.

In addition, we have relationships with a number of outdoor clubsand organizations which provide opportunities for us to utilize theircommunication channels to reach their membership with targeted marketingmessages. These relationships also allow The Outdoor Channel to be associatedwith organizations that have credibility and relevance to outdoor enthusiasts.Examples of the clubs and organizations with which we have developed theserelationships include National Rifle Association, North American HuntingClub, North American Fishing Club and the National Wild Turkey Federation.

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We also have relationships and sponsorships with the followingspecial interest groups: Congressional Sportsmen’s Foundation, NationalShooting Sports Foundation, Paralyzed Veterans of America, International HunterEducation Association, International Association of Fish and Wildlife Agencies,U.S. Fish and Wildlife Service and Farmers and Hunters Feeding the Hungry.

In addition, we purchase advertisements in magazines thatspecialize in content similar to The Outdoor Channel. We currently advertise inapproximately 90 magazines, including *A**merican Rifleman, Boys Life, Heartland USA, Off-Road Adventures**and**Sports Afield**.*

*** ******Advertisers***

Sales and distribution of The Outdoor Channel’s advertising timeare conducted by The Outdoor Channel’s in-house sales personnel. In 2002, webegan to subscribe to Nielsen’s services, and the availability of thisinformation has become a critical tool in attracting advertisers. Our salesteam sells directly to national advertising accounts, and continuously monitorsavailable spots in an effort to maximize advertising revenue. To increase ourvisibility in the advertising community, we advertise in trade publications andon trade web sites directed toward advertising executives.

**OtherBusinesses**

In addition to The Outdoor Channel, we own and operate relatedbusinesses that serve the interests of The Outdoor Channel viewers and otheroutdoor enthusiasts. These related businesses include Gold Prospector’sAssociation of America LLC, or GPAA, and LDMA-AU, Inc., or Lost Dutchman’s.

We believe GPAA is one of the largest gold prospecting clubs in theworld. GPAA’s members currently pay an initial membership fee of $79 and annualrenewal fees ranging between $24 and $54. GPAA sells products and servicesrelated to gold prospecting and is the publisher of the “GoldProspectors & Treasure Hunters in the Great Outdoors” magazine.

Lost Dutchman’s is a national gold prospecting campground club withproperties in Arizona, California, Colorado, Georgia, Michigan, Nevada, NorthCarolina, Oregon and South Carolina. Lost Dutchman’s members currently pay amembership fee ranging between $3,500 and $3,750 and an annual maintenance feeof $120. Members are entitled to use any of the campgrounds we own or haverights to use and are entitled to keep all gold found while prospecting on anyof these properties.

We also offer unique expeditions where participants enjoy goldprospecting and other outdoor activities. The expeditions include annualexpeditions to the heart of the historic Motherlode area in central Californiaand the camp on our 2,300-acre property along the Cripple River which emptiesinto the Bering Sea near Nome, Alaska. Participants pay on a per-expeditionbasis.

** Financial Informationabout Segments**

Financial information related to our operating segments isincluded in Note 13 to the consolidated financial statements included inthis Form 10-K/A, which note is incorporated by reference herein. TheOutdoor Channel, or TOC, segment has provided greater than 15% of ourconsolidated revenue during each of the last three fiscal years.

**Competition**

We compete with other television channels for distribution,audience viewership and advertising sales.

The Outdoor Channel competes with other television channels to beincluded in the offerings of each system provider and for placement in thepackaged offerings having the most subscribers. In addition, each televisionchannel focusing on a particular form of content competes directly withother channels offering similar programming. In the case of The OutdoorChannel, we compete for distribution and viewers with other television networksaimed at our own target audience which we believe consists primarily of malesbetween the ages of 25 and 54. We believe such competitors include OLN,Spike TV, ESPN and others. It is possible that these or other competitors,many of which have substantially greater financial and operational resourcesthan us, could revise their programming to offer more traditional outdooractivities such as hunting, fishing, shooting and other topics which are ofinterest to our viewers.

Certain technological advances, including the increased deploymentof fiber optic cable, are expected to allow cable systems to greatly expandtheir present channel capacity. Such added capacity leaves room foradditional programming of all types which could dilute our market share byenabling the emergence of channels with programming similar to that offered byThe Outdoor Channel and lead to increased competition for viewers from existingor new channels.

We also compete with television networks that generally have largesubscriber bases and significant investments in, and access to, competitiveprogramming sources. In addition, large cable companies have the financial andtechnological 

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resourcesto create and distribute their own channels. For instance, OLN, which wecurrently consider to be our closest direct competitor, is owned and operatedby Comcast, the largest MSO in the U.S. We believe that while our closestcompetitor currently offers blocks of similar programs, there is a substantialdifference between the two networks. The Outdoor Channel emphasizes traditionaloutdoor activities, such as fishing and hunting, while OLN currently features asignificant amount of programming concerning outdoor competitive, or extreme,sports and nature observation. As The Outdoor Channel becomes more established,however, it is possible that other channels will attempt to offer programmingsimilar to ours.

We compete for advertising revenue with other pay televisionnetworks, broadcast networks, and local over-the-air television stations. Inaddition, we compete for advertisers with other forms of advertising such assatellite and broadcast radio and the print media. We believe that many ofthese advertising avenues may not permit an advertiser to target thespecific demographic audience who watches The Outdoor Channel.

While Lost Dutchman’s has numerous campground competitors, webelieve it is the largest campground club in the United States that has a goldprospecting theme. Campgrounds compete primarily by quality of facilities andamenities offered. Lost Dutchman’s has rustic facilities and few amenities andseeks to attract persons who are interested in gold prospecting and hands-onoutdoor activities and who wish to be part of an informal family-orientedenvironment. We are not aware of any national direct competitor for our goldprospecting club GPAA, although in a broad sense both GPAA and Lost Dutchman’scompete with other sources of recreational activities. Lost Dutchman’s and GPAAboth compete primarily through marketing and promotional activities involvingexpositions, advertisements and shows on The Outdoor Channel, reachingprospective members through our*GoldProspectors & Treasure Hunters in the Great Outdoors* magazine and other marketing activities.

**OtherInformation**

Outdoor Channel Holdings, Inc. was originally incorporated inAlaska in 1984. On September 8, 2004, we acquired all of the outstandingshares of The Outdoor Channel, Inc. that we did not previously own.Effective September 15, 2004 we reincorporated from Alaska into Delaware.

## **Employees**

As of February 1, 2006, we had a total of 145 employees of which139 were full time. None of our employees are covered by a collectivebargaining agreement. We consider our relationship with our employees to begood.

## **GovernmentRegulation**

Our operations are subject to various government regulations. Theoperations of cable television systems, satellite distribution systems andbroadcast television program distribution companies are subject to theCommunications Act of 1934, as amended, and to regulatory supervision by theFCC. Our leased uplink facility in Perris, California is licensed by the FCCand must be operated in conformance with the terms and conditions of thatlicense. The license is also subject to periodic renewal and ongoing regulatoryrequirements. Cable systems that carry our programming also are subjected tolocal franchise authority regulation.

### *Local CableRegulation*

The cable television industry is regulated by municipalities or otherlocal government authorities which have the jurisdiction to grant and to assignfranchises and to negotiate generally the terms and conditions of suchfranchises, including rates for basic service charged to subscribers, except tothe extent that such jurisdiction is preempted by federal law. Any such rateregulation could place downward pressure on the potential subscriber fees wecan earn.

### *FederalCable Regulation*

In 1992, Congress enacted the Cable Television Consumer Protection andCompetition Act of 1992, or the 1992 Cable Act, which provides, among otherthings, for a “must-carry” regime for local broadcast stations (which requiresthe mandatory carriage of certain broadcast stations and consideration to otherbroadcast stations for retransmission of their signals and carriage of localbroadcast stations on specific channels. The Cable Communication Policy Act of1984 requires cable television systems with 36 or more “activated” channels toreserve a percentage of such channels for commercial use by unaffiliated thirdparties and permits franchise authorities to require channel capacity,equipment and facilities for public educational and government access channels.

In response to the 1992 Cable Act , the FCC adopted regulationsprohibiting programmers in which cable operators have an “attributable interest”from discriminating between cable operators and their competitors, or amongcable operators, and for increased competition in video programmingdistribution (both within the cable industry and between cable and competingvideo distributors). The 1992 Cable Act also directed the FCC to adoptregulations limiting the percentage of 

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nationwide subscribers any one MSO could serve and thecarriage by cable systems and other video distributors of affiliatedprogramming services. Although the FCC adopted such regulations, they wereinvalidated by a Court of Appeals in 2001. The FCC subsequently initiatedrulemaking proceedings which remain pending.

In addition, the 1992 Cable Act requires the FCC to establishregulations for the rates that cable operators subject to rate regulationmay charge for basic cable service and certain other services. Rates arenot regulated for cable systems which are subject to effective competition, asdefined in the FCC’s regulations. The 1993 Cable Act also directed the FCC toestablish guidelines for determining when cable programming may not beprovided exclusively to cable operators. The FCC’s implementing regulationspreclude virtually all exclusive programming contracts between cable operatorsand satellite programmers affiliated with any cable operator (unless the FCCfirst determines the contract serves the public interest) and generallyprohibit a cable operator that has an attributable interest in a satelliteprogrammer from improperly influencing the terms and conditions of sale tounaffiliated multi-channel video programming distributors.

In 1996, Congress enacted the most comprehensive rewrite oftelecommunications law since the Communications Act of 1934, modifying many ofthe provisions of the 1992 Act. Among other things, the legislation allows thecable and telephone industries to compete in each other’s markets and phasedout federal cable rate regulation of non-basic services, such as the ratescharged by cable operators to subscribers for our programming, in mostinstances. It also required the FCC to establish rules ensuring that videoprogramming is fully accessible to the hearing impaired through closedcaptioning. The rules adopted by the FCC require substantial closedcaptioning over a six to ten year phase-in period, which began in 2000, withonly limited exceptions.

Congress and the FCC may, in the future, adopt new laws, regulationsand policies regarding a wide variety of matters which could affect The OutdoorChannel. We are unable to predict the outcome of future federal legislation,regulation or policies, or the impact of any such laws, regulations or policieson The Outdoor Channel’s operations.

### *GPAA andLost Dutchman’s Regulations*

To operate our campgrounds and mining sites, we must obtaindiscretionary permits or approvals issued by local governments under localzoning ordinances and other state laws. In addition, to construct improvements,we have usually been required to obtain permits such as building and sanitarysewage permits. Some states in which we sell memberships have laws regulatingcampground memberships. These laws sometimes require comprehensive disclosureto prospective purchasers. Some states have laws requiring us to register witha state agency and obtain a permit to market.

### *OtherRegulations*

In addition to the regulations applicable to the cable television andgold mining industries in general, we are also subject to various local, stateand federal regulations, including, without limitation, regulations promulgatedby federal and state environmental, health and labor agencies. In addition, ourmining clubs are subject to various local, state and federal statutes,ordinances, rules and regulations concerning, zoning, development, andother utilization of its properties.

## **IntellectualProperty**

“The Outdoor Channel®” is aregistered trademark, and “Outdoor Channel 2 HDSM”is a service mark, of The Outdoor Channel, Inc. We have also filed forregistration of other trademarks, none of which we consider material at thistime. In addition, we rely on copyright protection of those programs that weown.

**AvailableInformation**

We file annual, quarterlyand current reports, proxy statements and other information with the Securitiesand Exchange Commission. You may read and copy any materials we have filedwith the Securities and Exchange Commission at the Securities and ExchangeCommission’s Public Reference Room at 450 Fifth Street, N.W., Washington,D.C. 20549. Please call the Securities and Exchange Commission at1-800-SEC-0330 for further information on the Public Reference Room. TheSecurities and Exchange Commission also maintains a web site athttp://www.sec.gov that contains reports, proxy and information statements andother information concerning issuers that file electronically with theSecurities and Exchange Commission, including us. Our common stock is listed onThe Nasdaq National Market. We also maintain an internet site athttp://www.outdoorchannelholdings.com that contains information concerning us.Information included or referred to on our website is not incorporated byreference in or otherwise a part of this report.

You may obtain afree copy of our annual reports on Form 10-K, quarterly reports onForm 10-Q and current reports on Form 8-K and amendments to thosereports on the day of filing with the Securities and Exchange Commission on ourwebsite on the World Wide Web at http://www.outdoorchannelholdings.com. We willalso provide without charge, upon written or oral request, a copy of any or allof the documents referred to above. Requests for such documents should bedirected to Attention: General Counsel, 43445 Business Park Drive,Suite 113, Temecula, California 92590 (Telephone: 951- 699-6991).

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**ITEM 1A.               RISKFACTORS.**

The Company’s business and operations are subject to a number ofrisks and uncertainties, and the following list should not be considered to bea definitive list of all factors that may affect the Company’s business,financial condition and future operating results and should be read inconjunction with the risks and uncertainties, including risk factors, containedin our other filings with the Securities and Exchange Commission. Anyforward-looking statements made by the Company are made with the intention ofobtaining the benefits of the “safe harbor” provisions of the SecuritiesLitigation Reform Act and a number of factors, including, but not limitedto those discussed below, could cause our actual results and experiences to differmaterially from the anticipated results or expectations expressed in anyforward-looking statements.

**Wemay not be able to grow our subscriber base at a sufficient rate to offsetplanned increased costs or at all, and as a result our revenues and profitabilitymay not increase and could decrease.**

A major component of our growth strategy is based on increasingthe number of subscribers to our channels. Growing our subscriber base dependsupon many factors, such as the success of our marketing efforts in drivingconsumer demand for our channels; overall growth in cable and satellitesubscribers; the popularity of our programming; our ability to negotiate newcarriage agreements, or amendments to current carriage agreements, and maintainexisting distribution; plus other factors that are beyond our control. Therecan be no assurance that we will be able to maintain or increase the subscriberbase of our channels on cable and satellite systems or that our currentcarriage will not decrease as a result of a number of factors. In particular,negotiations for new carriage agreements, or amendments to current carriageagreements, are lengthy and complex, and we are not able to predict with anyaccuracy when such increases in our subscriber base may occur, if at all.If we are unable to grow our subscriber base, our subscriber and advertisingrevenues may not increase and could decrease. In addition, as we plan andprepare for such projected growth in our subscriber base, we plan to increaseour expenses accordingly. If we are not able to increase our revenue to offsetthese increased expenses, our profitability could decrease.

**Ifwe offer increased launch support fees or other incentives to service providersin order to grow our subscriber base, our operating results may be harmed.**

Although we currently have plans to increase our marketing andsales efforts in an attempt to increase the number of our subscribers, wemay not be able to do so economically or at all. If we are unable toincrease the number of our subscribers on a cost-effective basis, or if thebenefits of doing so do not materialize, our business and operating resultswould be harmed. In particular, if we make any upfront cash payments to serviceproviders for an increase in our subscriber base, our cash flow could beadversely impacted, and we may incur negative cash flow for some time. Inaddition, if we were to make such upfront cash payments or provide otherincentives to service providers, we expect to amortize such amounts ratablyover the term of the agreements with the service providers. However, if aservice provider terminates any such agreement prior to the expiration of theterm of such agreement, then under current accounting rules wemay incur a large expense in that quarter in which the agreement isterminated equal to the remaining un-amortized amounts and our operatingresults could accordingly be adversely affected.

**If,in our attempt to increase our number of subscribers, we structure launchsupport fees with one service provider in a way that would require us to offerthe same support or incentives to all other service providers, our operatingresults may be harmed.**

Many of our existing agreements with cable and satellite serviceproviders contain “most favored nation” clauses. These clauses typicallyprovide that if we enter into an agreement with another service provider onmore favorable terms, these terms must be offered to the existing serviceprovider, subject to some exceptions and conditions. Future agreements withservice providers may also contain similar “most favored nation” clauses.If, in our attempt to increase our number of subscribers, we structure launchsupport fees to effectively offer more favorable terms to any service provider,these clauses may require us to reduce the effective subscriber fee ratesthat we receive from other service providers, and this could negatively affectour operating results.

**Ifour channels are placed in unpopular program packages by cable or satelliteservice providers, or if service fees are increased for our subscribers, thenumber of viewers of our channels****may decline which could harm our business and operating results.**

We do not control the channels with which our channels arepackaged by cable or satellite service providers. The placement by a cable orsatellite service provider of our channels in unpopular program package couldreduce or impair the growth of the number of our viewers and subscriber feespaid by service providers to us. In addition, we do not set the prices charged bycable and satellite service providers to their subscribers when our channelsare packaged with other television channels. The prices for the channelpackages in which our channels are bundled may be set too high to appealto individuals who might otherwise be interested in our networks. Further, ifour channels are bundled by service providers with networks 

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thatdo not appeal to our viewers or is moved to packages with fewer subscribers, wemay lose viewers. These factors may reduce the number of viewers ofour channel, which in turn would reduce our subscriber fees and advertisingrevenue.

**Cableand satellite service providers could discontinue or refrain from carrying TheOutdoor Channel, which could reduce the number of viewers and harm ouroperating results.**

The success of The Outdoor Channel is dependent, in part, on ourability to enter into new carriage agreements and maintain existing agreementswith, and carriage by, satellite systems and multi-system operators’, which werefer to as MSOs, affiliated regional or individual cable systems. Although wehave relationships or agreements with most of the largest MSOs and satelliteservice providers, execution of an agreement with an MSO does not ensure thatits affiliated regional or individual cable systems will carry The OutdoorChannel. Under our current agreements, The Outdoor Channel typically offersMSOs and their cable affiliates the right to broadcast The Outdoor Channel totheir subscribers, but such contracts do not require that The Outdoor Channelbe offered to all subscribers of, or any tiers offered by, the MSO. Becausecertain carriage agreements do not specify on which service levels The OutdoorChannel is carried, such as analog versus basic digital, expanded digital orspecialty tiers, and in which geographic markets The Outdoor Channel will beoffered, we have no assurance that The Outdoor Channel will be carried andavailable to viewers of any particular MSO or to all satellite subscribers. Ifcable and satellite service providers discontinue or refrain from carrying TheOutdoor Channel, this could reduce the number of viewers and harm our operatingresults.

**Wemay not be able to effectively manage our future growth, and our growthmay not continue, which may substantially harm our business andprospects.**

We have undergone rapid and significant growth in revenue andsubscribers over the last several years, and our strategic objectives includenot only further developing and enhancing our existing business, but alsoexpanding our in-house production capabilities. There are risks inherent inrapid growth and the pursuit of new strategic objectives, including amongothers: investment and development of appropriate infrastructure, such asfacilities, information technology systems and other equipment to support agrowing organization; hiring and training new management, sales and marketing,production, and other personnel and the diversion of management’s attention andresources from critical areas and existing projects; and implementing systems andprocedures to successfully manage growth, such as monitoring operations,controlling costs, maintaining effective quality and service, and implementingand maintaining adequate internal controls. Although we have recently upgradedour Temecula, California production facility, we expect that additionalexpenditures will be required as we continue to upgrade our facilities and tobegin transmitting our channel from our facilities directly. In particular, wehave purchased a building near our current headquarters and are currentlybuilding out this property primarily for use as our broadcast facility in thefuture. We could incur cost overruns, delays and other difficulties with thisconstruction. In addition, moving our broadcast facility and some of our personnelinto this new facility could be disruptive to our operations. We cannot assureyou that we will be able to successfully manage our growth, that future growthwill occur or that we will be successful in managing our business objectives.We can provide no assurance that our profitability or revenues will not beharmed by future changes in our business. Our operating results could be harmedif such growth does not occur, or is slower or less profitable than projected.

**Wemay not be able to secure national advertising accounts, and as a result,our revenues and profitability may be negatively impacted.**

Our ability to secure national advertising accounts, whichgenerally pay higher advertising rates, depends upon the size of our audience,the popularity of our programming and the demographics of our viewers, as wellas strategies taken by our competitors, strategies taken by advertisers and therelative bargaining power of advertisers. Competition for national advertisingaccounts and related advertising expenditures is intense. We face competitionfor such advertising expenditures from a variety of sources, including othercable network companies and other media. We cannot assure you that our sponsorswill pay advertising rates for commercial air time at levels sufficient for usto make a profit or that we will be able to attract new advertising sponsors orincrease advertising revenues. If we are unable to attract national advertisingaccounts in sufficient quantities, our revenues and profitability may beharmed.

**Wemay be required to pay additional state income taxes for past years.**

We are required to pay income taxes in various states in which weconduct our business operations. In the past, we have paid state income taxesonly in California (where our headquarters is located) and have not paid incometaxes to any other state. We have determined that we may have state incometax liability in the eight states other than California in which our goldprospecting properties are located. Although we expect in the near future togather sufficient information to enable us to apportion our income to suchstates and file income tax returns in those states for past years, we can offerno assurances as to when we will be able to file state income tax returns in thosestates where we may have outstanding, current and future tax liabilities.In general, we believe any income taxes that we may be required to pay tostates other than California will be 

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partiallyoffset by a refund from the State of California for income tax amounts we haveoverpaid to California in past years. We may, however, be limited as to thenumber of years for which we can receive a refund from California for taxespreviously paid, and we cannot predict when we would receive any such refund.In addition, because each state to which we may owe outstanding incometaxes has a different methodology for calculating tax owed and a different taxrate, our aggregate state income tax liability could be greater than what wehave paid to California in prior years. Our aggregate state income taxliability, on which we may owe accrued interest and penalties, could bematerial to our results of operations.

**Expensesrelating to programming costs are generally increasing and a number of factorscan cause cost overruns and delays, and our operating results may beadversely impacted if we are not able to successfully recover the costs ofdeveloping and acquiring new programming.**

The average cost of programming has increased recently for thecable industry and such increases may continue. We plan to build ourprogramming library through the acquisition of long-term broadcasting rightsfrom third party producers, in-house production and outright acquisition ofprogramming, and this may lead to increases in our programming costs. Thedevelopment, production and editing of television programming requires asignificant amount of capital and there are substantial financial risksinherent in developing and producing television programs. Actual programmingand production costs may exceed their budgets. Factors such as labordisputes, death or disability of key spokespersons or program hosts, damage tofilm negatives, master tapes and recordings or adverse weather conditionsmay cause cost overruns and delay or prevent completion of a project. Ifwe are not able to successfully recover the costs of developing or acquiringprogramming through increased revenues, whether the programming is produced byus or acquired from third-party producers, our business and operating results willbe harmed.

**Ouroperating results may be negatively impacted if our Outdoor Channel 2 HDnetwork is not as successful as we anticipate.**

In July 2005, we launched an all new, all native highdefinition network called Outdoor Channel 2 HD. There can be no assurance thatOutdoor Channel 2 HD will not incur unexpected costs and expenses. Distributionof Outdoor Channel 2 HD will depend on successfully executing new or amendeddistribution agreements with cable and satellite service providers. There canbe no assurance that such agreements can be made, and if they are made, thatthey will be on terms favorable to us or that they will not require us to grantperiods of free service and/or marketing commitments to encourage carriage. Thepublic may not adopt HD consumer television equipment in numberssufficient to allow profits for an advertiser-supported service. Bandwidthconstraints may keep Outdoor Channel 2 HD from achieving sufficientdistribution from service providers to reach profitability. Competition forquality HD content may increase the costs of programming for OutdoorChannel 2 HD beyond our control or expectations. All of these factors, combinedor separately, could increase costs or restrain revenue and adversely affectour operating results.

**Ouroperating results may vary significantly, and historical comparisons ofour operating results are not necessarily meaningful and should not be reliedupon as an indicator of future performance.**

Our operations are influenced by many factors. These factors may causeour financial results to vary significantly in the future and our operatingresults may not meet the expectations of securities analysts or investors.If this occurs, the price of our stock may decline. Factors that can causeour results to fluctuate include, but are not limited to:

·                  carriage decisions of cable and satellite service providers;

·                  demand for advertising, advertising rates and offerings ofcompeting media;

·                  changes in the growth rate of cable and satellite subscribers;

·                  cable and satellite service providers’ capital and marketingexpenditures and their impact on programming offerings and penetration;

·                  seasonal trends in viewer interests and activities;

·                  pricing, service, marketing and acquisition decisions that couldreduce revenues and impair quarterly financial results;

·                  the mix of cable television and satellite-delivered programmingproducts and services sold and the distribution channels for those products andservices;

·                  our ability to react quickly to changing consumer trends;

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·                  specific economic conditions in the cable television and relatedindustries; and

·                  changing regulatory requirements.

Due to the foregoing and other factors, many of which are beyondour control, our revenue and operating results vary from period to period andare difficult to forecast. Our expense levels are based in significantpart on our expectations of future revenue. Therefore, our failure to meetrevenue expectations would seriously harm our business, operating results,financial condition and cash flows. Further, an unanticipated decline inrevenue for a particular calendar quarter may disproportionately affectour profitability because our expenses would remain relatively fixed and wouldnot decrease correspondingly.

**Changesto financial accounting standards or our accounting estimates may affectour reported operating results.**

We prepare our financial statements to conform with generallyaccepted accounting principles (“GAAP”), which are subject to interpretationsby the Financial Accounting Standards Board, the Securities and ExchangeCommission and various bodies formed to interpret and create appropriateaccounting policies. A change in those policies can have a significant effecton our reported results and may even affect our reporting of transactionscompleted before a change is announced. Accounting policies affecting manyother aspects of our business, including rules relating to businesscombinations and employee stock option grants, have recently been revised orare under review. Changes to those rules or the questioning of currentpractices may adversely affect our reported financial results or the waywe conduct our business. In addition, our preparation of financial statementsin accordance with GAAP requires that we make estimates, judgments andassumptions that affect the recorded amounts of assets and liabilities,disclosure of those assets and liabilities at the date of the financialstatements and the recorded amounts of revenue and expenses during thereporting period. A change in the facts and circumstances surrounding thoseestimates, including the interpretation of the terms and conditions of ourcontractual obligations, could result in a change to our estimates and couldimpact our future operating results.

**Ifwe fail to develop and distribute popular programs, our viewership would likelydecline, which could cause advertising and subscriber fee revenues to decrease.**

Our operating results depend significantly upon the generation ofadvertising revenue. Our ability to generate advertising revenues is largelydependent on our Nielsen ratings, which estimates the number of viewers of TheOutdoor Channel, and this directly impacts the level of interest of advertisersand rates we are able to charge. If we fail to program popular shows thatmaintain or increase our current number of viewers, our Nielsen ratings coulddecline, which in turn could cause our advertising revenue to decline andadversely impact our business and operating results. In addition, if we fail toprogram popular shows the number of subscribers to our channel may alsodecrease, resulting in a decrease in our subscriber fee and advertisingrevenue.

**Changesin the methodology used by Nielsen to estimate our subscriber base ortelevision ratings, or****inaccuracies in such estimates, could cause our advertising revenue todecrease.**

Our ability to sell advertising is largely dependent on televisionratings and our subscriber base estimated by Nielsen. We do not control themethodology used by Nielsen for these estimates. If Nielsen modifies itsmethodology or changes the statistical sample it uses for these estimates, suchas the demographic characteristics of the households, our ratings could benegatively affected resulting in a decrease in our advertising revenue.

**Themarket in which we operate is highly competitive, and we may not be ableto compete effectively, particularly against competitors with greater financialresources, brand recognition, marketplace presence and relationships withservice providers.**

We compete for viewers with other pay cable television andbroadcast networks, including OLN, Spike TV, ESPN2 and others. If these orother competitors, many of which have substantially greater financial andoperational resources than us, significantly expand their operations withrespect to outdoor-related programming or their market penetration, ourbusiness could be harmed. In addition, certain technological advances,including the deployment of fiber optic cable, which are already substantiallyunderway, are expected to allow cable systems to greatly expand their currentchannel capacity, which could dilute our market share and lead to increasedcompetition for viewers from existing or new programming services.

We also compete with television network companies that generallyhave large subscriber bases and significant investments in, and access to,competitive programming sources. In some cases, we compete with cable andsatellite service providers that have the financial and technological resourcesto create and distribute their own television networks, such as OLN, which isowned and operated by Comcast. In order to compete for subscribers, wemay pay either launch fees or marketing support or both for carriage incertain circumstances in the future, which may require significant cashexpenditures, harming our operating results and margins. We may also issueour securities from time to time in connection 

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withour attempts for broader distribution of The Outdoor Channel and the number ofsuch securities could be significant. We compete for advertising sales withother pay television networks, broadcast networks, and local over-the-airtelevision stations. We also compete for advertising sales with satellite andbroadcast radio and the print media. We compete with other cable televisionnetworks for subscriber fees from, and affiliation agreements with, cable andsatellite service providers. Actions by the Federal Communications Commission,which we refer to as the FCC, and the courts have removed certain of the impedimentsto entry by local telephone companies into the video programming distributionbusiness, and other impediments could be eliminated or modified in the future.These local telephone companies may distribute programming that iscompetitive with the programming provided by us to cable operators.

**Changesin corporate governance and securities disclosure and compliance practices haveincreased and may continue to increase our legal compliance and financialreporting costs.**

The Sarbanes-Oxley Act of 2002 required us to change or supplementsome of our corporate governance and securities disclosure and compliancepractices. The Securities and Exchange Commission and Nasdaq have revised, andcontinue to revise, their regulations and listing standards. These developmentshave increased, and may continue to increase, our legal compliance andfinancial reporting costs.

**Wemay not be able to attract new, or retain existing, members in our cluborganizations, and as a result our revenues and profitability may beharmed.**

Our ability to attract new members and retain existing members inour club organizations, GPAA and Lost Dutchman’s, depends, in part, upon ourmarketing efforts, including our programming on The Outdoor Channel and suchother efforts as direct mail campaigns, continued sponsorship of expositionsdedicated to gold prospecting, treasure hunting and related interests aroundthe country and introductory outings held at our campsites. We cannot assureyou that we will successfully attract new members or retain existing members. Adecline in membership in our club organizations could harm our business andoperating results.

**Consolidationamong cable and satellite distributors may harm our business.**

Cable and satellite operators continue to consolidate, making TheOutdoor Channel increasingly dependent on fewer operators. If these operatorsfail to carry The Outdoor Channel, use their increased distribution andbargaining power to negotiate less favorable terms of carriage or to obtainadditional volume discounts, our business and operating results would suffer.

**Thesatellite infrastructure that we use may fail or be preempted by anothersignal, which could impair our ability to deliver programming to our cable andsatellite service providers.**

Our ability to deliver programming to service providers, and theirsubscribers, is dependent upon the satellite equipment and software that we useto work properly to distribute our programming. If this satellite system fails,or a signal with a higher priority replaces our signal, which is determined byour agreement with the owner of the satellite, we may not be able todeliver programming to our cable and satellite service provider customers andtheir subscribers within the time periods advertised. We have negotiated forback-up capability with our satellite provider on an in-orbit spare satellite,which provides us carriage on the back-up satellite in the event thatcatastrophic failure occurs on the primary satellite. Our contract providesthat our main signal is subject to preemption and until the back-up satelliteis in position, we could lose our signal for a period of time. A loss of oursignal could harm our reputation and reduce our revenues and profits.

**Naturaldisasters and other events beyond our control could interrupt our signal.**

Our systems and operations may be vulnerable to damage orinterruption from earthquakes, floods, fires, power loss, telecommunicationfailures and similar events. They also could be subject to break-ins, sabotageand intentional acts of vandalism. Since our production facilities for TheOutdoor Channel are all located in Temecula, California, the results of suchevents could be particularly disruptive because we do not have readilyavailable alternative facilities from which to conduct our business. Ourbusiness interruption insurance may not be sufficient to compensate us forlosses that may occur. Despite any precautions we may take, theoccurrence of a natural disaster or other unanticipated problems at ourfacilities could result in interruptions in our services. Interruptions in ourservice could harm our reputation and reduce our revenues and profits.

**Seasonalincreases or decreases in advertising revenue may negatively affect ourbusiness.**

Seasonal trends are likely to affect our viewership, andconsequently, could cause fluctuations in our advertising revenues. Ourbusiness reflects seasonal patterns of advertising expenditures, which iscommon in the broadcast industry. For this reason, fluctuations in our revenuesand net income could occur from period to period depending upon theavailability of advertising revenues. Due, in part, to these seasonalityfactors, the results of any one quarter are not necessarily indicative of 

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resultsfor future periods, and our cash flows may not correlate with revenuerecognition.

**Wemay be unable to access capital on acceptable terms to fund our futureoperations.**

Our future capital requirements will depend on numerous factors,including the success of our efforts to increase advertising revenues, theamount of resources devoted to increasing distribution of The Outdoor Channel,and acquiring and producing programming for The Outdoor Channel. As a result,we could be required to raise substantial additional capital through debt orequity financing. To the extent that we raise additional capital through thesale of equity or convertible debt securities, the issuance of such securitiescould result in dilution to existing stockholders. If we raise additionalcapital through the issuance of debt securities, the debt securities would haverights, preferences and privileges senior to holders of common stock and theterms of such debt could impose restrictions on our operations. InNovember 2005, we entered into an aggregate of up to thirteen million dollarsin debt financing from a commercial bank. We cannot assure you that additionalcapital, if required, will be available on acceptable terms, or at all. If weare unable to obtain additional capital, our current business strategies andplans and ability to fund future operations may be harmed.

**Wemay not be able to attract and retain key personnel.**

Our success depends to a significant degree upon the continuedcontributions of the principal members of our sales, marketing, production andmanagement personnel, many of whom would be difficult to replace. None of ouremployees are under contract and all of our employees are “at-will.” Any of ourofficers or key employees could leave at any time, and we do not have “keyperson” life insurance policies covering any of our employees. The competitionfor qualified personnel has been strong in our industry. This competition couldmake it more difficult to retain our key personnel and to recruit new highlyqualified personnel. The loss of Perry T. Massie, our President and ChiefExecutive Officer and Co-President of The Outdoor Channel, Inc., or ThomasH. Massie, our Executive Vice President, or William A. Owen, our ChiefFinancial Officer, or Andrew J. Dale, the Chief Executive Officer andCo-President of The Outdoor Channel, Inc., or Thomas E. Hornish, ourGeneral Counsel, could adversely impact our business. To attract and retainqualified personnel, we may be required to grant large option or otherstock-based incentive awards, which may be highly dilutive to existingstockholders. We may also be required to pay significant base salaries andcash bonuses to attract and retain these individuals, which payments could harmour operating results. If we are not able to attract and retain the necessarypersonnel we may not be able to implement our business plan.

**Newvideo recording technologies may reduce our advertising revenue.**

A number of new personal video recorders, such as TiVo® in theUnited States, have emerged in recent years. These recorders often containfeatures allowing viewers to watch pre-recorded programs without watchingadvertising. The effect of these recorders on viewing patterns and exposure toadvertising could harm our operations and results if our advertisers reduce theadvertising rates they are willing to pay because they believe televisionadvertisements are less effective with these technologies.

**Cableand satellite television programming signals have been stolen or could bestolen in the future, which reduces our potential revenue from subscriber feesand advertising.**

The delivery of subscription programming requires the use ofconditional access technology to limit access to programming to only those whosubscribe to programming and are authorized to view it. Conditional accesssystems use, among other things, encryption technology to protect thetransmitted signal from unauthorized access. It is illegal to create, sell orotherwise distribute software or devices to circumvent conditional accesstechnologies. However, theft of cable and satellite programming has been widelyreported, and the access or “smart” cards used in cable and satellite serviceproviders’ conditional access systems have been compromised and could befurther compromised in the future. When conditional access systems are compromised,we do not receive the potential subscriber fee revenues from the cable andsatellite service providers. Further, measures that could be taken by cable andsatellite service providers to limit such theft are not under our control.Piracy of our copyrighted materials could reduce our revenue from subscriberfees and advertising and negatively affect our business and operating results.

**Becausewe expect to become increasingly dependent upon our intellectual propertyrights, our inability to protect those rights could negatively impact ourability to compete.**

We currently license approximately 78% of programs we air on TheOutdoor Channel from third-party television and film producers. In order tobuild a library of programs and programming distribution rights, we must obtainall of the necessary rights, releases and consents from the parties involved indeveloping a project or from the owners of the rights in a completed program.There can be no assurance that we will be able to obtain the necessary rights onacceptable terms, or at all, or properly maintain and document such rights. Inaddition, protecting our intellectual property rights by pursuing those whoinfringe or dilute our rights can be costly and time consuming. If we areunable to protect our portfolio of trademarks, 

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servicemarks, copyrighted material and characters, trade names and other intellectualproperty rights, our business and our ability to compete could be harmed.

**Wemay face intellectual property infringement claims that could be time-consuming,costly to defend and result in our loss of significant rights.**

Other parties may assert intellectual property infringementclaims against us, and our products may infringe the intellectual propertyrights of third parties. From time to time, we receive letters alleginginfringement of intellectual property rights of others. Intellectual propertylitigation can be expensive and time-consuming and could divert management’sattention from our business. If there is a successful claim of infringementagainst us, we may be required to pay substantial damages to the partyclaiming infringement or enter into royalty or license agreements thatmay not be available on acceptable or desirable terms, if at all. Ourfailure to license the proprietary rights on a timely basis would harm ourbusiness.

**Someof our existing stockholders can exert control over us and may not makedecisions that are in the best interests of all stockholders.**

Our current officers, directors and greater than 5% stockholderstogether currently control approximately 52.5% of our outstanding common stock.As a result, these stockholders, acting together, would be able to exertsignificant influence over all matters requiring stockholder approval,including the election of directors and approval of significant corporatetransactions. In addition, this concentration of ownership may delay orprevent a change in control of our company, even when a change may be inthe best interests of stockholders. In addition, the interests of these stockholdersmay not always coincide with our interests as a company or the interestsof other stockholders. Accordingly, these stockholders could cause us to enterinto transactions or agreements that you would not approve.

