**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM10-Q/A**

**(Amendment No. 1)**

**(MarkOne)**
| **x**                                             | **Quarterly  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**  |
|---------------------------------------------------|-----------------------------------------------------------------------------------------------|
| ** **                                        | ** **                                                                                    |
| **For  the quarterly period ended June 30, 2006** |
| ** **                                        | ** **                                                                                    |
| **o**                                             | **Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |

 

**For the transition periodfrom                to                **

**Commission file number: 000-17287**

**OutdoorChannel Holdings, Inc.**

(Exact name of Registrant as specified in its charter)

| **Delaware**                       |   | **33-0074499**                        |
|------------------------------------|--------|---------------------------------------|
| (State or other  Jurisdiction      |   | (IRS Employer  Identification Number) |
| of incorporation  or organization) |   |                                  |

 

**43445 Business Park Drive, Suite 113Temecula, California 92590**(Address and zip code of principal executive offices)

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

(Former name, former address and former fiscal year, if changed sincelast report)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  xYes     oNo

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated  filer  o |   | Accelerated  filer  x |   | Non-accelerated  filer  o |
|---------------------------------------|--------|---------------------------------|--------|-------------------------------------|

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  o Yes     x No

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date:

| **Class**                       |   | **Number of Shares Outstanding at July 31, 2006** |
|---------------------------------|--------|---------------------------------------------------|
| Common Stock,  $0.001 par value |   | 25,025,294                                        |

 

 

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EXPLANATORY NOTE

This amendment on Form 10-Q/A reflects therestatement of the unaudited condensed consolidated financial statements ofOutdoor Channel Holdings, Inc. and Subsidiaries as of June 30, 2006 andDecember 31, 2005 and for the three and six months ended June 30, 2006 and2005, as discussed in Management’s Discussion and Analysis of FinancialCondition and Results of Operations (Item 2) and Note 11 to the unauditedcondensed consolidated financial statements to reflect the effects of a revisedestimate 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.

In addition, to providemore detail about our operating results and to more fully comply with theSecurities and Exchange Commission’s (the “SEC”) Regulation S-X, we havemodified our presentation of the unaudited condensed consolidated statements ofoperations , as discussed in Management’s Discussion and Analysis of FinancialCondition and Results of Operations and Note 1 to the unaudited condensedconsolidated financial statements, by reclassifying the amounts originallyincluded under “expenses” in line items under either “cost of services” or “otherexpenses”. Further, to better match the other intangible assets with thesegment to which they pertain, we have reclassified the amortizable intangibleassets and the goodwill which were recorded in connection with the acquisitionon September 8, 2004 along with the related amortization expense from “Corporate”to the “TOC” segment.. Also, in accordance with SFAS 123R, we have presented ona prospective basis the tax benefits from exercise of stock options in excessof recognized expense as a cash flow from financing activities in theaccompanying unaudited condensed consolidated statement of cash flows for the sixmonths ended June 30, 2006, rather than as a cash flow from operating activities.Certain other changes have been made in the historical unaudited condensedconsolidated financial statements to conform with current presentations.

All of the information in this Form 10-Q/Ais as of August 9, 2006, the filing date of the original Form 10-Q for thequarter ended June 30, 2006, and has not been updated for events subsequent tothat date other than for the effects of the matter discussed above. Unlessotherwise indicated, the exhibits previously filed with the Form 10-Q are notfiled herewith but are incorporated herein by reference.

2

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**OUTDOOR CHANNEL HOLDINGS, INC. ANDSUBSIDIARIESQuarterly Report on Form 10-Q/AFor The Period Ended June 30, 2006**

**Table of Contents**
|                | **Part I. Financial  Information**                                                                                              |   |
|----------------|---------------------------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                                            |   |
| **Item 1.**    | Financial Statements                                                                                                            |   |
|           |                                                                                                                            |   |
|           | Restated  Condensed Consolidated Balance Sheets as of June 30, 2006 (Unaudited) and  December 31, 2005                          |   |
|           |                                                                                                                            |   |
|           | Restated Unaudited  Condensed Consolidated Statements of Operations for the Three and Six Months  Ended June 30, 2006 and 2005  |   |
|           |                                                                                                                            |   |
|           | Restated  Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the  Six Months Ended  June 30, 2006 |   |
|           |                                                                                                                            |   |
|           | Restated  Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months  Ended June 30, 2006 and 2005       |   |
|           |                                                                                                                            |   |
|           | Notes to  Restated Unaudited Condensed Consolidated Financial Statements                                                        |   |
|           |                                                                                                                            |   |
| **Item 2.**    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                     |   |
|           |                                                                                                                            |   |
|           | Recent Accounting  Developments                                                                                                 |   |
|           |                                                                                                                            |   |
| **Item 3.**    | Quantitative  and Qualitative Disclosures About Market Risk                                                                     |   |
|           |                                                                                                                            |   |
| **Item 4.**    | Controls and  Procedures                                                                                                        |   |
|           |                                                                                                                            |   |
|           | **Part II. Other Information**                                                                                                  |   |
|           |                                                                                                                            |   |
| **Item 1.**    | Legal Proceedings                                                                                                               |   |
|           |                                                                                                                            |   |
| **Item 1A.**   | Risk Factors                                                                                                                    |   |
|           |                                                                                                                            |   |
| **Item 2.**    | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                    |   |
|           |                                                                                                                            |   |
| **Item 3.**    | Defaults Upon  Senior Securities                                                                                                |   |
|           |                                                                                                                            |   |
| **Item 4.**    | Submission of  Matters to a Vote of Security Holders                                                                            |   |
|           |                                                                                                                            |   |
| **Item 5.**    | Other Information                                                                                                               |   |
|           |                                                                                                                            |   |
| **Item 6.**    | Exhibits                                                                                                                        |   |
|           |                                                                                                                            |   |
| **Signatures** |                                                                                                                            |

 

* * *

3

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**PART I—FINANCIAL INFORMATION**

**ITEM 1.  Financial Statements.**

**OUTDOOR CHANNEL HOLDINGS, INC. ANDSUBSIDIARIESCondensed Consolidated Balance Sheets**(In thousands, except per share data)
| ** **                                                                                                  | ** ** | **June 30,  2006**               | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                  | ** ** | **(Unaudited)**                       | ** ** | **(As Restated,**      | ** ** |
| ** **                                                                                                  | ** ** | **(As Restated,  Note 11)** | ** ** | **Note 11)**           | ** ** |
| **Assets**                                                                                                  | ** ** | ** **                            | ** ** | ** **                  | ** ** |
| Current assets:                                                                                             |       |                                  |       |                        |       |
| Cash and cash  equivalents                                                                                  |       | $                                     | 22,040     |                        | $          | 18,276 |   |
| Investment in  available-for-sale securities                                                                |       | 34,566                                |       | 38,830                      |       |
| Accounts  receivable, net of allowance for doubtful accounts of $369 and $275                               |       | 6,623                                 |       | 5,320                       |       |
| Income tax  refund receivable                                                                               |       | 2,852                                 |       | 3,843                       |       |
| Deferred tax  assets, net                                                                                   |       | 1,858                                 |       | 1,015                       |       |
| Prepaid  programming costs                                                                                  |       | 2,893                                 |       | 2,381                       |       |
| Other current  assets                                                                                       |       | 1,813                                 |       | 689                         |       |
| Total current  assets                                                                                       |       | 72,645                                |       | 70,354                      |       |
|                                                                                                        |       |                                  |       |                        |       |
| Property, plant and  equipment at cost, net:                                                                |       |                                  |       |                        |       |
| Membership  division                                                                                        |       | 3,409                                 |       | 3,526                       |       |
| Outdoor Channel  equipment and improvements                                                                 |       | 13,267                                |       | 12,097                      |       |
| Property, plant  and equipment, net                                                                         |       | 16,676                                |       | 15,623                      |       |
| Amortizable intangible  assets, net                                                                         |       | 10,764                                |       | 11,292                      |       |
| Goodwill                                                                                                    |       | 44,457                                |       | 44,457                      |       |
| Deferred tax assets,  net                                                                                   |       | 9,891                                 |       | 9,491                       |       |
| Derivative instruments                                                                                      |       | 59                                    |       | —                      |       |
| Deposits and other  assets                                                                                  |       | 1,205                                 |       | 605                         |       |
| Totals                                                                                                      |       | $                                     | 155,697    |                        | $          | 151,822 |   |
|                                                                                                        |       |                                  |       |                        |       |
| **Liabilities  and Stockholders’ Equity**                                                              | ** ** | ** **                            | ** ** | ** **                  | ** ** |
| Current liabilities:                                                                                        |       |                                  |       |                        |       |
| Accounts payable  and accrued expenses                                                                      |       | $                                     | 2,852      |                        | $          | 2,864 |   |
| Accrued  severance payments                                                                                 |       | 18                                    |       | 18                          |       |
| Current portion  of long-term debt                                                                          |       | 699                                   |       | 708                         |       |
| Current portion  of deferred revenue                                                                        |       | 803                                   |       | 422                         |       |
| Customer  deposits                                                                                          |       | 1,039                                 |       | 159                         |       |
| Total current  liabilities                                                                                  |       | 5,411                                 |       | 4,171                       |       |
|                                                                                                        |       |                                  |       |                        |       |
| Accrued severance  payments, net of current portion                                                         |       | 8                                     |       | 16                          |       |
| Long-term debt, net of  current portion                                                                     |       | 3,844                                 |       | 4,193                       |       |
| Deferred revenue, net  of current portion                                                                   |       | 1,310                                 |       | 1,271                       |       |
| Derivative instruments                                                                                      |       | —                                |       | 72                          |       |
| Deferred satellite rent  obligations                                                                        |       | 319                                   |       | 295                         |       |
| Total  liabilities                                                                                          |       | 10,892                                |       | 10,018                      |       |
|                                                                                                        |       |                                  |       |                        |       |
| Commitments and  contingencies                                                                              |       |                                  |       |                        |       |
| Stockholders’ equity:                                                                                  |       |                                  |       |                        |       |
| Preferred stock;  25,000 shares authorized; none issued                                                     |       | —                                |       | —                      |       |
| Common stock,  $0.001 par value; 75,000 shares authorized: 24,971 and 24,409 shares issued  and outstanding |       | 25                                    |       | 24                          |       |
| Additional  paid-in capital                                                                                 |       | 159,927                               |       | 158,700                     |       |
| Deferred  compensation                                                                                      |       | —                                |       | (1,520                      | )          |
| Accumulated  other comprehensive income (loss):                                                             |       |                                  |       |                        |       |
| Net unrealized  gains (losses) on derivative instruments                                                    |       | 59                                    |       | (72                         | )          |
| Net unrealized  gains on available-for-sale securities                                                      |       | 13                                    |       | 36                          |       |
| Total  accumulated other comprehensive income (loss)                                                        |       | 72                                    |       | (36                         | )          |
| Accumulated  deficit                                                                                        |       | (15,219                               | )          | (15,364                     | )          |
| Total  stockholders’ equity                                                                            |       | 144,805                               |       | 141,804                     |       |
| Totals                                                                                                      |       | $                                     | 155,697    |                        | $          | 151,822 |   |

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

4

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**OUTDOOR CHANNEL HOLDINGS, INC. ANDSUBSIDIARIESUnaudited Condensed Consolidated Statements of Operations**(In thousands, except per share data)
| ** **                                             | ** ** | **Three Months Ended**      | ** ** | **Six Months Ended**        | ** ** |
|--------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                                             | ** ** | **June 30,**                     | ** ** | **June 30,**                     | ** ** |
| ** **                                             | ** ** | **2006**                              | ** ** | **2005**                              | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                             | ** ** | **(As Restated,  Note 11)** | ** ** | **(As Restated,  Note 11)** | ** ** | **(As Restated,  Note 11)** | ** ** | **(As Restated,  Note 11)** | ** ** |
| Revenues:                                              |       |                                  |       |                                  |       |   |   |   |   |
| Advertising                                            |       | $                                     | 5,668      |                                  | $          | 5,257 |   | $ | 11,353 |   | $ | 10,516 |   |
| Subscriber fees                                        |       | 4,341                                 |       | 3,894                                 |       | 8,724 |   | 7,536 |   |
| Membership income                                      |       | 918                                   |       | 863                                   |       | 2,139 |   | 2,023 |   |
|                                                   |       |                                  |       |                                  |       |   |   |   |   |
| Total revenues                                         |       | 10,927                                |       | 10,014                                |       | 22,216 |   | 20,075 |   |
|                                                   |       |                                  |       |                                  |       |   |   |   |   |
| Cost of  services:                                     |       |                                  |       |                                  |       |   |   |   |   |
| Programming                                            |       | 2,206                                 |       | 531                                   |       | 3,750 |   | 1,052 |   |
| Satellite transmission fees                            |       | 614                                   |       | 616                                   |       | 1,252 |   | 1,249 |   |
| Production and operations                              |       | 890                                   |       | 733                                   |       | 2,033 |   | 1,726 |   |
| Other direct costs                                     |       | 150                                   |       | 243                                   |       | 358 |   | 462 |   |
|                                                   |       |                                  |       |                                  |       |   |   |   |   |
| Total cost of services                                 |       | 3,860                                 |       | 2,123                                 |       | 7,393 |   | 4,489 |   |
|                                                   |       |                                  |       |                                  |       |   |   |   |   |
| Other expenses:                                        |       |                                  |       |                                  |       |   |   |   |   |
| Advertising                                            |       | 1,587                                 |       | 2,062                                 |       | 3,749 |   | 3,756 |   |
| Selling, general and administrative                    |       | 5,476                                 |       | 4,491                                 |       | 11,082 |   | 9,190 |   |
| Depreciation and amortization                          |       | 890                                   |       | 623                                   |       | 1,563 |   | 1,321 |   |
|                                                   |       |                                  |       |                                  |       |   |   |   |   |
| Total other expenses                                   |       | 7,953                                 |       | 7,176                                 |       | 16,394 |   | 14,267 |   |
|                                                   |       |                                  |       |                                  |       |   |   |   |   |
| Income (loss)  from operations                         |       | (886                                  | )          | 715                                   |       | (1,571 | ) | 1,319 |   |
|                                                   |       |                                  |       |                                  |       |   |   |   |   |
| Interest expense                                       |       | (77                                   | )          | (1                                    | )          | (155 | ) | (2 | ) |
|                                                   |       |                                  |       |                                  |       |   |   |   |   |
| Other income,  net                                     |       | 645                                   |       | 38                                    |       | 1,268 |   | 90 |   |
|                                                   |       |                                  |       |                                  |       |   |   |   |   |
| Income (loss)  before income taxes                     |       | (318                                  | )          | 752                                   |       | (458 | ) | 1,407 |   |
|                                                   |       |                                  |       |                                  |       |   |   |   |   |
| Income tax  provision (benefit)                        |       | (620                                  | )          | 315                                   |       | (603 | ) | 593 |   |
|                                                   |       |                                  |       |                                  |       |   |   |   |   |
| Net income                                             |       | $                                     | 302        |                                  | $          | 437 |   | $ | 145 |   | $ | 814 |   |
|                                                   |       |                                  |       |                                  |       |   |   |   |   |
| Earnings per  common share:                            |       |                                  |       |                                  |       |   |   |   |   |
| Basic                                                  |       | $                                     | 0.01       |                                  | $          | 0.02 |   | $ | 0.01 |   | $ | 0.04 |   |
| Diluted                                                |       | $                                     | 0.01       |                                  | $          | 0.02 |   | $ | 0.01 |   | $ | 0.04 |   |
|                                                   |       |                                  |       |                                  |       |   |   |   |   |
| Weighted average  number of common shares outstanding: |       |                                  |       |                                  |       |   |   |   |   |
| Basic                                                  |       | 24,763                                |       | 18,558                                |       | 24,613 |   | 18,516 |   |
| Diluted                                                |       | 25,972                                |       | 22,513                                |       | 26,019 |   | 22,453 |   |

 

See Notes to UnauditedCondensed Consolidated Financial Statements.