**The market price ofour common stock has been and may continue to be subject to widefluctuations.**

Our stock has historically been and continues to be traded atrelatively low volumes and therefore has been subject to price volatility.Various factors contribute to the volatility of our stock price, including, forexample, low trading volume, quarterly variations in our financial results,increased competition and general economic and market conditions. While wecannot predict the individual effect that these factors may have on the marketprice of our common stock, these factors, either individually or in theaggregate, could result in significant volatility in our stock price during anygiven period of time. There can be no assurance that a more active tradingmarket in our stock will develop. As a result, relatively small tradesmay have a significant impact on the price of our common stock. Moreover,companies that have experienced volatility in the market price of their stockoften are subject to securities class action litigation. If we were thesubject of such litigation, it could result in substantial costs and divertmanagement’s attention and resources.

**Anti-takeoverprovisions in our certificate of incorporation, our bylaws and under Delawarelaw may enable our incumbent management to retain control of us anddiscourage or prevent a change of control that may be beneficial to ourstockholders.**

Provisions of Delaware law, our certificate of incorporation andbylaws could discourage, delay or prevent a merger, acquisition or other changein control that stockholders may consider favorable, includingtransactions in which you might otherwise receive a premium for your shares.These provisions also could limit the price that investors might be willing topay in the future for shares of our common stock, thereby depressing the marketprice of our common stock. Furthermore, these provisions could prevent attemptsby our stockholders to replace or remove our management. These provisions:

·                  allow the authorized number of directors to be changed only byresolution of our board of directors;

·                  establish a classified board of directors, providing that not allmembers of the board be elected at one time;

·                  require a 66 2/3% stockholder vote to remove a director, and onlyfor cause;

·                  authorize our board of directors to issue without stockholderapproval blank check preferred stock that, if issued, could operate as a “poisonpill” to dilute the stock ownership of a potential hostile acquirer to preventan acquisition that is not approved by our board of directors;

·                  require that stockholder actions must be effected at a duly calledstockholder meeting and prohibit stockholder action by written consent;

·                  establish advance notice requirements for stockholder nominationsto our board of directors or for stockholder proposals that can be acted on atstockholder meetings;

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·                  except as provided by law, allow only our board of directors tocall a special meeting of the stockholders; and

·                  require a 66 2/3% stockholder vote to amend our certificate ofincorporation or bylaws.

In addition, because we are incorporated in Delaware, we aregoverned by the provisions of Section 203 of the Delaware GeneralCorporation Law, which may, unless certain criteria are met, prohibit largestockholders, in particular those owning 15% or more of our outstanding votingstock, from merging or combining with us for a prescribed period of time.

**Technologiesin the cable and satellite television industry are constantly changing, and ourfailure to acquire or maintain state-of-the-art technology may harm ourbusiness and competitive advantage.**

The technologies used in the cable and satellite televisionindustry are rapidly evolving. Many technologies and technological standardsare in development and have the potential to significantly transform theways in which programming is created and transmitted. In addition, under someof our MSO contracts, we may be required to encrypt our signal. We cannotaccurately predict the effects that implementing new technologies will have onour programming and broadcasting operations. We may be required to incursubstantial capital expenditures to implement new technologies, or, if we failto do so, may face significant new challenges due to technologicaladvances adopted by competitors, which in turn could result in harming ourbusiness and operating results.

**Thecable and satellite television industry is subject to substantial governmentalregulation for which compliance may increase our costs and expose us topenalties for failure to comply.**

The cable television industry is subject to extensive legislationand regulation at the federal and local levels, and, in some instances, at thestate level, and many aspects of such regulation are currently the subject ofjudicial proceedings and administrative or legislative proposals. Similarly,the satellite television industry is subject to federal regulation. Operatingin a regulated industry increases our cost of doing business as a videoprogrammer.

The Cable Television Consumer Protection and Competition Act of1992, to which we refer as the 1992 Cable Act, includes provisions thatpreclude cable operators affiliated with video programmers from favoring theirprogrammers over competitors. The 1992 Cable Act also precludes suchprogrammers from selling their programming exclusively to cable operators.These provisions potentially benefit independent programmers such as us bylimiting the ability of cable operators affiliated with programmers fromcarrying only programming in which they have an ownership interest and fromoffering exclusive programming arrangements. However, the United States Courtof Appeals for the District of Columbia Circuit vacated the FCCRule limiting the carriage of affiliated programmers by cable operators.Although the FCC issued further notices of proposed rulemaking in 2001 and 2005addressing this issue, it has not adopted new rules. The exclusivity provisionis scheduled to expire in October 2007 unless the FCC then determines thata further extension is necessary to protect competition and diversity. If theseprovisions of the 1992 Cable Act expire or become no longer applicable, and ifwe are still able to increase the number of subscribers to our channel, thenthe costs associated with doing so may increase significantly.

Regulatory carriage requirements also could reduce the number ofchannels available to carry The Outdoor Channel. The 1992 Cable Act grantedtelevision broadcasters a choice of must-carry rights or retransmission consentrights. The rules adopted by the FCC generally provided for mandatorycarriage by cable systems of all local full-power commercial televisionbroadcast signals selecting must-carry rights and, depending on a cable system’schannel capacity, non-commercial television broadcast signals. Such statutorilymandated carriage of broadcast stations, coupled with the provisions of theCable Communications Policy Act of 1984, which require cable television systemswith 36 or more “activated” channels to reserve a percentage of such channelsfor commercial use by unaffiliated third parties and permit franchiseauthorities to require the cable operator to provide channel capacity,equipment and facilities for public, educational and government accesschannels, could reduce carriage of The Outdoor Channel by limiting its carriagein cable systems with limited channel capacity. In 2001, the FCC adoptedrules relating to the cable carriage of digital television signals. Amongother things, the rules clarify that a digital-only television station canassert a right to analog or digital carriage on a cable system. The FCCinitiated a further proceeding to determine whether television broadcastersmay assert the rights to carriage of both analog and digital signalsduring the transition to digital television and to carriage of all digitalsignals. On February 10, 2005, the FCC decided that televisionbroadcasters do not have such additional must-carry rights. Broadcastersformally have requested that the FCC reconsider this decision and are seekinglegislative change to require such carriage. The imposition of such additionalmust-carry regulation, in conjunction with any limited cable system channelcapacity, would increase the likelihood that cable operators may be forcedto drop some cable programming services and could reduce carriage of TheOutdoor Channel.

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The Telecommunications Act of 1996 required the FCC to establishrules and an implementation schedule to ensure that video programmingis fully accessible to the hearing impaired through closed captioning. Therules adopted by the FCC require substantial closed captioning over a sixto ten year phase-in period, which began in 2000, with only limited exemptions.As a result, we will continue to incur additional costs for closed captioning.

If we distribute television programming through other types ofmedia, we may be required to obtain federal, state and local licenses orother authorizations to offer such services. We may not be able to obtainlicenses or authorizations in a timely manner, or at all, or conditions couldbe imposed upon licenses and authorizations that may not be favorable tous.

In the future, any increased regulation of rates, and inparticular the rates for basic cable services, could, among other things, putdownward pressure on the rates charged by cable programming services, andaffect the ability or willingness of cable system operators to retain or to addThe Outdoor Channel network on their cable systems. In response to a requestfrom the Committee on Energy and Commerce of the House of Representatives, theFCC’s Media Bureau conducted a study in 2004 regarding, among other things,government-mandated a la carte or mini-tier packaging of programming servicesin which each subscriber would purchase only those channels that he or shedesired instead of the larger bundles of different channels as is typicaltoday. The Media Bureau’s report on November 18, 2004 observed that suchpackaging would increase the cost of programming to consumers and injureprogrammers. On February 9, 2006, the Media Bureau released a furtherreport which stated that the 2004 report was flawed and which concluded thata-la-carte sales could be in the best interests of consumers. Although the FCCcannot mandate a-al-carte sales, its endorsement of the concept could encourageCongress to consider proposals to mandate a-ala-carte sales or otherwise seekto impose greater regulatory controls on how cable programming is sold. If, inresponse to any statue enacted by Congress, or any rate or other governmentregulation, cable system operators implement channel offerings that requiresubscribers to affirmatively choose to pay a separate fee to receive TheOutdoor Channel, either by itself or in combination with a limited number ofother channels, the number of viewers for The Outdoor Channel could be reduced.

The regulation of programming services, cable television systemsand satellite licensees is subject to the political process and has been inconstant flux over the past decade. Further material changes in the law andregulatory requirements are difficult to anticipate and our businessmay be harmed by future legislation, new regulation, deregulation or courtdecisions interpreting laws and regulations.

**Wemust comply with many local, state, federal and environmental regulations, forwhich compliance may be costly and may expose us to substantialpenalties.**

Our recreational outdoor activity entities, GPAA and Lost Dutchman’s,share the general risks of all outdoor recreational activities such as personalinjury, environmental compliance and real estate and environmental regulation.In addition to the general cable television industry regulations, we are alsosubject to various local, state and federal regulations, including, withoutlimitation, regulations promulgated by federal and state environmental, healthand labor agencies. Our prospecting clubs are subject to various local, stateand federal statutes, ordinances, rules and regulations concerning zoning,development and other utilization of their properties. We cannot predict whatimpact current or future regulations may have on these businesses. Inaddition, failure to maintain required permits or licenses, or to comply withapplicable regulations, could result in substantial fines or costs orrevocation of our operating licenses, which would have a material adverse effecton our business and operating results.

**Ifour goodwill or other indefinite-lived intangibles become impaired, we will berequired to take a non-cash charge which could have a significant effect on ourreported net earnings.**

A significant portion of our assets consists of goodwill and otherindefinite-lived intangible assets. In accordance with Statement of FinancialAccounting Standards No. 142, “Goodwill and Other Intangible Assets”, orSFAS 142, we test goodwill and other indefinite-lived intangible assets forimpairment during the fourth quarter of each year, and on an interim date iffactors or indicators become apparent that would require an interim test. Asignificant downward revision in the present value of estimated future cashflows for a reporting unit could result in an impairment of goodwill or otherindefinite-lived intangibles under SFAS 142 and a non-cash charge would berequired. Such a charge could have a significant effect on our reported netearnings. For 2005, no impairment charge was required.

**Futureissuance by us of preferred shares could adversely affect the holders ofexisting shares, and therefore reduce the value of existing shares.**

We are authorized to issue up to 25,000,000 shares of preferredstock. The issuance of any preferred stock could adversely affect the rights ofthe holders of shares of our common stock, and therefore reduce the value ofsuch shares. No assurance can be given that we will not issue shares ofpreferred stock in the future.

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**Wedo not expect to pay dividends in the foreseeable future.**

We do not anticipate paying cash dividends on our common stock inthe foreseeable future. Any payment of cash dividends will also depend on ourfinancial condition, operating results, capital requirements and other factorsand will be at the discretion of our board of directors. Furthermore, wemay in the future become subject to contractual restrictions on, orprohibitions against, the payment of dividends.

**ITEM 1B.****              ****UNRESOLVED STAFF COMMENTS.**

None.

**ITEM 2.****                 ****PROPERTIES.**

We are currently leasing approximately 32,000 square feet ofcommercial property located at 43445 Business Park Drive in Temecula,California. In addition, we own approximately 36,000 square feet including23,000 square feet of office space and 13,000 square feet of warehouse spacelocated at 43455 Business Park Drive in Temecula. The property located at 43445Business Park Drive is currently used as both our headquarters and as ourbroadcast facility for The Outdoor Channel, and we are currently completing thebuild out of the property located at 43455 Business Park Drive for use as ourbroadcast facility. Both of these properties are used in connection with ourtwo segments (The Outdoor Channel and Membership Division) and the Corporateunit.

We also own the following properties that we use for camping andgold prospecting in connection with our membership division segment:
| Designation of Property | ** ** | **Approximate Number of Acres** | ** ** | **Location**   | ** ** |
|-----------------------------------|------------|------------------------------------------------|------------|----------------|------------|
| Cripple River                     |       | 2,300                                          |       | Alaska         |       |
| Loud Mine                         |       | 38                                             |       | Georgia        |       |
| Stanton Property                  |       | 35                                             |       | Arizona        |       |
| Burnt River                       |       | 135                                            |       | Oregon         |       |
| Cave Creek                        |       | 32                                             |       | Oregon         |       |
| Vein Mountain Camp                |       | 130                                            |       | North Carolina |       |
| Junction Bar Place                |       | 26                                             |       | California     |       |
| Oconee Camp                       |       | 120                                            |       | South Carolina |       |
| Leadville Property                |       | 60                                             |       | Colorado       |       |
| Omilak Silver Mine                |       | 40                                             |       | Alaska         |       |
| High Divide Property              |       | 20                                             |       | Nevada         |       |
| Athens Property                   |       | 70                                             |       | Michigan       |       |
| Blue Bucket                       |       | 119                                            |       | Oregon         |       |

 

In connection with our Membership Division segment, we also have amutual use agreement with a non-profit organization, Lost Dutchman’s Mining Association, Inc.,that owns property near some of the above properties. This mutual use agreementallows our members to camp and gold prospect on the properties owned by LostDutchman’s Mining Association, Inc., and in return, the members of LostDutchman’s Mining Association, Inc. may camp and gold prospect on ourproperties.

**ITEM 3.****                                                    ****LEGAL PROCEEDINGS.**

From time to time, we may be involvedin litigation relating to claims arising out of our operations. As of the dateof this report, we are not a party to any legal proceedings that are expected,individually or in the aggregate, to have a material adverse effect on ourbusiness, financial condition or operating results.

**ITEM 4.****                                                    ****SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.**

None

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**PART II**

**ITEM 5.****                                               ****MARKET FOR REGISTRANT’S COMMON EQUITY, RELATEDSTOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.**

*MarketInformation*

Our common stock began trading on The Nasdaq National Market onSeptember 15, 2004 under the symbol “OUTD”. Prior to September 14, 2004,our common stock was listed for trading on NASD’s OTC Bulletin Board, alsounder the trading symbol “OUTD”. The following table sets forth for thequarters indicated the reported high and low bid prices of our common stock asquoted on NASD’s OTC Bulletin Board through September 14, 2004 and isadjusted for the 5 for 2 stock split effective September 15, 2004. Thesequotations reflect inter-dealer prices, without retail mark-up, mark-down orcommission, and may not represent actual transactions. After September 15,2004 the table sets forth the high and low closing prices of our common stockas reported on The Nasdaq National Market.
|            | ** ** | ** **                               | ** ** | **Bid**  | ** ** |
|------------|------------|------------------------------------------|------------|----------|------------|
| ** ** | ** ** | ** **                               | ** ** | **High** | ** ** | **Low** | ** ** |
| 2004       |       | First Quarter                            |       | 15.84    |       | 11.96 |   |
|       |       | Second Quarter                           |       | 17.20    |       | 13.60 |   |
|       |       | Third Quarter to September 14, 2004 |       | 15.60    |       | 13.40 |   |

 
|            | ** ** | ** **                                  | ** ** | **Closing Price** | ** ** |
|------------|------------|---------------------------------------------|------------|------------------------|------------|
| ** ** | ** ** | ** **                                  | ** ** | **High**               | ** ** | **Low** | ** ** |
|       |       | Third Quarter from  September 15, 2004 |       | 18.00                  |       | 15.50 |   |
|       |       | Fourth Quarter                              |       | 15.25                  |       | 13.25 |   |
|       |       |                                        |       |                   |       |   |   |
| 2005       |       | First Quarter                               |       | 14.95                  |       | 13.36 |   |
|       |       | Second Quarter                              |       | 17.00                  |       | 13.76 |   |
|       |       | Third Quarter                               |       | 14.76                  |       | 12.77 |   |
|       |       | Fourth Quarter                              |       | 16.50                  |       | 13.47 |   |

 

As of December 31, 2005, there were approximately911 holders of record of our common stock.

**DIVIDENDPOLICY**

We have never declared or paid any cash dividends onour common stock, and we do not anticipate paying any cash dividends in theforeseeable future. We currently anticipate that we will retain all of ourfuture earnings for use in the development and expansion of our business andfor general corporate purposes. Any determination to pay dividends in thefuture will be at the discretion of our board of directors and will depend uponour results of operation, financial condition and other factors as the board ofdirectors, in its discretion, deems relevant.

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**ITEM 6.****                                                   ****SELECTED CONSOLIDATED FINANCIAL DATA.**

You should read the selected consolidated financialdata presented below in conjunction with the audited consolidated financialstatements appearing elsewhere in this report and the notes to those statementsand “Management’s Discussion and Analysis of Financial Condition and Results ofOperations.” The selected consolidated financial data as of December 31,2005 and 2004, and for each of the years in the three-year period endedDecember 31, 2005 have been derived from our audited consolidatedfinancial statements which appear elsewhere in this report. The selectedconsolidated financial data as of December 31, 2003, 2002 and 2001 and foreach of the years in the two-year period ended December 31, 2002 have beenderived from our audited consolidated financial statements which are notincluded in this report. The historical results are not necessarily indicativeof the operating results to be expected in the future. All financialinformation presented has been prepared in United States dollars and inaccordance with accounting principles generally accepted in the United Statesof America (U.S. GAAP).

In 2004, we completed the acquisition of all of the outstanding sharesof The Outdoor Channel, Inc. that we did not previously own. Please see “Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Acquisition of the Minority Interest of The OutdoorChannel, Inc.” for a discussion regarding this transaction and thecomparability of the 2004 information.
| ** **                                                  | ** ** | **Year Ended December 31,**                            | ** ** |
|-------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                                                              | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                  | ** ** | **(Restated)**                                                        | ** ** | **(Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | **(In thousands, except per share amounts)** | ** ** |
| **Income  Statement Data:**                                 | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues:                                                   |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Advertising                                                 |       | $                                                                     | 22,769     |   | $ | 21,817 |   | $ | 16,396 |   | $ | 10,969 |   | $ | 8,645 |   |
| Subscriber fees                                             |       | 15,432                                                                |       | 13,391 |   | 10,836 |   | 6,071 |   | 3,874 |   |
| Membership income                                           |       | 4,707                                                                 |       | 4,746 |   | 4,456 |   | 4,353 |   | 4,715 |   |
| Total revenues                                              |       | 42,908                                                                |       | 39,954 |   | 31,688 |   | 21,393 |   | 17,234 |   |
|                                                        |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Income (loss)  from operations                              |       | 2,798                                                                 |       | (39,704 | ) | 7,627 |   | 4,576 |   | 1,684 |   |
| Income (loss)  before income taxes and minority interest    |       | 3,696                                                                 |       | (39,589 | ) | 7,653 |   | 4,621 |   | 1,710 |   |
| Income tax  provision (benefit)                             |       | 1,503                                                                 |       | (16,011 | ) | 3,162 |   | 1,882 |   | 718 |   |
| Income (loss)  before minority interest                     |       | 2,193                                                                 |       | (23,578 | ) | 4,491 |   | 2,739 |   | 992 |   |
| Minority interest  in net income of consolidated subsidiary |       | —                                                                |       | 682 |   | 897 |   | 444 |   | 181 |   |
| Net income  (loss)                                          |       | 2,193                                                                 |       | (24,260 | ) | 3,594 |   | 2,295 |   | 811 |   |
| Preferred stock  dividends                                  |       | —                                                                |       | — |   | — |   | (90 | ) | — |   |
| Net income  (loss) applicable to common stock               |       | $                                                                     | 2,193      |   | $ | (24,260 | ) | $ | 3,594 |   | $ | 2,205 |   | $ | 811 |   |
| Earnings (loss)  per common share:                          |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Basic                                                       |       | $                                                                     | 0.10       |   | $ | (1.52 | ) | $ | 0.26 |   | $ | 0.17 |   | $ | 0.06 |   |
| Diluted                                                     |       | $                                                                     | 0.09       |   | $ | (1.52 | ) | $ | 0.19 |   | $ | 0.15 |   | $ | 0.06 |   |
| Weighted average  number of common shares outstanding:      |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Basic                                                       |       | 21,423                                                                |       | 15,998 |   | 13,824 |   | 13,220 |   | 13,071 |   |
| Diluted                                                     |       | 24,732                                                                |       | 15,998 |   | 14,768 |   | 14,627 |   | 14,597 |   |

 
| ** **                       | ** ** | **As of December 31,** | ** ** |
|----------------------------------|------------|---------------------------------------|------------|
| ** **                       | ** ** | **2005**                              | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                       | ** ** | **(Restated)**                        | ** ** | **(Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **(In thousands)**               | ** ** |
| **Balance  Sheet Data:**         | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and cash  equivalents       |       | $                                     | 18,276     |   | $ | 13,105 |   | $ | 7,214 |   | $ | 3,248 |   | $ | 2,574 |   |
| Goodwill                         |       | 44,457                                |       | 44,457 |   | — |   | — |   | — |   |
| Total assets                     |       | 151,822                               |       | 99,569 |   | 19,848 |   | 11,830 |   | 9,214 |   |
| Total  liabilities               |       | 10,018                                |       | 6,187 |   | 4,353 |   | 4,405 |   | 4,387 |   |
| Minority  interest in subsidiary |       | —                                |       | — |   | 2,302 |   | 1,263 |   | 812 |   |
| Stockholders’ equity        |       | $                                     | 141,804    |   | $ | 93,382 |   | $ | 13,193 |   | $ | 6,162 |   | $ | 4,015 |   |

 

26

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As describedfurther in “Management’s Discussion and Analysis of Financial Condition andResults of Operations  — Effects ofRestatement” and “Note 18 of the notes to the consolidated financial statements”,this Form 10-K/A amends our previously filed Form 10-K for the year endedDecember 31, 2005 to reflect adjustments to the consolidated financialstatements arising from the effects of a reclassification of all of the amountsoriginally allocated to the cost of MSO relationships from other non-amortizable intangible assets toamortizable intangible assets and the determination that they have an estimateduseful life of 21 years and 4 months. The adjustments are a result of acorrection of the accounting treatment for the portion of the excess of thecost of the minority interest over the fair value of the underlying interest inthe net identifiable assets acquired related to the acquisition of theremaining minority interest in TOC that we did not previously own on September8, 2004 that was allocated to the MSO relationships. The adjustments were basedon a review in the third quarter of 2006 of the facts and circumstances, thenature of our business, our experience with the MSOs and the proclivities ofour industry as of September 8, 2004. The cost allocated to MSO relationshipsand originally included in other non-amortizable intangible assets as ofDecember 31, 2005 and 2004 was $10,573,000. The consolidated balance sheetsincluded in this Form 10-K/A have been restated to reflect, among other things,reductions in the carrying value of the MSO relationships to $9,912,000 and$10,408,000 as a result of recording accumulated amortization of $661,000 and$165,000 as of December 31, 2005 and 2004, respectively. The consolidatedstatements of operations included in this Form 10-K/A have been restated toreflect, among other things, additional amortization expense for the MSOrelationships of $496,000 and $165,000, a reduction in the income tax provisionand the income tax benefit of $196,000 and $65,000 and a reduction in netincome and an increase in net loss of $300,000 and $100,000 in 2005 and 2004,respectively.

**ITEM 7.****                                               ****MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

**Safe Harbor Statement**

The information contained in this report may includeforward-looking statements. Our actual results could differ materially fromthose discussed in any forward-looking statements. The statements contained inthis report that are not historical are “forward-looking statements” within themeaning of Section 27A of the Securities Act of 1933, as amended (the “SecuritiesAct”), and Section 21E of the Securities Exchange Act of 1934, as amended(the “Exchange Act”), including statements, without limitation, regarding ourexpectations, beliefs, intentions or strategies regarding the future. We intendthat such forward-looking statements be subject to the safe-harbor provisionscontained in those sections. Such forward-looking statements relate to, amongother things: (1) expected revenue and earnings growth and changes in mix;(2) anticipated expenses including advertising, programming, personnel andothers; (3) Nielsen Media Research, which we refer to as Nielsen,estimates regarding total households and cable and satellite homes subscribingto and viewers (ratings) of The Outdoor Channel; and (4) other matters. Weundertake no obligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events or otherwise.

These statements involve significant risks and uncertainties andare qualified by important factors that could cause our actual results todiffer materially from those reflected by the forward-looking statements. Suchfactors include but are not limited to risks and uncertainties which arediscussed above under “Item 1A Risk Factors” and other risks and uncertaintiesdiscussed elsewhere in this report. In assessing forward-looking statementscontained herein, readers are urged to read carefully all cautionary statementscontained in this Form 10-K and in our other filings with the Securitiesand Exchange Commission. For these forward-looking statements, we claim theprotection of the safe harbor for forward-looking statements in Section 27Aof the Securities Act and Section 21E of the Exchange Act.

**Effects of Restatement**

This Form 10-K/Aamends our previously filed Form 10-K for the year ended December 31, 2005 toreflect adjustments to the consolidated financial statements as of and for theyears ended December 31, 2005 and 2004 arising from the effects of areclassification of all of the amounts originally allocated to the cost of MSOrelationships from other non-amortizable intangible assets to amortizableintangible assets and the determination that they have an estimated useful lifeof 21 years and 4 months. In addition, certain amounts included under “expenses”in the 2005, 2004 and 2003 consolidated statements of operations we originallyissued have been reclassified to either “cost of services’ or “other expenses”to provide additional detail about our operating results and more fully complywith the SEC’s Regulation S-X. Cost of services includes programming, satellitetransmission fees, production and operations and other direct costs. Otherexpenses include advertising, selling, general and administrative anddepreciation and amortization. Further, to better match intangible assets withthe segment to which they pertain, we have reclassified the amortizableintangible assets and the goodwill which we recorded in connection with theacquisition on September 8, 2004 that was allocated to MSO relationships. Theadjustments to the 2005 and 2004 consolidated financial statements are a resultof a correction of the accounting treatment for the portion of the excess ofthe cost of the minority interest over the fair value of the underlyinginterest in the net identifiable assets acquired related to the acquisition ofthe remaining minority interest in TOC that we did not previously own onSeptember 8, 2004 that was allocated to the MSO relationships. The adjustmentswere based on a review in the third quarter of 2006 of the facts and

27

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circumstances,the nature of our business, our experience with the MSOs and the proclivitiesof our industry as of September 8, 2004. Although the revised estimate of theuseful life of these assets resulted in adjustments to and the restatement ofour consolidated financial statements included in this Form 10-K/A as of andfor the year ended December 31, 2004, we determined that the effects of theseadjustments were immaterial, individually and in the aggregate, to our annualand quarterly reports filed prior to January 1, 2005 and thus we did not amendthose filings. The accompanying consolidated financial statements and therelated notes have been restated to reflect the effects of the adjustmentsarising from the reassessment of the estimated useful life of the MSOrelationships as explained in Note 18 and below:

As a result of the determination of theestimated useful life of MSO relationships discussed above, we have restatedthe following Items and sections of this Form 10-K/A:

Item 6.             Selected Financial Data

Item 7.             Management’s Discussion and Analysis of Financial Condition andResults of Operations

Item 8.             Financial Statements and Supplementary Data:

Restated Consolidated Balance Sheets as ofDecember 31, 2005 and 2004;Restated Consolidated Statements of Operations for the years ended December 31,2005 and 2004;Restated Consolidated Statements of Stockholders’ Equity for the years endedDecember 31, 2005 and 2004;Restated Consolidated Statements of Cash Flows for the years ended December 31,2005 and 2004;

Note 2 toConsolidated Financial Statements; Summary of Significant Accounting Policies–Earnings(Loss) Per  Share and Stock Options;

Note 3 to Consolidated FinancialStatements; Acquisition of Minority Interest in The Outdoor Channel, Inc.;

Note 7 to Consolidated FinancialStatements; Property, Plant and Equipment and Amortizable Intangible Assets;

Note 10 to Consolidated FinancialStatements; Income Taxes;

Note 13 to Consolidated FinancialStatements; Segment Information;

Note 17 to Consolidated FinancialStatements; Quarterly Financial Information (Unaudited); and

Note 18 to Consolidated Financial Statements; Restatements ofConsolidated Financial Statements.

Except for the related corrections toNotes 2, 3, 7, 10, 13 and 17 and certain other immaterial corrections, theremaining Items required by Form 10-K are not amended hereby, but are included herewithfor ease of the reader. Except as expressly noted herein, this report continuesto speak as of the date of the original filing, and we have not updated thedisclosures in this report to speak as of a later date.

Except as otherwise expressly notedherein, this Form 10-K/A does not reflect events occurring after the March 16,2006 filing of our Annual Report on Form 10-K in any way, except those requiredto reflect the effects of this restatement of our consolidated financialstatements for the periods presented or as deemed necessary in connection withthe completion of restated financial statements.

Whilethis report primarily relates to the historical periods covered, events mayhave taken place since the original filing that might have been reflected inthis report if they had taken place prior to the original filing.

**The Effects on the Consolidated Balance Sheets**

As a result of therestatement, our consolidated balance sheet as of December 31, 2005 changed asfollows:
|                                          | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
|                                     |       |                             |       |                 |       |       |       |
| Amortizable  intangible assets, net      |       | $                                | 1,380      |                 | $          | 11,292     |       | $ | 9,912 |   |
|                                     |       |                             |       |                 |       |       |       |
| Other  non-amortizable intangible assets |       | 10,573                           |       | —               |       | (10,573    | )          |
| Deferred tax  assets, net                |       | 9,230                            |       | 9,491                |       | 261        |       |
| Total assets                             |       | 152,222                          |       | 151,822              |       | (400       | )          |
| Accumulated  deficit                     |       | (14,964                          | )          | (15,364              | )          | (400       | )          |
| Total stockholders’  equity         |       | 142,204                          |       | 141,804              |       | (400       | )          |
|                                          |            |                                  |            |                      |            |            |            |  |  |  |

 

28

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As a result of therestatement, our consolidated balance sheet as of December 31, 2004 changed asfollows:
|                                          | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
|                                     |       |                             |       |                 |       |       |       |
| Amortizable  intangible assets, net      |       | $                                | 1,939      |                 | $          | 12,347     |       | $ | 10,408 |   |
|                                     |       |                             |       |                 |       |       |       |
| Other  non-amortizable intangible assets |       | 10,573                           |       | —               |       | (10,573    | )          |
| Deferred tax  assets, net                |       | 14,074                           |       | 14,139               |       | 65         |       |
| Total assets                             |       | 99,669                           |       | 99,569               |       | (100       | )          |
| Accumulated  deficit                     |       | (17,457                          | )          | (17,557              | )          | (100       | )          |
| Total stockholders’  equity         |       | 93,482                           |       | 93,382               |       | (100       | )          |
|                                          |            |                                  |            |                      |            |            |            |  |  |  |

 

**The Effects on the ConsolidatedStatements of Operations**

As a result of therestatement, the consolidated statements of operations for years ended December31, 2005 and 2004 changed as follows:
|                                                          | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                               | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  year ended December 31, 2005**                |       |                                   |       |                 |       |       |       |
| Depreciation and amortization                            |       | $                                      | 2,225      |                 | $          | 2,721      |       | $ | 496 |   |
| Total other expenses                                     |       | 26,897                                 |       | 27,393               |       | 496        |       |
| Income (loss) from operations                            |       | 3,294                                  |       | 2,798                |       | (496       | )          |
| Income (loss) before income taxes and minority  interest |       | 4,192                                  |       | 3,696                |       | (496       | )          |
| Income tax provision (benefit)                           |       | 1,699                                  |       | 1,503                |       | (196       | )          |
| Income (loss) before minority interest                   |       | 2,493                                  |       | 2,193                |       | (300       | )          |
| Net income (loss)                                        |       | 2,493                                  |       | 2,193                |       | (300       | )          |
| Earnings (loss) per share:                               |       |                                   |       |                 |       |       |       |
| Basic                                                    |       | $                                      | 0.12       |                 | $          | 0.10       |       | $ | (0.02 | ) |
| Diluted                                                  |       | $                                      | 0.10       |                 | $          | 0.09       |       | $ | (0.01 | ) |
|                                                     |       |                                   |       |                 |       |       |       |
| **For the  year ended December 31, 2004**                |       |                                   |       |                 |       |       |       |
|                                                     |       |                                   |       |                 |       |       |       |
| Depreciation and amortization                            |       | $                                      | 1,259      |                 | $          | 1,424      |       | $ | 165 |   |
| Total other expenses                                     |       | 71,123                                 |       | 71,288               |       | 165        |       |
| Income (loss) from operations                            |       | (39,539                                | )          | (39,704              | )          | (165       | )          |
| Income (loss) before income taxes and minority  interest |       | (39,424                                | )          | (39,589              | )          | (165       | )          |
| Income tax provision (benefit)                           |       | (15,946                                | )          | (16,011              | )          | (65        | )          |
| Income (loss) before minority interest                   |       | (23,478                                | )          | (23,578              | )          | (100       | )          |
| Net income (loss)                                        |       | (24,160                                | )          | (24,260              | )          | (100       | )          |
| Earnings (loss) per share:                               |       |                                   |       |                 |       |       |       |
| Basic                                                    |       | $                                      | (1.51      | )                    | $          | (1.52      | )          | $ | (0.01 | ) |
| Diluted                                                  |       | $                                      | (1.51      | )                    | $          | (1.52      | )          | $ | (0.01 | ) |

 

**The Effects on the ConsolidatedStatement of Stockholders’ Equity**

As a result of therestatement, the balance of the accumulated deficit as of December 31, 2005 wasincreased by $400 to $15,364 from $14,964 and the balance as of December 31,2004 was increased by $100 to $17,557 from $17,457.