5

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**OUTDOOR CHANNEL HOLDINGS, INC. ANDSUBSIDIARIESUnaudited Condensed Consolidated Statement of Stockholders’ EquityFor the Six Months Ended June 30, 2006**(In thousands)
| ** **                                                                                       | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated** | ** ** | ** **  | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------------|------------|-----------------|------------|-------------|------------|------------|------------|
| ** **                                                                                       | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other**       | ** ** | ** **  | ** ** | ** ** | ** ** |
| ** **                                                                                       | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Deferred**   | ** ** | **Comprehensive** | ** ** | **Accumulated** | ** ** | ** **  | ** ** |
| ** **                                                                                       | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Compensation**  | ** ** | **Income**      | ** ** | **Deficit** | ** ** | **Total**  | ** ** |
| Balance, January  1, 2006 (as originally reported)                                               |       | 24,409                |       | $           | 24         |           | $          | 158,700           |       | $               | (1,520     | )           | $          | (36        | )          | $ | (14,964 | ) | $ | 142,204 |   |
|                                                                                             |       |                  |       |        |       |           |       |              |       |            |       |        |       |       |       |
| Cumulative  impact of restatement                                                                |       |                  |       |        |       |           |       |              |       |            |       | (400        | )          | (400       | )          |
|                                                                                             |       |                  |       |        |       |           |       |              |       |            |       |        |       |       |       |
| Balance, January  1, 2006 (as restated, Note 11)                                                 |       | 24,409                |       | 24          |       | 158,700        |       | (1,520            | )          | (36             | )          | (15,364     | )          | 141,804    |       |
|                                                                                             |       |                  |       |        |       |           |       |              |       |            |       |        |       |       |       |
| Comprehensive  income:                                                                           |       |                  |       |        |       |           |       |              |       |            |       |        |       |       |       |
| Net income (as restated, Note 11)                                                                |       |                  |       |        |       |           |       |              |       |            |       | 145         |       | 145        |       |
| Effect of change in fair value of available-for-sale  securities, net of deferred taxes of $9    |       |                  |       |        |       |           |       |              |       | (23             | )          |        |       | (23        | )          |
| Impact of cash flow hedge                                                                        |       |                  |       |        |       |           |       |              |       | 131             |       |        |       | 131        |       |
| Total comprehensive income (as restated, Note 11)                                                |       |                  |       |        |       |           |       |              |       |            |       |        |       | 253        |       |
|                                                                                             |       |                  |       |        |       |           |       |              |       |            |       |        |       |       |       |
| Reclassification  of deferred compensation upon adoption of SFAS 123R                            |       |                  |       |        |       | (1,520         | )          | 1,520             |       |            |       |        |       | —     |       |
|                                                                                             |       |                  |       |        |       |           |       |              |       |            |       |        |       |       |       |
| Common stock  issued upon exercise of stock options                                              |       | 492                   |       | 1           |       | 600            |       |              |       |            |       |        |       | 601        |       |
|                                                                                             |       |                  |       |        |       |           |       |              |       |            |       |        |       |       |       |
| Issuance of  restricted stock to employees for services to be rendered, net of forfeited  shares |       | 73                    |       |        |       |           |       |              |       |            |       |        |       | —     |       |
|                                                                                             |       |                  |       |        |       |           |       |              |       |            |       |        |       |       |       |
| Stock-based  employee compensation expense                                                       |       |                  |       |        |       | 1,714          |       |              |       |            |       |        |       | 1,714      |       |
|                                                                                             |       |                  |       |        |       |           |       |              |       |            |       |        |       |       |       |
| Purchase and  retirement of treasury stock                                                       |       | (3                    | )          |        |       | (33            | )          |              |       |            |       |        |       | (33        | )          |
|                                                                                             |       |                  |       |        |       |           |       |              |       |            |       |        |       |       |       |
| Estimated tax  benefit from exercise of stock options                                            |       |                  |       |        |       | 705            |       |              |       |            |       |        |       | 705        |       |
|                                                                                             |       |                  |       |        |       |           |       |              |       |            |       |        |       |       |       |
| Change in  estimated tax benefit from exercise of stock options                                  |       |                  |       |        |       | (239           | )          |              |       |            |       |        |       | (239       | )          |
|                                                                                             |       |                  |       |        |       |           |       |              |       |            |       |        |       |       |       |
| Balance, June 30, 2006 (as  restated, Note 11)                                                   |       | 24,971                |       | $           | 25         |           | $          | 159,927           |       | $               | —     |        | $          | 72         |       | $ | (15,219 | ) | 144,805 |   |
|                                                                                                  |            |                       |            |             |            |                |            |                   |            |                 |            |             |            |            |            |  |  |  |  |  |  |

 

See Notes toUnaudited Condensed Consolidated Financial Statements.

6

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**OUTDOOR CHANNEL HOLDINGS, INC. ANDSUBSIDIARIESUnaudited Condensed Consolidated Statements of Cash Flows**(In thousands)
| ** **                                                                                    | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| ** **                                                                                    | ** ** | **(As Restated,  Note 11)**         | ** ** | **(As Restated,  Note 11)** | ** ** |
| Operating  activities:                                                                        |       |                                          |       |   |   |
| Net income                                                                                    |       | $                                             | 145        |   | $ | 814 |   |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities:  |       |                                          |       |   |   |
| Depreciation and amortization                                                                 |       | 1,572                                         |       | 1,321 |   |
| Provision for doubtful accounts                                                               |       | 86                                            |       | 140 |   |
| Stock-based employee compensation                                                             |       | 1,714                                         |       | 135 |   |
| Deferred tax provision (benefit), net                                                         |       | (806                                          | )          | (104 | ) |
| Tax benefits from exercise of stock options in  excess of recognized expense                  |       | (705                                          | )          | — |   |
|                                                                                          |       |                                          |       |   |   |
| Changes in operating assets and liabilities:                                                  |       |                                          |       |   |   |
| Accounts receivable                                                                           |       | (1,389                                        | )          | (367 | ) |
| Income tax refund receivable                                                                  |       | 991                                           |       | 767 |   |
| Prepaid programming costs                                                                     |       | (512                                          | )          | (2,000 | ) |
| Other current assets                                                                          |       | (1,124                                        | )          | (1,424 | ) |
| Deposits and other assets                                                                     |       | (608                                          | )          | (93 | ) |
| Accounts payable and accrued expenses                                                         |       | (12                                           | )          | (416 | ) |
| Deferred revenue                                                                              |       | 420                                           |       | 100 |   |
| Customer deposits                                                                             |       | 880                                           |       | 942 |   |
| Accrued severance payments                                                                    |       | (8                                            | )          | (22 | ) |
| Deferred satellite rent obligations                                                           |       | 24                                            |       | (11 | ) |
| Net cash provided by (used in) operating activities                                           |       | 668                                           |       | (218 | ) |
|                                                                                          |       |                                          |       |   |   |
| Investing  activities:                                                                        |       |                                          |       |   |   |
| Purchases of property, plant and equipment                                                    |       | (2,089                                        | )          | (3,373 | ) |
| Purchases of available-for-sale securities                                                    |       | (82,303                                       | )          | — |   |
| Proceeds from sale of available-for-sale securities                                           |       | 86,573                                        |       | — |   |
| Net cash provided by (used in) investing activities                                           |       | 2,181                                         |       | (3,373 | ) |
|                                                                                          |       |                                          |       |   |   |
| Financing  activities:                                                                        |       |                                          |       |   |   |
| Principal payments on long-term debt and capital  leases                                      |       | (358                                          | )          | (13 | ) |
| Proceeds from exercise of stock options                                                       |       | 601                                           |       | 408 |   |
| Purchase and retirement of treasury stock                                                     |       | (33                                           | )          | — |   |
| Prepaid offering costs                                                                        |       | —                                        |       | (902 | ) |
| Tax benefits from exercise of stock options in  excess of recognized expense                  |       | 705                                           |       | — |   |
| Net cash provided by (used in) financing activities                                           |       | 915                                           |       | (507 | ) |
| Net increase  (decrease) in cash and cash equivalents                                         |       | 3,764                                         |       | (4,098 | ) |
| Cash and cash  equivalents, beginning of period                                               |       | 18,276                                        |       | 13,105 |   |
| Cash and cash  equivalents, end of period                                                     |       | $                                             | 22,040     |   | $ | 9,007 |   |
|                                                                                          |       |                                          |       |   |   |
| Supplemental  disclosure of cash flow information:                                            |       |                                          |       |   |   |
|                                                                                          |       |                                          |       |   |   |
| Interest paid                                                                                 |       | $                                             | 155        |   | $ | — |   |
| Income taxes paid                                                                             |       | $                                             | —     |   | $ | 5 |   |
|                                                                                          |       |                                          |       |   |   |
| Supplemental  disclosures of non-cash investing and financing activities:                     |       |                                          |       |   |   |
|                                                                                          |       |                                          |       |   |   |
| Effect of net decrease in fair value of  available-for-sale securities, net of deferred taxes |       | $                                             | (23        | ) | $ | (7 | ) |
| Effect of net  increase in fair value of cash flow hedge                                      |       | $                                             | 131        |   | $ | — |   |

 

See Notes toUnaudited Condensed Consolidated Financial Statements.