29

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**The Effects on the ConsolidatedStatement of Cash Flows**

As a result of therestatement, the consolidated statements of cash flows for the years endedDecember 31, 2005 and 2004 changed as follows:

|                                           | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|-------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  year ended December 31, 2005** |       |                                   |       |                 |       |       |       |
|                                      |       |                                   |       |                 |       |       |       |
| Net income (loss)                         |       | $                                      | 2,493      |                 | $          | 2,193      |       | $ | (300 | ) |
| Depreciation and amortization             |       | 2,234                                  |       | 2,730                |       | 496        |       |
| Deferred tax provision (benefit), net     |       | 3,190                                  |       | 2,994                |       | (196       | )          |
|                                      |       |                                   |       |                 |       |       |       |
| **For the  year ended December 31, 2004** |       |                                   |       |                 |       |       |       |
|                                      |       |                                   |       |                 |       |       |       |
| Net income (loss)                         |       | $                                      | (24,160    | )                    | $          | (24,260    | )          | $ | (100 | ) |
| Depreciation and amortization             |       | 1,259                                  |       | 1,424                |       | 165        |       |
| Deferred tax provision  (benefit), net    |       | (17,619                                | )          | (17,684              | )          | (65        | )          |

 

**The Effects on Note 2 – Summaryof Significant Accounting Policies – Earnings (Loss) Per Share and StockOptions**

The effects of therestatements on the historical and pro forma information in Note 2 fromassuming that compensation cost related to employee stock options had beendetermined for the years ended December 31, 2005 and 2004 based on the fairvalue instead of the intrinsic value of the options at the grant date are setforth below:
|                                           | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                | ** ** | ** **                       | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  year ended December 31, 2005** |       |                             |       |                 |       |       |       |
|                                      |       |                             |       |                 |       |       |       |
| Net income (loss)                         |       | $                                | 2,493      |                 | $          | 2,193      |       | $ | (300 | ) |
| Pro forma – basic and diluted        |       | 764                              |       | 464                  |       | (300       | )          |
| Basic earnings (loss) per share:          |       |                             |       |                 |       |       |       |
| As reported                               |       | $                                | 0.12       |                 | $          | 0.10       |       | $ | (0.02 | ) |
| Pro forma                                 |       | $                                | 0.04       |                 | $          | 0.02       |       | $ | (0.02 | ) |
| Diluted earnings (loss) per share:        |       |                             |       |                 |       |       |       |
| As reported                               |       | $                                | 0.10       |                 | $          | 0.09       |       | $ | (0.01 | ) |
| Pro forma                                 |       | $                                | 0.03       |                 | $          | 0.02       |       | $ | (0.01 | ) |
|                                      |       |                             |       |                 |       |       |       |
| **For the  year ended December 31, 2004** |       |                             |       |                 |       |       |       |
|                                      |       |                             |       |                 |       |       |       |
| Net income (loss)                         |       | $                                | (24,160    | )                    | $          | (24,260    | )          | $ | (100 | ) |
| Pro forma – basic and diluted        |       | 2,102                            |       | 2,002                |       | (100       | )          |
| Basic earnings (loss) per share:          |       |                             |       |                 |       |       |       |
| As reported                               |       | $                                | (1.51      | )                    | $          | (1.52      | )          | $ | (0.01 | ) |
| Pro forma                                 |       | $                                | 0.13       |                 | $          | 0.13       |       | $ | — |   |
| Diluted earnings (loss) per share:        |       |                             |       |                 |       |       |       |
| As reported                               |       | $                                | (1.51      | )                    | $          | (1.52      | )          | $ | (0.01 | ) |
| Pro forma                                 |       | $                                | 0.13       |                 | $          | 0.13       |       | $ | — |   |

 

30

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**The Effects on Note 7 – Property,Plant and Equipment and Amortizable Intangible Assets**

As a result of thereclassification of the MSO relationships assets from non-amortizableintangible assets to amortizable intangible assets, the following informationwas included in Note 7:
|                                           | ** ** | **MSO  Relationships** | ** ** |
|-------------------------------------------|------------|------------------------|------------|
| **For the year ended December 31, 2005**  |       |                   |       |
|                                      |       |                   |       |
| Residual value                            |       | $                      | —     |   |
| Weighted average amortization period      |       | 21 years, 4 months     |       |
|                                      |       |                   |       |
| Gross carrying amount                     |       | $                      | 10,573     |   |
| Less accumulated amortization             |       | 661                    |       |
| Net book value                            |       | $                      | 9,912      |   |
|                                      |       |                   |       |
| **For the  year ended December 31, 2004** |       |                   |       |
|                                      |       |                   |       |
| Residual value                            |       | $                      | —     |   |
| Weighted average amortization period      |       | 21 years, 4 months     |       |
|                                      |       |                   |       |
| Gross carrying amount                     |       | $                      | 10,573     |   |
| Less accumulated amortization             |       | 165                    |       |
| Net book value                            |       | $                      | 10,408     |   |

 

**The Effects on Note 10 – IncomeTaxes**

The components ofthe provision (benefit) for income taxes that changed were as follows:
|                | ** ** | **2005**                           | ** ** | **2004**                           | ** ** |
|----------------|------------|------------------------------------|------------|------------------------------------|------------|
| ** **     | ** ** | **(as Originally  Reported)** | ** ** | **(as Originally  Reported)** | ** ** |
| Deferred:      |       |                               |       |                               |       |
| Federal        |       | $                                  | 2,877      |                               | $          | (13,512 | ) |
| State          |       | 313                                |       | (4,107                             | )          |
| Total deferred |       | $                                  | 3,190      |                               | $          | (17,619 | ) |
| Totals         |       | $                                  | 1,699      |                               | $          | (15,946 | ) |

 
|                | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|----------------|------------|------------------------|------------|------------------------|------------|
| ** **     | ** ** | **(as Restated)** | ** ** | **(as Restated)** | ** ** |
| Deferred:      |       |                   |       |                   |       |
| Federal        |       | $                      | 2,710      |                   | $          | (13,568 | ) |
| State          |       | 284                    |       | (4,116                 | )          |
| Total deferred |       | $                      | 2,994      |                   | $          | (17,684 | ) |
| Totals         |       | $                      | 1,503      |                   | $          | (16,011 | ) |

 
|                | ** ** | **2005**     | ** ** | **2004**     | ** ** |
|----------------|------------|--------------|------------|--------------|------------|
| ** **     | ** ** | **(Change)** | ** ** | **(Change)** | ** ** |
| Deferred:      |       |         |       |         |       |
| Federal        |       | $            | (167       | )            | $          | (56 | ) |
| State          |       | (29          | )          | (9           | )          |
| Total deferred |       | $            | (196       | )            | $          | (65 | ) |
| Totals         |       | $            | (196       | )            | $          | (65 | ) |

 

31

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The components of the tax effects of the temporary differencesthat give rise to significant portions of the deferred tax assets and deferredtax liabilities as of December 31, 2005 and 2004 that changed were as follows:
|                            | ** ** | **2005**                       | ** ** | **2004**                       | ** ** |
|----------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                 | ** ** | **(as  Originally  Reported)** | ** ** | **(as  Originally  Reported)** | ** ** |
| Deferred tax  liabilities: |       |                           |       |                           |       |
| Fixed assets               |       | $                              | (251       | )                              | $          | (345 | ) |
| Intangible assets          |       | (4,726                         | )          | (4,946                         | )          |
| Other                      |       | (78                            | )          | (24                            | )          |
|                       |       | $                              | (5,055     | )                              | $          | (5,315 | ) |
| Deferred tax assets,  net  |       | $                              | 10,245     |                           | $          | 13,580 |   |

 
|                            | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|----------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                 | ** ** | **(as Restated)** | ** ** | **(as Restated)** | ** ** |
| Deferred tax  liabilities: |       |                   |       |                   |       |
| Fixed assets               |       | $                      | (251       | )                      | $          | (345 | ) |
| Intangible assets          |       | (4,465                 | )          | (4,881                 | )          |
| Other                      |       | (78                    | )          | (24                    | )          |
|                       |       | $                      | (4,794     | )                      | $          | (5,250 | ) |
| Deferred tax assets,  net  |       | $                      | 10,506     |                   | $          | 13,645 |   |

 
|                            | ** ** | **2005**     | ** ** | **2004**     | ** ** |
|----------------------------|------------|--------------|------------|--------------|------------|
| ** **                 | ** ** | **(Change)** | ** ** | **(Change)** | ** ** |
| Deferred tax  liabilities: |       |         |       |         |       |
| Fixed assets               |       | $            | —     |         | $          | — |   |
| Intangible assets          |       | 261          |       | 65           |       |
| Other                      |       | —       |       | —       |       |
|                       |       | $            | 261        |         | $          | 65 |   |
| Deferred tax assets,  net  |       | $            | 261        |         | $          | 65 |   |

 

32

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The reconciliation of the provision (benefit) for income taxesreflected in the accompanying consolidated statements of operations to thosecomputed based on the applicable statutory Federal income tax rate of 34% in2005 and 2004 were as follows:

|                                                                      | ** ** | **2005**                       | ** ** | **2004**                       | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                                           | ** ** | **(as  Originally  Reported)** | ** ** | **(as  Originally  Reported)** | ** ** |
| Federal income tax  provision (benefit) at statutory income tax rate |       | $                              | 1, 425     |                           | $          | (13, 532 | ) |
| State taxes, net of  federal benefit                                 |       | 251                            |       | (2,197                         | )          |
| Non-deductible expense                                               |       | 35                             |       | 38                             |       |
| Deferred compensation                                                |       | —                         |       | (198                           | )          |
| Other                                                                |       | (12                            | )          | (57                            | )          |
| Income tax provision (benefit)                                       |       | $                              | 1,699      |                           | $          | (15,946 | ) |

 

|                                                                      | ** ** | **2005**           | ** ** | **2004**           | ** ** |
|----------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                                           | ** ** | **(as  Restated)** | ** ** | **(as  Restated)** | ** ** |
| Federal income tax  provision (benefit) at statutory income tax rate |       | $                  | 1,258      |               | $          | (13,588 | ) |
| State taxes, net of  federal benefit                                 |       | 222                |       | (2,206             | )          |
| Non-deductible expense                                               |       | 35                 |       | 38                 |       |
| Deferred compensation                                                |       | —             |       | (198               | )          |
| Other                                                                |       | (12                | )          | (57                | )          |
| Income tax provision (benefit)                                       |       | $                  | 1,503      |               | $          | (16,011 | ) |

 

|                                                                      | ** ** | **2005**     | ** ** | **2004**     | ** ** |
|----------------------------------------------------------------------|------------|--------------|------------|--------------|------------|
| ** **                                                           | ** ** | **(Change)** | ** ** | **(Change)** | ** ** |
| Federal income tax  provision (benefit) at statutory income tax rate |       | $            | (167       | )            | $          | (56 | ) |
| State taxes, net of  federal benefit                                 |       | (29          | )          | (9           | )          |
| Non-deductible expense                                               |       | —       |       | —       |       |
| Deferred compensation                                                |       | —       |       | —       |       |
| Other                                                                |       | —       |       | —       |       |
| Income tax provision (benefit)                                       |       | $            | (196       | )            | $          | (65 | ) |

 

33

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**The Effects on Note 13 – SegmentInformation**

As a result of therestatement, segment information for the years ended December 31, 2005 and 2004changed as follows:
| ** **                                                                     | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to  Property,  Plant and  Improvements** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------|------------|
| **As of and for the Year Ended  December 31, 2005**                            |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| **As  reported and adjusted for the reclassification as described in Note 13** |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| TOC                                                                            |       | $            | 37,527     |                                              | $          | 5,361             |       | $                                   | 79,686     |                                                           | $          | 1,892 |   | $ | 10,224 |   |
| Membership  Division                                                           |       | 5,381        |       | 280                                               |       | 5,017             |       | 342                                 |       | 335                                                            |       |
| Subtotals of  Segments                                                         |       | 42,908       |       | 5,641                                             |       | 84,703            |       | 2,234                               |       | 10,559                                                         |       |
| Corporate                                                                      |       | —       |       | (1,449                                            | )          | 67,519            |       | —                              |       | —                                                         |       |
| Totals                                                                         |       | $            | 42,908     |                                              | $          | 4,192             |       | $                                   | 152,222    |                                                           | $          | 2,234 |   | $ | 10,559 |   |
|                                                                           |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| **As restated**                                                                |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| TOC                                                                            |       | $            | 37,527     |                                              | $          | 4,865             |       | $                                   | 79,025     |                                                           | $          | 2,388 |   | $ | 10,224 |   |
| Membership  Division                                                           |       | 5,381        |       | 280                                               |       | 5,017             |       | 342                                 |       | 335                                                            |       |
| Subtotals of  Segments                                                         |       | 42,908       |       | 5,145                                             |       | 84,042            |       | 2,730                               |       | 10,559                                                         |       |
| Corporate                                                                      |       | —       |       | (1,449                                            | )          | 67,780            |       | —                              |       | —                                                         |       |
| Totals                                                                         |       | $            | 42,908     |                                              | $          | 3,696             |       | $                                   | 151,822    |                                                           | $          | 2,730 |   | $ | 10,559 |   |
| ** **                                                                     | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| **As of and for the Year Ended  December 31, 2004**                            |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| **As  reported and adjusted for the reclassification as described in Note 13** |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| TOC                                                                            |       | $            | 34,596     |                                              | $          | (38,165           | )          | $                                   | 78,739     |                                                           | $          | 915 |   | $ | 1,938 |   |
| Membership  Division                                                           |       | 5,358        |       | 354                                               |       | 6,857             |       | 344                                 |       | 611                                                            |       |
| Subtotals of  Segments                                                         |       | 39,954       |       | (37,811                                           | )          | 85,596            |       | 1,259                               |       | 2,549                                                          |       |
| Corporate                                                                      |       | —       |       | (1,613                                            | )          | 14,073            |       | —                              |       | —                                                         |       |
| Totals                                                                         |       | $            | 39,954     |                                              | $          | (39,424           | )          | $                                   | 99,669     |                                                           | $          | 1,259 |   | $ | 2,549 |   |
|                                                                           |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| **As  restated**                                                               |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| TOC                                                                            |       | $            | 34,596     |                                              | $          | (38,330           | )          | $                                   | 78,574     |                                                           | $          | 1,080 |   | $ | 1,938 |   |
| Membership  Division                                                           |       | 5,358        |       | 354                                               |       | 6,857             |       | 344                                 |       | 611                                                            |       |
| Subtotals of  Segments                                                         |       | 39,954       |       | (37,976                                           | )          | 85,431            |       | 1,424                               |       | 2,549                                                          |       |
| Corporate                                                                      |       | —       |       | (1,613                                            | )          | 14,138            |       | —                              |       | —                                                         |       |
| Totals                                                                         |       | $            | 39,954     |                                              | $          | (39,589           | )          | $                                   | 99,569     |                                                           | $          | 1,424 |   | $ | 2,549 |   |

 

34

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The changes inthese balances were as follows:
|                                                            | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to  Property,  Plant and  Improvements** | ** ** |
|------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------|------------|
| **Change  as of and for the Year Ended December 31, 2005** |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| TOC                                                        |       | $            | —     |                                              | $          | (496              | )          | $                                   | (661       | )                                                              | $          | 496 |   | $ | — |   |
| Membership Division                                        |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                         |       |
| Subtotals of Segments                                      |       | —       |       | (496                                              | )          | (661              | )          | 496                                 |       | —                                                         |       |
| Corporate                                                  |       | —       |       | —                                            |       | 261               |       | —                              |       | —                                                         |       |
| Totals                                                     |       | $            | —     |                                              | $          | (496              | )          | $                                   | (400       | )                                                              | $          | 496 |   | $ | — |   |
|                                                       |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| **Change  as of and for the Year Ended December 31, 2004** |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| TOC                                                        |       | $            | —     |                                              | $          | (165              | )          | $                                   | (165       | )                                                              | $          | 165 |   | $ | — |   |
| Membership Division                                        |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                         |       |
| Subtotals of Segments                                      |       | —       |       | (165                                              | )          | (165              | )          | 165                                 |       | —                                                         |       |
| Corporate                                                  |       | —       |       | —                                            |       | 65                |       | —                              |       | —                                                         |       |
| Totals                                                     |       | $            | —     |                                              | $          | (165              | )          | $                                   | (100       | )                                                              | $          | 165 |   | $ | — |   |

 

**The Effects on Note 17 –Quarterly Financial Information (Unaudited)**

As a result of therestatement, quarterly financial information for the years ended December 31,2005 and 2004 changed as follows:
| ** **                  | ** ** | **Three Months Ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **March 31**                | ** ** | **June 30** | ** ** | **September  30** | ** ** | **December 31** | ** ** |
| **As Reported**        |       |                             |       |   |   |   |   |   |   |
| 2005                        |       |                             |       |   |   |   |   |   |   |
| Revenue                     |       | $                                | 10,061     |   | $ | 10,014 |   | $ | 11,404 |   | $ | 11,429 |   |
| Income from  operations     |       | 728                              |       | 839 |   | 261 |   | 1,466 |   |
| Net income                  |       | 452                              |       | 512 |   | 323 |   | 1,206 |   |
| Earnings per  common share: |       |                             |       |   |   |   |   |   |   |
| Basic                       |       | $                                | 0.02       |   | $ | 0.03 |   | $ | 0.01 |   | $ | 0.05 |   |
| Diluted                     |       | $                                | 0.02       |   | $ | 0.02 |   | $ | 0.01 |   | $ | 0.05 |   |

 
| **As Restated**             |   |   |   |   |   |   |   |   |   |
|-----------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| 2005                        |   |   |   |   |   |   |   |   |   |
| Revenue                     |   | $      | 10,061 |   | $      | 10,014 |   | $      | 11,404 |   | $ | 11,429 |   |
| Income from  operations     |   | 604    |   | 715    |   | 137    |   | 1,342  |   |
| Net income                  |   | 377    |   | 437    |   | 248    |   | 1,131  |   |
| Earnings per  common share: |   |   |   |   |   |   |   |   |   |
| Basic                       |   | $      | 0.02   |   | $      | 0.02   |   | $      | 0.01   |   | $ | 0.05 |   |
| Diluted                     |   | $      | 0.02   |   | $      | 0.02   |   | $      | 0.01   |   | $ | 0.04 |   |

 
| ** **                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------|------------|----------------------------------|------------|
| ** **                         | ** ** | **March 31**                | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| **As Reported**               |       |                             |       |   |   |   |   |   |   |
| 2004                               |       |                             |       |   |   |   |   |   |   |
| Revenue                            |       | $                                | 9,205      |   | $ | 9,557 |   | $ | 10,949 |   | $ | 10,243 |   |
| Income (loss)  from operations     |       | 2,275                            |       | 1,745 |   | (45,722 | ) | 2,163 |   |
| Net income  (loss)                 |       | 1,113                            |       | 844 |   | (27,705 | ) | 1,588 |   |
| Earnings (loss)  per common share: |       |                             |       |   |   |   |   |   |   |
| Basic                              |       | $                                | 0.08       |   | $ | 0.06 |   | $ | (1.75 | ) | $ | 0.09 |   |
| Diluted                            |       | $                                | 0.06       |   | $ | 0.04 |   | $ | (1.75 | ) | $ | 0.07 |   |

 

35

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| **As Restated**                    |   |   |   |   |   |    |   |   |   |
|------------------------------------|--------|--------|--------|--------|--------|---------|--------|--------|--------|
| 2004                               |   |   |   |   |   |    |   |   |   |
| Revenue                            |   | $      | 9,205  |   | $      | 9,557   |   | $      | 10,949 |   | $ | 10,243 |   |
| Income (loss)  from operations     |   | 2,275  |   | 1,745  |   | (45,763 | )      | 2,039  |   |
| Net income  (loss)                 |   | 1,113  |   | 844    |   | (27,730 | )      | 1,513  |   |
| Earnings (loss)  per common share: |   |   |   |   |   |    |   |   |   |
| Basic                              |   | $      | 0.08   |   | $      | 0.06    |   | $      | (1.76  | ) | $ | 0.08 |   |
| Diluted                            |   | $      | 0.06   |   | $      | 0.04    |   | $      | (1.76  | ) | $ | 0.07 |   |

 
| ** **                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------|------------|----------------------------------|------------|
| ** **                         | ** ** | **March 31**                | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| **Changes**                        |       |                             |       |   |   |   |   |   |   |
| 2005                               |       |                             |       |   |   |   |   |   |   |
| Revenue                            |       | $                                | —     |   | $ | — |   | $ | — |   | $ | — |   |
| Income (loss)  from operations     |       | (124                             | )          | (124 | ) | (124 | ) | (124 | ) |
| Net income  (loss)                 |       | (75                              | )          | (75 | ) | (75 | ) | (75 | ) |
| Earnings (loss)  per common share: |       |                             |       |   |   |   |   |   |   |
| Basic                              |       | $                                | —     |   | $ | (0.01 | ) | $ | — |   | $ | — |   |
| Diluted                            |       | $                                | —     |   | $ | — |   | $ | — |   | $ | (0.01 | ) |
|                               |       |                             |       |   |   |   |   |   |   |
| 2004                               |       |                             |       |   |   |   |   |   |   |
| Revenue                            |       | $                                | —     |   | $ | — |   | $ | — |   | $ | — |   |
| Income (loss)  from operations     |       | —                           |       | — |   | (41 | ) | (124 | ) |
| Net income  (loss)                 |       | —                           |       | — |   | (25 | ) | (75 | ) |
| Earnings (loss)  per common share: |       |                             |       |   |   |   |   |   |   |
| Basic                              |       | $                                | —     |   | $ | — |   | $ | (0.01 | ) | $ | (0.01 | ) |
| Diluted                            |       | $                                | —     |   | $ | — |   | $ | (0.01 | ) | $ | — |   |

 

**General**

Through our indirect wholly-owned subsidiary, The OutdoorChannel, Inc. or TOC, we own and operate The Outdoor Channel which is anational television network devoted primarily to traditional outdooractivities, such as hunting, fishing and shooting sports, as well as off-roadmotor sports and other outdoor related lifestyle programming. We also own andoperate related businesses which serve the interests of The Outdoor Channel’sviewers and other outdoor enthusiasts. These related businesses include:LDMA-AU, Inc., which we refer to as Lost Dutchman’s, and Gold Prospector’sAssociation of America, LLC, which we refer to as GPAA. Lost Dutchman’s is anational gold prospecting campground club with properties in Arizona,California, Colorado, Georgia, Michigan, North Carolina, Oregon and SouthCarolina. GPAA is the publisher of the *Gold Prospector &Treasure Hunters in the Great Outdoors* magazine. In addition, we arethe owner of a 2,300 acre property near Nome, Alaska used to provideoutings for a fee to the members of Lost Dutchman’s and GPAA. Outdoor ChannelHoldings also wholly owns 43455 BPD, LLC which owns the building housing ourbroadcast facility.

Our revenues include (1) advertising fees from advertisementsaired on The Outdoor Channel and from advertisements in *GoldProspector & Treasure Hunters in the Great Outdoors*magazine; (2) subscriber fees paid by cable and satellite serviceproviders that air The Outdoor Channel; and (3) membership fees frommembers in both Lost Dutchman’s and GPAA and other income including magazinesales, products and services related to gold prospecting, gold expositions,expeditions and outings. Advertising fees include fees paid by third-partyprogrammers to purchase advertising time in connection with the airing of theirprograms on The Outdoor Channel.

**Acquisition of the Minority Interest of TheOutdoor Channel, Inc.**

On September 8, 2004, we completed the acquisition of theremaining minority interest in TOC which we did not previously own through(i) the merger of TOC with our newly-formed, wholly-owned subsidiary, withTOC being the surviving corporation, and (ii) the exchange of each shareof TOC common stock not previously held by us or our subsidiaries for 0.65shares of our common stock. In addition, each outstanding option to purchaseone share of TOC common stock was exchanged for an option to purchase 0.65shares of our common stock. In September 2004, every two outstandingshares of our common stock were converted into five outstanding shares ofcommon stock in conjunction with our reincorporation from Alaska to Delaware(the “5 for 2 split”).

36

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Based on the exchange ratio in the merger we issued3,069,790 shares of our common stock as well as options to purchase4,012,125 additional shares, each as adjusted for the 5 for 2 split. The sharesissued include the shares of common stock issued to a former TOC shareholderwho originally exercised his dissenters’ rights in connection with thetransaction, but who later withdrew, with our consent, the demand to exercisesuch dissenter’s rights. For accounting purposes, all previously outstandingTOC common shares, including the dissenting shares, have been deemed to havebeen exchanged for shares of our common stock in September 2004.

The acquisition of the 17.6% minority interest in TOC wasaccounted for using the purchase method of accounting. The cost of acquiringthe minority interest included the aggregate fair value of our common sharesissued in exchange for common shares of TOC and certain other direct costs. Theacquisition cost was allocated based on the fair value of the assets of TOCthat were acquired and liabilities that were assumed, including intangibleassets that arose from contractual or other legal rights or met certain otherrecognition criteria that underlie the minority interest that was acquired. Theexcess of the cost of the minority interest over the fair value of the underlyinginterest in the net identifiable assets acquired was allocated to goodwill. Inaddition, in accordance with the provisions of Statement of FinancialAccounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”)the tax effects of the intangible assets have been treated as additionalconsideration. This additional consideration has also been allocated togoodwill.

The cost of our acquisition of the minority interest in TOC was$54,985,000 based on the issuance at the closing of 3,069,790 shares of ourcommon stock (including shares issued to the former dissenter) and the averageclosing price of $16.24 per share of our common stock for a specified periodbefore and after April 20, 2004, the last trading day before the publicannouncement of the material terms of the acquisition plus the assumption of325,000 fully vested options of a former employee of TOC with an intrinsicvalue of $4,250,000 plus certain other costs including income tax effects.Based on the analysis of the fair value of the assets that were acquired andliabilities that were assumed, the acquisition costs of $54,985,000 wereallocated primarily to intangible assets as follows:

|                                                          | ** ** | **Allocation (in thousands)** | ** ** | **Estimated  Useful Life** | ** **         |
|----------------------------------------------------------|------------|-----------------------------------------|------------|---------------------------------|--------------------|
|                                                     |       |                                    |       |                            |               |
| MSO relationships                                        |       | $                                       | 10,573     |                            | 21 years, 4 months |   |
| Advertising customer relationships:                      |       |                                    |       |                            |               |
| Short form                                               |       | 1,351                                   |       | 4 years                    |               |
| Long form                                                |       | 621                                     |       | 3 years                    |               |
|                                                     |       |                                    |       |                            |               |
| Total identifiable intangible assets                     |       | 12,545                                  |       |                            |               |
| Goodwill                                                 |       | 44,457                                  |       | Indefinite                      |               |
| Deferred tax liability associated with intangible assets |       | (5,001                                  | )          |                            |               |
| Minority interest in subsidiary                          |       | 2,984                                   |       |                            |               |
|                                                     |       |                                    |       |                            |               |
| Aggregate purchase price                                 |       | $                                       | 54,985     |                            |               |   |

 

The exchange of vested employee stock options by us for vestedstock options held by employees of TOC resulted in a charge to operations inour consolidated statement of operations on September 8, 2004 equal to thevalue of the options issued on that date net of any related income tax benefit.The options to purchase approximately 3,687,125 shares that we issued inexchange for vested stock options held by the employees of TOC onSeptember 8, 2004 had a fair value of $14.00 per share based on theclosing price of our common stock on that day. As a result, we incurred anon-cash, non-recurring charge to operating expenses of $47,983,000 andrecognized an income tax benefit of $19,098,000 or a net charge of $28,885,000.

In some of the following period-to-period comparisons, we havespecifically noted, and at times excluded the non-cash, non-recurringcompensation expense of $47,983,000 incurred by us and the related tax benefitof $19,098,000 as the result of the assumption of TOC options in connectionwith our acquisition of the minority interest in TOC as part of ouranalysis because we believe separately quantifying the effects of these itemsprovides the reader with a better understanding of our operating results. Wealso believe that an analysis of our results in this manner, when presented inconjunction with our analysis of the corresponding GAAP measures, providesuseful information to management and others in identifying and understandingour operating performance for the periods presented and in making usefulcomparisons.

**Critical Accounting Policies and Estimates**

The preparation of financial statements in conformity with UnitedStates generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and

37

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expensesduring the reporting period. Actual results could differ from those estimates.We believe the following critical accounting policies affect our moresignificant judgments and estimates used in the preparation of financialstatements.

*RevenueRecognition*

Advertising revenues for The Outdoor Channel are recognized whenthe advertisement is aired. Advertising revenues from advertisements in ourbi-monthly magazine are recognized when the magazine is distributed. Revenuesfrom the expeditions are recognized when they are taken in June throughAugust each year. Revenues from outings and gold expositions arerecognized at the time of the event. Subscriber fees for The Outdoor Channelare recognized in the period the programming is aired by the distributor andcollection is probable.

Broadcast and national television network advertising contractsmay guarantee the advertiser a minimum audience for its advertisementsover the term of the contracts. We provide the advertiser with additionaladvertising time if we do not deliver the guaranteed audience size. The amountof additional advertising time is generally based upon the percentage ofshortfall in audience size. This requires us to make estimates of the audiencesize that will be delivered throughout the terms of the contracts. We base ourestimate of audience size on information provided by ratings services and ourhistorical experience. If we determine we will not deliver the guaranteedaudience, an accrual for “make-good” advertisements is recorded as a reductionof revenue. The estimated make-good accrual is adjusted throughout the terms ofthe advertising contracts.

We recognize merchandise sales when the product is shipped andcollection of the receivable is probable. Lost Dutchman’s campground membershipsales are generally recognized on a straight-line basis over the estimatedaverage life (7 years) of the membership. We do not record receivablesarising under these contracts. Accordingly, revenues recognized do not exceedthe total cash payments received and cash received in excess of revenue earnedis recorded as deferred revenue. The majority of GPAA membership sales is forone year and is generally recognized in the year of sale. Multi-year GPAAmembership sales are recognized on a straight-line basis over the life of amembership, and an estimated life of 15 years for a lifetime membership.

*Long-LivedAssets*

Long-lived assets, such as property and equipment, MSOrelationships, advertising customer relationships, goodwill and trademarks, arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. Impairmentlosses are recognized when events or changes in circumstances indicate that theundiscounted cash flows estimated to be generated by such assets are less thantheir carrying value and, accordingly, all or a portion of such carrying valuemay not be recoverable. Impairment losses for assets to be held and usedare then measured based on the excess, if any, of the carrying amounts of theassets over their estimated fair values. Long-lived assets to be disposed of ina manner that meets specific criteria are stated at the lower of their carryingamounts or fair values less costs to sell and are no longer depreciated.

*AccountsReceivable*

We maintain an allowance for doubtful accounts for estimatedlosses that may arise if any of our customers are unable to make requiredpayments. Management specifically analyzes the age of customer balances,historical bad debt experience, customer credit-worthiness and tradepublications regarding the financial health of our larger customers and changesin customer payment terms when making estimates of the uncollectability of ourtrade accounts receivable balances. If we determine that the financialcondition of any of our customers deteriorated, whether due to customerspecific or general economic issues, increases in the allowance may bemade.

*DeferredTax Assets*

We account for income taxes pursuant to the asset and liabilitymethod which requires deferred income tax assets and liabilities to be computedfor temporary differences between the financial statement and tax bases ofassets and liabilities that will result in taxable or deductible amounts in thefuture based on enacted laws and rates applicable to the periods in which thetemporary differences are expected to affect taxable income. Valuationallowances are established when necessary to reduce deferred tax assets to theamounts expected to be realized. The income tax provision is the tax payable orrefundable for the period plus or minus the change during the period indeferred tax assets and liabilities.

*DerivativeInstruments and Certain Hedging Activity*

At the time we entered into long-term debt agreements, we alsoentered into interest rate swap agreements. These swap agreements change thevariable-rate cash flow exposure on the debt obligations to fixed cash flows sothat we can manage fluctuations in cash flows resulting from interest rate fluctuationsand thus interest rate risk. These swap arrangements essentially create theequivalent of fixed rate debt. These referenced transactions are accounted forunder Statement of

38

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FinancialAccounting Standards No. 133 “Accounting for Derivative Instruments andCertain Hedging Activities” and Statement of Financial Accounting StandardsNo. 138 “Accounting for Derivative Instruments and Certain HedgingActivity, an amendment of SFAS No. 133.” These standards require aderivative to be recognized on the balance sheet as an asset or liability atits fair value and the changes in fair value to be accounted for as othercomprehensive income or loss. We measure the effectiveness of the interest rateswap derivative by comparing the present value of the cumulative change in theexpected future cash flows on the variable portion of the swap with the presentvalue of the cumulative change in the expected future interest cash flows onthe floating rate liability. The accounting for gains and losses associated withthe changes in fair value of the derivative and the effect on the consolidatedfinancial statements will depend on the respective hedge’s designation andwhether the hedge is highly effective in offsetting changes in fair value ofcash flows of the asset or liability hedged. We have determined that theinterest rate swap agreements we have entered into are highly effective inachieving the offsetting changes in the fair value of cash flows and there hasbeen no ineffectiveness during the year ended December 31, 2005.

**Recent Accounting Developments**

In December 2004, the FASB issued Statement of FinancialAccounting Standards No. 123(R) (“SFAS 123(R)”). “Share-Based Payment”which revised the standards for the accounting for transactions in which anentity exchanges its equity instruments for goods or services and focusesprimarily on accounting for transactions in which an entity obtains employeeservices in share-based payment transactions. SFAS 123(R) requires thatthe fair value of such equity instruments, including all options granted toemployees, be recognized as expense in the historical financial statements asservices are performed. Prior to SFAS 123(R), only certain pro formadisclosures of fair value were required. SFAS 123 (R) shall be effective forissuers as of the beginning of the first annual reporting period that beginsafter December 15, 2005. Accordingly, we will adopt the provisions of SFASNo. 123 (R) effective January 1, 2006. Since we have used theintrinsic value method to account for employee stock options, the adoption ofSFAS 123 (R) is expected to have a material impact on our financialstatements.

The FASB had issued certain other accounting pronouncements as ofDecember 31, 2005 that will become effective in subsequent periods; however,our management does not believe that any of those pronouncements would havesignificantly affected our financial accounting measurements or disclosures hadthey been in effect during 2005, 2004 or 2003.

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**Comparisonof Operating Results for the Years Ended December 31, 2005 andDecember 31, 2004**

The following table discloses certain financial information forthe periods presented, expressed in terms of dollars, dollar change, percentagechange and as a percent of total revenue (all dollar amounts are in thousands):
| ** **                                                    | ** ** | ** **             | ** ** | ** **             | ** ** | **Change** | ** ** | **% of Total Revenue** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------|------------|---------------------------------------|------------|
| ** **                                                    | ** ** | **2005**               | ** ** | **2004**               | ** ** | **$**      | ** ** | **%**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                    | ** ** | **(As Restated)** | ** ** | **(As Restated)** | ** ** | ** ** | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues:                                                     |       |                   |       |                   |       |       |       |                                  |       |   |   |   |   |
| Advertising                                                   |       | $                      | 22,769     |                   | $          | 21,817     |       | $                                     | 952        |   | 4.4 | % | 53.0 | % | 54.6 | % |
| Subscriber fees                                               |       | 15,432                 |       | 13,391                 |       | 2,041      |       | 15.2                                  |       | 36.0 |   | 33.5 |   |
| Membership  income                                            |       | 4,707                  |       | 4,746                  |       | (39        | )          | (0.8                                  | )          | 11.0 |   | 11.9 |   |
| Total revenues                                                |       | 42,908                 |       | 39,954                 |       | 2,954      |       | 7.4                                   |       | 100.0 |   | 100.0 |   |
|                                                          |       |                   |       |                   |       |       |       |                                  |       |   |   |   |   |
| Cost of services:                                             |       |                   |       |                   |       |       |       |                                  |       |   |   |   |   |
| Programming                                                   |       | 5,604                  |       | 2,521                  |       | 3,083      |       | 122.3                                 |       | 13.1 |   | 6.3 |   |
| Satellite  transmission fees                                  |       | 2,497                  |       | 2,351                  |       | 146        |       | 6.2                                   |       | 5.8 |   | 5.9 |   |
| Production and  operations                                    |       | 3,261                  |       | 2,397                  |       | 864        |       | 36.0                                  |       | 7.6 |   | 6.0 |   |
| Other direct  costs                                           |       | 1,355                  |       | 1,101                  |       | 254        |       | 23.1                                  |       | 3.2 |   | 2.7 |   |
| Total cost of  services                                       |       | 12,717                 |       | 8,370                  |       | 4,347      |       | 51.9                                  |       | 29.7 |   | 20.9 |   |
|                                                          |       |                   |       |                   |       |       |       |                                  |       |   |   |   |   |
| Other expenses:                                               |       |                   |       |                   |       |       |       |                                  |       |   |   |   |   |
| Advertising                                                   |       | 7,100                  |       | 5,596                  |       | 1,504      |       | 26.9                                  |       | 16.5 |   | 14.0 |   |
| Selling, general  and administrative                          |       | 17,572                 |       | 16,285                 |       | 1,287      |       | 7.9                                   |       | 41.0 |   | 40.8 |   |
| Non-cash  compensation expense from exchange of stock options |       | —                 |       | 47,983                 |       | (47,983    | )          | (100.0                                | )          | — |   | 120.1 |   |
| Depreciation and  amortization                                |       | 2,721                  |       | 1,424                  |       | 1,297      |       | 91.1                                  |       | 6.3 |   | 3.6 |   |
| Total other  expenses                                         |       | 27,393                 |       | 71,288                 |       | (43,895    | )          | (61.6                                 | )          | 63.8 |   | 178.5 |   |
|                                                          |       |                   |       |                   |       |       |       |                                  |       |   |   |   |   |
| Income (loss) from  operations                                |       | 2,798                  |       | (39,704                | )          | 42,502     |       | NMF                                   |       | 6.5 |   | (99.4 | ) |
|                                                          |       |                   |       |                   |       |       |       |                                  |       |   |   |   |   |
| Other income, net                                             |       | 898                    |       | 115                    |       | 783        |       | NMF                                   |       | 2.1 |   | 0.3 |   |
|                                                          |       |                   |       |                   |       |       |       |                                  |       |   |   |   |   |
| Income (loss) before  income taxes and minority interest      |       | 3,696                  |       | (39,589                | )          | 43,285     |       | NMF                                   |       | 8.6 |   | (99.1 | ) |
|                                                          |       |                   |       |                   |       |       |       |                                  |       |   |   |   |   |
| Income tax provision  (benefit)                               |       | 1,503                  |       | (16,011                | )          | 17,514     |       | NMF                                   |       | 3.5 |   | (40.1 | ) |
|                                                          |       |                   |       |                   |       |       |       |                                  |       |   |   |   |   |
| Income (loss) before  minority interest                       |       | 2,193                  |       | (23,578                | )          | 25,771     |       | NMF                                   |       | 5.1 |   | (59.0 | ) |
|                                                          |       |                   |       |                   |       |       |       |                                  |       |   |   |   |   |
| Minority interest in  net income of consolidated subsidiary   |       | —                 |       | 682                    |       | (682       | )          | (100.0                                | )          | — |   | 1.7 |   |
|                                                          |       |                   |       |                   |       |       |       |                                  |       |   |   |   |   |
| Net income (loss)                                             |       | $                      | 2,193      |                   | $          | (24,260    | )          | $                                     | 26,453     |   | NMF | % | 5.1 | % | (60.7 | )% |

 

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**NMF – Not Meaningful**

**Revenues**

Our revenues include revenues from (1) advertising fees;(2) subscriber fees; and (3) membership income. Advertising revenueis generated from the sale of advertising time on The Outdoor Channel includingadvertisements shown during a program (also known asshort-form advertising) and infomercials in which the advertisement is theprogram itself (also known as long-form advertising) and from the sale ofadvertising space in publications such as the *Gold Prospectors &Treasure Hunters in the Great Outdoors* magazine. Advertising revenueis also generated from fees paid by third party programmers that purchaseadvertising time in connection with the airing of their programs on The OutdoorChannel. For the years ended December 31, 2005 and 2004, The OutdoorChannel generated approximately 97.0% and 97.2% of our

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advertisingrevenue, respectively. Subscriber fees are solely related to The OutdoorChannel. Membership income is generated by our activities other than theoperation of The Outdoor Channel and includes membership sales, magazine sales,merchandise sales, and sponsored outings and expeditions in connection withGPAA and Lost Dutchman’s.

Total revenues for the year ended December 31, 2005 were$42,908,000, an increase of $2,954,000, or 7.4%, compared to revenues of$39,954,000 for the year ended December 31, 2004. The net increases werethe result of changes in several items comprising revenue as discussed below.

Advertising revenue for the year ended December 31, 2005 was$22,769,000, an increase of $952,000 or 4.4% compared to $21,817,000 for theyear ended December 31, 2004. For December 2005, Nielsen estimatedthat The Outdoor Channel had 25.7 million viewers compare to 24.8 million for thesame period a year ago. (Nielsen revises this estimate each month and forMarch 2006, Nielsen increased its estimate to approximately 26.2 millionsubscribers). The increase in advertising revenue for the year endedDecember 31, 2005 reflects a larger percentage of our short-form advertisinginventory being sold to national and endemic advertisers, generally at higherrates, than inventory being sold to direct response advertisers orlong-form (infomercial) advertisers.

Subscriber fees for the year ended December 31, 2005 were$15,432,000, an increase of $2,041,000 or 15.2% compared to $13,391,000 for theyear ended December 31, 2004. The increase in subscriber fees for theperiod was primarily due to an increased number of paying subscribers both fromnew affiliates and from existing distributors and contractual subscriber feerate increases with existing service providers carrying The Outdoor Channel. Weplan to accelerate our subscriber growth utilizing various means includingdeployment of subscriber acquisition or launch support fees. Such fees arecapitalized and amortized over the period that the pay television distributoris required to carry the newly acquired TOC subscriber. To the extent revenueis associated with the incremental subscribers, the amortization is charged tooffset the related revenue. Any excess of launch support amortization over therelated subscriber fee revenue is charged to expense. As a result, weanticipate that subscriber fee revenue, net of amortization of launch fees,may not increase over the foreseeable future once we deploy this tacticand, in fact, due to contractual volume discounts, subscriber fee revenue couldactually decrease over the new contract lives.

Membership income for the year ended December 31, 2005 was$4,707,000, a decrease of $39,000 or 0.8% compared to $4,746,000 for the yearended December 31, 2004. We do not consider this decline to besignificant; rather the relatively static balance reflects our belief that thisrevenue source has reached relative maturity. We do not expect significantchange in the balance from year-to-year in the near term.