7

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**OUTDOORCHANNEL HOLDINGS, INC. AND SUBSIDIARIES**

**Notes to Unaudited CondensedConsolidated Financial Statements**(In thousands, except per share data)

**NOTE1—ORGANIZATION AND BUSINESS**

**Descriptionof Operations**

Outdoor ChannelHoldings, Inc. or “Outdoor Channel Holdings,” is incorporated under the laws ofthe State of Delaware. Collectively, with its subsidiaries, the terms “we,” “us,”“our” and the “Company” refer to Outdoor Channel Holdings, Inc. as a combinedentity, except where noted or where the context makes clear the reference isonly to Outdoor Channel Holdings, Inc. or one of our subsidiaries. Our whollyowned subsidiary, The Outdoor Channel, Inc. (“TOC”), operates The OutdoorChannel, which is a national television network devoted to traditional outdooractivities, such as hunting, fishing and shooting sports, as well as off-roadmotor sports and other related lifestyle programming. In addition, TOC alsooperates Outdoor Channel 2 HD, which also is a national television network withsimilar, but distinct, programming as The Outdoor Channel’s but is produced andaired utilizing high definition technology.

Our revenuesinclude advertising fees from advertisements aired on The Outdoor Channel,including fees paid by outside producers to purchase advertising time inconnection with the airing of their programs on The Outdoor Channel, and fromadvertisements in “Gold Prospectors & Treasure Hunters in the GreatOutdoors” magazine; subscriber fees paid by cable and satellite serviceproviders that air The Outdoor Channel; membership fees from members in bothLDMA-AU, Inc. (“Lost Dutchman’s”) and Gold Prospector’s Association of America,LLC (“GPAA”); and other income including income from sales of products andservices related to gold prospecting, gold expositions, expeditions andoutings.

Other businessactivities consist of the promotion and sale of a gold prospecting expeditionto our Cripple River property located near Nome, Alaska, and the sale ofmemberships in Lost Dutchman’s that entitle members to engage in goldprospecting on our Arizona, California, Colorado, Georgia, Michigan, NorthCarolina, Oregon, and South Carolina properties. We have signed an agreementwith another organization for the mutual use of these and other properties.  Outdoor Channel Holdings is also the solemember of 43455 BPD, LLC, the entity that owns the building which houses ourbroadcast facility.

**Restatementof 2006 and 2005 Financial Statements**

The accompanying unaudited condensedconsolidated financial statements as of June 30, 2006 and December 31, 2005 andfor the three  and six months ended June30, 2006 and 2005 and the related notes have been restated as further explainedin Note 11.

**Reclassifications**

Certain amounts in the 2006 and 2005unaudited condensed consolidated financial statements have been reclassifiedeither to conform to the 2006 presentations or to provide additional detailabout our operating results and more fully comply with the Securities andExchange Commission’s Regulation S-X. In particular certain amounts includedunder “expenses” in the 2006 and 2005 unaudited condensed consolidatedstatements of operations we originally issued have been reclassified in lineitems under either “cost of services” or “other expenses”.  Cost of services includes programming,satellite transmission fees, production and operations and other direct costs.Other expenses include advertising, selling, general and administrative anddepreciation and amortization.  Further,to better match intangible assets with the segment to which they pertain, wehave reclassified the amortizable intangible assets and the goodwill which werecorded in connection with the acquisition on September 8, 2004 along with therelated amortization expense from “Corporate” to the “TOC” segment. Also, inaccordance with SFAS 123R, we have presented on a prospective basis the taxbenefits from exercise of stock options in excess of recognized expense of $705as a cash flow from financing activities in the accompanying unauditedcondensed consolidated statement of cash flows for the six months ended June 30,2006, rather than as a cash flow from operating activities.  Certain other changes have been made in thehistorical unaudited condensed consolidated financial statements to conformwith current presentations.

**NOTE2—UNAUDITED INTERIM FINANCIAL STATEMENTS**

In the opinion ofmanagement, the accompanying unaudited condensed consolidated financialstatements reflect all adjustments, consisting of normal recurring adjustments,necessary to present fairly the financial position of the Company as of June30, 2006 and its results of operations and cash flows for the three and/or sixmonths ended June 30, 2006 and 2005. Information included in the consolidatedbalance sheet as of December 31, 2005 has been derived from, and certain termsused herein are defined in, the audited financial statements of the Company asof December 31, 2005 (the “Audited Financial Statements”) included in theCompany’s Annual Report on Form 10-K (the “10-K”) for the year ended December31, 2005 that was previously filed with the Securities and Exchange Commission(the “SEC”). Pursuant to the rules and regulations of

8

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the SEC, certaininformation and disclosures normally included in financial statements preparedin accordance with accounting principles generally accepted in the UnitedStates of America have been condensed or omitted from these financialstatements unless significant changes have taken place since the end of themost recent fiscal year. Accordingly, these unaudited condensed consolidatedfinancial statements should be read in conjunction with the Audited FinancialStatements and the other information also included in the 10-K.

The results of theCompany’s operations for the three and six months ended June 30, 2006 are notnecessarily indicative of the results of operations for the full year endingDecember 31, 2006.

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect reported amounts of assets and liabilities as ofthe dates of the condensed consolidated balance sheets and reported amounts ofrevenues and expenses for the periods presented. Accordingly, actual resultscould materially differ from those estimates.

**NOTE3— STOCK INCENTIVE PLANS**

Effective January1, 2006, we adopted Statement of Financial Accounting Standards No. 123(revised 2004), “Share-Based Payment” (“SFAS 123R”). We have elected to use themodified prospective transition method. This method requires compensation costto be recognized in the financial statements over the service period for thefair value of all awards (including awards to employees) granted after the dateof adoption as well as for existing awards for which the requisite service hadnot been rendered as of the date of adoption and requires that prior periodsnot be restated. Our stock incentive plans provide for the granting ofqualified and nonqualified options, restricted stock and stock appreciationrights (“SARs”) to our officers, directors and employees. Outstanding optionsgenerally vest and are exercisable from 90 days to four years after the date ofthe grant and expire no more than ten years after the grant. We satisfy theexercise of options and awards of restricted stock by issuing previouslyunissued common shares. Currently we have not awarded any SARs. Prior to theadoption of SFAS 123R, we used the intrinsic value method to account for stockoptions granted to employees and generally, made no charges against earningswith respect to those options at the date of grant since our employee optionshad exercise prices that were equal to the market price. SFAS 123R requiresthat we elect an approved method to calculate the historical pool of windfalltax benefits upon adoption of SFAS 123R within one year of its adoption. As ofJune 30, 2006, we have not made that election.

For the three andsix months ended June 30, 2006, the adoption of SFAS 123R reduced income fromoperations by $756 and $1,470, respectively, reduced net income by $532 and$1,022, respectively, reduced basic earnings per share by $0.02 and $0.04,respectively, and reduced diluted earnings per share by $0.02 and $0.04,respectively. Also, in accordance with SFAS 123R, we have presented on aprospective basis the tax benefits from exercise of stock options in excess ofrecognized expense of $705 as a cash flow from financing activities in theaccompanying condensed consolidated statement of cash flows for the six monthsended June 30, 2006, rather than as a cash flow from operating activities, aswas prescribed under accounting rules applicable through December 31, 2005.This requirement reduced the amount reflected as net cash provided by operatingactivities and increased net cash provided by financing activities for thatperiod.  Total cash flows remainedunchanged from that which have been reported under prior accounting rules. Werecognize such benefits only if they have been realized which we determine byfollowing the tax law method, which provides that current deductions arerecognized before realizing the benefits of our net operating loss carryforwards.  Tax benefits from the exerciseof stock options in excess of recognized expense of $740 has been presented asa cash flow from operating activities for the six months ended June 30, 2005.