**Costof Services**

Our cost ofservices consists primarily of the cost of providing our broadcast signal andprogramming to the distributors for transmission to the consumer and costsassociated with the production and delivery of our magazine and merchandisesales. Cost of services includes (1) programming costs; (2) satellitetransmission fees; (3) production and operations costs and (4) other directcosts. Total cost of services for the year ended December 31, 2005 was$12,717,000, an increase of $4,347,000 or 51.9%, compared to $8,370,000 for theyear ended December 31, 2004. As a percentage of revenues, total cost ofservices was 29.7% and 20.9% in the years ended December 31, 2005 and 2004,respectively. We expect cost of services to continue to increase in the futureas we expand our existing markets and in-house production to support ouradvertising strategy.

Programming expenses for the year ended December 31, 2005were $5,604,000, an increase of $3,083,000 or 122.3% compared to $2,521,000 forthe year ended December 31, 2004. The increase is principally a result ofour decision to launch our second channel, Outdoor Channel 2 HD, onJuly 1, 2005. In 2005, this channel was programmed with native highdefinition shows produced almost entirely in-house as opposed to thepreponderance of third party production on our standard definition channel. Weproduced in excess of 40 shows plus numerous specials in-house that aired inthe third and fourth quarters of 2005. In some situations, shows that ran in2005 on only one of our channels are planned to be aired again in 2006, but onour other channel. We aired 16 shows that were internally producedduring the third and fourth quarters of 2004.

Our policy is to charge costs of specific shows to programmingexpense over the expected airing period beginning when the program first airs.The cost of programming is generally first recorded as prepaid programmingcosts and is then charged to programming expense based on the anticipatedairing schedule. The anticipated airing schedule istypically over 2 or 4 quarters that generally does not extend more than 2years. As the anticipated airing schedule changes, the timing and amount of thecharge to expense is prospectively adjusted accordingly. At the time wedetermine a program is unlikely to air or re-air, we charge programming expensewith the remaining associated cost recorded in prepaid programming.  Manyof these programs began airing on Outdoor Channel 2 HD during the third quarterof 2005 with re-airing in the fourth quarter and, in some situations, re-airingthe same programs on The Outdoor Channel in 2006. A substantial portion of theprepaid

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programmingcosts has been and will be charged to expense in these quarters. Programmingexpenses are expected to increase as a percentage of revenue as we pursue ourstrategy to produce, or acquire, more programming in-house as opposed toselling the air time to third party producers. As a result, we believe we willcontrol more of our programs’ quality, advertising inventory, sponsorshipopportunities and the potential to re-package our programming for other usessuch as video-on-demand, international licensing and production of DVDs forretail distribution. Since we have limited experience inre-packaging our programming for these other uses, we do not retain costs inprepaid programming to match with these potential revenue sources. When wedevelop a sufficient history, our policy might change.

Satellite transmission fees for the year ended December 31,2005 were $2,497,000, an increase of $146,000, or 6.2%, compared to $2,351,000for the year ended December 31, 2004. This increase reflects an additionalcharge for the back-up satellite capability negotiated with our satelliteprovider during the fourth quarter of 2004 and a scheduled price increase of$5,000 per month in October 2005.

Production andoperations costs for the year ended December 31, 2005 were $3,261,000, an increase of$864,000, or 36.0%, compared to $2,397,000 for the year ended December 31, 2004. Theincrease in costs principally relates to increased infrastructure includingpersonnel, small equipment purchases and other items as we produce more showsin-house and support our new broadcast facility.

Other direct costsfor the year ended December 31,2005 were $1,355,000, an increase of $254,000, or 23.1%, compared to $1,101,000for the year ended December 31,2004. The increase in other direct costs principally relates to increased Alaskatrip expenses with greater number of participants and increased costs inpublishing our magazine. We anticipate other direct costs will continue toincrease driven in part by increasesfrom the recognition of subscriber acquisition fee, also referred to as launchsupport fee, amortization in excess of the related subscriber revenue.

**OtherExpenses**

Other expensesconsist of the cost of (1) advertising; (2) selling, general andadministrative expenses; (3) compensation expense from the exchange of TOC stockoptions; and (4) depreciation and amortization.

Total other expenses for the year ended December 31, 2005were $27,393,000, a decrease of $43,895,000 or 61.6%, compared to $71,288,000for the year ended December 31, 2004. As a percentage of revenues, totalother expenses were 63.8% and 178.5% in the years ended December 31, 2005and 2004, respectively. The decrease in other expenses was due to thenon-recurring charge to compensation expense incurred in September 2004 asa result of the issuance of options to TOC employees with an intrinsic value of$47,983,000 in accordance with the terms of the acquisition by the Company ofsubstantially all of the remaining 17.6% minority interest in TOC it did notalready own. Otherwise total other expenses increased as illustrated when thenon-cash, non-recurring compensation expense of $47,983,000 incurred inSeptember 2004 is excluded.

Total other expenses, net of the compensation expense fromexchange of stock options, increased $4,088,000 or 17.5% for the year endedDecember 31, 2005. As a percentage of revenues, total other expenses, netof compensation expense from the exchange of stock options, were 63.8% and58.3% in the years ended December 31, 2005 and 2004, respectively.

The increase in other expenses was due to several factors, such asincreased corporate costs including: (1) amortization of intangibleassets; (2) costs associated with compliance with Sarbanes-Oxley Act of2002; and (3) costs associated with incorporation in Delaware and listingon The Nasdaq National Market, to which we became subject as ofSeptember 2004. Those increased costs will continue to be incurredbecoming part of our cost of doing business. The increase is alsoattributable to increased personnel costs, costs associated with the launch ofour second channel, Outdoor Channel 2 HD, marketing and promotion costs andother items more fully described as follows.

Advertising expenses for the year ended December 31, 2005were $7,100,000, an increase of $1,504,000 or 26.9% compared to $5,596,000 forthe year ended December 31, 2004. The increase in advertising expenses isprincipally a result of our increased spending on consumer and trade industryawareness campaigns designed to build demand for The Outdoor Channel and forOutdoor Channel 2 HD. We plan on continuing to spend on these awarenessprograms, and when expressed as a percentage of revenues, we expect the rate tobe closer to the rate experienced in 2005 rather than 2004.

Selling, general and administrative expenses for the year endedDecember 31, 2005 were $17,572,000, an increase of $1,287,000 or 7.9%compared to $16,285,000 for the year ended December 31, 2004. As apercentage of revenues, selling, general and administrative expenses were 41.0%and 40.8% in the years ended December 31, 2005 and 2004, respectively.

The increase was primarily due to the increase in the number ofemployees late in 2004 and early 2005. We opened our New York City advertisingsales office with a resultant expense in 2005 that did not exist in the same perioda year ago. We have also added an executive to our management team who holdsthe position of General Counsel. Others have been added in

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alldepartments to support our launch of a second channel—Outdoor Channel 2 HD. Wealso experienced increased travel and related costs associated with our largeradvertising sales staff, support of our service providers and the promotion ofThe Outdoor Channel and Outdoor Channel 2 HD through a stronger presence attrade shows and conferences. Small equipment purchases have increased as aresult of our activity related to the launch of Outdoor Channel 2 HD. Weincreased other corporate overhead expenses such as our activity surroundingSarbanes-Oxley compliance in 2005, fees for our listing on Nasdaq NationalMarket and fees associated with incorporation in the State of Delaware.

We anticipate that selling, general and administrative costs willcontinue to increase over the foreseeable future both in dollars and whenexpressed as a percent of revenue as we continue to work to gain increaseddistribution of both channels, corporate spending on Sarbanes-Oxley compliance,fees to maintain our common stock listing and improved communication with ourstockholders, among other corporate expenses.

Compensation expense from the exchange of stock options for theyear ended December 31, 2004 was $47,983,000 and was incurred as a resultof the issuance of 3,687,125 options to TOC option holders in accordance withthe terms of the acquisition of substantially all of the remaining 17.6%minority interest in TOC we did not already own. This charge is both non-cashand non-recurring.

Depreciation andamortization expense for the year ended December 31, 2005 was $2,721,000, anincrease of $1,297,000 or 91.1% compared to $1,424,000 for the year ended December 31, 2004. Theincrease relates primarily to the inventory of HD cameras and edit equipmentthat we begun purchasing in 2004 and continued in 2005 to support our increasedefforts to produce more of our programming in-house as opposed to licensingsuch programming from third parties. Also contributing to the increase is a full year of amortization expenserelated to the intangible assets recorded in connection with the acquisition ofthe minority interest of The Outdoor Channel, Inc, in September 2004.

**Income (Loss) from Operations**

Income (loss) from operations for the year ended December 31,2005 was $2,798,000, an increase of $42,502,000 compared to ($39,704,000) forthe year ended December 31, 2004. As a percent of revenues, income (loss)from operations was 6.5% and (99.4%), respectively. As we continue to strive todrive growth of our subscriber base including the planned payment of launchsupport, and as we further develop our second channel, Outdoor Channel 2 HD, wewill incur increased expenses such as programming, marketing and advertisingthat are unlikely to be immediately offset by revenues. As a result, weanticipate our operating margins will be negatively impacted for theforeseeable future. There can be no assurance that these strategies will besuccessful.

As explained above, the non-cash, non-recurring compensationcharge of $47,983,000, which resulted from the assumption of options inconnection with the acquisition of the minority interest in TOC, accounts forthe majority of the loss from operations for the year ended December 31,2004. If we excluded this charge, loss from operations for the year endedDecember 31, 2004 would have been income from operations of $8,279,000. Asa percentage of revenue this adjusted balance would have been 20.7% for theyear ended December 31, 2004.

**Other Income, Net**

Other income, net for the year ended December 31, 2005 was$898,000, an increase of $783,000 compared to $115,000 for the year endedDecember 31, 2004. This improvement was primarily due to increaseddividends and interest earned on our increased investment in available-for-salesecurities and cash and cash equivalent balances that resulted from the sale,on July 1, 2005, of 3,500,000 shares of common stock for net cash proceedsof $43,350,000 plus $2,734,000 from the exercise of stock options during theyear ended December 31, 2005.

**Income (Loss) Before Income Taxes and MinorityInterest in Net Income of Consolidated Subsidiary**

Income (loss) before income taxes and minority interest as apercentage of revenues was 8.6% for the year ended December 31, 2005compared to (99.1%) for the year ended December 31, 2004.

The TOC segment’s income before income taxes and minority interestincreased to $4,865,000 for the year ended December 31, 2005 from a lossof $38,330,000 for the year ended December 31, 2004. Expressed as apercentage of revenue, the TOC segment’s income before income taxes andminority interest increased to 13.0% for the year ended December 31, 2005,compared to (110.8%) for the year ended December 31, 2004. The 2004 TOCsegment’s income before income taxes, excluding the non-cash, non-recurringcharge of $47,983,000 was $9,653,000 or 27.9% of revenue. The change in TOCsegment’s income before income taxes after the non-cash compensation charge wasdue mainly to the growth of our programming expenses and increased staff insupport of the launch of our second channel, Outdoor Channel 2 HD, increasedspending on advertising, personnel and travel/promotional related expenses aswell as depreciation expenses related to the deployment of additionalequipment.

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The Membership Division segment’s income before income taxes andminority interest decreased to $280,000 for the year ended December 31,2005 from $354,000 for the year ended December 31, 2004. Expressed as apercentage of revenues, the Membership Division segment’s income before incometaxes and minority interest decreased to 5.2% for the year endedDecember 31, 2005 compared to 6.6% for the year ended December 31,2004. The decrease is principally a result of a 5% increase in payroll andrelated taxes along with a charge for stock compensation that did not exist in2004.

Corporate incurred a loss before income taxes and minorityinterest for the year ended December 31, 2005 amounting to $1,449,000, achange of $164,000 compared to a loss of $1,613,000 for the year endedDecember 31, 2004. The expenses allocated to Corporate include:professional fees such as public relations, accounting and legal fees, businessinsurance, board of directors fees and expenses and an allocation of corporateofficers’ payroll and related expenses.

**Income Tax Provision (Benefit)**

Income tax provision for the year ended December 31, 2005 was$1,503,000, an increase of $17,514,000 as compared to a benefit of $16,011,000for the year ended December 31, 2004. The increase was principally due tothe Company earning taxable income in 2005 as compared to a loss for 2004. Theeffective income tax rate was approximately 40.7% and 40.4% for the years endedDecember 31, 2005 and 2004, respectively.

**Minority Interest in Net Income of ConsolidatedSubsidiary**

Minority interest for the year ended December 31, 2004 was$682,000. Minority interest was eliminated in September 2004 as a resultof our acquisition of the remaining minority interest in TOC we did not alreadyown. Therefore, there was no minority interest for the year endedDecember 31, 2005.

**Net Income (Loss)**

Net income (loss) for the year ended December 31, 2005 was$2,193,000, an increase of $26,453,000 compared to ($24,260,000) for the yearended December 31, 2004. The increase was due to the reasons stated above.Excluding the non-cash, non-recurring charge of $47,983,000, net of income taxbenefit of $19,098,000, net income for the year ended December 31, 2004would have been $4,625,000 or 11.6% of revenue.

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**Comparison of Operating Results for the YearsEnded December 31, 2004 and December 31, 2003**

The following table discloses certain financial information forthe periods presented, expressed in terms of dollars, dollar change, percentagechange and as a percent of total revenue (all dollar amounts are in thousands):
| ** **                                                    | ** ** | ** **             | ** ** | ** ** | ** ** | **Change** | ** ** | **% of Total Revenue** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|------------|------------|------------|------------|---------------------------------------|------------|
| ** **                                                    | ** ** | **2004**               | ** ** | **2003**   | ** ** | **$**      | ** ** | **%**                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                    | ** ** | **(As Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues:                                                     |       |                   |       |       |       |       |       |                                  |       |   |   |   |   |
| Advertising                                                   |       | $                      | 21,817     |       | $          | 16,396     |       | $                                     | 5,421      |   | 33.1 | % | 54.6 | % | 51.7 | % |
| Subscriber fees                                               |       | 13,391                 |       | 10,836     |       | 2,555      |       | 23.6                                  |       | 33.5 |   | 34.2 |   |
| Membership income                                             |       | 4,746                  |       | 4,456      |       | 290        |       | 6.5                                   |       | 11.9 |   | 14.1 |   |
| Total revenues                                                |       | 39,954                 |       | 31,688     |       | 8,266      |       | 26.1                                  |       | 100.0 |   | 100.0 |   |
|                                                          |       |                   |       |       |       |       |       |                                  |       |   |   |   |   |
| Cost of  services:                                            |       |                   |       |       |       |       |       |                                  |       |   |   |   |   |
| Programming                                                   |       | 2,521                  |       | 1,117      |       | 1,404      |       | 125.7                                 |       | 6.3 |   | 3.5 |   |
| Satellite transmission fees                                   |       | 2,351                  |       | 2,423      |       | (72        | )          | (3.0                                  | )          | 5.9 |   | 7.7 |   |
| Production and operations                                     |       | 2,397                  |       | 1,889      |       | 508        |       | 26.9                                  |       | 6.0 |   | 6.0 |   |
| Other direct costs                                            |       | 1,101                  |       | 1,125      |       | (24        | )          | (2.1                                  | )          | 2.7 |   | 3.5 |   |
| Total cost of services                                        |       | 8,370                  |       | 6,554      |       | 1,816      |       | 27.7                                  |       | 20.9 |   | 20.7 |   |
|                                                          |       |                   |       |       |       |       |       |                                  |       |   |   |   |   |
| Other expenses:                                               |       |                   |       |       |       |       |       |                                  |       |   |   |   |   |
| Advertising                                                   |       | 5,596                  |       | 3,767      |       | 1,829      |       | 48.6                                  |       | 14.0 |   | 11.9 |   |
| Selling, general and administrative                           |       | 16,285                 |       | 12,860     |       | 3,425      |       | 26.6                                  |       | 40.8 |   | 40.5 |   |
| Non-cash compensation expense from exchange of stock  options |       | 47,983                 |       | —     |       | 47,983     |       | NMF                                   |       | 120.1 |   | — |   |
| Depreciation and amortization                                 |       | 1,424                  |       | 880        |       | 544        |       | 61.8                                  |       | 3.6 |   | 2.8 |   |
| Total other expenses                                          |       | 71,288                 |       | 17,507     |       | 53,781     |       | 307.2                                 |       | 178.5 |   | 55.2 |   |
|                                                          |       |                   |       |       |       |       |       |                                  |       |   |   |   |   |
| Income (loss)  from operations                                |       | (39,704                | )          | 7,627      |       | (47,331    | )          | (620.6                                | )          | (99.4 | ) | 24.1 |   |
|                                                          |       |                   |       |       |       |       |       |                                  |       |   |   |   |   |
| Other income,  net                                            |       | 115                    |       | 26         |       | 89         |       | 342.3                                 |       | 0.3 |   | 0.1 |   |
|                                                          |       |                   |       |       |       |       |       |                                  |       |   |   |   |   |
| Income (loss)  before income taxes and minority interest      |       | (39,589                | )          | 7,653      |       | (47,242    | )          | (617.3                                | )          | (99.1 | ) | 24.2 |   |
|                                                          |       |                   |       |       |       |       |       |                                  |       |   |   |   |   |
| Income tax  provision (benefit)                               |       | (16,011                | )          | 3,162      |       | (19,173    | )          | (606.4                                | )          | (40.1 | ) | 10.0 |   |
|                                                          |       |                   |       |       |       |       |       |                                  |       |   |   |   |   |
| Income (loss)  before minority interest                       |       | (23,578                | )          | 4,491      |       | (28,069    | )          | (625.0                                | )          | (59.0 | ) | 14.2 |   |
|                                                          |       |                   |       |       |       |       |       |                                  |       |   |   |   |   |
| Minority  interest in net income of consolidated subsidiary   |       | 682                    |       | 897        |       | (215       | )          | (24.0                                 | )          | 1.7 |   | 2.8 |   |
|                                                          |       |                   |       |       |       |       |       |                                  |       |   |   |   |   |
| Net income (loss)                                             |       | $                      | (24,260    | )          | $          | 3,594      |       | $                                     | (27,854    | ) | (775.0 | )% | (60.7 | )% | 11.4 | % |

 

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**NMF — Not Meaningful**

**Revenues**

Total revenues for the year ended December 31, 2004 were$39,954,000, an increase of $8,266,000, or 26.1%, compared to revenues of$31,688,000 for the year ended December 31, 2003. This net increase wasthe result of changes in several items comprising revenue as discussed below.

Advertising revenue for the year ended December 31, 2004 was$21,817,000, an increase of $5,421,000 or 33.1% 

45

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comparedto $16,396,000 for the year ended December 31, 2003. The increase was due,in part, to our improved ability to demonstrate the value of advertising on TheOutdoor Channel to national advertisers. Nielsen reported that we hadapproximately 24.8 million subscribers for the month of December 2004compared to 25.7 million for the month of December 2003 a decrease of 0.9million or 3.5%. (Nielsen revises this estimate each month and forMarch 2005, Nielsen reported that we had approximately 24.4 millionsubscribers). Having Nielsen ratings and demographic data enabled us to betterutilize our inventory of available advertising time and increase our effectiverates realized on our advertising time on The Outdoor Channel. Further, asdemand for our air time increased, we negotiated higher fees from third partyprogrammers that purchase advertising time in connection with the airing oftheir programs on The Outdoor Channel.

Subscriber fees for the year ended December 31, 2004 were$13,391,000, an increase of $2,555,000 or 23.6% compared to $10,836,000 for theyear ended December 31, 2003. The increase was primarily due to anincreased number of paying subscribers as we increased the number of serviceproviders carrying The Outdoor Channel from approximately 5,400 at the end of2003 to 5,700 at 2004 year end; contractual subscriber fee rate increases withexisting service providers carrying The Outdoor Channel; the beginning ofpayments late in 2003 from certain carriers who had previously received TheOutdoor Channel without charge; and the increasing penetration of The OutdoorChannel on existing distributors such as National Cable Television Cooperative(“NCTC”), DIRECTV, Comcast, DISH Network and Charter.

Membership income for the year ended December 31, 2004 was$4,746,000, an increase of $290,000 or 6.5% compared to $4,456,000 for the yearended December 31, 2003. The increase in membership income was driven byincreased attendance at our gold expositions and greater participation in ourannual expedition to Cripple River, Alaska in 2004 compared to 2003.

**Costof Services**

Our cost ofservices consists primarily of the cost of providing our broadcast signal andprogramming to the distributors for transmission to the consumer and costsassociated with the production and delivery of our magazine and merchandisesales. Cost of services includes (1) programming costs; (2) satellitetransmission fees; (3) production and operations costs; and (4) other directcosts. Total cost of services for the year ended December 31, 2004 was$8,370,000, an increase of $1,816,000 or 27.7%, compared to $6,554,000 for theyear ended December 31, 2003. As a percentage of revenues, total cost ofservices was 20.9% and 20.7% in the years ended December 31, 2004 and 2003,respectively. We expect cost of services to continue to increase in the futureas we expand our existing markets and in-house production to support ouradvertising strategy.

Programming expense for the year ended December 31, 2004 was$2,521,000, an increase of $1,404,000 or 125.7% compared to $1,117,000 for theyear ended December 31, 2003. The increase in programming expense isprincipally a result of our decision to produce more of our programmingin-house as opposed to selling the air time to third party producers. Our goalis to generate increased margin dollars by producing programming in-house andretaining the advertising inventory. Our costs will increase as a result but wenot only expect to generate more margin dollars but retain control of ourprogramming for re-purposing, quality control and other reasons. Since wehave limited experience in re-packaging our programming for these other uses,we do not retain costs in prepaid programming to match with these potentialrevenue sources. When we develop a sufficient history, our policy might change.

Our policy is tocharge costs of specific show production to programming expense over theexpected airing period beginning when the program first airs. The cost ofprogramming is generally first recorded as prepaid programming costs and isthen charged to programming expense based on the anticipated airing schedule.The anticipated airing schedule is typically over 2 or 4 quarters thatgenerally does not extend more than 2 years. As the anticipated airing schedulechanges, the timing and amount of the charge to expense is prospectivelyadjusted accordingly. At the time we determine a program is unlikely to air orre-air, we charge programming expense with the remaining associated costrecorded in prepaid programming.

Satellite transmission fees for the year ended December 31,2004 were $2,351,000, a decrease of $72,000, or 3.0%, compared to $2,423,000for the year ended December 31, 2003. This relatively static comparisonreflects the substantially fixed nature of our contracts for these services anda negotiated price decrease in the contract.

Production andoperations costs for the year ended December 31, 2004 were $2,379,000, an increase of$508,000, or 26.9%, compared to $1,889,000 for the year ended December 31, 2003. Theincrease in costs principally relates to increased personnel to support ourgrowing infrastructure as we produce more shows in-house.

Other direct costsfor the year ended December 31,2004 were $1,101,000, a decrease of $24,000, or 2.1%, compared to $1,125,000for the year ended December 31,2003. This relatively static result principally reflects the growth of ourMembership income.

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**OtherExpenses**

Other expensesconsist of the cost of (1) advertising; (2) selling, general andadministrative expenses; (3) compensation expense from the exchange of TOC stockoptions; and (4) depreciation and amortization.

Total other expenses for the year ended December 31, 2004were $71,288,000, an increase of $53,781,000, or 307.2%, compared to$17,507,000 for the year ended December 31, 2003. As a percentage ofrevenues, total other expenses were 178.5% and 55.2% in the years endedDecember 31, 2004 and 2003, respectively. The increase in other expenseswas due to several factors, but is principally driven by the non-cash,non-recurring compensation expense incurred by the issuance of options inconnection with the TOC merger with an intrinsic value of $47,983,000 inaccordance with the terms of the acquisition by Outdoor Channel Holdings of theremaining 17.6% minority interest in TOC it did not already own.

Advertising expense for the year ended December 31, 2004 was$5,596,000, an increase of $1,829,000 or 48.6% compared to $3,767,000 for theyear ended December 31, 2003. The increase in advertising expense isprincipally a result of our increased spending on consumer and trade industryawareness campaigns to build demand for The Outdoor Channel. Advertisingexpenses are expected to increase as a percentage of revenue as we pursue ourstrategy to launch a second channel and to build awareness of our programming.

Selling, general and administrative expenses for the year endedDecember 31, 2004 were $16,285,000, an increase of $3,425,000 or 26.6%compared to $12,860,000 for the year ended December 31, 2003. As apercentage of revenues, selling, general and administrative expenses were 40.8%and 40.5% for the year ended December 31, 2004 and 2003, respectively.This increase was primarily due to the initiation of a program to providedigital receivers to a number of our carriers, increased personnel costs andother costs as further discussed below.

During 2004, we made the decision to cease transmitting TheOutdoor Channel as an analog signal in order to conserve bandwidth and furtherour transition to full digital transmission in preparation for the launch ofOutdoor Channel 2 HD. To equip existing analog based service providers and toattract new service providers, we began providing service providers digitalreceivers which have the capability to output the signal in either a digital oranalog format. In 2004, we spent approximately $1,110,000 on such receivers.This receiver program was substantially completed in 2004; however we expect tocontinue to provide newly launched service providers with such a receiver on anas-needed basis.

Personnel expenses increased approximately $1,100,000 in the yearended December 31, 2004 over 2003 principally as a result of additionalhiring during 2004. Further, we experienced increases in other components ofselling, general and administrative expenses: professional fees and associatedcosts related to our reincorporation from Alaska to Delaware; listing of ourcommon stock on The Nasdaq National Market; increased depreciation expense as aresult of equipment purchased in 2004 and 2003 to support our growth; and ourincreased travel related costs associated with our increased advertising salesstaff, support of our growing number of service providers and the promotion ofThe Outdoor Channel.

Compensation expense from the exchange of stock options for theyear ended December 31, 2004 was $47,983,000 and was incurred as a resultof the issuance of 4,012,125 options to TOC option holders in accordance withthe terms of the acquisition by Outdoor Channel Holdings of all of the minorityinterest in TOC it did not already own.

Depreciation andamortization expense for the year ended December 31, 2004 was $1,424,000, anincrease of $544,000 or 61.8% compared to $880,000 for the year ended December 31, 2003. Theincrease primarily relates to the amortization expense of four months ofintangible assets recorded in connection with the acquisition of The OutdoorChannel, Inc. in September of 2004 and to the installation of new camera andedit equipment.

**Income (Loss) From Operations**

Income (loss) from operations for the year ended December 31,2004 was ($39,704,000), a decrease of $47,331,000 compared to $7,627,000 forthe year ended December 31, 2003. As a percentage of revenues, income(loss) from operations was (99.4%) and 24.1% for the year endedDecember 31, 2004 and 2003, respectively. If the effect of the non-cash,non-recurring compensation expense of $47,983,000 related to the assumption ofTOC stock options is excluded, income from operations for 2004 would have been$8,279,000, an increase of $652,000 or 8.5% compared to income from operationsfor 2003. Income from operations as adjusted for the non-cash, non-recurringexpense of $47,983,000 grew at a slower pace than revenue during 2004reflecting our investment in subscriber acquisition programs, increasedin-house programming and receivers for our service providers.

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**Other Income, Net**

Other income, net for the year ended December 31, 2004 was$115,000, an increase of $89,000 compared to $26,000 for the year endedDecember 31, 2003. This improvement was primarily due to the retirement ofour debt to stockholders during 2003, resulting in less interest expensecomplemented by the interest earned on increased cash balances.

**Income (Loss) Before Income Taxes and Minority Interest in Net Income ofConsolidated Subsidiary**

Income (loss) before income taxes and minority interest decreasedsignificantly as a percentage of revenues to (99.1%) for the year endedDecember 31, 2004 compared to 24.2% for the year ended December 31,2003.

The TOC segment’s income before income taxes and minority interestwas a loss of $38,330,000 for the year ended December 31, 2004 compared toincome of $9,315,000 for the year ended December 31, 2003. The 2004 TOCsegment income before income taxes, excluding the non-cash, non-recurringcharge of $47,983,000 was $9,653,000 or 27.9% of revenue.  Expressed as a percentage of revenue, the TOCsegment’s income before income taxes and minority interest was 34.7% for theyear ended December 31, 2003. The decrease was due mainly to theimplementation in 2004 of our digital receiver program; the growth of ouradvertising and programming expenses in the third quarter of 2004; andincreases in personnel expenses resulting from the increase in the averagenumber of TOC employees in 2004 compared to 2003.

The Membership Division segment’s income (loss) before incometaxes and minority interest increased to $354,000 for the year endedDecember 31, 2004 from a loss of $619,000 for the year endedDecember 31, 2003. Expressed as a percentage of revenues, the MembershipDivision segment’s income before income taxes and minority interest improved to6.6% for the year ended December 31, 2004 compared to a loss of 12.8% forthe year ended December 31, 2003. The increase principally reflects aconcerted effort to control costs and make adjustments in our marketing andadvertising that yielded increased sales, particularly as it relates to ourexpedition to Cripple River, Alaska, while spending less on selling, generaland administrative expenses.

Corporate’s loss before income taxes and minority interest for theyear ended December 31, 2004 was $1,613,000, an increase of $570,000compared to the loss of $1,043,000 for the year ended December 31, 2003.The expenses allocated to this unit include: professional fees including publicrelations, accounting and legal fees, business insurance, board of directorsfees and expenses and an allocation of corporate officers’ payroll and relatedexpenses. The increase in the expenses of the corporate unit is principallyrelated to legal fees resulting from corporate restructuring including ourlisting on The Nasdaq National Market and various securities filings fees.

**Income Tax Provision (Benefit)**

Income tax provision (benefit) for the year endedDecember 31, 2004 was a benefit of $16,011,000, a change of $19,173,000 ascompared to a $3,162,000 expense for the year ended December 31, 2003. Thesignificant decrease was due to the Company recognizing an income tax benefitof $19,098,000 arising from a non-cash, non-recurring compensation expense chargeof $47,983,000 which resulted from the assumption of options in connection withthe acquisition of the minority interest in TOC. The effective income tax ratewas approximately 40.4% and 41.3% for the years ended December 31, 2004and 2003, respectively.

**Minority Interest in Net Income of Consolidated Subsidiary**

Minority interest for the year ended December 31, 2004 was$682,000 compared to $897,000 for the year ended December 31, 2003.Minority interest was eliminated in the month of September 2004 due to ouracquisition of the remaining minority interest in TOC which we did not alreadyown. The amount reported for the year ended December 31, 2004 reflectsapproximately eight months of the minority interest in 2004 while 2003 reflectsa full twelve months. Further, based on our current ownership of oursubsidiaries a minority interest in our subsidiaries is not expected tocontinue as a result of our current capital structure.

**Net Income (Loss)**

Net income (loss) for the year ended December 31, 2004 was($24,260,000) a change of $27,854,000 compared to $3,594,000 for the year endedDecember 31, 2003. As a percentage of revenues, net income (loss) was(60.7%) and 11.4% for the years ended December 31, 2004 and 2003,respectively. If the non-cash, non-recurring compensation expense of$47,983,000 and the corresponding income tax benefit of $19,098,000 incurred asa result of our acquisition of the minority interest in TOC described above isexcluded, net income for the year ended December 31, 2004 would have been $4,625,000or 11.6% of sales.

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**Liquidity and Capital Resources**

We generated $2,882,000 of cash in our operating activities in theyear ended December 31, 2005, compared to $8,045,000 in the year endedDecember 31, 2004 and had cash and cash equivalent balance of $18,276,000at December 31, 2005, an increase of $5,171,000 from the balance of$13,105,000 at December 31, 2004. We also had short-term investmentsclassified as available-for-sale securities of $38,830 at December 31, 2005compared to only $741 at December 31, 2004. The investments at December 31, 2005 were comprised almost entirely ofauction rate securities with interest rates that generally reset every 28 days.The auction rate securities have long-term maturity dates and provide us withenhanced yields.  We believe we have theability to quickly liquidate them at their original cost although there is noguaranty we would be able to do so.  Networking capital increased to $66,183,000 at December 31, 2005, compared to$17,042,000 at December 31, 2004.

Net cash used in investing activities was $48,661,000 in the yearended December 31, 2005 compared to $3,312,000 for the year endedDecember 31, 2004. The increase in cash used in investing activities wasrelated to the purchase of (i) short-term auction rate securities and(ii) capital expenditures on “construction in progress” and equipmentrelated to the build-out of our new broadcast facility as further discussedbelow. Additional capital expenditures were to build our inventory of HDcameras and editing equipment used to support our increased efforts to producemore of our programming in-house as opposed to licensing such programming fromthird parties.

Cash provided by financing activities in the year endedDecember 31, 2005 was $50,950,000 compared to $1,158,000 for the yearended December 31, 2004. The cash provided by financing activities in 2005was primarily from the completion, on July 1, 2005, of a public offeringof our common stock, whereby we sold 3,500,000 shares of common stock and receivednet proceeds of $43,350,000. In addition, certain selling stockholdersexercised options to buy 1,688,000 shares of common stock which were resold inthe public offering. On July 13, 2005, the underwriters exercised theirover-allotment option granted by certain selling stockholders and purchased anadditional 442,000 shares of common stock. The shares sold by the sellingstockholders were purchased immediately before the sale through the exercise ofoptions they held to buy common shares from the Company. The Company received$2,168,000 in the aggregate from the exercise of these options. Also in 2005,the Company received cash proceeds of approximately $566,000 from the exerciseof other options for the purchase of 318,000 shares of common stock. The cashprovided by financing activities in 2004 was primarily a result of the exerciseof employee and service provider stock options from our 1995 incentive stockoption plan. Also, we generated an aggregate of $4,950,000 from the issuance oflong-term debt related to the financing of the acquisition and improvement ofour new broadcasting facility as well as the purchase of equipment for thisfacility.

The net proceeds from the public offering are intended to be usedto expand our marketing and sales efforts to increase the number of subscribersto The Outdoor Channel, the purchase of programming from third parties,increased internal production of programming and for general corporatepurposes.

On November 2, 2005, we renewed our revolving line of credit agreement(the “revolver”) with U.S. Bank N.A. (the “Bank”), extending the maturity dateto September 7, 2007 and increasing the total amount which can be drawnupon under the revolver from $5,000,000 to $8,000,000. The revolverprovides that the interest rate shall be LIBOR plus 1.25%. The revolver iscollateralized by substantially all of our assets. This credit facilitycontains customary financial and other covenants and restrictions, as amendedon November 2, 2005, including a change of control provision. As ofDecember 31, 2005 and as of the date of this report, we did not have anyamounts outstanding under this credit facility.

Driven by a need to increase office space, we reassessed ourfacilities including floor space utilization, master control equipment, uplinkequipment, and other needs during the year ended December 31, 2004. OnFebruary 22, 2005, we announced our intention to purchase a 28,000 squarefoot building in Temecula, California for approximately $2.6 million. Wecompleted the purchase during the third quarter of 2005. We are in the processof completing improvements to this building, including the mezzanine floorwhich will add approximately 8,000 square feet, which is planned to house ourbroadcast facility including our master control, our uplink satellite dish andvarious programming personnel. We currently estimate that aggregate capitalexpenditures to complete the build-out including updated equipment could exceed$8 million. As of December 31, 2005, we have spent approximately $4.9million on such upgrades.

On November 2, 2005, we obtained a $1,950,000 mortgage loanfrom the Bank on our recently purchased broadcast facility located in Temecula,California which has a 10 year term loan with a 25 year amortization schedule.This loan carries a variable interest rate of LIBOR plus 1.35%. This loan issecured primarily by a Deed of Trust on the property and is also secondarilysecured by the same assets as the revolver. It also contains customaryfinancial and other covenants and restrictions including a change of controlprovision. On November 7, 2005, we entered into an interest rate swapagreement with the Bank to reduce the potential impact of increasing interestrates and effectively fixed the interest rate on this loan at 6.59%.

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On November 2, 2005, we obtained a $3,000,000, five yearfully amortizing term loan. This loan carries a variable interest rate of LIBORplus 1.35%. This term loan is secured by the same assets as the revolver andcontains customary financial and other covenants and restrictions including achange of control provision. On November 7, 2005, we entered into aninterest rate swap agreement with the Bank to reduce the potential impact ofincreasing interest rates and effectively fixed the interest rate on this termloan at 6.35%.

As of December 31, 2005, we had sufficient cash on hand andhad been generating sufficient cash flow from operations to meet our short-termcash flow requirements. Management believes that our existing cash resourcesincluding cash on-hand, various notes, including the revolver atDecember 31, 2005, and anticipated cash flows from operations will besufficient to fund our operations at current levels and anticipated capitalrequirements through at least March 1, 2007. To the extent that suchamounts are insufficient to finance our working capital requirements or ourdesire to expand operations beyond current levels, we could seek additionalfinancing. There can be no assurance that equity or debt financing will beavailable if needed or, if available, will be on terms favorable to us or ourstockholders.

A summary of our contractual obligations as of December 31,2005 (In thousands):
| **Contractual Obligations** | ** ** | **Total** | ** ** | **Less than1 year** | ** ** | **Over 1 year  Less than3 years** | ** ** | **Over 3 years  Less than5 years** | ** ** | **After  5 years** | ** ** |
|----------------------------------|------------|-----------|------------|-------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------|------------|
|                             |       |      |       |                          |       |                                                  |       |                                                   |       |                    |       |
| Capital lease obligations        |       | $         | 9          |                          | $          | 9                                                     |       | $                                                      | —     |                    | $          | — |   | $ | — |   |
| Long-term debt obligations       |       | 4,892     |       | 699                           |       | 1,397                                                 |       | 1,242                                                  |       | 1,554                   |       |
| Operating lease obligations      |       | 13,935    |       | 2,703                         |       | 4,926                                                 |       | 4,206                                                  |       | 2,100                   |       |
| Standby letter of credit         |       | 140       |       | —                        |       | —                                                |       | —                                                 |       | 140                     |       |
| Purchase obligations             |       | 15,597    |       | 10,376                        |       | 5,221                                                 |       | —                                                 |       | —                  |       |
| Other long-term liabilities      |       | 37        |       | 37                            |       | —                                                |       | —                                                 |       | —                  |       |
|                             |       |      |       |                          |       |                                                  |       |                                                   |       |                    |       |
| Total                            |       | $         | 34,610     |                          | $          | 13,824                                                |       | $                                                      | 11,544     |                    | $          | 5,448 |   | $ | 3,794 |   |

 

Long-termdebt obligations are the new loans entered into as described above, to financethe purchase and build-out including equipment of our new broadcast facility.Operating lease obligations principally relate to commitments for delivery ofour signal via satellite. Purchase obligations relate to purchase commitmentsmade for the acquisition of programming, advertising and promotion includingmagazine advertisements, talent agreements and sponsorship of a race car in theNascar Busch series.

**ITEM 7A.****                   ****QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK.**

At December 31, 2005 and 2004, our investment portfolio includedfixed-income securities of $38,830,000 and $741,000, respectively. Thesesecurities are subject to interest rate risk and will decline in value ifinterest rates increase. However, due to the short duration of our investmentportfolio, an immediate 10% change in interest rates would have no materialimpact on our financial condition, operating results or cash flows. Declines ininterest rates over time will, however, reduce our interest income whileincreases in interest rates over time may increase our interest expense.

We do not have a significant level of transactions denominated incurrencies other than U.S. dollars and as a result we have very limited foreigncurrency exchange rate risk. The effect of an immediate 10% change in foreignexchange rates would have no material impact on our financial condition,operating results or cash flows.

As of December 31, 2005 and as of the date of this report, we hadaggregate outstanding borrowings of approximately $4,901,000 and $4,717,000(unaudited), respectively. The rates of interest on our currently outstandingdebt are fixed while the rate of interest on our line-of-credit is variable,but we currently have no outstanding balance under this credit facility.Because of these reasons, an immediate 10% change in interest rates would haveno material, immediate impact on our financial condition, operating results orcash flows.

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**ITEM 8.****         ****FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.**

**I N D E X**
| Report of Independent  Registered Public Accounting Firm                                                                                |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                    |   |
| Restated Consolidated  Balance Sheets as of December 31, 2005 and 2004                                                                  |   |
|                                                                                                                                    |   |
| Consolidated  Statements of Operations for the Years Ended December 31, 2005 (as Restated),  2004 (as Restated) and 2003                |   |
|                                                                                                                                    |   |
| Consolidated  Statements of Stockholders’ Equity for the Years Ended December 31, 2005 (as  Restated), 2004 (as Restated) and 2003 |   |
|                                                                                                                                    |   |
| Consolidated  Statements of Cash Flows for the Years Ended December 31, 2005 (as Restated),  2004 (as Restated) and 2003                |   |
|                                                                                                                                    |   |
| Notes to  Consolidated Financial Statements                                                                                             |   |

 

* * *

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**Report of Independent RegisteredPublic Accounting Firm**

To the Stockholders and Board of Directors

OutdoorChannel Holdings, Inc. and Subsidiaries

Wehave audited the accompanying consolidated balance sheets of Outdoor ChannelHoldings, Inc. and subsidiaries as of December 31, 2005 and 2004, and therelated consolidated statements of operations, stockholders’ equity and cashflows for each of the years in the three-year period ended December 31, 2005.These consolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated financial position ofOutdoor Channel Holdings, Inc., and subsidiaries as of December 31, 2005 and2004, and their results of operations and cash flows for each of the years inthe three-year period ended December 31, 2005, in conformity with accountingprinciples generally accepted in the United States of America.

We also haveaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the effectiveness of Outdoor Channel Holdings,Inc. and subsidiaries’ internal control over financial reporting as ofDecember 31, 2005, based on criteria established in “Internal Control-IntegratedFramework” issued by the Committee of Sponsoring Organizations of the TreadwayCommission and our report dated March 9, 2006 expressed anunqualified opinion thereon.

Asdiscussed in Note 18 to the consolidated financial statements, the Company hasrestated its consolidated financial statements as of December 31, 2005 and 2004and for the years then ended.
| /s/ J.H. Cohn LLP                  |   |
|------------------------------------|--------|
|                               |   |
| San Diego, California              |   |
| March 9, 2006, except for Note 18, |   |
| which is as of February 12, 2007   |   |

 

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**OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES**

**Consolidated BalanceSheets**

**As of December 31, 2005 and 2004**

(In thousands, except per share data)
| ** **                                                                                                 | ** ** | **2005**                              | ** ** | **2004**                              | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                 | ** ** | **(as Restated,  Note 18)** | ** ** | **(as Restated,  Note 18)** | ** ** |
| **Assets**                                                                                                 |       |                                  |       |                                  |       |
| Current assets:                                                                                            |       |                                  |       |                                  |       |
| Cash and cash equivalents                                                                                  |       | $                                     | 18,276     |                                  | $          | 13,105 |   |
| Investment in available-for-sale securities                                                                |       | 38,830                                |       | 741                                   |       |
| Accounts receivable, net of allowance for doubtful accounts of  $275 and $207                              |       | 5,320                                 |       | 4,848                                 |       |
| Income tax refund receivable                                                                               |       | 3,843                                 |       | 2,291                                 |       |
| Deferred tax assets, net                                                                                   |       | 1,015                                 |       | —                                |       |
| Prepaid programming costs                                                                                  |       | 2,381                                 |       | 606                                   |       |
| Other current assets                                                                                       |       | 689                                   |       | 135                                   |       |
| Total current assets                                                                                       |       | 70,354                                |       | 21,726                                |       |
|                                                                                                       |       |                                  |       |                                  |       |
| Property, plant and equipment at cost, net:                                                                |       |                                  |       |                                  |       |
| Membership division                                                                                        |       | 3,526                                 |       | 3,527                                 |       |
| Outdoor Channel equipment and improvements                                                                 |       | 12,097                                |       | 3,199                                 |       |
| Property, plant and equipment, net                                                                         |       | 15,623                                |       | 6,726                                 |       |
| Amortizable intangible assets, net                                                                         |       | 11,292                                |       | 12,347                                |       |
| Goodwill                                                                                                   |       | 44,457                                |       | 44,457                                |       |
| Deferred tax assets, net                                                                                   |       | 9,491                                 |       | 14,139                                |       |
| Deposits and other assets                                                                                  |       | 605                                   |       | 174                                   |       |
| Totals                                                                                                     |       | $                                     | 151,822    |                                  | $          | 99,569 |   |
|                                                                                                       |       |                                  |       |                                  |       |
| **Liabilities and Stockholders’ Equity**                                                              |       |                                  |       |                                  |       |
|                                                                                                       |       |                                  |       |                                  |       |
| Current liabilities:                                                                                       |       |                                  |       |                                  |       |
| Accounts payable and accrued expenses                                                                      |       | $                                     | 2,864      |                                  | $          | 3,705 |   |
| Accrued severance payments                                                                                 |       | 18                                    |       | 28                                    |       |
| Current portion of long-term debt and capital lease obligations                                            |       | 708                                   |       | 26                                    |       |
| Deferred tax liabilities, net                                                                              |       | —                                |       | 494                                   |       |
| Current portion of deferred revenue                                                                        |       | 422                                   |       | 370                                   |       |
| Customer deposits                                                                                          |       | 159                                   |       | 61                                    |       |
| Total current liabilities                                                                                  |       | 4,171                                 |       | 4,684                                 |       |
|                                                                                                       |       |                                  |       |                                  |       |
| Accrued severance payments, net of current portion                                                         |       | 16                                    |       | 37                                    |       |
| Long-term debt and capital lease obligations, net of current  portion                                      |       | 4,193                                 |       | 9                                     |       |
| Deferred revenue, net of current portion                                                                   |       | 1,271                                 |       | 1,145                                 |       |
| Derivative instruments                                                                                     |       | 72                                    |       | —                                |       |
| Deferred satellite rent obligations                                                                        |       | 295                                   |       | 312                                   |       |
| Total liabilities                                                                                          |       | 10,018                                |       | 6,187                                 |       |
|                                                                                                       |       |                                  |       |                                  |       |
| Commitments and contingencies                                                                              |       |                                  |       |                                  |       |
| Stockholders’ equity:                                                                                 |       |                                  |       |                                  |       |
| Preferred stock; 25,000 shares authorized; none issued                                                     |       | —                                |       | —                                |       |
| Common stock, $0.001 par value; 75,000 shares authorized: 24,409  and 18,394 shares issued and outstanding |       | 24                                    |       | 18                                    |       |
| Additional paid-in capital                                                                                 |       | 158,700                               |       | 111,912                               |       |
| Deferred compensation                                                                                      |       | (1,520                                | )          | (1,034                                | )          |
| Accumulated other comprehensive income(loss):                                                              |       |                                  |       |                                  |       |
| Net unrealized losses on derivative instruments                                                            |       | (72                                   | )          | —                                |       |
| Net unrealized gains on available-for-sale securities                                                      |       | 36                                    |       | 43                                    |       |
| Total accumulated other comprehensive income (loss)                                                        |       | (36                                   | )          | 43                                    |       |
| Accumulated deficit                                                                                        |       | (15,364                               | )          | (17,557                               | )          |
| Total stockholders’ equity                                                                            |       | 141,804                               |       | 93,382                                |       |
| Totals                                                                                                     |       | $                                     | 151,822    |                                  | $          | 99,569 |   |

 

SeeNotes to Consolidated Financial Statements

53

----

**OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES**

**Consolidated Statementsof Operations**

**For The Years Ended December 31, 2005, 2004 and2003**

(In thousands, except per share data)
| ** **                                                    | ** ** | **2005**                              | ** ** | **2004**                              | ** ** | **2003**   | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|------------|------------|
| ** **                                                    | ** ** | **(as Restated,  Note 18)** | ** ** | **(as Restated,  Note 18)** | ** ** | ** ** | ** ** |
| Revenues:                                                     |       |                                  |       |                                  |       |       |       |
| Advertising                                                   |       | $                                     | 22,769     |                                  | $          | 21,817     |       | $ | 16,396 |   |
| Subscriber fees                                               |       | 15,432                                |       | 13,391                                |       | 10,836     |       |
| Membership  income                                            |       | 4,707                                 |       | 4,746                                 |       | 4,456      |       |
|                                                          |       |                                  |       |                                  |       |       |       |
| Total revenues                                                |       | 42,908                                |       | 39,954                                |       | 31,688     |       |
|                                                          |       |                                  |       |                                  |       |       |       |
| Cost of services:                                             |       |                                  |       |                                  |       |       |       |
| Programming                                                   |       | 5,604                                 |       | 2,521                                 |       | 1,117      |       |
| Satellite  transmission fees                                  |       | 2,497                                 |       | 2,351                                 |       | 2,423      |       |
| Production and  operations                                    |       | 3,261                                 |       | 2,397                                 |       | 1,889      |       |
| Other direct  costs                                           |       | 1,355                                 |       | 1,101                                 |       | 1,125      |       |
|                                                          |       |                                  |       |                                  |       |       |       |
| Total cost of  services                                       |       | 12,717                                |       | 8,370                                 |       | 6,554      |       |
|                                                          |       |                                  |       |                                  |       |       |       |
| Other expenses:                                               |       |                                  |       |                                  |       |       |       |
| Advertising                                                   |       | 7,100                                 |       | 5,596                                 |       | 3,767      |       |
| Selling, general  and administrative                          |       | 17,572                                |       | 16,285                                |       | 12,860     |       |
| Non-cash  compensation expense from exchange of stock options |       | —                                |       | 47,983                                |       | —     |       |
| Depreciation and  amortization                                |       | 2,721                                 |       | 1,424                                 |       | 880        |       |
|                                                          |       |                                  |       |                                  |       |       |       |
| Total other  expenses                                         |       | 27,393                                |       | 71,288                                |       | 17,507     |       |
|                                                          |       |                                  |       |                                  |       |       |       |
| Income (loss) from operations                                 |       | 2,798                                 |       | (39,704                               | )          | 7,627      |       |
|                                                          |       |                                  |       |                                  |       |       |       |
| Interest expense                                              |       | (45                                   | )          | (5                                    | )          | (42        | )          |
| Other income                                                  |       | 943                                   |       | 120                                   |       | 68         |       |
|                                                          |       |                                  |       |                                  |       |       |       |
| Income (loss) before income taxes and minority interest       |       | 3,696                                 |       | (39,589                               | )          | 7,653      |       |
|                                                          |       |                                  |       |                                  |       |       |       |
| Income tax provision (benefit)                                |       | 1,503                                 |       | (16,011                               | )          | 3,162      |       |
|                                                          |       |                                  |       |                                  |       |       |       |
| Income (loss) before minority interest                        |       | 2,193                                 |       | (23,578                               | )          | 4,491      |       |
|                                                          |       |                                  |       |                                  |       |       |       |
| Minority interest in net income of consolidated subsidiary    |       | —                                |       | 682                                   |       | 897        |       |
|                                                          |       |                                  |       |                                  |       |       |       |
| Net income (loss)                                             |       | $                                     | 2,193      |                                  | $          | (24,260    | )          | $ | 3,594 |   |
|                                                          |       |                                  |       |                                  |       |       |       |
| Earnings (loss) per common share:                             |       |                                  |       |                                  |       |       |       |
| Basic                                                         |       | $                                     | 0.10       |                                  | $          | (1.52      | )          | $ | 0.26 |   |
| Diluted                                                       |       | $                                     | 0.09       |                                  | $          | (1.52      | )          | $ | 0.19 |   |
|                                                          |       |                                  |       |                                  |       |       |       |
| Weighted average number of common shares outstanding:         |       |                                  |       |                                  |       |       |       |
| Basic                                                         |       | 21,423                                |       | 15,998                                |       | 13,824     |       |
| Diluted                                                       |       | 24,732                                |       | 15,998                                |       | 14,768     |       |

 

SeeNotes to Consolidated Financial Statements

54

----

**OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES**

**Consolidated Statementsof Stockholders’ Equity**

**For the Years Ended December 31, 2005, 2004 and2003**

(In thousands)
| ** **                                                                                                       | ** ** | **Common Stock** | ** ** | **Common  Stock  Subscriptions** | ** ** | **Treasury**   | ** ** | **Additional  Paid-in** | ** ** | **Deferred** | ** ** | **Accumulated  Other  Comprehensive  Income** | ** ** | **Retained  Earnings  (Accumulated** | ** ** | ** **   | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|----------------------------------|------------|----------------|------------|-------------------------|------------|--------------|------------|-----------------------------------------------|------------|--------------------------------------|------------|--------------|------------|
| ** **                                                                                                       | ** ** | **Shares**            | ** ** | **Amount**                       | ** ** | **Receivable** | ** ** | **Stock**               | ** ** | **Capital**  | ** ** | **Compensation**                              | ** ** | **(Loss)**                           | ** ** | **Deficit)** | ** ** | **Total** | ** ** |
| Balance, January  1, 2003                                                                                        |       | 5,369                 |       | $                                | 107        |           | $          | (262                    | )          | $            | (400       | )                                             | $          | 3,604                                |       | $            | —     |   | $ | 4 |   | $ | 3,109 |   | $ | 6,162 |   |
| Comprehensive  Income:                                                                                           |       |                  |       |                             |       |           |       |                    |       |         |       |                                          |       |                                 |       |         |       |   |   |
| Net income                                                                                                       |       |                  |       |                             |       |           |       |                    |       |         |       |                                          |       |                                 |       | 3,594        |       | 3,594 |   |
| Effect of change  in fair value of available-for-sale securities, net of deferred taxes of $20                   |       |                  |       |                             |       |           |       |                    |       |         |       |                                          |       | 30                                   |       |         |       | 30 |   |
| Total  comprehensive income                                                                                      |       |                  |       |                             |       |           |       |                    |       |         |       |                                          |       |                                 |       |         |       | 3,624 |   |
| Subscriptions  receivable paid through provision of services and in cash                                         |       |                  |       |                             |       | 232            |       |                    |       |         |       |                                          |       |                                 |       |         |       | 232 |   |
| Tax benefit from  exercise of non-qualified stock options and deferred compensation                              |       |                  |       |                             |       |           |       |                    |       | 2,064        |       |                                          |       |                                 |       |         |       | 2,064 |   |
| Common stock  issued upon exercise of stock options for cash, provision of services and  offset of notes payable |       | 384                   |       | 8                                |       |           |       |                    |       | 928          |       |                                          |       |                                 |       |         |       | 936 |   |
| Common stock issued to former officer/director for payment of  deferred compensation                             |       | 134                   |       | 3                                |       |           |       |                    |       | 172          |       |                                          |       |                                 |       |         |       | 175 |   |
| Balance, December  31, 2003                                                                                      |       | 5,887                 |       | $                                | 118        |           | $          | (30                     | )          | $            | (400       | )                                             | $          | 6,768                                |       | $            | —     |   | $ | 34 |   | $ | 6,703 |   | $ | 13,193 |   |

 

55

----

 
| ** **                                                                                    | ** ** | **Common Stock** | ** ** | **Common  Stock  Subscriptions** | ** ** | **Treasury**   | ** ** | **Additional  Paid-in** | ** ** | **Deferred** | ** ** | **Accumulated  Other  Comprehensive  Income** | ** ** | **Retained  Earnings  (Accumulated** | ** ** | ** **   | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-----------------------|------------|----------------------------------|------------|----------------|------------|-------------------------|------------|--------------|------------|-----------------------------------------------|------------|--------------------------------------|------------|--------------|------------|
| ** **                                                                                    | ** ** | **Shares**            | ** ** | **Amount**                       | ** ** | **Receivable** | ** ** | **Stock**               | ** ** | **Capital**  | ** ** | **Compensation**                              | ** ** | **(Loss)**                           | ** ** | **Deficit)** | ** ** | **Total** | ** ** |
| Balance, December 31, 2003                                                                    |       | 5,887                 |       | $                                | 118        |           | $          | (30                     | )          | $            | (400       | )                                             | $          | 6,768                                |       | $            | —     |   | $ | 34 |   | $ | 6,703 |   | $ | 13,193 |   |
| Comprehensive Income:                                                                         |       |                  |       |                             |       |           |       |                    |       |         |       |                                          |       |                                 |       |         |       |   |   |
| Net loss (as  restated)                                                                       |       |                  |       |                             |       |           |       |                    |       |         |       |                                          |       |                                 |       | (24,260      | )          | (24,260 | ) |
| Effect of change  in fair value of available-for-sale securities, net of deferred taxes of $4 |       |                  |       |                             |       |           |       |                    |       |         |       |                                          |       | 9                                    |       |         |       | 9 |   |
| Total  comprehensive income (as restated)                                                     |       |                  |       |                             |       |           |       |                    |       |         |       |                                          |       |                                 |       |         |       | (24,251 | ) |
| Effect of 5 for 2  split and change in par value                                              |       | 8,830                 |       | (103                             | )          |           |       |                    |       | 103          |       |                                          |       |                                 |       |         |       | — |   |
| Common stock issued upon exercise of stock options                                            |       | 723                   |       |                             |       |           |       |                    |       | 1,285        |       |                                          |       |                                 |       |         |       | 1,285 |   |
| Stock  subscriptions paid                                                                     |       |                  |       |                             |       | 30             |       |                    |       |         |       |                                          |       |                                 |       |         |       | 30 |   |
| Issuance of restricted stock to employees for services to be  rendered                        |       | 75                    |       |                             |       |           |       |                    |       | 1,043        |       | (1,043                                        | )          |                                 |       |         |       | — |   |
| Amortization of deferred compensation                                                         |       |                  |       |                             |       |           |       |                    |       |         |       | 9                                             |       |                                 |       |         |       | 9 |   |
| Stock exchanged  for stock of subsidiary                                                      |       | 3,070                 |       | 3                                |       |           |       |                    |       | 54,100       |       |                                          |       |                                 |       |         |       | 54,103 |   |
| Effect of  exchange of stock options for stock options of subsidiary                          |       |                  |       |                             |       |           |       |                    |       | 47,983       |       |                                          |       |                                 |       |         |       | 47,983 |   |
| Tax benefit from  exercise of stock options                                                   |       |                  |       |                             |       |           |       |                    |       | 1,030        |       |                                          |       |                                 |       |         |       | 1,030 |   |
| Retirement of treasury stock                                                                  |       | (191                  | )          |                             |       |           |       | 400                     |       | (400         | )          |                                          |       |                                 |       |         |       | — |   |
| Balance, December  31, 2004 (as restated)                                                     |       | 18,394                |       | $                                | 18         |           | $          | —                  |       | $            | —     |                                          | $          | 111,912                              |       | $            | (1,034     | ) | $ | 43 |   | $ | (17,557 | ) | $ | 93,382 |   |

 

56

----

 
| ** **                                                                                       | ** ** | **Common Stock** | ** ** | **Common  Stock  Subscriptions** | ** ** | **Treasury**   | ** ** | **Additional  Paid-in** | ** ** | **Deferred** | ** ** | **Accumulated  Other  Comprehensive  Income** | ** ** | **Retained  Earnings  (Accumulated** | ** ** | ** **   | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------|------------|----------------------------------|------------|----------------|------------|-------------------------|------------|--------------|------------|-----------------------------------------------|------------|--------------------------------------|------------|--------------|------------|
| ** **                                                                                       | ** ** | **Shares**            | ** ** | **Amount**                       | ** ** | **Receivable** | ** ** | **Stock**               | ** ** | **Capital**  | ** ** | **Compensation**                              | ** ** | **(Loss)**                           | ** ** | **Deficit)** | ** ** | **Total** | ** ** |
| Balance, December 31, 2004 (as Restated)                                                         |       | 18,394                |       | $                                | 18         |           | $          | —                  |       | $            | —     |                                          | $          | 111,912                              |       | $            | (1,034     | ) | $ | 43 |   | $ | (17,557 | ) | $ | 93,382 |   |
| Comprehensive Income:                                                                            |       |                  |       |                             |       |           |       |                    |       |         |       |                                          |       |                                 |       |         |       |   |   |
| Net income (as  restated)                                                                        |       |                  |       |                             |       |           |       |                    |       |         |       |                                          |       |                                 |       | 2,193        |       | 2,193 |   |
| Effect of change  in fair value of available-for-sale securities, net of deferred taxes of ($7)  |       |                  |       |                             |       |           |       |                    |       |         |       |                                          |       | (7                                   | )          |         |       | (7 | ) |
| Impact of cash  flow hedge                                                                       |       |                  |       |                             |       |           |       |                    |       |         |       |                                          |       | (72                                  | )          |         |       | (72 | ) |
| Total  comprehensive income (as restated)                                                        |       |                  |       |                             |       |           |       |                    |       |         |       |                                          |       |                                 |       |         |       | 2,114 |   |
| Common stock issued upon exercise of stock options                                               |       | 2,448                 |       | 2                                |       |           |       |                    |       | 2,732        |       |                                          |       |                                 |       |         |       | 2,734 |   |
| Issuance of  restricted stock to employees for services to be rendered, net of forfeited  shares |       | 67                    |       |                             |       |           |       |                    |       | 861          |       | (861                                          | )          |                                 |       |         |       | — |   |
| Common stock issued upon sale to public, net of offering costs  of $1,066                        |       | 3,500                 |       | 4                                |       |           |       |                    |       | 43,346       |       |                                          |       |                                 |       |         |       | 43,350 |   |
| Amortization of  deferred compensation                                                           |       |                  |       |                             |       |           |       |                    |       |         |       | 375                                           |       |                                 |       |         |       | 375 |   |
| Change in estimate of tax benefit from exercise of stock options                                 |       |                  |       |                             |       |           |       |                    |       | (1,027       | )          |                                          |       |                                 |       |         |       | (1,027 | ) |
| Tax benefit from  exercise of stock options                                                      |       |                  |       |                             |       |           |       |                    |       | 868          |       |                                          |       |                                 |       |         |       | 868 |   |
| Tax benefit from vesting of restricted stock                                                     |       |                  |       |                             |       |           |       |                    |       | 8            |       |                                          |       |                                 |       |         |       | 8 |   |
| Balance, December 31, 2005 (as Restated)                                                         |       | 24,409                |       | $                                | 24         |           | $          | —                  |       | $            | —     |                                          | $          | 158,700                              |       | $            | (1,520     | ) | $ | (36 | ) | $ | (15,364 | ) | $ | 141,804 |   |

 

SeeNotes to Consolidated Financial Statements

57

----

**OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES**

**Consolidated Statementsof Cash Flows**

**Years Ended December 31, 2005, 2004 and 2003**

(In thousands)
| ** **                                                                                      | ** ** | **2005**               | ** ** | **2004**               | ** ** | **2003**   | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------|------------|
| ** **                                                                                      | ** ** | **(As Restated)** | ** ** | **(As Restated)** | ** ** | ** ** | ** ** |
| Operating  activities:                                                                          |       |                   |       |                   |       |       |       |
| Net income (loss)                                                                               |       | $                      | 2,193      |                   | $          | (24,260    | )          | $ | 3,594 |   |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities:       |       |                   |       |                   |       |       |       |
| Depreciation and amortization                                                                   |       | 2,730                  |       | 1,424                  |       | 880        |       |
| Provision for doubtful accounts                                                                 |       | 214                    |       | 164                    |       | 327        |       |
| Costs of services offset against subscription  receivable                                       |       | —                 |       | —                 |       | 251        |       |
| Realized gain on sale of available-for-sale  securities                                         |       | —                 |       | (34                    | )          | (13        | )          |
| Minority interest in net income of consolidated  subsidiary                                     |       | —                 |       | 682                    |       | 897        |       |
| Tax benefit from exercise of stock options and  issuance of shares to pay deferred compensation |       | —                 |       | 1,030                  |       | 2,064      |       |
| Deferred tax provision (benefit), net                                                           |       | 2,994                  |       | (17,684                | )          | 70         |       |
| Compensation expense from exchange of stock options                                             |       | —                 |       | 47,983                 |       | —     |       |
| Amortization of deferred compensation                                                           |       | 375                    |       | 9                      |       | —     |       |
| Changes in operating assets and liabilities:                                                    |       |                   |       |                   |       |       |       |
| Accounts receivable                                                                             |       | (686                   | )          | (1,215                 | )          | (1,651     | )          |
| Income tax refund receivable                                                                    |       | (1,552                 | )          | (1,126                 | )          | —     |       |
| Prepaid programming costs                                                                       |       | (1,775                 | )          | (606                   | )          | —     |       |
| Other current assets                                                                            |       | (554                   | )          | 314                    |       | (1,514     | )          |
| Deposits and other assets                                                                       |       | (444                   | )          | (133                   | )          | 155        |       |
| Accounts payable and accrued expenses                                                           |       | (841                   | )          | 1,914                  |       | 874        |       |
| Customer deposits                                                                               |       | 98                     |       | 61                     |       | —     |       |
| Accrued severance payments                                                                      |       | (31                    | )          | (291                   | )          | —     |       |
| Deferred revenue                                                                                |       | 178                    |       | (119                   | )          | 324        |       |
| Deferred satellite rent obligations                                                             |       | (17                    | )          | (68                    | )          | (68        | )          |
| Net cash provided by operating activities                                                       |       | 2,882                  |       | 8,045                  |       | 6,190      |       |
|                                                                                            |       |                   |       |                   |       |       |       |
| Investing activities:                                                                           |       |                   |       |                   |       |       |       |
| Purchases of property, plant and equipment                                                      |       | (10,559                | )          | (2,549                 | )          | (1,924     | )          |
| Purchases of available-for-sale securities                                                      |       | (64,652                | )          | (255                   | )          | (443       | )          |
| Proceeds from sale of available-for-sale securities                                             |       | 26,550                 |       | 85                     |       | 36         |       |
| Costs related to acquisition of minority interest                                               |       | —                 |       | (593                   | )          | —     |       |
| Proceeds from notes receivable                                                                  |       | —                 |       | —                 |       | 36         |       |
| Net cash used in investing activities                                                           |       | (48,661                | )          | (3,312                 | )          | (2,295     | )          |
|                                                                                            |       |                   |       |                   |       |       |       |
| Financing activities:                                                                           |       |                   |       |                   |       |       |       |
| Net payments of stockholder loans                                                               |       | —                 |       | —                 |       | (15        | )          |
| Principal payments on long-term debt and capital  leases                                        |       | (84                    | )          | (157                   | )          | (182       | )          |
| Proceeds from issuance of long-term debt                                                        |       | 4,950                  |       |                   |       |       |       |
| Proceeds from exercise of stock options                                                         |       | 2,734                  |       | 1,285                  |       | 268        |       |
| Proceeds from common stock subscriptions receivable                                             |       | —                 |       | 30                     |       | —     |       |
| Proceeds from the sale of common stock, net of  offering costs                                  |       | 43,350                 |       | —                 |       | —     |       |
| Net cash provided by financing activities                                                       |       | 50,950                 |       | 1,158                  |       | 71         |       |
|                                                                                            |       |                   |       |                   |       |       |       |
| Net increase in  cash and cash equivalents                                                      |       | 5,171                  |       | 5,891                  |       | 3,966      |       |
|                                                                                            |       |                   |       |                   |       |       |       |
| Cash and cash  equivalents, beginning of year                                                   |       | 13,105                 |       | 7,214                  |       | 3,248      |       |
|                                                                                            |       |                   |       |                   |       |       |       |
| Cash and cash  equivalents, end of year                                                         |       | $                      | 18,276     |                   | $          | 13,105     |       | $ | 7,214 |   |

 

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| ** **                                                                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Supplemental  disclosure of cash flow information:                                            |       |     |       |     |       |     |       |
| Interest paid                                                                                 |       | $        | 45         |     | $          | 5        |       | $ | 42 |   |
| Income taxes paid                                                                             |       | $        | 123        |     | $          | 1,139    |       | $ | 2,083 |   |
| Supplemental disclosures of non-cash investing and  financing activities:                     |       |     |       |     |       |     |       |
| Issuance of restricted  stock to employees for services rendered                              |       | $        | 861        |     | $          | 1,043    |       | $ | — |   |
| Retirement of treasury stock                                                                  |       | $        | —     |     | $          | 400      |       | $ | — |   |
| Fair value of common  stock issued to acquire minority interest in subsidiary                 |       | $        | —     |     | $          | 49,853   |       | $ | — |   |
| Effect of net increase in fair value of  available-for-sale securities, net of deferred taxes |       | $        | (7         | )        | $          | 9        |       | $ | 30 |   |
| Exchange of stock  options for non-employee stock options of subsidiary                       |       | $        | —     |     | $          | 4,250    |       | $ | — |   |
| Note receivable from stockholder offset against  accrued bonus                                |       | $        | —     |     | $          | —   |       | $ | 45 |   |
| Receivable from exercise of stock options offset  against loan from stockholders              |       | $        | —     |     | $          | —   |       | $ | 623 |   |
| Common stock  issued to former officer/director for payment of deferred compensation          |       | $        | —     |     | $          | —   |       | $ | 175 |   |

 

SeeNotes to Consolidated Financial Statements

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**OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES**

**Notes to ConsolidatedFinancial Statements**

(In thousands, except per share data)

**Note 1 – Organization and Business**

Description of Operations

Outdoor Channel Holdings, Inc. or “Outdoor Channel Holdings,” is incorporatedunder the laws of the State of Delaware. Collectively, with its subsidiaries,the terms “we,” “us,” “our” and the “Company” refer to Outdoor ChannelHoldings, Inc. as a combined entity, except where noted or where the contextmakes clear the reference is only to Outdoor Channel Holdings, Inc. or one ofour subsidiaries. The Company acquired the remaining 17.6% minority interest inour subsidiary, The Outdoor Channel, Inc. (“TOC”), which it did not previouslyhold, on September 8, 2004. TOC operates The Outdoor Channel, which is anational television network devoted to traditional outdoor activities, such ashunting, fishing and shooting sports, as well as off-road motor sports andother related lifestyle programming. TOC also operates Outdoor Channel 2 HD,which also is a national television network with similar programming as TOC’sbut is produced utilizing high definition technology.

Our revenues include advertising fees from advertisements aired onThe Outdoor Channel, including fees paid by outside producers to purchaseadvertising time in connection with the airing of their programs on The OutdoorChannel, and from advertisements in “Gold Prospectors & Treasure Hunters inthe Great Outdoors” magazine; subscriber fees paid by cable and satelliteservice providers that air The Outdoor Channel; membership fees from members inboth LDMA-AU, Inc. (“Lost Dutchman’s”) and Gold Prospector’s Association ofAmerica, LLC (“GPAA”); and other income including products and services relatedto gold prospecting, gold expositions, expeditions and outings.

Other business activities consist of the promotion and sale of agold prospecting expedition to our Cripple River property located near Nome,Alaska, and the sale of memberships in Lost Dutchman’s which entitle members toengage in gold prospecting on our Arizona, California, Colorado, Georgia,Michigan, North Carolina, Oregon, and South Carolina properties. We have signedan agreement with another organization for the mutual use of these and otherproperties.

Outdoor Channel Holdings also wholly-owns 43455 BPD, LLC whichowns the building housing our broadcast facility.

The accompanying consolidated financial statements as of December31, 2005 and 2004 and the related notes have been restated as further explainedin Note 18.

**Note 2 – Summary of Significant AccountingPolicies**

Principles of Consolidation

The consolidated financial statements include the accounts ofOutdoor Channel Holdings and its subsidiaries, Gold Prospector’s Association ofAmerica, Inc., Lost Dutchman’s, 43455 BPD, LLC, GPAA and TOC. All materialintercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates, judgments and assumptions. We believethat our estimates, judgments and assumptions made when accounting for itemsand matters such as customer retention patterns, allowance for bad debts, usefullives of assets, asset valuations including cash flow projections,recoverability of assets, potential unasserted claims under contractualobligations, income taxes, reserves and other provisions and contingencies arereasonable, based on information available at the time they are made. Theseestimates, judgments and assumptions can affect reported amounts of assets andliabilities as of the dates of the consolidated balance sheet and reportedamount of revenues and expenses for the periods presented. Accordingly, actualresults could materially differ from those estimates.

Cash and Cash Equivalents

We consider all highly-liquid investments with maturities of threemonths or less when acquired to be cash equivalents.

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Subscriber Acquisition Fees

Subscriber acquisition fees are paid to obtain carriage on certainpay television distributors’ systems. Under certain of these agreements withpay television distributors, TOC is obligated to pay subscriber acquisitionfees to the pay television distributors if they meet defined criteria for theprovision of additional carriage for The Outdoor Channel on the pay televisiondistributors’ systems. Such costs are accrued when TOC receives verificationthat the distributors have met the contractual criteria and have provided theadditional carriage.

Subscriber acquisition fees are amortized over the contractualperiod that the pay television distributor is required to carry the newlyacquired TOC subscriber as a reduction of the subscriber fee revenue the paytelevision distributor is obligated to pay us. If the amortization expenseexceeds the subscriber fee revenue recognized on a per distributor basis, theexcess amortization is included as a component of selling, general andadministrative expenses.  We assess the recoverabilityof these costs periodically by comparing the net carrying amount of thesubscriber acquisition fees to the estimates of future subscriber fees andadvertising revenues. We also assess the recoverability when events such aschanges in distributor relationships occur or other indicators suggestimpairment.

PrepaidProgramming Costs

We produce a portion of the programming we air on ourchannels in-house as opposed to acquiring the programming from third partyproducers. The cost of production is expensed when the show airs. As such, atyear-end we have incurred costs for programming that is yet to air. These costsare accumulated on the balance sheet as “Prepaid programming costs.” Costs ofspecific shows will be charged to programming expense based on anticipatedairings, when the program airs and the related advertising revenue isrecognized.

Property and Equipment

Propertyand equipment are stated at historical cost. Depreciation of equipment iscalculated using the straight-line method over the estimated useful lives ofthe assetswhichrange from 5 to 15 years.

Amortizable Intangible Assets

Costs recorded in connection with the Company’s acquisition of theminority interest in TOC for multi-system cable operator (“MSO”) relationshipsare being amortized over a period of 21 years and 4 months and costs recordedfor advertising customer relationships are being amortized over a period ofeither 3 or 4 years. TOC has the exclusive right to the trademark The OutdoorChannel. The costs of acquiring the trademark are being amortized on astraight-line basis over an estimated useful life of 15 years.

Impairment of Certain Long-Lived Assets

The impairment of long-lived assets with finite lives such asproperty and equipment, MSO relationships, customer relationships andtrademarks, is recognized when events or changes in circumstances indicate thatthe undiscounted cash flows estimated to be generated by such assets are lessthan their carrying value and, accordingly, all or a portion of such carrying valuemay not be recoverable. Impairment losses are then measured by comparing thefair value of assets to their carrying amounts. We did not record any chargesfor the impairment of long-lived assets in 2005, 2004 or 2003.

Goodwill

Goodwill represents the excess of cost over the fair value of netassets of an acquired business. Under Statement of Financial AccountingStandards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”),goodwill is deemed to have an indefinite life and is not subject to amortizationover an estimated finite useful life but is tested for impairment annuallyunder a two-step approach, or more frequently, if events or changes incircumstances indicate that the asset might be impaired.

Impairment is assessed at the “reporting unit” level by applying afair value-based test. A reporting unit is defined as the same as, or one levelbelow the operating segment level as described in Statement of FinancialAccounting Standards No. 131, “Disclosures about Segments of an Enterprise andRelated Information” (“SFAS 131”). Under the two-step approach, the carryingamount of the reporting unit is compared with its fair value. If the carryingamount of the reporting unit exceeds its fair value, the “implied” fair value(as defined in SFAS 142) of the reporting unit’s goodwill is compared with itscarrying amount to measure the amount of the impairment loss, if any. When thecarrying amount of the reporting unit’s goodwill exceeds the implied fair valueof the goodwill, an impairment loss is recognized in an amount equal to theexcess.