The weightedaverage grant date fair value of employee stock options granted by us in thesix months ended June 30, 2006 was estimated to be $6.72 per share using theBlack-Scholes option pricing model with the following assumptions:

|                          | ** ** | **Six Months Ended  June 30, 2006** | ** ** |
|--------------------------|------------|---------------------------------------------------------|------------|
| Risk-free  interest rate |       | 4.3  - 4.9%                                             |       |
| Dividend yield           |       | 0%                                                      |       |
| Expected life            |       | 4.4  yrs.                                               |       |
| Volatility factor        |       | 58.5 – 62.4%                                       |       |

 

Expectedvolatilities are based on historical volatility of our stock. We have adoptedthe guidance of Staff Accounting Bulletin No. 107 that notes if share optionshave plain vanilla characteristics, a simplified method of estimating theexpected life of the option may be employed. The simplified method utilizes theaverage of the vested term and the original contract term. We have recentlyexperienced certain events that indicate that our long-term historicalexperience is no longer valid. As such we adopted the simplified method. Ourshort-term historical experience with exercise and post-vesting employmenttermination behavior supports this method for determining the options’ expectedlife. When sufficient historical experience has been realized we will use suchexperience for future estimations of the expected life. The expected liferepresents the period of time that options granted are expected to beoutstanding. The risk-free rate is based on the U.S. Treasury rate with amaturity date corresponding to the options’ expected life.

9

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Our historical netincome and earnings per common share and pro forma net income (loss) andearnings (loss) per common share assuming compensation cost had been determinedfor the three and six months ended June 30, 2005 based on the fair valueinstead of the intrinsic value at the grant date for all awards by us to our employees,using the Black-Scholes option pricing model consistent with the provisions ofSFAS 123R, and amortized ratably over the vesting period, are set forth below:
|                                                                                                                                         | ** ** | **For the Period Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                                              | ** ** | **June 30, 2005**             | ** ** |
| ** **                                                                                                                              | ** ** | **Three Months**                   | ** ** | **Six Months** | ** ** |
| ** **                                                                                                                              | ** ** | **(As Restated,  Note 11)**   | ** ** | **(As Restated,  Note 11)** | ** ** |
| Net income  (loss):                                                                                                                     |       |                                    |       |   |   |
| As reported                                                                                                                             |       | $                                       | 437        |   | $ | 814 |   |
| Deduct: Stock-based employee compensation expense  assuming a fair value based method had been used for all awards, net of tax  effects |       | (432                                    | )          | (829 | ) |
|                                                                                                                                    |       |                                    |       |   |   |
| Pro forma –  basic and diluted                                                                                                     |       | $                                       | 5          |   | $ | (15 | ) |
|                                                                                                                                    |       |                                    |       |   |   |
| Basic earnings  (loss) per common share:                                                                                                |       |                                    |       |   |   |
| As reported                                                                                                                             |       | $                                       | 0.02       |   | $ | 0.04 |   |
| Pro forma                                                                                                                               |       | $                                       | 0.00       |   | $ | 0.00 |   |
| Diluted earnings  (loss) per common share:                                                                                              |       |                                    |       |   |   |
| As reported                                                                                                                             |       | $                                       | 0.02       |   | $ | 0.04 |   |
| Pro forma                                                                                                                               |       | $                                       | 0.00       |   | $ | 0.00 |   |

 

The fair value ofeach option granted by us in the six months ended June 30, 2005 was estimatedon the date of grant using the Black-Scholes option pricing model with thefollowing assumptions:
|                          | ** ** | **Six Months Ended  June 30, 2005** | ** ** |
|--------------------------|------------|---------------------------------------------------------|------------|
| Risk-free  interest rate |       | 3.7  – 4.2%                                        |       |
| Dividend yield           |       | 0%                                                      |       |
| Expected life            |       | 3.8  – 5.1 yrs.                                    |       |
| Volatility factor        |       | 37.7%                                                   |       |

 

In accordance withthe provisions of SFAS 123R, all other issuances of common stock, stockoptions, warrants or other equity instruments to employees and non-employees asthe consideration for goods or services received by us are accounted for basedon the fair value of the equity instruments issued (unless the fair value ofthe consideration received can be more reliably measured). Generally, the fairvalue of any options, warrants or similar equity instruments issued isestimated based on the Black-Scholes option-pricing model.

**NOTE4—EARNINGS PER COMMON SHARE**

We have presented “basic”and “diluted” earnings per common share in the accompanying condensedconsolidated statements of operations in accordance with the provisions ofStatement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS128”). Basic earnings per common share is calculated by dividing net income bythe weighted average number of common shares outstanding during each period.The calculation of diluted earnings per common share is similar to that ofbasic earnings per common share, except that the denominator is increased toinclude the number of additional common shares that would have been outstandingif all potentially dilutive common shares of the Company were issued during theperiod if any such issuances would have had a dilutive effect.

For the three andsix months ended June 30, 2006 and 2005, the computation of diluted earningsper common share took into account the effects on the weighted average numberof common shares outstanding of the assumed exercise of the outstanding stockoptions, adjusted for the application of the treasury stock method. Thegreatest number of shares potentially issuable by us upon the exercise of stockoptions in either quarter of the six months ended June 30, 2006 and 2005 thatwere not included in the computation of net earnings per common share because theywere anti-dilutive, totaled 3,437 and 110, respectively.

10

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The followingtable summarizes the calculation of net income and the weighted average commonshares outstanding for basic and diluted earnings per common share for thethree and six months ended June 30, 2006 and 2005:
| ** **                                                                                                                                          | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                                                          | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                                                                                                          | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Numerators (as  restated, Note 11):                                                                                                                 |       |                             |       |                           |       |   |   |   |   |
| Net income–basic                                                                                                                               |       | $                                | 302        |                           | $          | 437 |   | $ | 145 |   | $ | 814 |   |
|                                                                                                                                                |       |                             |       |                           |       |   |   |   |   |
| Denominators:                                                                                                                                       |       |                             |       |                           |       |   |   |   |   |
| Weighted average common shares outstanding—basic                                                                                               |       | 24,763                           |       | 18,558                         |       | 24,613 |   | 18,516 |   |
| Dilutive effect of potentially issuable common  shares upon exercise of stock options as adjusted for the application of the  treasury stock method |       | 1,209                            |       | 3,955                          |       | 1,406 |   | 3,937 |   |
| Diluted weighted  average common shares outstanding                                                                                                 |       | 25,972                           |       | 22,513                         |       | 26,019 |   | 22,453 |   |
|                                                                                                                                                     |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |

 

**NOTE5—EQUITY TRANSACTIONS**

**Issuancesof Common Stock**

During the sixmonths ended June 30, 2006 and 2005, we received cash proceeds of $601 and $408from the exercise of options for the purchase of 492 and 194 shares of commonstock, respectively.

During the sixmonths ended June 30, 2006, we issued employees 86 shares of restricted stock.The rights to these shares vest over three and five year periods. Based on theweighted average closing market price on the day before the grants of $12.47per share and after adjustment for the estimated forfeiture rate, the fairvalue of the restricted stock was $812. Under SFAS 123R this amount (whichrepresents deferred compensation not required to be recorded initially in theconsolidated balance sheet) will be amortized to stock-based employeecompensation expense as the rights to the restricted stock vest with anequivalent amount added to additional paid-in capital. During the six months endedJune 30, 2006, a total of 13 shares of restricted stock have been cancelled dueto employee turnover. As of June 30, 2006, we have 188 non-vested shares ofrestricted stock outstanding and $1,990 of expense yet to be recognized whichwill be amortized as compensation expense over the employees’ remainingrequisite service periods.

**StockOption Plans**

Descriptions ofOutdoor Channel Holdings’ stock option plans are included in Note 3 herein andNote 11 of our Annual Report on Form 10-K for the year ended December 31, 2005.A summary of the status of the options granted under Outdoor Channel Holdings’stock option plans and outside of those plans as of June 30, 2006 and thechanges in options outstanding during the six months then ended is presented inthe table that follows:
|                                       | ** ** | **Shares** | ** ** | **Weighted-  average  Exercise Price** | ** ** | **Weighted Average  Remaining  Contractual Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------|------------|------------|------------|---------------------------------------------|------------|-------------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at  beginning of period   |       | 3,564      |       | $                                           | 7.31       |                                                        |       |                            |       |   |
| Options granted                       |       | 205        |       | 12.84                                       |       |                                                        |       |                            |       |
| Options  exercised                    |       | (492       | )          | 1.22                                        |       |                                                        |       |                            |       |
| Options  cancelled or expired         |       | (14        | )          | 11.85                                       |       |                                                        |       |                            |       |
| Options  outstanding at end of period |       | 3,263      |       | $                                           | 8.56       |                                                        | 3.8 years  |                            | $          | 16,733 |   |
|                                  |       |       |       |                                        |       |                                                        |       |                            |       |
| Options exercisable at  end of period |       | 2,185      |       | $                                           | 6.20       |                                                        | 3.0 years  |                            | $          | 14,617 |   |

 

The weighted-averagegrant-date fair value of options granted during the three and six months endedJune 30, 2006 was $6.35 and $6.72, respectively. The total intrinsic valueof stock options exercised during the three and six months ended June 30, 2006was $3,392 and $5,147, respectively.

11

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A summary of thestatus of Outdoor Channel Holdings’ non-vested restricted shares as of June 30,2006 and the changes in restricted shares outstanding during the six monthsthen ended is presented in the table that follows:
|                                                 | ** ** | **Shares** | ** ** | **Weighted-Average  Grant Date  Fair Value** | ** ** |
|-------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|
| Non-vested  shares at beginning of period       |       | 127        |       | $                                                      | 14.43      |   |
| Granted                                         |       | 86         |       | 12.47                                                  |       |
| Vested                                          |       | (12        | )          | 14.91                                                  |       |
| Cancelled                                       |       | (13        | )          | 14.67                                                  |       |
|                                            |       |       |       |                                                   |       |
| Non-vested shares  outstanding at end of period |       | 188        |       | $                                                      | 13.50      |   |

 

As of June 30,2006, $8,485 of expense with respect to non-vested share-based arrangements hasyet to be recognized which is expected to be recognized over a weighted averageperiod of 1.9 years.

**NOTE6—RELATED PARTY TRANSACTIONS**

We lease ouradministrative facilities from Musk Ox Properties, LP, which in turn is ownedby Messrs. Perry T. Massie and Thomas H. Massie, principal stockholders,directors and officers of the Company. In December 2005, the lease agreementswere consolidated into one lease. The new lease agreement has a five-year term,expiring on December 31, 2010, with 2 five-year renewal options at ourdiscretion. Monthly rent payments are $29 with a 3% per year escalator clause.Rent expense paid to Musk Ox Properties, LP totaled approximately $87 and $63in the three months ended June 30, 2006 and 2005, respectively, andapproximately $174 and $126 in the six months ended June 30, 2006 and 2005,respectively.

**NOTE7—SEGMENT INFORMATION**

Pursuant to theProvisions of Statement of Financial Accounting Standards No. 131, “DisclosuresAbout Segments of an Enterprise and Related Information” (“SFAS 131”), wereport segment information in the same format as reviewed by our ChiefOperating Decision Maker (the “CODM”). We segregate our business activitiesinto TOC and the Membership Division. TOC is a separate business activity thatbroadcasts television programming on The Outdoor Channel and Outdoor Channel 2HD24 hours a day, seven days a week. TOC generates revenue from advertisingfees (which include fees paid by outside producers to purchase advertising timein connection with the airing of their programs on The Outdoor Channel) andsubscriber fees. Lost Dutchman’s and GPAA membership sales and relatedactivities are reported in the Membership Division. The Membership Divisionalso includes magazine sales, advertisements within the magazine, the sale ofproducts and services related to gold prospecting, gold expositions,expeditions and outings. Intersegment sales amounted to $149 in each of the threemonths ended June 30, 2006 and 2005 and $298 in each of the six months endedJune 30, 2006 and 2005.

Information withrespect to these reportable segments as of and for the three and six monthsended June 30, 2006 and 2005 is as follows:
| ** **                                  | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to  Property,  Plant and  Improvements** | ** ** |
|---------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------|------------|
| **As of  and for the Three Months Ended:**  | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| **June 30, 2006****(as restated, Note 11)** | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                         |       | $            | 9,815      |                                              | $          | 289               |       | $                                   | 82,235     |                                                           | $          | 824 |   | $ | 888 |   |
| Membership Division                         |       | 1,112        |       | (190                                              | )          | 5,714             |       | 72                                  |       | 12                                                             |       |
| Subtotals of Segments                       |       | 10,927       |       | 99                                                |       | 87,949            |       | 896                                 |       | 900                                                            |       |
| Corporate*                                  |       | —       |       | (417                                              | )          | 67,748            |       | —                              |       | —                                                         |       |
| Totals                                      |       | $            | 10,927     |                                              | $          | (318              | )          | $                                   | 155,697    |                                                           | $          | 896 |   | $ | 900 |   |
|                                        |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| **June 30, 2005 (as restated, Note 11)**    | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                         |       | $            | 8,994      |                                              | $          | 1,449             |       | $                                   | 79,477     |                                                           | $          | 545 |   | $ | 1,673 |   |
| Membership Division                         |       | 1,020        |       | (173                                              | )          | 5,929             |       | 78                                  |       | 32                                                             |       |
| Subtotals of Segments                       |       | 10,014       |       | 1,276                                             |       | 85,406            |       | 623                                 |       | 1,705                                                          |       |
| Corporate*                                  |       | —       |       | (524                                              | )          | 16,486            |       | —                              |       | —                                                         |       |
| Totals                                      |       | $            | 10,014     |                                              | $          | 752               |       | $                                   | 101,892    |                                                           | $          | 623 |   | $ | 1,705 |   |
| ** **                                  | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| **As of  and for the Six Months Ended:**    | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| **June 30, 2006****(as restated, Note 11)** | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                         |       | $            | 19,725     |                                              | $          | 842               |       | $                                   | 82,235     |                                                           | $          | 1,428 |   | $ | 2,065 |   |
| Membership Division                         |       | 2,491        |       | (1                                                | )          | 5,714             |       | 144                                 |       | 24                                                             |       |
| Subtotals of Segments                       |       | 22,216       |       | 841                                               |       | 87,949            |       | 1,572                               |       | 2,089                                                          |       |
| Corporate*                                  |       | —       |       | (1,299                                            | )          | 67,748            |       | —                              |       | —                                                         |       |
| Totals                                      |       | $            | 22,216     |                                              | $          | (458              | )          | $                                   | 155,697    |                                                           | $          | 1,572 |   | $ | 2,089 |   |
|                                        |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| **June 30, 2005 (as restated, Note 11)**    | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                         |       | $            | 17,751     |                                              | $          | 2,461             |       | $                                   | 79,477     |                                                           | $          | 1,165 |   | $ | 3,185 |   |
| Membership Division                         |       | 2,324        |       | (114                                              | )          | 5,929             |       | 156                                 |       | 188                                                            |       |
| Subtotals of Segments                       |       | 20,075       |       | 2,347                                             |       | 85,406            |       | 1,321                               |       | 3,373                                                          |       |
| Corporate*                                  |       | —       |       | (940                                              | )          | 16,486            |       | —                              |       | —                                                         |       |
| Totals                                      |       | $            | 20,075     |                                              | $          | 1,407             |       | $                                   | 101,892    |                                                           | $          | 1,321 |   | $ | 3,373 |   |

 

12

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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. Our CODM, when analyzing operations ofour segments, considers the cash balances and investments in available for salesecurities held for future investment in operations to be appropriatelyexcluded from the operating segments. 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 the amortizable intangible assets and goodwill wereclassified as Corporate. These amounts relate to, and have been reclassified aspart, of the TOC segment.