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Derivative Instruments and Certain Hedging Activity

We account for derivatives and hedging activity under Statement ofFinancial Accounting Standards No. 133 (“SFAS 133”) “Accounting for DerivativeInstruments and Certain Hedging Activities” and Statement of FinancialAccounting Standards No. 138 (“SFAS 138”) “Accounting for DerivativeInstruments and Certain Hedging Activity, an amendment of SFAS No. 133.”  All derivatives are recognized on the balancesheet at their fair value. On the date we enter into a derivative contract, wedesignate the derivative as a hedge of the variability of cash flows to be paidrelated to a recognized liability (“cash flow hedge”). We formally document allrelationships between hedging instruments and hedged items, as well as therisk-management objective and strategy for undertaking various hedgetransactions. This process includes linking all derivatives that are designatedas cash flow hedges to specific liabilities on the balance sheet.  We also formally assess, both at the hedge’sinception and on an ongoing basis, whether the derivatives that are used inhedging transactions are highly effective in offsetting changes in cash flowsof hedged items. When it is determined that a derivative is not highlyeffective as a hedge or that it has ceased to be a highly effective hedge, wediscontinue hedge accounting prospectively.

Advertising

We expense the cost of advertising and promotions as incurred.

Revenue Recognition

We generate revenues from sales of television and printadvertising, from cable and satellite subscriber fees, from membership fees andfrom sales of related products and services.

TOC’s advertising revenues are recognized when the advertisementis aired and the collectibility of fees is reasonably assured. Advertisingrevenues from advertisements in our bi-monthly magazine are recognized when themagazine is distributed. Subscriber fees for The Outdoor Channel are recognizedin the period the programming is aired by the distributor.

Broadcast and national television network advertising contractsmay guarantee the advertiser a minimum audience for its advertisements over theterm of the contracts. We provide the advertiser with additional advertisingtime if we do not deliver the guaranteed audience size. The amount ofadditional advertising time is generally based upon the percentage of shortfallin audience size. This requires us to make estimates of the audience size thatwill be delivered throughout the terms of the contracts. We base our estimateof audience size on information provided by ratings services and our historicalexperience. If we determine we will not deliver the guaranteed audience, anaccrual for “make-good” advertisements is recorded as a reduction of revenue.The estimated make-good accrual is adjusted throughout the terms of theadvertising contracts.

Lost Dutchman’s memberships are contractual arrangements thatprovide members with prospecting and mineral rights and the use of land andfacilities for camping and recreational vehicle parking. Lost Dutchman’smemberships sold by the Company generally have payment terms that provide for adown payment and monthly installments and are non-interest bearing andunsecured. Revenues are generally recognized on a straight-line basis over theestimated average life (7 years) of the Lost Dutchman’s membership. We sellGPAA memberships for one to four years and it also offers a GPAA lifetimemembership (“Gold Life”). The majority of the memberships are for one year. Multi-yearGPAA membership revenues are recognized on a straight-line basis over the lifeof a membership or an estimated life of 15 years for a lifetime membership.Merchandise sales for GPAA are recognized as sales when the product is shippedand collection of the receivable is probable. Merchandise sales for GPAA areincluded in the “Membership income” revenue category.

We do not record any receivables arising under these contracts ormemberships. Accordingly, revenues recognized do not exceed the total of thecash payments received and cash received in excess of revenue earned isrecorded as deferred revenue. Revenues from the expeditions are recognized whenthey are taken in June through August each year. Revenues from outings and goldexpositions are recognized at the time of the event.

We maintain an allowance for doubtful accounts for estimatedlosses that may arise if any of our customers are unable to make requiredpayments. Management specifically analyzes the age of customer balances,historical bad debt experience, customer credit-worthiness and tradepublications regarding the financial health of our larger customers and changesin customer payment terms when making estimates of the uncollectability of ourtrade accounts receivable balances. If we determine that the financialcondition of any of our customers deteriorated or improved, whether due tocustomer specific or general economic conditions, we make appropriateadjustments to the allowance.

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Income Taxes

We account for income taxes pursuant to the asset and liabilitymethod which requires deferred income tax assets and liabilities to be computedfor temporary differences between the financial statement and tax bases ofassets and liabilities that will result in taxable or deductible amounts in thefuture based on enacted laws and rates applicable to the periods in which thetemporary differences are expected to affect taxable income. Valuationallowances are established when necessary to reduce deferred tax assets to theamounts expected to be realized. The income tax provision is the tax payable orrefundable for the period plus or minus the change during the period indeferred tax assets and liabilities. Tax benefits arising from the exercise ofstock options and the issuance of common shares to pay deferred compensationare recorded as additional paid-in capital in the period the benefits areearned or realized.

Earnings (Loss) Per Share

Effective September 15, 2004, we effected a 5 for 2 split of ourcommon stock in connection with our reincorporation in Delaware. All share andper share data has been adjusted where appropriate to reflect this stock split.In addition, the par value of our common stock was changed from $0.02 to $0.001per share.

We have presented “basic” and “diluted” earnings (loss) per commonshare in the accompanying consolidated statements of operations in accordancewith the provisions of Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS 128”).Basic earnings (loss) per common share is calculated by dividing net income(loss) by the weighted average number of common shares outstanding during eachperiod. The calculation of diluted earnings (loss) per common share is similarto that of basic earnings (loss) per common share, except that the denominatoris increased to include the number of additional common shares that would havebeen outstanding if all potentially dilutive common shares of the Company wereissued during the period if any such issuances would have had a dilutiveeffect.

The computation of diluted earnings per share takes into accountthe effects on the weighted average number of common shares outstanding of theassumed exercise of the outstanding stock options of the Company for the yearsended December 31, 2005 and 2003, adjusted for the application of the treasurystock method. The computation of diluted loss per common share for the yearended December 31, 2004 does not take into account either (i) the outstandingstock options of the Company because the effect of their assumed exercise wouldbe anti-dilutive; or (ii) the increase in the net loss attributable to theincrease in minority interest in the net income of TOC that results from theassumed exercise of all of TOC’s outstanding stock options prior to theexchange of those options for our options on September 8, 2004 because theeffects of the assumed exercise of TOC stock options were not material. Thecomputation of diluted earnings per share for 2003 takes into account thereduction in net income applicable to common stock attributable to the increasein the minority interest (from approximately 13% to 33%) in the net income ofTOC that results from the assumed exercise of its outstanding stockoptions.  The greatest number of sharespotentially issuable by us upon the exercise of stock options in any quarterduring 2005, 2004 and 2003 that was not reflected in the weighted averagenumber of common shares used in the computation of diluted earnings (loss) pershare because their effect would have been anti-dilutive totaled 965, 5,630 and725, respectively.

The following table summarizes the calculation of the weightedaverage common shares outstanding for basic and diluted earnings per share forthe years ended December 31, 2005, 2004 and 2003:
| ** **                                                                                                                                                         | ** ** | **2005**                      | ** ** | **2004**                      | ** ** | **2003**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|------------|------------|
| ** **                                                                                                                                                         | ** ** | **(Restated,  Note 18)** | ** ** | **(Restated,  Note 18)** | ** ** | ** ** | ** ** |
| Numerators:                                                                                                                                                        |       |                          |       |                          |       |       |       |
| Net income (loss) —basic                                                                                                                                      |       | $                             | 2,193      |                          | $          | (24,260    | )          | $ | 3,594 |   |
| Deduct increase in minority interest attributable to  assumed exercise of dilutive stock options of TOC (see Note 11)                                              |       | —                        |       | —                        |       | (777       | )          |
| Net income (loss) — diluted                                                                                                                                   |       | $                             | 2,193      |                          | $          | (24,260    | )          | $ | 2,817 |   |
|                                                                                                                                                               |       |                          |       |                          |       |       |       |
| Denominators:                                                                                                                                                      |       |                          |       |                          |       |       |       |
| Weighted average common shares outstanding—basic                                                                                                              |       | 21,423                        |       | 15,998                        |       | 13,824     |       |
| Dilutive effect of potentially issuable common  shares upon exercise of stock options of the Company as adjusted for the  application of the treasury stock method |       | 3,309                         |       | —                        |       | 944        |       |
| Diluted weighted  average common shares outstanding —diluted                                                                                                  |       | 24,732                        |       | 15,998                        |       | 14,768     |       |

 

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Treasury Stock

We adopted the treasury stock method in accounting for TOC’sinvestment in Outdoor Channel Holdings. This was in accordance with ARB No. 51 “ConsolidatedFinancial Statements”, which provides that in consolidation the cost of aninvestment in a parent’s common stock is treated as a cost of treasury shares.The weighted average number of common shares outstanding was adjusted toreflect TOC’s minority stockholders’ ownership percentage of treasury shares.

Subsequent to the acquisition of the minority interest in TOC, allcommon shares of Outdoor Channel Holdings owned by TOC were retired.

Stock Options

Statement of Financial Accounting Standards No. 123, “Accountingfor Stock-Based Compensation” (“SFAS 123”), provides for the use of a fairvalue based method of accounting for employee stock compensation. However, SFAS123 also allows an entity to continue to measure compensation cost for stockoptions granted to employees using the intrinsic value method of accountingprescribed by Accounting Principles Board Opinion No. 25, “Accounting for StockIssued to Employees” (“APB 25”), which only requires charges to compensationexpense for the excess, if any, of the fair value of the underlying stock atthe date a stock option is granted (or at an appropriate subsequent measurementdate) over the amount the employee must pay to acquire the stock, if suchamounts differ materially. We have elected to continue to account for employeestock options using the intrinsic value method under APB 25. By making thatelection, we are required by SFAS 123 and Statement of Financial AccountingStandards No. 148, “Accounting for Stock-Based Compensation - Transition andDisclosure” to provide pro forma disclosures of net income (loss) and earnings(loss) per share as if a fair value based method of accounting had beenapplied.

Our historical net income (loss) and earnings (loss) per commonshare and pro forma net income (loss) and pro forma earnings (loss) per commonshare assuming compensation cost had been determined for 2005, 2004 and 2003based on the fair value at the grant date for all awards by us, using theBlack-Scholes option pricing model consistent with the provisions of SFAS 123,and amortized ratably over the vesting period are set forth below:
|                                                                                                                                          | ** ** | **2005**                              | ** ** | **2004**                              | ** ** | **2003**   | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|------------|------------|
| ** **                                                                                                                               | ** ** | **(as Restated,  Note 18)** | ** ** | **(as Restated,  Note 18)** | ** ** | ** ** | ** ** |
| Net income  (loss):                                                                                                                      |       |                                  |       |                                  |       |       |       |
| As reported                                                                                                                              |       | $                                     | 2,193      |                                  | $          | (24,260    | )          | $ | 3,594 |   |
| Add: Stock-based employee compensation expense  included in reported net loss, net of tax effects*                                       |       | —                                |       | 28,885                                |       | —     |       |
| Deduct: Stock-based employee compensation expense  assuming a fair value based method had been used for all awards, net of tax  effects* |       | (1,729                                | )          | (2,623                                | )          | (311       | )          |
|                                                                                                                                     |       |                                  |       |                                  |       |       |       |
| Pro forma – basic and diluted                                                                                                       |       | $                                     | 464        |                                  | $          | 2,002      |       | $ | 3,283 |   |
|                                                                                                                                     |       |                                  |       |                                  |       |       |       |
| Basic earnings  (loss) per share:                                                                                                        |       |                                  |       |                                  |       |       |       |
| As reported                                                                                                                              |       | $                                     | 0.10       |                                  | $          | (1.52      | )          | $ | 0.26 |   |
| Pro forma                                                                                                                                |       | $                                     | 0.02       |                                  | $          | 0.13       |       | $ | 0.24 |   |
| Diluted earnings  (loss) per common share:                                                                                               |       |                                  |       |                                  |       |       |       |
| As reported                                                                                                                              |       | $                                     | 0.09       |                                  | $          | (1.52      | )          | $ | 0.19 |   |
| Pro forma                                                                                                                                |       | $                                     | 0.02       |                                  | $          | 0.13       |       | $ | 0.17 |   |

 

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*SeeNote 3

As a result of amendments of SFAS 123, we will be required tocharge the fair value of all employee stock options as of the date of grant toexpense over the vesting period beginning with our fiscal quarter ending March31, 2006. We expect the adoption of SFAS 123 (R) will require us to recordadditional compensation expense which could have a material adverse impact onour historical financial statements in periods subsequent to adoption.

In accordance with the provisions of SFAS 123, all other issuancesof common stock, stock options, warrants or other equity instruments toemployees and non-employees as the consideration for goods or services receivedby the Company are accounted for based on the fair value of the equityinstruments issued (unless the fair value of the consideration received can bemore reliably measured). Generally, the fair value of any options, warrants orsimilar equity instruments issued is estimated based on the Black-Scholesoption-pricing model.

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Additional Required Pro Forma Disclosures Related to EmployeeStock Options

The fair value of each option granted by us in 2005, 2004 and 2003was estimated on the date of grant using the Black-Scholes options pricingmodel with the following assumptions:

|                              | ** ** | **2005**        | ** ** | **2004**          | ** ** | **2003**     | ** ** |
|------------------------------|------------|-----------------|------------|-------------------|------------|--------------|------------|
| Risk-free  interest rate     |       | 3.7  - 4.2%     |       | 1.7  - 4.2%       |       | 2.3  - 3.3%  |       |
| Dividend yield               |       | 0%              |       | 0%                |       | 0%           |       |
| Expected life of  the option |       | 3.8  - 5.1 yrs. |       | 3  mos. - 10 yrs. |       | 5 -  10 yrs. |       |
| Volatility factor            |       | 37.7%           |       | 41.7 – 79.0% |       | 77.0%        |       |

 

Sale or Issuance of Stock by Subsidiary

We recognize non-operating gains from sales or issuances of commonstock by our subsidiaries directly to third parties where the Company’sownership percentage in the subsidiaries is reduced by the issuance of suchstock and the amount received per share is more than the Company’s carryingamount per share.

Investments

Pursuant to Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debtand Equity Securities”*,*our investments in marketable debt and equity securities have been classifiedas available-for-sale securities and, accordingly, are valued at fair value atthe end of each period. Any material unrealized holding gains and lossesarising from such valuation are excluded from net income and reported, net ofapplicable income taxes, in other comprehensive income. Accumulated net unrealizedholding gains and losses are included at the end of each year in accumulatedother comprehensive income which is a separate component of stockholders’equity.

Reclassifications

Certain amounts in the 2005, 2004 and 2003 consolidated financialstatements have been reclassified either to conform to the 2005 presentationsor to provideadditional detail about our operating results and more fully comply with theSecurities and Exchange Commission’s (“SEC”) Regulation S-X. In particular certain amounts included under “expenses”in the 2005, 2004 and 2003 consolidated statements of operations we originallyissued have been reclassified in line items under either “cost of services” or “otherexpenses”. Cost of servicesincludes programming, satellite transmission fees, production and operationsand other direct costs. Other expenses include advertising, selling, generaland administrative and depreciation and amortization.  Further to better match intangible assetswith the segment to which they pertain, we have reclassified the amortizableintangible assets and the goodwill which were recorded in connection with theacquisition on September 8, 2004 along with the related amortization expensefrom “Corporate” to the “TOC” segment. Certain other changes have been made in the historical consolidatedfinancial statements to conform with current presentations.

**Note 3 –Acquisition of Minority Interest in The Outdoor Channel, Inc.**

On September 8, 2004, we announced the completion of theacquisition of the remaining 17.6% minority interest in TOC by Outdoor ChannelHoldings through (i) the merger of TOC with a newly-formed, wholly-ownedsubsidiary of Outdoor Channel Holdings, with TOC being the survivingcorporation, and (ii) the exchange of each share of TOC common stock notpreviously held by Outdoor Channel Holdings or its subsidiaries for0.65 shares of Outdoor Channel Holdings’ common stock. In addition, eachoutstanding option to purchase one share of TOC common stock was exchanged foran option to purchase 0.65 shares of Outdoor Channel Holdings’ commonstock.

Based on the exchange ratio, the 5 for 2 split as explained inNote 2 and the capitalization of TOC, Outdoor Channel Holdings issued3,070 shares of our common stock as well as options topurchase 4,012 additional shares on September 8, 2004.

As previously disclosed by us, in October 2004, we received noticefrom a TOC stockholder that the stockholder was exercising dissenters’ rightswith respect to 144 previously outstanding TOC common shares. The dissenter submitteda written demand that TOC repurchase the dissenter’s shares. On March 8,2005, the dissenter withdrew this demand and accepted 233 common shares of theCompany in exchange for his 144 common shares of TOC. The number of sharesexchanged reflects the exchange ratio. For accounting purposes,the dissenter’s shares have been deemed to have been exchanged as ofSeptember 8, 2004 and the cost of those shares has been recorded asadditional goodwill as shown below.

The acquisition of all of the 17.6% minority interest in TOC wasaccounted for using the purchase method of accounting. The cost of acquiringthe minority interest included the aggregate fair value of the common shares ofOutdoor Channel Holdings issued in exchange for common shares of TOC and certainother direct costs. The acquisition cost was

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allocatedbased on the fair value of the assets of TOC that were acquired and liabilitiesthat were assumed, including intangible assets that arose from contractual orother legal rights or met certain other recognition criteria that underlie theapproximate 17.6% minority interest that was acquired. The excess of the costof the minority interest over the fair value of the underlying interest in thenet identifiable assets acquired was allocated to goodwill. In addition, inaccordance with the provisions of Statement of Financial Accounting StandardsNo. 109, “Accounting for Income Taxes” the tax effects of the intangibleassets have been treated as additional consideration. This additionalconsideration has also been allocated to goodwill.

The cost of the acquisition of the minority interest in TOC byOutdoor Channel Holdings was $54,985 based on the issuance at the closing of3,070 shares of Outdoor Channel Holdings’ common stock (including theformer dissenter’s shares) and the average closing price of $16.24 pershare for a specified period before and after April 20, 2004, the lasttrading day before the public announcement of the material terms of theacquisition plus the assumption of 325 fully-vested options held by a formeremployee of TOC with an intrinsic value of $4,250 plus certain other costsincluding income tax effects. Based on the analysis of the fair value of theassets that were acquired and liabilities that were assumed, the acquisition costsof $54,985 were allocated primarily to intangible assets as follows:
|                                                           | ** ** | ** **     | ** ** | **Estimated**        | ** **          |
|-----------------------------------------------------------|------------|----------------|------------|----------------------|---------------------|
| ** **                                                | ** ** | **Allocation** | ** ** | **Useful Life** | ** **          |
|                                                      |       |           |       |                 |                |
| Multi-system  operators relationships                     |       | $              | 10,573     |                 | 21  years, 4 months |   |
|                                                      |       |           |       |                 |                |
| Advertising  customer relationships:                      |       |           |       |                 |                |
| Short form                                                |       | 1,351          |       | 4 years         |                |
| Long form                                                 |       | 621            |       | 3 years         |                |
|                                                      |       |           |       |                 |                |
| Total  identifiable intangible assets                     |       | 12,545         |       |                 |                |
| Goodwill                                                  |       | 44,457         |       | Indefinite           |                |
| Deferred tax  liability associated with intangible assets |       | (5,001         | )          |                 |                |
| Minority  interest in subsidiary                          |       | 2,984          |       |                 |                |
|                                                      |       |           |       |                 |                |
| Aggregate purchase  price                                 |       | $              | 54,985     |                 |                |   |

 

The exchange of vested options by Outdoor Channel Holdings forvested options of TOC resulted in a charge to operations in the consolidatedstatement of operations on September 8, 2004 equal to the intrinsic valueof the options issued on that date and a credit for the related income taxbenefit. Outdoor Channel Holdings issued fully-vested options topurchase 3,687 shares in exchange for fully-vested options held byemployees of TOC on September 8, 2004. On that day, the market price ofone share of common stock of Outdoor Channel Holdings was $14.00. As a result,the Company incurred a non-cash, non-recurring charge to operating expenses of$47,983 and recognized an income tax benefit of $19,098 or a net charge of$28,885.

Summarized unaudited pro forma information, assuming thisacquisition occurred at the beginning of each of the respective years endedDecember 31, 2004 and 2003 follows:
|                 | ** ** | **For the Years Ended** | ** ** |
|-----------------|------------|----------------------------------------|------------|
| ** **      | ** ** | **December 31,**                  | ** ** |
| ** **      | ** ** | **2004**                               | ** ** | **2003** | ** ** |
|            |       |                                   |       |   |   |
| Net revenues    |       | $                                      | 39,954     |   | $ | 31,688 |   |
| Net loss        |       | $                                      | (23,996    | ) | $ | (25,020 | ) |
| Loss per share: |       |                                   |       |   |   |
| Basic           |       | $                                      | (1.26      | ) | $ | (1.48 | ) |
| Diluted         |       | $                                      | (1.26      | ) | $ | (1.48 | ) |

 

The acquisition did not affect net revenues. In both years endedDecember 31, 2004 and 2003, the pro forma net loss and the related loss pershare (i) include primarily the effects of additional amortization relatedto certain intangible assets recorded, (ii) the elimination of the minorityinterest, (iii) the non-recurring net charge of $28,885 attributable to theexchange of options (as if it occurred on the first day of each year presented)and (iv) the additional shares issued by Outdoor Channel Holdings.

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**Note 4 – Revenue To Be Earned Upon Collection**

As of December 31, 2005, the approximate scheduled payments to berecognized as revenue, assuming such amounts are collected in future years fromexisting Lost Dutchman’s sales contracts, are as follows:

| Years Ending   December 31, | ** ** | **Amount** | ** ** |
|--------------------------------------------|------------|------------|------------|
| 2006                                       |       | $          | 2,542      |   |
| 2007                                       |       | 1,929      |       |
| 2008                                       |       | 1,774      |       |
| 2009                                       |       | 1,219      |       |
| 2010                                       |       | 731        |       |
| Thereafter                                 |       | 239        |       |
| Total                                      |       | $          | 8,434      |   |

 

**Note 5 – Subscriber Acquisition Fees**

Subscriber acquisition fees, which are included in other assets asof December 31, 2005, are comprised of the following:
| Subscriber acquisition fees,  at cost |   | $   | 407 |   |
|---------------------------------------|--------|-----|-----|--------|
| Accumulated  amortization             |   | (13 | )   |
| Subscriber  acquisition fees, net     |   | $   | 394 |   |

 

Of the net balance at December 31, 2005, we expect $340 will berecognized as a reduction of subscriber fee revenue and $54 will be recognizedas subscriber acquisition fee amortization expense in future periods. For theyear ended December 31, 2005, $12 was charged to revenue and $1 was charged toexpense.  We expect to amortize the netbalance as of December 31, 2005 as follows:

| Years Ending  December 31, | ** ** | **Amount** | ** ** |
|--------------------------------------|------------|------------|------------|
| 2006                                 |       | $          | 81         |   |
| 2007                                 |       | 81         |       |
| 2008                                 |       | 81         |       |
| 2009                                 |       | 81         |       |
| 2010                                 |       | 70         |       |
| Total  amortization                  |       | $          | 394        |   |

 

For the year ended December 31, 2005, we made cash payments of$407 relating to current subscriber acquisition fee obligations.

**Note 6****– Investment in Available-For-SaleSecurities**

The Company’s short-term investments in marketable debt and equitysecurities are classified as available-for-sale and are recorded at fair valueat the end of each period. Gross realized gains and losses on sales ofsecurities during 2005 and all amounts related to such investments prior to theyear ended December 31, 2005 were not material. Included in investments inavailable-for-sale securities at December 31, 2005 are equity investmentsand auction rate securities with short-term interest rates that generally canbe reset every 28 days. The auction rate securities have long-term maturitydates and provide us with enhanced yields. However, we believe we have theability to quickly liquidate them at their original cost, although there is noguaranty, and, accordingly, they are carried at cost, which approximates marketvalue, and classified as current assets. All income generated from theseinvestments is recorded as interest income. We had unrealized net holding gains(losses) on marketable equity securities at December 31, 2005 and 2004 of$36 and ($43), respectively, that are in accumulated other comprehensiveincome.

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Theinvestments in marketable equity securities available-for-sale securities is asfollows:
|                           | ** ** | **As of December 31,** | ** ** |
|---------------------------|------------|---------------------------------------|------------|
| ** **                | ** ** | **2005**                              | ** ** | **2004** | ** ** |
|                      |       |                                  |       |   |   |
| Auction rate  securities  |       | $                                     | 38,000     |   | $ | — |   |
| Equities                  |       | 830                                   |       | 741 |   |
| Total current  securities |       | $                                     | 38,830     |   | $ | 741 |   |

 

**Note 7 – Property, Plant and Equipment and AmortizableIntangible Assets**

Property, plant and equipment at December 31, 2005 and 2004consist of the following:

|                                | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Membership  division:          |       |     |       |     |       |
| Land                           |       | $        | 2,480      |     | $          | 2,480 |   |
| Equipment                      |       | 1,376    |       | 1,240    |       |
| Buildings and improvements     |       | 1,544    |       | 1,472    |       |
| Furniture and fixtures         |       | 63       |       | 62       |       |
| Vehicles                       |       | 1,447    |       | 1,325    |       |
| Leasehold improvements         |       | 89       |       | 86       |       |
|                           |       | 6,999    |       | 6,665    |       |
| Less accumulated  depreciation |       | (3,473   | )          | (3,138   | )          |
| Subtotals                      |       | 3,526    |       | 3,527    |       |
|                           |       |     |       |     |       |
| Outdoor Channel:               |       |     |       |     |       |
| Land                           |       | 600      |       | —   |       |
| Buildings and improvements     |       | 2,073    |       | —   |       |
| Equipment                      |       | 6,143    |       | 4,543    |       |
| Furniture and fixtures         |       | 102      |       | 158      |       |
| Vehicles                       |       | 621      |       | 251      |       |
| Leasehold improvements         |       | 412      |       | 556      |       |
| Video library                  |       | 211      |       | 211      |       |
| Construction in progress       |       | 4,878    |       | —   |       |
|                           |       | 15,040   |       | 5,719    |       |
| Less accumulated  depreciation |       | (2,943   | )          | (2,520   | )          |
| Subtotals                      |       | 12,097   |       | 3,199    |       |
|                           |       |     |       |     |       |
| Totals                         |       | $        | 15,623     |     | $          | 6,726 |   |

 

Amortizable intangible assets as of December 31, 2005 and 2004 aresummarized as follows:
| ** **                            | ** ** | **2005**                          | ** ** |
|---------------------------------------|------------|-----------------------------------|------------|
| ** **                            | ** ** | **(Restated, Note 18)** | ** ** |
| ** **                            | ** ** | **MSO  Relationships**            | ** ** | **Advertising  Customer  Relationships** | ** ** | **Trademark** | ** ** | **Total  Amortizable  Intangibles** | ** ** |
|                                  |       |                              |       |   |   |   |   |   |   |
| Residual value                        |       | $                                 | —     |   | $ | — |   | $ | — |   | $ | — |   |
| Weighted average  amortization period |       | 21 years, 4 months                |       | 3 years, 8 months |   | 15 years |   | 18 years, 6 months |   |
|                                  |       |                              |       |   |   |   |   |   |   |
| Gross carrying  amount                |       | $                                 | 10,573     |   | $ | 1,972 |   | $ | 219 |   | $ | 12,764 |   |
| Less accumulated  amortization        |       | 661                               |       | 681 |   | 130 |   | 1,472 |   |
| Net book value                        |       | $                                 | 9,912      |   | $ | 1,291 |   | $ | 89 |   | $ | 11,292 |   |

 

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| ** **                            | ** ** | **2004**                          | ** ** |
|---------------------------------------|------------|-----------------------------------|------------|
| ** **                            | ** ** | **(Restated, Note 18)** | ** ** |
| ** **                            | ** ** | **MSO  Relationships**            | ** ** | **Advertising  Customer  Relationships** | ** ** | **Trademark** | ** ** | **Total  Amortizable  Intangibles** | ** ** |
|                                  |       |                              |       |   |   |   |   |   |   |
| Residual value                        |       | $                                 | —     |   | $ | — |   | $ | — |   | $ | — |   |
| Weighted average  amortization period |       | 21 years, 4 months                |       | 3 years, 8 months |   | 15 years |   | 18 years, 6 months |   |
|                                  |       |                              |       |   |   |   |   |   |   |
| Gross carrying  amount                |       | $                                 | 10,573     |   | $ | 1,972 |   | $ | 219 |   | $ | 12,764 |   |
| Less accumulated  amortization        |       | 165                               |       | 136 |   | 116 |   | 417 |   |
| Net book value                        |       | $                                 | 10,408     |   | $ | 1,836 |   | $ | 103 |   | $ | 12,347 |   |

 

As ofDecember 31, 2005, the weighted average remaining useful economic lives of theMSO relationships, advertising customer relationships, trademark and totalamortizable intangibles are 20 years, 2 years 9 months, 6 years and 17 years,respectively.

For the years ended December 31, 2005, 2004 and 2003, we incurredamortization expense as follows:
|        | ** ** | **MSO  Relationships** | ** ** | **Advertising  Customer  Relationships** | ** ** | **Trademark** | ** ** | **Total  Amortizable  Intangibles** | ** ** |
|--------|------------|------------------------|------------|------------------------------------------|------------|---------------|------------|-------------------------------------|------------|
|   |       |                   |       |                                     |       |          |       |                                |       |
| 2005   |       | $                      | 496        |                                     | $          | 545           |       | $                                   | 14         |   | $ | 1,055 |   |
| 2004   |       | 165                    |       | 136                                      |       | 14            |       | 315                                 |       |
| 2003   |       |                   |       |                                     |       | 14            |       | 14                                  |       |
|        |            |                        |            |                                          |            |               |            |                                     |            |  |  |  |  |

 

Theestimated aggregate amortization expense for the years subsequent to December31, 2005 for advertising customer relationships and trademark are as follows:

| Years Ending  December 31, | ** ** | **Total  Amortizable  Intangibles** | ** ** |
|--------------------------------------|------------|-------------------------------------|------------|
|                                 |       |                                |       |
| 2006                                 |       | $                                   | 1,055      |   |
| 2007                                 |       | 1,003                               |       |
| 2008                                 |       | 763                                 |       |
| 2009                                 |       | 510                                 |       |
| 2010                                 |       | 510                                 |       |
| Thereafter                           |       | 7,451                               |       |
| Total                                |       | $                                   | 11,292     |   |

 

**Note 8 – Long-Term Debt, Capital LeaseObligations and Lines of Credit**

Bank Lines of Credit

On November 2, 2005, we renewed the revolving line of creditagreement (the “revolver”) with U.S. Bank N.A. (the “Bank”) we obtained inSeptember 2004, extending the maturity date from September 5, 2005 to September7, 2007 and increasing the total amount which can be drawn upon under therevolver from $5,000 to $8,000. The revolver provides that the interestrate shall be LIBOR plus 1.25%. The revolver is collateralized by substantiallyall of our assets. This credit facility contains customary financial and othercovenants and restrictions, as amended on November 2, 2005, including a changeof control provision. As of December 31, 2005, we did not have any outstandingborrowings under this revolver.

Long-Term Debt and Capital Lease Obligations

OnNovember 2, 2005, we obtained a $1,950 mortgage loan from the Bank which has a10 year term with a 25 year amortization schedule. This loan carries a variableinterest rate of LIBOR plus 1.35%. This loan is secured primarily by a Deed ofTrust on our recently purchased broadcast facility located in Temecula,California and is also secondarily secured by the same assets as the revolver.It also contains customary financial and other covenants and restrictionsincluding a change of control provision.

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On November 7, 2005, we entered into an interest rate swapagreement with the Bank to reduce the potential impact of increasing interestrates on the floating rate long-term mortgage note and effectively fixed theinterest rate on this loan at 6.59%.  Thenotional principal amount is reduced by $7 per month through September 5, 2015with the balance of the note amounting to****$1,190 due onthat date. We expect the cash flows related to the swap to be highly effectivein offsetting the changes in cash flows of the variable rate debt.  The fair value of the interest rate swapcontract was recorded as a liability of $54 as of December 31, 2005. The changein such amount is also reflected in other comprehensive income (loss) as wehave designated the contract as a cash flow hedge.

On November 2, 2005, we obtained a $3,000, five year, fullyamortizing term loan. This term loan carries a variable interest rate of LIBORplus 1.35%. This term loan is secured by the same assets as the revolver andcontains customary financial and other covenants and restrictions including achange of control provision. On November 7, 2005, we entered into an interestrate swap agreement with the Bank to reduce the potential impact of increasinginterest rates on the floating rate long-term note and effectively fixed theinterest rate on this term loan at 6.35%. The notional principal amount isreduced by $52 per month until retired on September 5, 2010. The fair value ofthe interest rate swap contract was a liability of $18 as of December 31, 2005.The change in such amount is also reflected in other comprehensive income(loss) as we have designated the contract as a cash flow hedge.

Long-term debt and capital lease obligations at December 31, 2005and 2004 consist of the following:

|                                                                                                                                                                                                                                | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Note payable to a bank,  payable in monthly installments of $7 plus interest, calculated at an  adjustable rate of 6.59% at December 31, 2005, due August 2015, secured by  real estate                                        |       | $        | 1,944      |     | $          | — |   |
| Note payable to a bank,  payable in monthly installments of $52 plus interest, calculated at an  adjustable rate of 6.35% at December 31, 2005, due September 2010, secured by  substantially all of the Company’s assets |       | 2,948    |       | —   |       |
| Capital lease  obligations                                                                                                                                                                                                     |       | 9        |       | 35       |       |
| Totals                                                                                                                                                                                                                         |       | 4,901    |       | 35       |       |
| Less current portion                                                                                                                                                                                                           |       | 708      |       | 26       |       |
| Long-term portion                                                                                                                                                                                                              |       | $        | 4,193      |     | $          | 9 |   |

 

The required annual principal paymentson long-term debt and capital leases are as follows:

| Years Ending   December 31, | ** ** | **Amount** | ** ** |
|--------------------------------------------|------------|------------|------------|
| 2006                                       |       | $          | 708        |   |
| 2007                                       |       | 699        |       |
| 2008                                       |       | 699        |       |
| 2009                                       |       | 699        |       |
| 2010                                       |       | 543        |       |
| Thereafter                                 |       | 1,553      |       |
| Total                                      |       | $          | 4,901      |   |

 

**Note 9 – Commitments and Contingencies**

We, from time to time, are involved in litigation as bothplaintiff and defendant arising in the ordinary course of business. In theopinion of management, the results of any pending litigation should not have amaterial adverse effect on our consolidated financial position or operatingresults.

Financial instruments that potentially subject us toconcentrations of credit risk consist principally of temporary cashinvestments, available-for-sale securities, and accounts receivable. We reducecredit risk by placing our temporary cash investments with major financialinstitutions with high credit ratings. At December 31, 2005, we had cash andcash equivalents of approximately $18,324 with major financial institutions incertain investment accounts which were not covered by the Federal DepositInsurance Corporation.

We reduce credit risk related to accounts receivable by routinelyassessing the financial strength of our customers. We maintain an allowance fordoubtful accounts based on the credit risk of specific customers, historicaltrends and other information that management believes will adequately providefor credit losses.

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Changes in our allowance for doubtfulaccounts were as follows:
|                               | ** ** | **Balance at** | ** ** | **Additions**       | ** ** | ** **     | ** ** | **Balance**      | ** ** |
|-------------------------------|------------|---------------------|------------|---------------------|------------|----------------|------------|------------------|------------|
| ** **                    | ** ** | **Beginning**       | ** ** | **Charged**         | ** ** | ** **     | ** ** | **at End**  | ** ** |
| ** **                    | ** ** | **of Year**    | ** ** | **to Expense** | ** ** | **Deductions** | ** ** | **of Year** | ** ** |
|                          |       |                |       |                |       |           |       |             |       |
| Year-ended December 31,  2005 |       | $                   | 207        |                | $          | 214            |       | $                | (146       | ) | $ | 275 |   |
| Year-ended December 31,  2004 |       | 234                 |       | 164                 |       | (191           | )          | 207              |       |
| Year-ended December 31, 2003  |       | 154                 |       | 327                 |       | (247           | )          | 234              |       |
|                               |            |                     |            |                     |            |                |            |                  |            |  |  |  |  |

 

During 2005, we exercised our option to extend our contract tosponsor a driver in 16 professional car races to be held during 2006. Asamended, the contract calls for a total sponsorship price of $1,400 for the 16races. As additional compensation, we had agreed to air a number of 30 secondadvertisements for associate sponsors. The aggregate commitment is for $500worth of advertising per year that the agreement is in force which will bebased on our prevailing rates at the time of the airings. We may, at ouroption, elect to extend the relationship for the 2007 season with certain costescalators.

As of December 31, 2005, our advertising, research, talent, programmingcommitments, estimated to be approximately $2,464, $1,231, $1,312 and $7,931,respectively, or $12,938 in the aggregate. Such fees are payable over severalyears, as part of the normal course of business as follows:

| Years Ending   December 31, | ** ** | **Amount** | ** ** |
|--------------------------------------------|------------|------------|------------|
| 2006                                       |       | $          | 7,716      |   |
| 2007                                       |       | 3,961      |       |
| 2008                                       |       | 1,261      |       |
| Total                                      |       | $          | 12,938     |   |

 

We have entered into a constructioncontract with a general contractor to complete the build-out of our broadcastfacility. The aggregate contract amount, plus change orders, totals $3,729. Asof the latest invoice received by us in 2005, the contractor had completed$2,744 worth of the contract, and invoiced us for $2,470. The balance of $1,259includes a 10% retention and represents our commitment to the contractor.

Operating Leases

We lease facilities and equipment, including access to satellitesfor television transmission, under non-cancelable operating leases that expireat various dates through 2012. Generally, the most significant leases aresatellite leases that require escalating rental payments. Rent expense isrecognized on a straight-line basis over each lease term. The excess of theexpense accrued over the amounts currently payable is reflected as deferredsatellite rent obligations in the accompanying consolidated balance sheets.

We lease our administrative facilities from Musk Ox Properties,LP, which in turn is owned by Messrs. Perry T. Massie and Thomas H. Massie,principal stockholders and officers of the Company. In December 2005, the leaseagreements were renewed for a five-year term with 2 five-year renewal options,at our discretion. Monthly rental payments are $29 with a 3% per year escalatorclause.

Rent expense, including rent paid to Musk Ox Properties, LP,aggregated to approximately $2,962, $2,604 and $2,668 in the years endedDecember 31, 2005, 2004 and 2003, respectively.

Total rental commitments under the operating lease agreementsdescribed above for years ending subsequent to December 31, 2005 are asfollows:

| Years Ending   December 31, | ** ** | **Amount** | ** ** |
|--------------------------------------------|------------|------------|------------|
| 2006                                       |       | $          | 2,703      |   |
| 2007                                       |       | 2,615      |       |
| 2008                                       |       | 2,311      |       |
| 2009                                       |       | 2,097      |       |
| 2010                                       |       | 2,109      |       |
| Thereafter                                 |       | 2,100      |       |
| Total                                      |       | $          | 13,935     |   |

 

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Capital Leases

We lease certain equipment under capital leases which expire onvarious dates in 2006. At December 31, 2005, our future minimum lease paymentsunder these leases aggregated to $9, payable in 2006 and are included in thecurrent portion of notes payable and capital lease obligations in theaccompanying consolidated balance sheets (see Note 8).

**Note 10 – Income Taxes**

The components of the provision (benefit) for income taxes for theyears ended December 31, 2005, 2004 and 2003 were as follows:

|                | ** ** | **2005**                             | ** ** | **2004**                             | ** ** | **2003**   | ** ** |
|----------------|------------|--------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **     | ** ** | **(as Restated  Note 18)** | ** ** | **(as Restated  Note 18)** | ** ** | ** ** | ** ** |
| Current:       |       |                                 |       |                                 |       |       |       |
| Federal        |       | $                                    | (1,558     | )                                    | $          | 1,216      |       | $ | 2,410 |   |
| State          |       | 67                                   |       | 457                                  |       | 682        |       |
| Total current  |       | (1,491                               | )          | 1,673                                |       | 3,092      |       |
|           |       |                                 |       |                                 |       |       |       |
| Deferred:      |       |                                 |       |                                 |       |       |       |
| Federal        |       | 2,710                                |       | (13,568                              | )          | 58         |       |
| State          |       | 284                                  |       | (4,116                               | )          | 12         |       |
| Total deferred |       | 2,994                                |       | (17,684                              | )          | 70         |       |
| Totals         |       | $                                    | 1,503      |                                 | $          | (16,011    | )          | $ | 3,162 |   |

 

The tax effects of the temporary differences that give rise tosignificant portions of the deferred tax assets and deferred tax liabilities asof December 31, 2005 and 2004 were related to the following:

|                                  | ** ** | **2005**                             | ** ** | **2004**                             | ** ** |
|----------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| ** **                       | ** ** | **(as Restated  Note 18)** | ** ** | **(as Restated  Note 18)** | ** ** |
| Deferred tax assets:             |       |                                 |       |                                 |       |
| Net operating  loss              |       | $                                    | 7,486      |                                 | $          | — |   |
| Stock option  expense            |       | 6,801                                |       | 18,178                               |       |
| Deferred  revenues               |       | 600                                  |       | 371                                  |       |
| Deferred rent                    |       | 117                                  |       | 124                                  |       |
| Current state  taxes             |       | —                               |       | 77                                   |       |
| Provision for doubtful  accounts |       | 110                                  |       | 82                                   |       |
| Other accrued  liabilities       |       | 44                                   |       | 57                                   |       |
| Alternative  minimum tax credit  |       | 113                                  |       |                                 |       |
| Other                            |       | 29                                   |       | 6                                    |       |
|                             |       | 15,300                               |       | 18,895                               |       |
| Deferred tax  liabilities:       |       |                                 |       |                                 |       |
| Fixed assets                     |       | (251                                 | )          | (345                                 | )          |
| Intangible  assets               |       | (4,465                               | )          | (4,881                               | )          |
| Other                            |       | (78                                  | )          | (24                                  | )          |
|                             |       | (4,794                               | )          | (5,250                               | )          |
| Deferred tax assets, net         |       | $                                    | 10,506     |                                 | $          | 13,645 |   |

 

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The provision (benefit) for income taxes reflected in theaccompanying consolidated statements of operations are different than thosecomputed based on the applicable statutory Federal income tax rate of 34% in2005, 2004 and 2003 as shown below:

|                                                                      | ** ** | **2005**                             | ** ** | **2004**                             | ** ** | **2003**   | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|------------|------------|
| ** **                                                           | ** ** | **(as Restated  Note 18)** | ** ** | **(as Restated  Note 18)** | ** ** | ** ** | ** ** |
| Federal income tax  provision (benefit) at statutory income tax rate |       | $                                    | 1,258      |                                 | $          | (13,588    | )          | $ | 2,581 |   |
| State taxes, net of  federal benefit                                 |       | 222                                  |       | (2,206                               | )          | 458        |       |
| Non-deductible expense                                               |       | 35                                   |       | 38                                   |       | 63         |       |
| Deferred compensation                                                |       | —                               |       | (198                                 | )          | —     |       |
| Other                                                                |       | (12                                  | )          | (57                                  | )          | 60         |       |
| Income tax provision (benefit)                                       |       | $                                    | 1,503      |                                 | $          | (16,011    | )          | $ | 3,162 |   |

 

As of December 31, 2005, we have a federal net operating losscarry forward of approximately $17,500 after expected carry back and aCalifornia net operating loss carry forward of approximately $22,100. Bothexpire in 2025.

**Note 11 – Equity Transactions**

Preferred Stock

As of December 31, 2005 and 2004, we were authorized to issue upto 25,000 shares of preferred stock, $0.001 par value per share in one or moreseries with designations, rights and preferences as determined by our Board ofDirectors, respectively.

Changes in Common Stock Subscriptions Receivable by the Company

As of January 1, 2003, we had outstanding subscriptions receivableof $262. During 2003, we paid bonuses to certain stockholders, who are alsoemployees, totaling $251 by converting subscriptions receivable for common stockof $196 and accrued interest on the receivables of $55. Subscriptionsreceivable were also reduced by cash payments of $36 in 2003 and, as a result,the balance of subscriptions receivable was reduced to $30 as of December 31,2003, which was paid in January 2004.

Issuances of Common Stock by the Company

During 2003, we issued 336 shares of common stock valued at $175to a former Officer/Director for the payment of deferred compensation (see Note12).

During 2003, we (i) received cash proceeds of $268 from theexercise of options for the purchase of 247 shares of common stock; (ii) offsetthe $623 due from the exercise of options for the purchase of 663 shares at$0.90 per share against the balance of all stockholder loans payable by us tothe holder of the options; and (iii) offset the $45 due from the exercise ofoptions for the purchase of 50 shares of common stock at $0.90 per shareagainst the balance of a bonus payable to the employee.

During 2004, we received cash proceeds of approximately $1,285 fromthe exercise of options for the purchase of 723 shares of our common stock andoptions for the purchase of 18 shares of TOC common stock which were exercisedprior to the merger under TOC’s stock option plan. The TOC stock option planwas assumed in conjunction with our acquisition of the remaining 17.6 %minority interest in TOC (see Note 3).

Also during 2004, we issued an employee 75 shares of restrictedcommon stock. The rights to these shares vest over a five year period. Based onthe closing market price on the day before the grant of $13.90 per share, thevalue of the stock was $1,043. This amount has been included in deferredcompensation as an offset to stockholders’ equity and will be amortized tocompensation expense as the rights to the restricted stock vest. We recordedcharges for these shares of $208 and $9 in 2005 and 2004, respectively.

On July 1, 2005, we completed a public offering of our commonstock, whereby we sold 3,500 shares of common stock and received net proceedsof $43,350. In addition, certain selling stockholders exercised options to buy1,688 shares of common stock which were resold in the public offering. On July13, 2005, the underwriters exercised their over-allotment option granted bycertain selling stockholders, and purchased an additional 442 shares of commonstock. The shares sold by the selling stockholders were purchased immediatelybefore the sale through the exercise of options they held to buy common sharesfrom us. We received $2,168 in the aggregate from the exercise of theseoptions. During 2005, we also received cash proceeds of approximately $566 fromthe exercise of other options for the purchase of 318 shares of common stock.

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During 2005, we issued to employees an aggregate of 75 shares ofrestricted stock on two separate dates. The rights to these shares vest over athree year period. The fair value of the stock was $1,103 based on therespective closing market prices of $14.95 and $13.38 per share on the daybefore the shares were granted The aggregate charge to be incurred over thevesting period amounts to $861 representing the fair value net of theeffect of an estimated employee turnover rate and has been included in deferredcompensation as an offset to stockholders’ equity. The balance will beamortized to compensation expense as the rights to the restricted stock vest.We recorded a charge for these shares of $167 for the year ended December 31,2005.  A total of 8 shares of restrictedstock have been cancelled due to employee turnover as of December 31, 2005.

The Company’s Stock Option Plans

We have had five stock option plans: Stock Option Plan 1 (“Plan 1”),Stock Option Plan 2 (“Plan 2”), 1995 Stock Option Plan (the “1995 Plan”),Long-Term Incentive Plan (the “LTIP Plan”), and Non-Employee Director StockOption Plan (the “NEDSOP” Plan). During 2003, all holders of options under Plan1 and Plan 2 exercised all of the outstanding options under those two plans. Nomore options may be granted under either of those two plans. In addition, onSeptember 8, 2004, TOC’s 1997 Stock Option Plan (the “1997 Plan”) was assumedby Outdoor Channel Holdings. No more options can be issued under this plan. Wealso may grant stock options that are not covered under any of the stock optionplans. As of December 31, 2005, we had an aggregate of 6,624 shares of ourcommon stock reserved for issuance under our various stock option/long-termincentive plans including 465 options granted outside of the plans, of which3,564 shares are subject to outstanding options, 127 are issued as restrictedcommon stock and 2,933 shares are available for future grants. Options andstock grants are subject to terms and conditions as determined by our Board ofDirectors. Stock option grants are generally exercisable in increments of 25%during each year of employment beginning three months to one year from the dateof grant. Generally, stock options expire five years from the date of grant.Options issued under our NEDSOP plan are generally exercisable 40% after thefirst 3 months of service and 20% on the first anniversary of appointment andeach anniversary thereafter until 100% are vested.

A summary of the status of options granted under the five stockoption plans and outside of those plans as of December 31, 2005, 2004 and 2003and changes in options outstanding during the years then ended is presented inthe table that follows:
| ** **                                                | ** ** | **2005**            | ** ** | **2004**                               | ** ** | **2003**            | ** ** |
|-----------------------------------------------------------|------------|---------------------|------------|----------------------------------------|------------|---------------------|------------|
| ** **                                                | ** ** | **Shares**          | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares**          | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| ** **                                                | ** ** | **(in  thousands)** | ** ** | ** **                             | ** ** | **(in  thousands)** | ** ** | ** ** | ** ** | **(in  thousands)** | ** ** | ** ** | ** ** |
| Outstanding at  beginning of year                         |       | 5,630               |       | $                                      | 4.12       |                | 1,648      |   | $ | 6.57 |   | 1,751 |   | $ | 1.43 |   |
| Options granted                                           |       | 385                 |       | 14.60                                  |       | 705                 |       | 13.88 |   | 863 |   | 10.78 |   |
| Options granted  in exchange for TOC options (see Note 3) | —     |                | —     |                                   | 4,012      |                | 0.98       |   | — |   | — |   |
| Options  exercised                                        |       | (2,448              | )          | 1.12                                   |       | (723                | )          | 1.77 |   | (960 | ) | 0.98 |   |
| Options canceled or  expired                              |       | (3                  | )          | 6.14                                   |       | (12                 | )          | 5.71 |   | (6 | ) | 1.74 |   |
| Outstanding at end of year                                |       | 3,564               |       | $                                      | 7.31       |                | 5,630      |   | $ | 4.12 |   | 1,648 |   | $ | 6.57 |   |

 

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|                                                                                                                                                                                     | ** ** | **2005** | ** **    | **2004** | ** ** | **2003**      | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|---------------|----------|------------|---------------|------------|
|                                                                                                                                                                                |       |     |          |     |       |          |       |
| Option price  range at end of year                                                                                                                                                  |       | $        | 0.92 - $15.75 |     | $          | 0.92 - $15.75 |       | $ | 1.20 - $12.50 |   |
|                                                                                                                                                                                |       |     |          |     |       |          |       |
| Options  available for grant at end of year                                                                                                                                         |       | 2,918    |          | 3,370    |       | —        |       |
|                                                                                                                                                                                |       |     |          |     |       |          |       |
| Weighted-average  fair value of 385; 705; and 863 options granted during 2005, 2004 and 2003,  respectively, with an exercise price equal to the market price at the date of  grant |       | $        | 5.48          |     | $          | 8.21          |       | $ | 7.20 |   |
|                                                                                                                                                                                |       |     |          |     |       |          |       |
| Weighted-average fair  value of 4,012 options granted during 2004 with an exercise price less than  the market price at the date of grant                                           |       |     |          | $        | 13.08      |          |       |   |

 

The Company’s Stock Option Plans (continued)

The following table summarizes information about stock optionsoutstanding at December 31, 2005, all of which are at fixed prices:

|                                               | ** ** | ** **              | ** ** | **Options Outstanding**                 | ** ** | **Options Exercisable** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|----------------------------------------------|------------|------------------------------|------------|
| ** **                                    | ** ** | ** **              | ** ** | **Weighted Average**                    | ** ** | ** **                   | ** ** | **Weighted** | ** ** |
| **Range of   Exercise Prices** | ** ** | **Number  Outstanding** | ** ** | **Remaining   Contractual   Life** | ** ** | **Exercise   Price**    | ** ** | **Number   Exercisable** | ** ** | **Average   Exercise   Price** | ** ** |
| ** **                                    | ** ** | **(in thousands)** | ** ** | ** **                                   | ** ** | ** **                   | ** ** | **(in thousands)** | ** ** | ** ** | ** ** |
|                                          |       |                    |       |                                         |       |                         |       |   |   |   |   |
| $0.92 - $1.54                                 |       | 1,604                   |       | 1.9 years                                    |       | $                            | 0.95       |   | 1,604 |   | $ | 0.95 |   |
| $3.20 - $4.60                                 |       | 114                     |       | 1.3 years                                    |       | $                            | 3.66       |   | 103 |   | $ | 3.60 |   |
| $6.14 - $11.60                                |       | 631                     |       | 2.9 years                                    |       | $                            | 11.33      |   | 328 |   | $ | 11.54 |   |
| $12.50 - $15.75                               |       | 1,215                   |       | 6.9 years                                    |       | $                            | 13.96      |   | 458 |   | $ | 13.54 |   |
|                                          |       | 3,564                   |       |                                         |       | $                            | 7.31       |   | 2,493 |   | $ | 4.77 |   |

 

Changes in Outstanding Common Shares of TOC and Shares Owned bythe Company

The changes in the number of outstanding common shares of TOC andthe changes in the number of shares and the percentage owned by us during 2004and 2003 are summarized below:

|                                  | ** ** | **Common Shares** | ** ** | ** **                              | ** ** | ** **  | ** ** |
|----------------------------------|------------|------------------------|------------|-----------------------------------------|------------|-------------|------------|
| ** **                       | ** ** | **Outstanding**        | ** ** | **Owned by the Company** | ** ** |
| ** **                       | ** ** | **of TOC**        | ** ** | **Shares**                              | ** ** | **Percent** | ** ** |
|                             |       |                   |       |                                    |       |        |       |
| Balance January 1, 2003          |       | 10,542                 |       | 8,818                                   |       | 83.6        | %          |
| Effect of shares issued  by TOC  |       | 126                    |       | —                                  |       |        |       |
| Balance December 31,  2003       |       | 10,668                 |       | 8,818                                   |       | 82.7        | %          |
| Effects of shares  issued by TOC |       | 40                     |       | —                                  |       |        |       |
| Balance September 8, 2004        |       | 10,708                 |       | 8,818                                   |       | 82.4        | %          |

 

During 2003, TOC issued 126 shares to a former director upon hiselection to take payment of deferred compensation in the form of common stockof the Company and TOC (see Note 12). We did not record a gain or loss during2003 because the price of the common stock issued approximated the carryingvalue of our investment in the subsidiary. This issuance in 2003 caused anincrease in minority interest of $142.

During 2004, TOC issued 18 shares in connection with employeesexercising options under its 1997 Plan. Further, TOC issued 22 shares todirectors owed for services rendered prior to 2000.

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TOC’s Stock Option Plan

Under the 1997 Plan, TOC could grant incentive and non-qualifiedstock options to its employees, directors, consultants and service providers topurchase up to an aggregate of 3,000 shares of its common stock at an exerciseprice determined by the administrator subject to one of the following: (a) theexercise price of an incentive option could not be less than 100% of the fairmarket value of the common stock at the date of the grant; and (b) the exerciseprice of a non-qualified option could not be less than 85% of the fair marketvalue of the common stock at the date of the grant.

A summary of the status of TOC’s 1997 Plan at December 31, 2004and 2003 and changes during the years then ended is presented in the tablebelow:

|                                                     | ** ** | **2004**            | ** ** | **2003**                               | ** ** |
|-----------------------------------------------------|------------|---------------------|------------|----------------------------------------|------------|
| ** **                                          | ** ** | **Shares**          | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| ** **                                          | ** ** | **(in  thousands)** | ** ** | ** **                             | ** ** | **(in  thousands)** | ** ** | ** ** | ** ** |
| Options outstanding at  beginning of year           |       | 2,487               |       | $                                      | 1.60       |   | 2,492 |   | $ | 1.59 |   |
| Options exercised                                   |       | (18                 | )          | 1.83                                   |       | — |   | — |   |
| Options cancelled                                   |       | —              |       | —                                 |       | (5 | ) | 1.50 |   |
| Options exchanged for  Company options (see Note 3) |       | (2,469              | )          | 1.59                                   |       | — |   | — |   |
| Options outstanding at end  of year                 |       | —              |       | —                                 |       | 2,487 |   | $ | 1.60 |   |
| Option price range at  end of year                  |       |                |       |                                   |       | $ | 1.50- |   |   |   |
|                                                |       | —              |       |                                   |       | $ | 5.00 |   |   |   |
| Options available for grant  at end of year         |       | —              |       |                                   |       | 505 |   |   |   |
|                                                     |            |                     |            |                                        |            |  |  |  |  |  |  |  |

 

**Note 12 – Related Party Transactions**

We had an agreement with a former director, who was also one ofour officers, pursuant to which a portion of the officer’s compensation, priorto 2002, had been paid in cash and the remainder was deferred. The deferredportion was payable by us in cash or shares of the common stock of the Companyand/or TOC at a future date, at the election of the director. If payments werein the form of shares, such payments were to be based on the market value ofthe shares at the time the services were rendered. During 2003, thedirector/officer left us at which time he elected to receive shares ascompensation. Deferred compensation under the agreement totaled $318. TheCompany and TOC issued 336 and 126 shares, respectively, to satisfy theirobligations to the director (see Note 11). Additionally, we incurred $625 inseverance costs, including related legal fees, in connection with hisresignation.

We lease our administrative facilities from Musk Ox Properties,LP, which in turn is owned by Messrs. Perry T. Massie and Thomas H. Massie,principal stockholders and officers of the Company. The lease agreementsrequired monthly rent payments aggregating to approximately $21. These leaseagreements expired on December 31, 2005. Rent expense totaled approximately$251, $244 and $242 in 2005, 2004 and 2003, respectively.

In December 2005, the lease agreements were consolidated into onelease.  The new lease agreement has afive-year term, expiring on December 31, 2010, with 2 five-year renewal optionsat our discretion.  Monthly rentalpayments are $29 with a 3% per year escalator clause.

Interest expense on stockholder loans aggregated to $20 in 2003.All stockholder loans were paid by June 2003.

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**Note 13 – Segment Information**

Pursuant to the Provisions of Statement of Financial AccountingStandards No. 131, “Disclosures AboutSegments of an Enterprise and Related Information”**(“SFAS 131”), we report segment information in thesame format as reviewed by our Chief Operating Decision Maker (the “CODM”). Wesegregate our business activities into TOC and Membership Division. TOC is aseparate business activity that broadcasts television programming on TheOutdoor Channel 24 hours a day, seven days a week. TOC generates revenue fromadvertising fees (which include fees paid by outside producers to purchaseadvertising time in connection with the airing of their programs on The OutdoorChannel) and subscriber fees. Lost Dutchman’s and GPAA membership sales andrelated activities are reported in the Membership Division. The MembershipDivision also includes magazine sales, the sale of products and servicesrelated to gold prospecting, gold expositions, expeditions and outings. Intersegmentsales amounted to $595, $595 and $473 for 2005, 2004 and 2003, respectively.

Information with respect to these reportable segments for theyears ended December 31, 2005, 2004 and 2003 is as follows:

|                                    | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes and  Minority   Interest** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to  Property,  Plant and  Improvements** | ** ** |
|------------------------------------|------------|--------------|------------|--------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------|------------|
| **2005****(as Restated, Note 18)** |       |         |       |                                                                                 |       |              |       |                                |       |                                                           |       |
| TOC                                |       | $            | 37,527     |                                                                                 | $          | 4,865             |       | $                                   | 79,025     |                                                           | $          | 2,388 |   | $ | 10,224 |   |
| Membership Division                |       | 5,381        |       | 280                                                                                  |       | 5,017             |       | 342                                 |       | 335                                                            |       |
| Subtotals of  Segments             |       | 42,908       |       | 5,145                                                                                |       | 84,042            |       | 2,730                               |       | 10,559                                                         |       |
| Corporate*                         |       | —       |       | (1,449                                                                               | )          | 67,780            |       | —                              |       | —                                                         |       |
| Totals                             |       | $            | 42,908     |                                                                                 | $          | 3,696             |       | $                                   | 151,822    |                                                           | $          | 2,730 |   | $ | 10,559 |   |
|                               |       |         |       |                                                                                 |       |              |       |                                |       |                                                           |       |
| **2004****(as Restated, Note 18)** |       |         |       |                                                                                 |       |              |       |                                |       |                                                           |       |
| TOC                                |       | $            | 34,596     |                                                                                 | $          | (38,330           | )          | $                                   | 78,574     |                                                           | $          | 1,080 |   | $ | 1,938 |   |
| Membership Division                |       | 5,358        |       | 354                                                                                  |       | 6,857             |       | 344                                 |       | 611                                                            |       |
| Subtotals of  Segments             |       | 39,954       |       | (37,976                                                                              | )          | 85,431            |       | 1,424                               |       | 2,549                                                          |       |
| Corporate*                         |       | —       |       | (1,613                                                                               | )          | 14,138            |       | —                              |       | —                                                         |       |
| Totals                             |       | $            | 39,954     |                                                                                 | $          | (39,589           | )          | $                                   | 99,569     |                                                           | $          | 1,424 |   | $ | 2,549 |   |
|                               |       |         |       |                                                                                 |       |              |       |                                |       |                                                           |       |
| **2003**                           |       |         |       |                                                                                 |       |              |       |                                |       |                                                           |       |
| TOC                                |       | $            | 26,835     |                                                                                 | $          | 9,315             |       | $                                   | 13,855     |                                                           | $          | 558 |   | $ | 1,274 |   |
| Membership Division                |       | 4,853        |       | (619                                                                                 | )          | 5,993             |       | 322                                 |       | 650                                                            |       |
| Subtotals of  Segments             |       | 31,688       |       | 8,696                                                                                |       | 19,848            |       | 880                                 |       | 1,924                                                          |       |
| Corporate*                         |       | —       |       | (1,043                                                                               | )          | —            |       | —                              |       | —                                                         |       |
| Totals                             |       | $            | 31,688     |                                                                                 | $          | 7,653             |       | $                                   | 19,848     |                                                           | $          | 880 |   | $ | 1,924 |   |

 

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*  We capture corporateoverhead that is applicable to both segments, but not directly related tooperations in a separate business unit, as “Corporate.” The expenses allocatedto Corporate consisted primarily of professional fees including publicrelations, accounting and legal fees, taxes associated with being incorporatedin Delaware, board fees, and other corporate fees not associated directly witheither TOC or the Membership division. Corporate assets consist primarily ofcash not held in our operating accounts, available-for-sale securities,deferred tax assets, net and income tax refund receivable.  In prior periods, essentially all of theamortizable intangible assets and goodwill were classified as Corporate.  These amounts relate to, and have beenreclassified as part of, the TOC segment.

**Note 14 – Fair Value of Financial Instruments**

Our material financial instruments consist of cash and cashequivalents, investments in available-for-sale securities, accounts receivable,accounts payable, notes payable, capital lease obligations and related partyreceivables and payables. The carrying amounts of our financial instrumentsgenerally approximated their fair values at December 31, 2005, 2004 and 2003.

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**Note 15 – 401(k) Savings Plan**

We maintaina 401(k) Plan (the “401(k) Plan”). We are required to make matchingcontributions to the 401(k) Plan in the amount of 50% of the first 6% of wagesdeferred by each participating employee up to statutory maximums. During 2005,2004 and 2003, we incurred a total charge of approximately $124, $91 and $73for employer matching contributions, respectively.

**Note 16****–****Accounts Payable and Accrued Expenses**

Accountspayable and accrued expenses consist of the following:
|                                       | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
|                                  |       |     |       |     |       |
| Trade accounts  payable               |       | $        | 1,580      |     | $          | 2,274 |   |
| Accrued payroll  and related expenses |       | 626      |       | 923      |       |
| Estimated  make-good accrual          |       | 280      |       | 200      |       |
| Accrued expenses                      |       | 378      |       | 308      |       |
|                                  |       |     |       |     |       |
| Total                                 |       | $        | 2,864      |     | $          | 3,705 |   |

 

**Note 17 – Quarterly Financial Information (Unaudited)**

Summarizedunaudited operating data for each of the quarters in the years ended December31, 2005 and 2004 follows:

|                                   | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|
| ** **                        | ** ** | **March 31**                | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| 2005**(as Restated, Note 18)**    |       |                             |       |   |   |   |   |   |   |
| Revenue                           |       | $                                | 10,061     |   | $ | 10,014 |   | $ | 11,404 |   | $ | 11,429 |   |
| Income from operations            |       | 604                              |       | 715 |   | 137 |   | 1,342 |   |
| Net income                        |       | 377                              |       | 437 |   | 248 |   | 1,131 |   |
| Earnings per common share:        |       |                             |       |   |   |   |   |   |   |
| Basic                             |       | $                                | 0.02       |   | $ | 0.02 |   | $ | 0.01 |   | $ | 0.05 |   |
| Diluted                           |       | $                                | 0.02       |   | $ | 0.02 |   | $ | 0.01 |   | $ | 0.04 |   |
|                              |       |                             |       |   |   |   |   |   |   |
| 2004**(as Restated, Note 18)**    |       |                             |       |   |   |   |   |   |   |
| Revenue                           |       | $                                | 9,205      |   | $ | 9,557 |   | $ | 10,949 |   | $ | 10,243 |   |
| Income (loss) from operations*    |       | 2,275                            |       | 1,745 |   | (45,763 | ) | 2,039 |   |
| Net income (loss)*                |       | 1,113                            |       | 844 |   | (27,730 | ) | 1,513 |   |
| Earnings (loss) per common share: |       |                             |       |   |   |   |   |   |   |
| Basic                             |       | $                                | 0.08       |   | $ | 0.06 |   | $ | (1.76 | ) | $ | 0.08 |   |
| Diluted                           |       | $                                | 0.06       |   | $ | 0.04 |   | $ | (1.76 | ) | $ | 0.07 |   |

 

All per share data has been adjusted toreflect the 5 for 2 split of our stock effective September 15, 2004 (see Note2).

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*The exchange of vested options by Outdoor Channel Holdings forvested options of TOC resulted in a charge to net income in the consolidatedstatement of operations on September 8, 2004 equal to the intrinsic value ofthe options issued on that date and a credit for the income tax benefit.Outdoor Channel Holdings issued fully-vested options to purchase approximately3,687 shares in exchange for fully-vested options of employees of TOC onSeptember 8, 2004. On that day, the market price of one share of common stockof Outdoor Channel Holdings was $14.00. As a result, the Company incurred anon-cash, non-recurring charge to operating expenses of $47,983 and recognizedan income tax benefit of $19,098 or a net charge of $28,885.

**Note 18 – Restatements of Consolidated FinancialStatements**

This Form 10-K/Aamends our previously filed Form 10-K for the year ended December 31, 2005 toreflect adjustments to the consolidated financial statements as of and for theyears ended December 31, 2005 and 2004 arising from the effects of areclassification of all of the amounts originally allocated to the cost of MSOrelationships from other non-amortizable intangible assets to amortizableintangible assets and the determination that they have an estimated useful lifeof 21 years and 4 months. Although the revised estimate of the useful life ofthese assets resulted in adjustments to and the restatement of our consolidatedfinancial statements included in this Form 10-K/A as of and for the year endedDecember 31,

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2004,we determined that the effects of these adjustments were immaterial,individually and in the aggregate, to our annual and quarterly reports filedprior to January 1, 2005 and thus we did not amend those filings. In addition,certain amounts included under “expenses” in the 2005, 2004 and 2003consolidated statements of operations we originally issued have beenreclassified in line items under either “cost of services” or “other expenses” andcertain intangible assets and the related amortization expense have been reclassifiedfrom “Corporate” to the “TOC” segment, as explained in Note 2. The adjustmentsto the 2005 and 2004 consolidated statements of operations are a result of acorrection of the accounting treatment for the portion of the excess of thecost of the minority interest over the fair value of the underlying interest inthe net identifiable assets acquired related to the acquisition of theremaining minority interest in TOC that we did not previously own on September8, 2004 that was allocated to the MSO relationships. The adjustments were basedon a review in the third quarter of 2006 of the facts and circumstances, thenature of our business, our experience with the MSOs and the proclivities ofour industry as of September 8, 2004. Although the revised estimate of theuseful life of these assets resulted in adjustments to and the restatement ofour condensed consolidated balance sheet included in this Form 10-K/A as ofDecember 31, 2004 (the adjustments did not affect the financial statements forthe three and six months ended June 30, 2004), we determined that the effectsof these adjustments were immaterial, individually and in the aggregate, to ourannual and quarterly reports filed prior to January 1, 2005 and thus we did notamend those fillings. The accompanying consolidated financial statements andthe related notes have been restated to reflect the effects of the adjustmentsarising from the reassessment of the estimated useful life of the MSOrelationships are explained below:

**The Effects on the Consolidated Balance Sheets**

As a result of therestatement, our consolidated balance sheet as of December 31, 2005 changed asfollows:

|                                          | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
|                                     |       |                             |       |                 |       |       |       |
| Amortizable intangible  assets, net      |       | $                                | 1,380      |                 | $          | 11,292     |       | $ | 9,912 |   |
|                                     |       |                             |       |                 |       |       |       |
| Other non-amortizable  intangible assets |       | 10,573                           |       | —               |       | (10,573    | )          |
| Deferred tax assets,  net                |       | 9,230                            |       | 9,491                |       | 261        |       |
| Total assets                             |       | 152,222                          |       | 151,822              |       | (400       | )          |
| Accumulated deficit                      |       | (14,964                          | )          | (15,364              | )          | (400       | )          |
| Total stockholders’ equity          |       | 142,204                          |       | 141,804              |       | (400       | )          |
|                                          |            |                                  |            |                      |            |            |            |  |  |  |

 

As a result of therestatement, our consolidated balance sheet as of December 31, 2004 changed asfollows:

|                                          | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
|                                     |       |                             |       |                 |       |       |       |
| Amortizable intangible  assets, net      |       | $                                | 1,939      |                 | $          | 12,347     |       | $ | 10,408 |   |
|                                     |       |                             |       |                 |       |       |       |
| Other non-amortizable  intangible assets |       | 10,573                           |       | —               |       | (10,573    | )          |
| Deferred tax assets,  net                |       | 14,074                           |       | 14,139               |       | 65         |       |
| Total assets                             |       | 99,669                           |       | 99,569               |       | (100       | )          |
| Accumulated deficit                      |       | (17,457                          | )          | (17,557              | )          | (100       | )          |
| Total stockholders’ equity          |       | 93,482                           |       | 93,382               |       | (100       | )          |
|                                          |            |                                  |            |                      |            |            |            |  |  |  |

 

79

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**The Effects on the ConsolidatedStatements of Operations**

As a result of therestatement, the consolidated statements of operations for years ended December31, 2005 and 2004 changed as follows:

|                                                          | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                               | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the year ended December 31,  2005**                |       |                                   |       |                 |       |       |       |
| Depreciation and  amortization                           |       | $                                      | 2,225      |                 | $          | 2,721      |       | $ | 496 |   |
| Total other  expenses                                    |       | 26,897                                 |       | 27,393               |       | 496        |       |
| Income (loss) from  operations                           |       | 3,294                                  |       | 2,798                |       | (496       | )          |
| Income (loss) before  income taxes and minority interest |       | 4,192                                  |       | 3,696                |       | (496       | )          |
| Income tax  provision (benefit)                          |       | 1,699                                  |       | 1,503                |       | (196       | )          |
| Income (loss) before  minority interest                  |       | 2,493                                  |       | 2,193                |       | (300       | )          |
| Net income  (loss)                                       |       | 2,493                                  |       | 2,193                |       | (300       | )          |
| Earnings (loss) per  share:                              |       |                                   |       |                 |       |       |       |
| Basic                                                    |       | $                                      | 0.12       |                 | $          | 0.10       |       | $ | (0.02 | ) |
| Diluted                                                  |       | $                                      | 0.10       |                 | $          | 0.09       |       | $ | (0.01 | ) |
|                                                     |       |                                   |       |                 |       |       |       |
| **For the year ended December 31,  2004**                |       |                                   |       |                 |       |       |       |
|                                                     |       |                                   |       |                 |       |       |       |
| Depreciation and  amortization                           |       | $                                      | 1,259      |                 | $          | 1,424      |       | $ | 165 |   |
| Total other  expenses                                    |       | 71,123                                 |       | 71,288               |       | 165        |       |
| Income (loss)  from operations                           |       | (39,539                                | )          | (39,704              | )          | (165       | )          |
| Income (loss)  before income taxes and minority interest |       | (39,424                                | )          | (39,589              | )          | (165       | )          |
| Income tax provision  (benefit)                          |       | (15,946                                | )          | (16,011              | )          | (65        | )          |
| Income (loss)  before minority interest                  |       | (23,478                                | )          | (23,578              | )          | (100       | )          |
| Net income (loss)                                        |       | (24,160                                | )          | (24,260              | )          | (100       | )          |
| Earnings (loss)  per share:                              |       |                                   |       |                 |       |       |       |
| Basic                                                    |       | $                                      | (1.51      | )                    | $          | (1.52      | )          | $ | (0.01 | ) |
| Diluted                                                  |       | $                                      | (1.51      | )                    | $          | (1.52      | )          | $ | (0.01 | ) |

 

**The Effects on the ConsolidatedStatement of Stockholders’ Equity**

As a result of therestatement, the balance of the accumulated deficit as of December 31, 2005 wasincreased by $400 to $15,364 from $14,964 and the balance as of December 31,2004 was increased by $100 to $17,557 from $17,457.