**NOTE8—INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES**

Our short terminvestments in marketable debt and equity securities are classified asavailable-for-sale and are recorded at fair value at the end of each period.Gross realized gains and losses on sales of these securities during the threeand six months ended June 30, 2006 and 2005 and all gross realized gains andlosses related to such investments prior to the three and six months ended June30, 2006 and the year ended December 31, 2005 were not material. Included ininvestments in available-for-sale securities at June 30, 2006 and December 31,2005 are investments in auction rate securities with short-term interest ratesthat generally can be reset every 28 days. The auction rate securities havelong-term maturity dates and provide us with enhanced yields. However, webelieve we have the ability to quickly liquidate them at their original cost,although there is no guaranty and, accordingly, they are carried at cost, whichapproximates fair value, and classified as current assets. All income generatedfrom these investments is recorded as interest income. We had unrealized netholding gains on marketable equity securities at June 30, 2006 and December 31,2005 of $13 and $36, respectively, that are in “accumulated other comprehensiveincome”.

The investment inavailable-for-sale securities is as follows:
|                                      | ** ** | **As of  June 30, 2006** | ** ** | **As of  December 31, 2005** | ** ** |
|--------------------------------------|------------|-----------------------------------------|------------|---------------------------------------------|------------|
| Auction rate  securities             |       | $                                       | 33,730     |                                        | $          | 38,000 |   |
| Equities                             |       | 836                                     |       | 830                                         |       |
| Total  available-for-sale securities |       | $                                       | 34,566     |                                        | $          | 38,830 |   |

 

**NOTE9—INCOME TAX PROVISION**

The income taxbenefits reflected in the accompanying unaudited condensed consolidatedstatements of operations for the three and six months ended June 30, 2006 aredifferent than the expected tax benefits computed based on the pre-tax lossesand the applicable statutory Federal income tax rate of 34%.  Interim tax provisions and benefits aredetermined using an estimate of the annual effective tax rate. However, theinterim tax benefit that can be recognized is limited to the amount for whichrealization is more likely than not.

13

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We estimate thatit is more likely than not that we will have income before income taxes forfinancial statement reporting purposes for the year ending December 31, 2006and that the annual effective tax rate (including an estimate for state taxes)will be approximately 240% of income before taxes. Accordingly, we have appliedthat rate in computing the tax benefits that we have recognized for the threeand six months ended June 30, 2006.

Our estimatedannual effective tax rate is affected by permanent differences between incomebefore taxes for financial reporting purposes and taxable income. Our mostsignificant permanent difference, and the principal reason why our estimatedeffective income tax rate is substantially greater than the statutory Federal incometax rate, relates to the portion of our compensation expense recognized forfinancial reporting purposes that is attributable to the non-cash chargesrecorded under SFAS 123R for the fair value of qualified incentive stockoptions, or ISOs, granted to employees which are generally not deductible fortax reporting purposes. We recognized non-cash charges to compensation expenseof $192 and $343 in the three and six months ended June 30, 2006, respectively,related to ISOs under SFAS 123R.

Our estimate forstate taxes is based on the California statutory rates. We are in the processof filing income tax returns in various states in which we have nexus and havenot previously filed income tax returns to apportion our income to such states.We believe that we will be able to amend our California returns to reflect theapportionment. In the event we are not able to amend our California returns, wecould incur additional income taxes.

**NOTE10—LONG TERM DEBT AND LINE OF CREDIT**

We have twolong-term loans and a line of credit with U.S. Bank N.A. (the “Bank”).Aggregate outstanding borrowings as of June 30, 2006 under the long-term loanswere $4,543. We did not have any borrowings under the line of credit.  These loans and the line of credit containcustomary covenants including certain minimum profitability metrics measured ateach quarter end including quarter profitability and trailing twelve monthsprofitability. As of March 31, 2006, we did not meet some of these covenantsand were in violation thereof. On May 9, we received notice from the Bankgiving us a waiver of the covenant violation and a permanent amendment of thecovenant to exclude non-cash stock based employee compensation expense in theprofitability metrics. As of June 30, 2006, we are in compliance with thecurrent loan covenants.

**NOTE 11—RESTATEMENTS OF UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

This Form 10-Q/A amendsour previously filed Form 10-Q for the quarter ended June 30, 2006 to reflectadjustments to the unaudited condensed consolidated financial statements as ofJune 30, 2006 and December 31, 2005 and for the three and six months ended June30, 2006 and 2005 arising from the effects of a reclassification of all of theamounts originally allocated to the cost of multi-system cable operator (“MSO”)relationships from other non-amortizable intangible assets to amortizableintangible assets and the determination that they have an estimated useful lifeof 21 years and 4 months. Inaddition, certain amounts included under “expenses” in the 2006 and 2005unaudited condensed consolidated statements of operations we originally issuedhave been reclassified in line items under either “cost of services” or “otherexpenses” and certain intangible assets and the related amortization expense havebeen reclassified from “Corporate” to the “TOC” segment as explained in Note 1.Also, in accordance with SFAS 123R, we have presented on a prospective basisthe tax benefits from exercise of stock options in excess of recognized expenseof $705 as a cash flow from financing activities in the accompanying unauditedcondensed consolidated statement of cash flows for the six months ended June 30,2006, rather than as a cash flow from operating activities. Theadjustments to the 2006 and 2005 unaudited condensed consolidated financialstatements are a result of a correction of the accounting treatment for theportion of the excess of the cost of the minority interest over the fair valueof the underlying interest in the net identifiable assets acquired related tothe acquisition of the remaining minority interest in TOC that we did notpreviously own on September 8, 2004 that was allocated to the MSOrelationships. The adjustments were based on a review in the third quarter of2006 of the facts and circumstances, the nature of our business, our experiencewith the MSOs and the proclivities of our industry as of September 8, 2004. Theaccompanying unaudited condensed consolidated financial statements and relatednotes thereto have been restated in comparison to those in our previously filedForm 10-Q for the quarter ended June 30, 2006 to reflect the effects of thoseadjustments as explained below:

THE EFFECTS ON THECONDENSED CONSOLIDATED BALANCE SHEETS

As a result of therestatement, our unaudited condensed consolidated balance sheet as of June 30,2006 changed as follows:
|                                          | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
|                                     |       |                             |       |                 |       |       |       |
| Amortizable  intangible assets, net      |       | $                                | 1,100      |                 | $          | 10,764     |       | $ | 9,664 |   |
|                                     |       |                             |       |                 |       |       |       |
| Other  non-amortizable intangible assets |       | 10,573                           |       | —               |       | (10,573    | )          |
| Deferred tax  assets, net                |       | 9,532                            |       | 9,891                |       | 359        |       |
| Total assets                             |       | 156,247                          |       | 155,697              |       | (550       | )          |
| Accumulated  deficit                     |       | (14,669                          | )          | (15,219              | )          | (550       | )          |
| Total stockholders’  equity         |       | 145,355                          |       | 144,805              |       | (550       | )          |
|                                          |            |                                  |            |                      |            |            |            |  |  |  |

 

14

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As a result of therestatement, our condensed consolidated balance sheet as of December 31, 2005changed as follows:
|                                          | ** ** | **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       | )          |
|                                          |            |                                  |            |                      |            |            |            |  |  |  |

 

THE EFFECTS ON THE UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

As a result of therestatement, the unaudited condensed consolidated statements of operations forthree months ended June 30, 2006 changed as follows:
|                                               | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|-----------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  three months ended June 30, 2006** |       |                                   |       |                 |       |       |       |
| Depreciation and amortization                 |       | $                                      | 766        |                 | $          | 890        |       | $ | 124 |   |
| Total other expenses                          |       | 7,829                                  |       | 7,953                |       | 124        |       |
| Income (loss) from operations                 |       | (762                                   | )          | (886                 | )          | (124       | )          |
| Income (loss) before income taxes             |       | (194                                   | )          | (318                 | )          | (124       | )          |
| Income tax provision (benefit)                |       | (571                                   | )          | (620                 | )          | (49        | )          |
| Net income                                    |       | 377                                    |       | 302                  |       | (75        | )          |
| Earnings per common share                     |       |                                   |       |                 |       |       |       |
| Basic                                         |       | $                                      | 0.02       |                 | $          | 0.01       |       | $ | (0.01 | ) |
| Diluted                                       |       | $                                      | 0.01       |                 | $          | 0.01       |       | — |   |

 