**The Effects on the ConsolidatedStatement of Cash Flows**

As a result of therestatement, the consolidated statements of cash flows for the years endedDecember 31, 2005 and 2004 changed as follows:

|                                           | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|-------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the year ended December 31,  2005** |       |                                   |       |                 |       |       |       |
|                                      |       |                                   |       |                 |       |       |       |
| Net income  (loss)                        |       | $                                      | 2,493      |                 | $          | 2,193      |       | $ | (300 | ) |
| Depreciation and  amortization            |       | 2,234                                  |       | 2,730                |       | 496        |       |
| Deferred tax  provision (benefit)         |       | 3,190                                  |       | 2,994                |       | (196       | )          |
|                                      |       |                                   |       |                 |       |       |       |
| **For the year ended December 31,  2004** |       |                                   |       |                 |       |       |       |
|                                      |       |                                   |       |                 |       |       |       |
| Net income (loss)                         |       | $                                      | (24,160    | )                    | $          | (24,260    | )          | $ | (100 | ) |
| Depreciation and  amortization            |       | 1,259                                  |       | 1,424                |       | 165        |       |
| Deferred tax provision (benefit)          |       | (17,619                                | )          | (17,684              | )          | (65        | )          |

 

80

----

**The Effects on Note 2 – Summaryof Significant Accounting Policies – Earnings (Loss) Per Share and StockOptions**

The effects of therestatements on the historical and pro forma information in Note 2 fromassuming that compensation cost related to employee stock options had beendetermined for the years ended December 31, 2005 and 2004 based on the fairvalue instead of the intrinsic value of the options at the grant date are setforth below:
|                                           | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                | ** ** | ** **                       | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the year ended December 31,  2005** |       |                             |       |                 |       |       |       |
|                                      |       |                             |       |                 |       |       |       |
| Net income (loss)                         |       | $                                | 2,493      |                 | $          | 2,193      |       | $ | (300 | ) |
| Pro forma –  basic and diluted       |       | 764                              |       | 464                  |       | (300       | )          |
| Basic earnings (loss)  per share:         |       |                             |       |                 |       |       |       |
| As reported                               |       | $                                | 0.12       |                 | $          | 0.10       |       | $ | (0.02 | ) |
| Pro forma                                 |       | $                                | 0.04       |                 | $          | 0.02       |       | $ | (0.02 | ) |
| Diluted earnings  (loss) per share:       |       |                             |       |                 |       |       |       |
| As reported                               |       | $                                | 0.10       |                 | $          | 0.09       |       | $ | (0.01 | ) |
| Pro forma                                 |       | $                                | 0.03       |                 | $          | 0.02       |       | $ | (0.01 | ) |
|                                      |       |                             |       |                 |       |       |       |
| **For the year ended December 31,  2004** |       |                             |       |                 |       |       |       |
|                                      |       |                             |       |                 |       |       |       |
| Net income (loss)                         |       | $                                | (24,160    | )                    | $          | (24,260    | )          | $ | (100 | ) |
| Pro forma –  basic and diluted       |       | 2,102                            |       | 2,002                |       | (100       | )          |
| Basic earnings (loss)  per share:         |       |                             |       |                 |       |       |       |
| As reported                               |       | $                                | (1.51      | )                    | $          | (1.52      | )          | $ | (0.01 | ) |
| Pro forma                                 |       | $                                | 0.13       |                 | $          | 0.13       |       | $ | — |   |
| Diluted earnings  (loss) per share:       |       |                             |       |                 |       |       |       |
| As reported                               |       | $                                | (1.51      | )                    | $          | (1.52      | )          | $ | (0.01 | ) |
| Pro forma                                 |       | $                                | 0.13       |                 | $          | 0.13       |       | $ | — |   |

 

**The Effects on Note 7 – Property,Plant and Equipment and Amortizable Intangible Assets**

As a result of thereclassification of the MSO relationships Assets from non-amortizableintangible assets to amortizable intangible assets, the following informationwas included in Note 7:
|                                           | ** ** | **MSO  Relationships** | ** ** |
|-------------------------------------------|------------|------------------------|------------|
| ** **                                | ** ** | ** **             | ** ** |
| **For the  year ended December 31, 2005** |       |                   |       |
|                                      |       |                   |       |
| Residual value                            |       | $                      | —     |   |
| Weighted average amortization period      |       | 21 years, 4 months     |       |
|                                      |       |                   |       |
| Gross carrying amount                     |       | $                      | 10,573     |   |
| Less accumulated amortization             |       | 661                    |       |
| Net book value                            |       | $                      | 9,912      |   |
|                                      |       |                   |       |
| **For the  year ended December 31, 2004** |       |                   |       |
|                                      |       |                   |       |
| Residual value                            |       | $                      | —     |   |
| Weighted average amortization period      |       | 21 years, 4 months     |       |
|                                      |       |                   |       |
| Gross carrying amount                     |       | $                      | 10,573     |   |
| Less accumulated amortization             |       | 165                    |       |
| Net book value                            |       | $                      | 10,408     |   |

 

81

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**The Effects on Note 10 – IncomeTaxes**

The components ofthe provision (benefit) for income taxes that changed were as follows:
|                | ** ** | **2005**                           | ** ** | **2004**                           | ** ** |
|----------------|------------|------------------------------------|------------|------------------------------------|------------|
| ** **     | ** ** | **(as Originally  Reported)** | ** ** | **(as Originally  Reported)** | ** ** |
|           |       |                               |       |                               |       |
| Deferred:      |       |                               |       |                               |       |
| Federal        |       | $                                  | 2,877      |                               | $          | (13,512 | ) |
| State          |       | 313                                |       | (4,107                             | )          |
| Total deferred |       | $                                  | 3,190      |                               | $          | (17,619 | ) |
| Totals         |       | $                                  | 1,699      |                               | $          | (15,946 | ) |

 
|                | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|----------------|------------|------------------------|------------|------------------------|------------|
| ** **     | ** ** | **(as Restated)** | ** ** | **(as Restated)** | ** ** |
|           |       |                   |       |                   |       |
| Deferred:      |       |                   |       |                   |       |
| Federal        |       | $                      | 2,710      |                   | $          | (13,568 | ) |
| State          |       | 284                    |       | (4,116                 | )          |
| Total deferred |       | $                      | 2,994      |                   | $          | (17,684 | ) |
| Totals         |       | $                      | 1,503      |                   | $          | (16,011 | ) |

 
|                | ** ** | **2005**     | ** ** | **2004**     | ** ** |
|----------------|------------|--------------|------------|--------------|------------|
| ** **     | ** ** | **(Change)** | ** ** | **(Change)** | ** ** |
|           |       |         |       |         |       |
| Deferred:      |       |         |       |         |       |
| Federal        |       | $            | (167       | )            | $          | (56 | ) |
| State          |       | (29          | )          | (9           | )          |
| Total deferred |       | $            | (196       | )            | $          | (65 | ) |
| Totals         |       | $            | (196       | )            | $          | (65 | ) |

 

The components of the tax effects of the temporary differencesthat give rise to significant portions of the deferred tax assets and deferredtax liabilities as of December 31, 2005 and 2004 that changed were as follows:
|                            | ** ** | **2005**                       | ** ** | **2004**                       | ** ** |
|----------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                 | ** ** | **(as  Originally  Reported)** | ** ** | **(as  Originally  Reported)** | ** ** |
| Deferred tax  liabilities: |       |                           |       |                           |       |
| Fixed assets               |       | $                              | (251       | )                              | $          | (345 | ) |
| Intangible assets          |       | (4,726                         | )          | (4,946                         | )          |
| Other                      |       | (78                            | )          | (24                            | )          |
|                       |       | $                              | (5,055     | )                              | $          | (5,315 | ) |
| Deferred tax assets,  net  |       | $                              | 10,245     |                           | $          | 13,580 |   |

 
|                            | ** ** | **2005**               | ** ** | **2004**               | ** ** |
|----------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                 | ** ** | **(as Restated)** | ** ** | **(as Restated)** | ** ** |
| Deferred tax  liabilities: |       |                   |       |                   |       |
| Fixed assets               |       | $                      | (251       | )                      | $          | (345 | ) |
| Intangible assets          |       | (4,465                 | )          | (4,881                 | )          |
| Other                      |       | (78                    | )          | (24                    | )          |
|                       |       | $                      | (4,794     | )                      | $          | (5,250 | ) |
| Deferred tax assets,  net  |       | $                      | 10,506     |                   | $          | 13,645 |   |

 

82

----

 
|                            | ** ** | **2005**     | ** ** | **2004**     | ** ** |
|----------------------------|------------|--------------|------------|--------------|------------|
| ** **                 | ** ** | **(Change)** | ** ** | **(Change)** | ** ** |
| Deferred tax  liabilities: |       |         |       |         |       |
| Fixed assets               |       | $            | —     |         | $          | — |   |
| Intangible assets          |       | 261          |       | 65           |       |
| Other                      |       | —       |       | —       |       |
|                       |       | $            | 261        |         | $          | 65 |   |
| Deferred tax assets,  net  |       | $            | 261        |         | $          | 65 |   |

 

The reconciliation of the provision (benefit) for income taxesreflected in the accompanying consolidated statements of operations to thosecomputed based on the applicable statutory Federal income tax rate of 34% in2005 and 2004 were as follows:

|                                                                      | ** ** | **2005**                       | ** ** | **2004**                       | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                                           | ** ** | **(as  Originally  Reported)** | ** ** | **(as  Originally  Reported)** | ** ** |
| Federal income  tax provision (benefit) at statutory income tax rate |       | $                              | 1, 425     |                           | $          | (13, 532) |   |
| State taxes, net  of federal benefit                                 |       | 251                            |       | (2,197                         | )          |
| Non-deductible  expense                                              |       | 35                             |       | 38                             |       |
| Deferred compensation                                                |       | —                         |       | (198                           | )          |
| Other                                                                |       | (12                            | )          | (57                            | )          |
| Income tax provision  (benefit)                                      |       | $                              | 1,699      |                           | $          | (15,946 | ) |

 

|                                                                      | ** ** | **2005**           | ** ** | **2004**           | ** ** |
|----------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                                           | ** ** | **(as  Restated)** | ** ** | **(as  Restated)** | ** ** |
| Federal income  tax provision (benefit) at statutory income tax rate |       | $                  | 1,258      |               | $          | (13,588 | ) |
| State taxes, net  of federal benefit                                 |       | 222                |       | (2,206             | )          |
| Non-deductible  expense                                              |       | 35                 |       | 38                 |       |
| Deferred  compensation                                               |       | —             |       | (198               | )          |
| Other                                                                |       | (12                | )          | (57                | )          |
| Income tax provision  (benefit)                                      |       | $                  | 1,503      |               | $          | (16,011 | ) |

 

|                                                                      | ** ** | **2005**     | ** ** | **2004**     | ** ** |
|----------------------------------------------------------------------|------------|--------------|------------|--------------|------------|
| ** **                                                           | ** ** | **(Change)** | ** ** | **(Change)** | ** ** |
| Federal income  tax provision (benefit) at statutory income tax rate |       | $            | (167       | )            | $          | (56 | ) |
| State taxes, net  of federal benefit                                 |       | (29          | )          | (9           | )          |
| Non-deductible  expense                                              |       | —       |       | —       |       |
| Deferred  compensation                                               |       | —       |       | —       |       |
| Other                                                                |       | —       |       | —       |       |
| Income tax provision  (benefit)                                      |       | $            | (196       | )            | $          | (65 | ) |

 

83

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**The Effects on Note 13 – SegmentInformation**

As a result of therestatement, segment information for the years ended December 31, 2005 and 2004changed as follows:
| ** **                                                                     | ** ** | **Revenues** | ** ** | **Income (Loss)   Before Income   Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation   and  Amortization** | ** ** | **Additions to  Property,  Plant and  Improvements** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------------------|------------|-------------------|------------|-------------------------------------------|------------|----------------------------------------------------------------|------------|
| **As of and for the Year Ended  December 31, 2005**                            |       |         |       |                                                          |       |              |       |                                      |       |                                                           |       |
| **As  reported and adjusted for the reclassification as described in Note 13** |       |         |       |                                                          |       |              |       |                                      |       |                                                           |       |
| TOC                                                                            |       | $            | 37,527     |                                                          | $          | 5,361             |       | $                                         | 79,686     |                                                           | $          | 1,892 |   | $ | 10,224 |   |
| Membership  Division                                                           |       | 5,381        |       | 280                                                           |       | 5,017             |       | 342                                       |       | 335                                                            |       |
| Subtotals of  Segments                                                         |       | 42,908       |       | 5,641                                                         |       | 84,703            |       | 2,234                                     |       | 10,559                                                         |       |
| Corporate                                                                      |       | —       |       | (1,449                                                        | )          | 67,519            |       | —                                    |       | —                                                         |       |
| Totals                                                                         |       | $            | 42,908     |                                                          | $          | 4,192             |       | $                                         | 152,222    |                                                           | $          | 2,234 |   | $ | 10,559 |   |
|                                                                           |       |         |       |                                                          |       |              |       |                                      |       |                                                           |       |
| **As  restated**                                                               |       |         |       |                                                          |       |              |       |                                      |       |                                                           |       |
| TOC                                                                            |       | $            | 37,527     |                                                          | $          | 4,865             |       | $                                         | 79,025     |                                                           | $          | 2,388 |   | $ | 10,224 |   |
| Membership  Division                                                           |       | 5,381        |       | 280                                                           |       | 5,017             |       | 342                                       |       | 335                                                            |       |
| Subtotals of  Segments                                                         |       | 42,908       |       | 5,145                                                         |       | 84,042            |       | 2,730                                     |       | 10,559                                                         |       |
| Corporate                                                                      |       | —       |       | (1,449                                                        | )          | 67,780            |       | —                                    |       | —                                                         |       |
| Totals                                                                         |       | $            | 42,908     |                                                          | $          | 3,696             |       | $                                         | 151,822    |                                                           | $          | 2,730 |   | $ | 10,559 |   |
| ** **                                                                     | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **        | ** ** | ** **                                | ** ** | ** **                                                     | ** ** |
| **As of and for the Year Ended  December 31, 2004**                            |       |         |       |                                                          |       |              |       |                                      |       |                                                           |       |
| **As  reported and adjusted for the reclassification as described in Note 13** |       |         |       |                                                          |       |              |       |                                      |       |                                                           |       |
| TOC                                                                            |       | $            | 34,596     |                                                          | $          | (38,165           | )          | $                                         | 78,739     |                                                           | $          | 915 |   | $ | 1,938 |   |
| Membership  Division                                                           |       | 5,358        |       | 354                                                           |       | 6,857             |       | 344                                       |       | 611                                                            |       |
| Subtotals of  Segments                                                         |       | 39,954       |       | (37,811                                                       | )          | 85,596            |       | 1,259                                     |       | 2,549                                                          |       |
| Corporate                                                                      |       | —       |       | (1,613                                                        | )          | 14,073            |       | —                                    |       | —                                                         |       |
| Totals                                                                         |       | $            | 39,954     |                                                          | $          | (39,424           | )          | $                                         | 99,669     |                                                           | $          | 1,259 |   | $ | 2,549 |   |
|                                                                           |       |         |       |                                                          |       |              |       |                                      |       |                                                           |       |
| **As  restated**                                                               |       |         |       |                                                          |       |              |       |                                      |       |                                                           |       |
| TOC                                                                            |       | $            | 34,596     |                                                          | $          | (38,330           | )          | $                                         | 78,574     |                                                           | $          | 1,080 |   | $ | 1,938 |   |
| Membership  Division                                                           |       | 5,358        |       | 354                                                           |       | 6,857             |       | 344                                       |       | 611                                                            |       |
| Subtotals of  Segments                                                         |       | 39,954       |       | (37,976                                                       | )          | 85,431            |       | 1,424                                     |       | 2,549                                                          |       |
| Corporate                                                                      |       | —       |       | (1,613                                                        | )          | 14,138            |       | —                                    |       | —                                                         |       |
| Totals                                                                         |       | $            | 39,954     |                                                          | $          | (39,589           | )          | $                                         | 99,569     |                                                           | $          | 1,424 |   | $ | 2,549 |   |

 

The changes inthese balances are as follows:
| ** **                                                 | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to   Property,   Plant and   Improvements** | ** ** |
|------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **Change  as of and for the Year Ended December 31, 2005** |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                        |       | $            | —     |                                              | $          | (496              | )          | $                                   | (661       | )                                                                                | $          | 496 |   | $ | — |   |
| Membership  Division                                       |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of  Segments                                     |       | —       |       | (496                                              | )          | (661              | )          | 496                                 |       | —                                                                           |       |
| Corporate                                                  |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Totals                                                     |       | $            | —     |                                              | $          | (496              | )          | $                                   | (661       | )                                                                                | $          | 496 |   | $ | — |   |
|                                                       |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| **Change  as of and for the Year Ended December 31, 2004** |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                        |       | $            | —     |                                              | $          | (165              | )          | $                                   | (165       | )                                                                                | $          | 165 |   | $ | — |   |
| Membership  Division                                       |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of  Segments                                     |       | —       |       | (165                                              | )          | (165              | )          | 165                                 |       | —                                                                           |       |
| Corporate                                                  |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Totals                                                     |       | $            | —     |                                              | $          | (165              | )          | $                                   | (165       | )                                                                                | $          | 165 |   | $ | — |   |

 

84

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**The Effects on Note 17 –Quarterly Financial Information (Unaudited)**

As a result of therestatement, segment information for the years ended December 31, 2005 and 2004changed as follows:
| ** **                  | ** ** | **Three Months Ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **March 31**                | ** ** | **June 30** | ** ** | **September  30** | ** ** | **December 31** | ** ** |
| **As Reported**        |       |                             |       |   |   |   |   |   |   |
| 2005                        |       |                             |       |   |   |   |   |   |   |
| Revenue                     |       | $                                | 10,061     |   | $ | 10,014 |   | $ | 11,404 |   | $ | 11,429 |   |
| Income from  operations     |       | 728                              |       | 839 |   | 261 |   | 1,466 |   |
| Net income                  |       | 452                              |       | 512 |   | 323 |   | 1,206 |   |
| Earnings per  common share: |       |                             |       |   |   |   |   |   |   |
| Basic                       |       | $                                | 0.02       |   | $ | 0.03 |   | $ | 0.01 |   | $ | 0.05 |   |
| Diluted                     |       | $                                | 0.02       |   | $ | 0.02 |   | $ | 0.01 |   | $ | 0.05 |   |
|                        |       |                             |       |   |   |   |   |   |   |
| **As Restated**             |       |                             |       |   |   |   |   |   |   |
| 2005                        |       |                             |       |   |   |   |   |   |   |
| Revenue                     |       | $                                | 10,061     |   | $ | 10,014 |   | $ | 11,404 |   | $ | 11,429 |   |
| Income from  operations     |       | 604                              |       | 715 |   | 137 |   | 1,342 |   |
| Net income                  |       | 377                              |       | 437 |   | 248 |   | 1,131 |   |
| Earnings per  common share: |       |                             |       |   |   |   |   |   |   |
| Basic                       |       | $                                | 0.02       |   | $ | 0.02 |   | $ | 0.01 |   | $ | 0.05 |   |
| Diluted                     |       | $                                | 0.02       |   | $ | 0.02 |   | $ | 0.01 |   | $ | 0.04 |   |

 
| ** **                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------|------------|----------------------------------|------------|
| ** **                         | ** ** | **March 31**                | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| **As Reported**               |       |                             |       |   |   |   |   |   |   |
| 2004                               |       |                             |       |   |   |   |   |   |   |
| Revenue                            |       | $                                | 9,205      |   | $ | 9,557 |   | $ | 10,949 |   | $ | 10,243 |   |
| Income (loss)  from operations     |       | 2,275                            |       | 1,745 |   | (45,722 | ) | 2,163 |   |
| Net income  (loss)                 |       | 1,113                            |       | 844 |   | (27,705 | ) | 1,588 |   |
| Earnings (loss)  per common share: |       |                             |       |   |   |   |   |   |   |
| Basic                              |       | $                                | 0.08       |   | $ | 0.06 |   | $ | (1.75 | ) | $ | 0.09 |   |
| Diluted                            |       | $                                | 0.06       |   | $ | 0.04 |   | $ | (1.75 | ) | $ | 0.07 |   |
|                               |       |                             |       |   |   |   |   |   |   |
| **As Restated**                    | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| 2004                               |       |                             |       |   |   |   |   |   |   |
| Revenue                            |       | $                                | 9,205      |   | $ | 9,557 |   | $ | 10,949 |   | $ | 10,243 |   |
| Income (loss)  from operations     |       | 2,275                            |       | 1,745 |   | (45,763 | ) | 2,039 |   |
| Net income  (loss)                 |       | 1,113                            |       | 844 |   | (27,730 | ) | 1,513 |   |
| Earnings (loss)  per common share: |       |                             |       |   |   |   |   |   |   |
| Basic                              |       | $                                | 0.08       |   | $ | 0.06 |   | $ | (1.76 | ) | $ | 0.08 |   |
| Diluted                            |       | $                                | 0.06       |   | $ | 0.04 |   | $ | (1.76 | ) | $ | 0.07 |   |

 

85

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| ** **                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------|------------|----------------------------------|------------|
| **Changes**                        | ** ** | **March 31**                | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| 2005                               |       |                             |       |   |   |   |   |   |   |
| Revenue                            |       | $                                | —     |   | $ | — |   | $ | — |   | $ | — |   |
| Income (loss)  from operations     |       | (124                             | )          | (124 | ) | (124 | ) | (124 | ) |
| Net income  (loss)                 |       | (75                              | )          | (75 | ) | (75 | ) | (75 | ) |
| Earnings (loss)  per common share: |       |                             |       |   |   |   |   |   |   |
| Basic                              |       | $                                | —     |   | $ | (0.01 | ) | $ | — |   | $ | — |   |
| Diluted                            |       | $                                | —     |   | $ | — |   | $ | — |   | $ | (0.01 | ) |
|                               |       |                             |       |   |   |   |   |   |   |
| 2004                               |       |                             |       |   |   |   |   |   |   |
| Revenue                            |       | $                                | —     |   | $ | — |   | $ | — |   | $ | — |   |
| Income (loss)  from operations     |       | —                           |       | — |   | (41 | ) | (124 | ) |
| Net income  (loss)                 |       | —                           |       | — |   | (25 | ) | (75 | ) |
| Earnings (loss)  per common share: |       |                             |       |   |   |   |   |   |   |
| Basic                              |       | $                                | —     |   | $ | — |   | $ | (0.01 | ) | $ | (0.01 | ) |
| Diluted                            |       | $                                | —     |   | $ | — |   | $ | (0.01 | ) | $ | — |   |

 

* * *

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**ITEM 9.****                                               ****CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE.**

Not Applicable.

**ITEM 9A.****                                    ****CONTROLS AND PROCEDURES.**

*Evaluationof disclosure controls and procedures.*  We maintain disclosurecontrols and procedures designed to provide reasonable assurance of achievingthe objective that information in our Exchange Act reports is recorded,processed, summarized and reported within the time periods specified andpursuant to the regulations of the Securities and Exchange Commission.Disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e)under the Exchange Act, include controls and procedures designed to ensure theinformation required to be disclosed by us in the reports we file or submitunder the Exchange Act is accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure. It shouldbe noted that our system of controls, however well designed and operated, canprovide only reasonable, and not absolute, assurance that the objectives of thesystem are met.

Our management, with the participation of our Chief ExecutiveOfficer and Chief Financial Officer, evaluated the effectiveness of ourdisclosure controls and procedures as of December 31, 2005, the end of theperiod covered by this report, and concluded that our disclosure controls andprocedures were effective as of December 31, 2005.

*Management’sreport on internal control over financial reporting. *Managementis responsible for establishing and maintaining adequate internal control overfinancial reporting, as such term is defined in Rule 13a-15(f) of the ExchangeAct.  Our internal control over financialreporting includes those policies and procedures that (a) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and disposition of assets; (b) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures are being made only inaccordance with authorizations of management and the directors of the Company;and (c) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use or disposition of our assets thatcould have a material effect on the financial statements.

Internal control over financial reporting is designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements prepared for external purposes inaccordance with generally accepted accounting principles. Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements.  Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

Management conducted an evaluation of the effectiveness of theregistrant’s internal control over financial reporting as of December 31,2005, based on the framework set forth in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on this evaluation, management concluded that our internal controlover financial reporting was effective as of December 31, 2005.

Management’s assessment of the effectiveness of internal controlover financial reporting as of December 31, 2005, has been audited by J.H.Cohn LLP, the independent registered public accounting firm that audited ourconsolidated financial statements, as stated in their report which is includedin this report.

*Changesin internal control over financial reporting.*  During the quarter endedDecember 31, 2005, there was no change in our internal control over financialreporting that materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

87

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**Report of Independent Registered Public AccountingFirm**

To theStockholders and Board of Directors

OutdoorChannel Holdings, Inc. and Subsidiaries

Wehave audited management’s assessment, included in Item 9A, Management’s Reporton Internal Control over Financial Reporting, that Outdoor ChannelHoldings, Inc. and subsidiaries maintained effective internal control overfinancial reporting as of December 31, 2005 based on criteria establishedin “Internal Control - Integrated Framework” issued by the Committee ofSponsoring Organizations of the Treadway Commission. Outdoor ChannelHoldings, Inc. and subsidiaries’ management is responsible for maintainingeffective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting. Ourresponsibility is to express an opinion on management’s assessment and an opinionon the effectiveness of the Company’s internal control over financial reportingbased on our audit.

Weconducted our audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internalcontrol over financial reporting, evaluating management’s assessment, testingand evaluating the design and operating effectiveness of internal control, andperforming such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for ouropinion.

Acompany’s internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith accounting principles generally accepted in the United States of America.A company’s internal control over financial reporting includes those policiesand procedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with accounting principles generallyaccepted in the United States of America, and receipts and expenditures of thecompany are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use or dispositionof the company’s assets that could have a material effect on the financialstatements.

Becauseof inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

In ouropinion, management’s assessment that Outdoor Channel Holdings, Inc. andsubsidiaries maintained effective internal control over financial reporting asof December 31, 2005, is fairly stated, in all material respects, based onthe criteria established in “Internal Control - Integrated Framework” issued bythe Committee of the Sponsoring Organizations of the Treadway Commission. Also,in our opinion, Outdoor Channel Holdings, Inc. and subsidiariesmaintained, in all material respects, effective internal control over financialreporting as of December 31, 2005, based on such criteria.

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheets ofOutdoor Channel Holdings, Inc. and subsidiaries as of December 31,2005 and 2004, and the related consolidated statements of operations,stockholders’ equity and cash flows for each of the years in the three-yearperiod ended December 31, 2005, and our report dated March 9, 2006expressed an unqualified opinion thereon.
| /s/ J.H. Cohn LLP     |   |
|-----------------------|--------|
|                  |   |
| San Diego, California |   |
| March 9, 2006    |   |

 

**ITEM 9B.****              ****OTHER INFORMATION.**

Not Applicable.

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**PART III**

**ITEM 10.****                                        ****DIRECTORS AND EXECUTIVE OFFICERS OF THEREGISTRANT.**

Informationrequired by Item 10 of Part III regarding our directors and executiveofficers is included in our Proxy Statement relating to our 2006 Annual Meetingof Stockholders, and is incorporated herein by reference. Information relatingto our Code of Conduct and Ethics and to compliance with Section 16(a) ofthe 1934 Act is set forth in our Proxy Statement relating to our 2006 AnnualMeeting of Stockholders and is incorporated herein by reference.

**ITEM 11.****                                        ****EXECUTIVE COMPENSATION.**

Informationrequired by Item 11 of Part III is included in our Proxy Statementrelating to our 2006 Annual Meeting of Stockholders and is incorporated hereinby reference.

**ITEM 12.****                                        ****SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.**

Informationrequired by Item 12 of Part III is included in our Proxy Statementrelating to our 2006 Annual Meeting of Stockholders and is incorporated hereinby reference.

**ITEM 13.****                                        ****CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**

Informationrequired by Item 13 of Part III is included in our Proxy Statementrelating to our 2006 Annual Meeting of Stockholders and is incorporated hereinby reference.

**ITEM 14.****                                        ****PRINCIPAL ACCOUNTANT FEES AND SERVICES.**

Information required byItem 14 of Part III is included in our Proxy Statement relating our 2006Annual Meeting of Stockholders and is incorporated herein by reference.

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**PART IV**

**ITEM 15.****              ****EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.**

**(a)****                                 ****The following documents are included as part ofthis Annual Report on Form 10-K.**

(1)                                  Financial Statements

Index to Financial Statements

Reports of Independent Registered PublicAccounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders’Equity

Consolidated Statements of Cash Flows

Notesto Consolidated Financial Statements

(2)                                  Financial Statement Schedules

Allschedules are omitted as the information is not required, is not material or isotherwise provided.

(3)                                  List of exhibits required by Item 601 of Regulation S-K. See part (b)below.

**(b)****                                 ****Exhibits**
| Exhibit    | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                           |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 2.1        |       | Amended and  Restated Agreement and Plan of Merger among The Outdoor Channel, Inc.,  Outdoor Channel Holdings, Inc. and Gold Prospector’s Association of America,  Inc. dated as of April 20, 2004, as amended and restated as of May 12, 2004  (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on  May 18, 2004 and incorporated herein by reference). |
| 2.2        |       | Agreement and  Plan of Merger between Outdoor Channel Holdings, Inc., a Delaware  corporation, and Outdoor Channel Holdings, Inc., an Alaska corporation, dated  as of September 8, 2004 (filed as Exhibit 2.1 to the Company’s Current Report  on Form 8-K filed on September 20, 2004 and incorporated herein by reference).                                                       |
| 3.1        |       | Certificate of  Incorporation of Outdoor Channel Holdings, Inc, a Delaware corporation (filed  as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September  20, 2004 and incorporated herein by reference).                                                                                                                                                        |
| 3.2        |       | By-Laws of  Outdoor Channel Holdings, Inc., a Delaware corporation (filed as Exhibit 3.2  to the Company’s Current Report on Form 8-K filed on September 20, 2004 and  incorporated herein by reference).                                                                                                                                                                            |
| 4.1        |       | Instruments  defining the rights of security holders, including debentures (see exhibits  3.1 and 3.2 above).                                                                                                                                                                                                                                                                             |
| 10.1       |       | Letter of intent  dated August 27, 1993, regarding the proposed acquisition of Gold  Prospector’s Association of America, Inc. by the Company (filed as Exhibit  10.4 to the Company’s Form 10-Q for the quarter ended September 30, 1993 and  incorporated herein by reference).                                                                                               |
| 10.2       |       | Agreement and  Plan of Reorganization dated February 13, 1995, by and between the Registrant  and Gold Prospector’s Association of America, Inc. (filed as Exhibit B to the  Company’s Form 8-K dated February 13, 1995 and incorporated herein by  reference).                                                                                                                 |
| 10.3*      |       | Form of  Indemnification Agreement between Outdoor Channel Holdings, Inc. and its  directors and certain executive officers (filed as Exhibit 10.1 to the  Company’s Form 10-Q for the quarter ended September 30, 2004 and incorporated  herein by reference).                                                                                                                      |
| 10.4       |       | Revolving Credit  Agreement and related agreements by and between the Company and U.S. Bank  N.A. dated September 30, 2004 (filed as Exhibit 10.2 to the Company’s Form  10-Q for the quarter ended September 30, 2004 and incorporated herein by  reference).                                                                                                                       |
| 10.5*      |       | 1995 Stock  Option Plan (filed as Exhibit 10.6 to the Company’s Form 10-KSB for the year  ended December 31, 1995 and incorporated herein by reference).                                                                                                                                                                                                                             |
| 10.6*      |       | Form of Stock  Option Agreement pursuant to the Company’s 1995 Stock Option Plan (filed as  Exhibit 4.2 to the Company’s Registration Statement on Form S-8 with respect  to the shares underlying such plan that was filed on November 12, 2004 and  incorporated herein by reference).                                                                                        |
| 10.7*      |       | The Outdoor  Channel, Inc. 1997 Stock Option Plan (filed as Exhibit 4.1 to the Company’s  Registration Statement on Form S-8 with respect to the shares underlying the  options assumed by the Company under such plan that was filed on November 12,  2004 and incorporated herein by reference).                                                                                   |
| 10.8*      |       | Form of Stock  Option Agreement pursuant to The Outdoor Channel, Inc. 1997 Stock Option Plan  (filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-8  with respect to the shares underlying the options assumed by the Company  under such plan that was filed on November 12, 2004 and incorporated herein                                                       |

 

90

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|        |   | by reference).                                                                                                                                                                                                                                                                                                                                                    |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.9*  |   | Non-Statutory  Stock Option Plan and Agreement, dated as of November 13, 2003, by and  between the Company and William A. Owen, as amended (filed as Exhibit 4.1 to  the Company’s Registration Statement on Form S-8 with respect to the shares  underlying such plan that was filed on November 12, 2004 and incorporated  herein by reference).           |
| 10.10* |   | Non-Employee  Directors Stock Option Plan, as amended (filed as Exhibit 4.1 to the  Company’s Registration Statement on Form S-8 with respect to the shares  underlying such plan that was filed on November 12, 2004 and incorporated  herein by reference).                                                                                                |
| 10.11* |   | Form of Stock  Option Agreement pursuant to Non-Employee Directors Stock Option Plan (filed  as Exhibit 10.13 to the Company’s Form 10-KSB for the year ended December 31,  2003 and incorporated herein by reference).                                                                                                                                      |
| 10.12* |   | 2004 Long-Term Incentive  Plan (filed as Exhibit 4.1 to the Company’s Registration Statement on Form  S-8 with respect to the shares underlying such plan that was filed on  November 12, 2004 and incorporated herein by reference).                                                                                                                        |
| 10.13* |   | Form of Stock  Option Award Agreement pursuant to 2004 Long-Term Incentive Plan (filed as  Exhibit 99.1 to the Company’s Form 8-K dated December 20, 2004 and  incorporated herein by reference).                                                                                                                                                            |
| 10.14* |   | Form of  Restricted Shares Award Agreement pursuant to 2004 Long-Term Incentive Plan  (filed as Exhibit 99.2 to the Company’s Form 8-K dated December 20, 2004 and  incorporated herein by reference).                                                                                                                                                       |
| 10.15  |   | Purchase and  Sale Agreement and Escrow Instructions by and between Temecula Enterprises,  LLC, an Ohio limited liability company and The Outdoor Channel, Inc., a  Nevada corporation, dated as of December 16, 2004 (filed as Exhibit 10.1  to the Company’s Form 10-Q/A for the quarter ended March 31, 2005 and  incorporated herein by reference). |
| 10.16* |   | Outdoor Channel  Holdings, Inc. Executive Annual Cash Bonus Plan effective April 21, 2005  (filed as Exhibit 10.2 to the Company’s Form 10-Q/A for the quarter  ended March 31, 2005 and incorporated herein by reference).                                                                                                                             |
| 10.17* |   | Selling  Stockholders Registration Rights Agreement, dated as of June 27, 2005,  among Outdoor Channel Holdings, Inc. and the selling stockholders who are a  party (filed as Exhibit 10.1 to the Company’s current report on Form 8-K  filed on June 28, 2005 and incorporated herein by reference).                                         |
| 10.18  |   | Amendment to  Loan Agreement and Note and related agreements by and between the Company and  U.S. Bank N.A. dated October 18, 2005 (filed as Exhibit 10.18 to the  Company’s Annual Report on Form 10-K filed on March 16, 2006 and incorporated  herein by reference).                                                                                 |
| 10.19  |   | Term Loan  Agreement and related agreements by and between 43455 BPD, LLC and U.S. Bank  N.A. dated as of October 18, 2005 (filed as Exhibit 10.19 to the  Company’s Annual Report on Form 10-K filed on March 16, 2006 and incorporated  herein by reference).                                                                                         |
| 10.20  |   | Term Loan  Agreement and related agreements by and between the Company and U.S. Bank  N.A. dated as of October 18, 2005 (filed as Exhibit 10.20 to the  Company’s Annual Report on Form 10-K filed on March 16, 2006 and incorporated  herein by reference).                                                                                            |
| 10.21* |   | Optionholders  Registration Rights Agreement by and among the Company, Ray V. Miller and  Elizabeth J. Sanderson dated as of December 5, 2005 (filed as Exhibit 10.1 to  the Company’s current report on Form 8-K filed on December 6, 2005 and  incorporated herein by reference).                                                                          |
| 10.22* |   | Lease by and  between the Company and Musk Ox Properties, L.P. dated as of January 1, 2006  (filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K  filed on March 16, 2006 and incorporated herein by reference).                                                                                                                         |
| 21.1   |   | Subsidiaries of  Registrant (filed as Exhibit 21.1 to the Company’s Annual Report on Form  10-K filed on March 16, 2006 and incorporated herein by reference).                                                                                                                                                                                          |
| 23.1   |   | Consent of J.H.  Cohn LLP, Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                          |
| 24.1   |   | Power of  Attorney (filed as Exhibit 24.1 to the Company’s Form 10-K for the year ended  December 31, 2005 that was filed on March 16, 2006 and incorporated herein by  reference)                                                                                                                                                                           |
| 31.1   |   | Certification by  Chief Executive Officer                                                                                                                                                                                                                                                                                                                         |
| 31.2   |   | Certification by  Chief Financial Officer                                                                                                                                                                                                                                                                                                                         |
| 32.1** |   | Section 1350  Certification by Chief Executive Officer                                                                                                                                                                                                                                                                                                            |
| 32.2** |   | Section 1350  Certification by Chief Financial Officer                                                                                                                                                                                                                                                                                                            |

 

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*                                      Designates a management contract or compensatory plan orarrangement.

**                               Pursuant to Commission Release No. 33-8238, this certificationwill be treated as “accompanying” this Annual Report on Form 10-K/A and not “filed”as part of such report for purposes of Section 18 of the Securities ExchangeAct of 1934, as amended, or otherwise subject to the liability of Section 18 ofthe Securities Exchange Act of 1934, as amended, and this certification willnot be deemed to be incorporated by reference into any filing under theSecurities Act of 1933, as amended, or the Securities Exchange Act of 1934, asamended, except to the extent that the registrant specifically incorporates itby reference.

91

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**SIGNATURES**

Pursuant to the requirements of section 13 or 15 (d) of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.
|        | **OUTDOOR CHANNEL  HOLDINGS, INC.** |
|--------|-------------------------------------|
|   |                                |
|   | By:                                 | /s/ Perry T.  Massie |   |
|   | Perry T. Massie,  President         |
|   | Dated: February  12, 2007           |

 

Pursuant to the requirements of the Securities Exchange Act of1934, this report has been signed below by the following persons on behalf ofthe registrant and in the capacities and on the dates indicated.
| Signature                    | ** ** | **Title**                            | ** ** | **Date**          |
|------------------------------|------------|--------------------------------------|------------|-------------------|
|                         |       |                                 |       |              |
| /s/ Perry T.  Massie         |       | Chief Executive  Officer,            |       | February 12, 2007 |
| Perry T. Massie              |       | President and  Chairman of the       |       |              |
|                         |       | Board (Principal  Executive Officer) |       |              |
|                         |       |                                 |       |              |
| /s/ William A.  Owen         |       | Chief Financial  Officer and         |       | February 12, 2007 |
| William A. Owen              |       | Controller  (Principal Financial     |       |              |
|                         |       | and Accounting  Officer)             |       |              |
|                         |       |                                 |       |              |
| /s/ Thomas H.  Massie*       |       | Executive Vice  President, Secretary |       | February 12, 2007 |
| Thomas H. Massie             |       | and Vice  Chairman of the Board      |       |              |
|                         |       |                                 |       |              |
| /s/ Jerry R.  Berglund*      |       | Director                             |       | February 12, 2007 |
| Jerry R.  Berglund           |       |                                 |       |              |
|                         |       |                                 |       |              |
| /s/ David C.  Merritt*       |       | Director                             |       | February 12, 2007 |
| David C. Merritt             |       |                                 |       |              |
|                         |       |                                 |       |              |
| /s/ Ray V.  Miller*          |       | Director                             |       | February 12, 2007 |
| Ray V. Miller                |       |                                 |       |              |
|                         |       |                                 |       |              |
| /s/ Elizabeth J.  Sanderson* |       | Director                             |       | February 12, 2007 |
| Elizabeth J.  Sanderson      |       |                                 |       |              |
|                         |       |                                 |       |              |
| /s/ T. Bahnson  Stanley*     |       | Director                             |       | February 12, 2007 |
| T. Bahnson  Stanley          |       |                                 |       |              |
|                         |       |                                 |       |              |
|                         |       | Director                             |       |              |
| Roger L. Werner,  Jr.        |       |                                 |       |              |

 
| *by    | /s/ William A.  Owen |   |
|--------|----------------------|--------|
|   | Attorney-in-Fact     |

 

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