As a result of therestatement, the unaudited condensed consolidated statements of operations forthree months ended June 30, 2005 changed as follows:
|                                               | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|-----------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  three months ended June 30, 2005** |       |                                   |       |                 |       |       |       |
| Depreciation and amortization                 |       | $                                      | 499        |                 | $          | 623        |       | $ | 124 |   |
| Total other expenses                          |       | 7,052                                  |       | 7,176                |       | 124        |       |
| Income (loss) from operations                 |       | 839                                    |       | 715                  |       | (124       | )          |
| Income (loss) before income taxes             |       | 876                                    |       | 752                  |       | (124       | )          |
| Income tax provision (benefit)                |       | 364                                    |       | 315                  |       | (49        | )          |
| Net income                                    |       | 512                                    |       | 437                  |       | (75        | )          |
| Earnings per common share                     |       |                                   |       |                 |       |       |       |
| Basic                                         |       | $                                      | 0.03       |                 | $          | 0.02       |       | $ | (0.01 | ) |
| Diluted                                       |       | $                                      | 0.02       |                 | $          | 0.02       |       | — |   |

 

15

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As a result of therestatement, the unaudited condensed consolidated statements of operations forsix months ended June 30, 2006 changed as follows:
|                                             | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                  | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  six months ended June 30, 2006** |       |                                   |       |                 |       |       |       |
| Depreciation and amortization               |       | $                                      | 1,315      |                 | $          | 1,563      |       | $ | 248 |   |
| Total other expenses                        |       | 16,146                                 |       | 16,394               |       | 248        |       |
| Income (loss) from operations               |       | (1,323                                 | )          | (1,571               | )          | (248       | )          |
| Income (loss) before income taxes           |       | (210                                   | )          | (458                 | )          | (248       | )          |
| Income tax provision (benefit)              |       | (505                                   | )          | (603                 | )          | (98        | )          |
| Net income                                  |       | 295                                    |       | 145                  |       | (150       | )          |
| Earnings per common share                   |       |                                   |       |                 |       |       |       |
| Basic                                       |       | $                                      | 0.01       |                 | $          | 0.01       |       | — |   |
| Diluted                                     |       | $                                      | 0.01       |                 | $          | 0.01       |       | — |   |
|                                             |            |                                        |            |                      |            |            |            |  |  |  |

 

As a result of therestatement, the unaudited condensed consolidated statements of operations forsix months ended June 30, 2005 changed as follows:
|                                             | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                  | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  six months ended June 30, 2005** |       |                                   |       |                 |       |       |       |
| Depreciation and amortization               |       | $                                      | 1,073      |                 | $          | 1,321      |       | $ | 248 |   |
| Total other expenses                        |       | 14,019                                 |       | 14,267               |       | 248        |       |
| Income (loss) from operations               |       | 1,567                                  |       | 1,319                |       | (248       | )          |
| Income (loss) before income taxes           |       | 1,655                                  |       | 1,407                |       | (248       | )          |
| Income tax provision (benefit)              |       | 691                                    |       | 593                  |       | (98        | )          |
| Net income                                  |       | 964                                    |       | 814                  |       | (150       | )          |
| Earnings per common share                   |       |                                   |       |                 |       |       |       |
| Basic                                       |       | $                                      | 0.05       |                 | $          | 0.04       |       | $ | (0.01 | ) |
| Diluted                                     |       | $                                      | 0.04       |                 | $          | 0.04       |       | — |   |

 

THE EFFECTS ON THEUNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

As a result of the restatement,the balance of the accumulated deficit as of January 1, 2006 was increased by$400 to $15,364 from $14,964 and the balance as of June 30, 2006 was increasedby $550 to $15,219 from $14,669.

THE EFFECTS ON THEUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

As a result of therestatement, the unaudited condensed consolidated statements of cash flows forthe six months ended June 30, 2006 changed as follows:
|                                             | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                  | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  six months ended June 30, 2006** |       |                                   |       |                 |       |       |       |
|                                        |       |                                   |       |                 |       |       |       |
| Net income                                  |       | $                                      | 295        |                 | $          | 145        |       | $ | (150 | ) |
| Depreciation and amortization               |       | 1,324                                  |       | 1,572                |       | 248        |       |
| Deferred tax  provision (benefit)           |       | (708                                   | )          | (806                 | )          | (98        | )          |
|                                             |            |                                        |            |                      |            |            |            |  |  |  |

 

16

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As a result of therestatement, the unaudited condensed consolidated statements of cash flows forthe six months ended June 30, 2005 changed as follows:
|                                             | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                  | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  six months ended June 30, 2005** |       |                                   |       |                 |       |       |       |
|                                        |       |                                   |       |                 |       |       |       |
| Net income                                  |       | $                                      | 964        |                 | $          | 814        |       | $ | (150 | ) |
| Depreciation and amortization               |       | 1,073                                  |       | 1,321                |       | 248        |       |
| Deferred tax provision (benefit)            |       | (6                                     | )          | (104                 | )          | (98        | )          |
|                                             |            |                                        |            |                      |            |            |            |  |  |  |

 

THE EFFECTS ON NOTE 3 –STOCK INCENTIVE PLANS

The effects of therestatements on the historical and pro forma information in Note 3 are setforth below:
|                                               | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
|                                          |       |                             |       |                 |       |       |       |
| **For the  three months ended June 30, 2005** | ** ** | ** **                       | ** ** | ** **           | ** ** | ** ** | ** ** |
|                                          |       |                             |       |                 |       |       |       |
| Net income                                    |       | $                                | 512        |                 | $          | 437        |       | $ | (75 | ) |
| Pro forma net income                          |       | 80                               |       | 5                    |       | (75        | )          |
| Basic earnings (loss) per common share        |       |                             |       |                 |       |       |       |
| As reported                                   |       | $                                | 0.03       |                 | $          | 0.02       |       | $ | (0.01 | ) |
| Pro forma                                     |       | $                                | 0.00       |                 | $          | 0.00       |       | — |   |
|                                          |       |                             |       |                 |       |       |       |
| Diluted earnings (loss) per common share      |       |                             |       |                 |       |       |       |
| As reported                                   |       | $                                | 0.02       |                 | $          | 0.02       |       | — |   |
| Pro forma                                     |       | $                                | 0.00       |                 | $          | 0.00       |       | — |   |

 
|                                             | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
|                                        |       |                             |       |                 |       |       |       |
| **For the  six months ended June 30, 2005** | ** ** | ** **                       | ** ** | ** **           | ** ** | ** ** | ** ** |
|                                        |       |                             |       |                 |       |       |       |
| Net income                                  |       | $                                | 964        |                 | $          | 814        |       | $ | (150 | ) |
| Pro forma net income (loss)                 |       | 135                              |       | (15                  | )          | (150       | )          |
| Basic earnings (loss) per common share      |       |                             |       |                 |       |       |       |
| As reported                                 |       | $                                | 0.05       |                 | $          | 0.04       |       | $ | (0.01 | ) |
| Pro forma                                   |       | $                                | 0.01       |                 | $          | 0.00       |       | $ | (0.01 | ) |
|                                        |       |                             |       |                 |       |       |       |
| Diluted earnings (loss) per common share    |       |                             |       |                 |       |       |       |
| As reported                                 |       | $                                | 0.04       |                 | $          | 0.04       |       | — |   |
| Pro forma                                   |       | $                                | 0.01       |                 | $          | 0.00       |       | $ | (0.01 | ) |

 

THE EFFECTS ON NOTE 4 –EARNINGS PER COMMON SHARE

As a result of therestatement, net income - basic for the three months ended June 30, 2006 wasdecreased by $75 to $302 from $377 and for the six months ended June 30, 2006was decreased $150 to $145 from $295.

As a result of therestatement, net income - basic for the three months ended June 30, 2005 wasdecreased by $75 to $437 from $512 and for the six months ended June 30, 2005was decreased $150 to $814 from $964.

17

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THE EFFECTS ON NOTE 7 –SEGMENT INFORMATION

As a result of therestatement, segment information for the three and six months ended June 30,2006 changed as follows:
| ** **                                                                    | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to  Property,  Plant and  Improvements** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------|------------|
| **As of  and for the Three Months Ended June 30, 2006**                       | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| **As reported and adjusted for the  reclassification as described in Note 7** | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                                                           |       | $            | 9,815      |                                              | $          | 413               |       | $                                   | 83,144     |                                                           | $          | 700 |   | $ | 888 |   |
| Membership Division                                                           |       | 1,112        |       | (190                                              | )          | 5,714             |       | 72                                  |       | 12                                                             |       |
| Subtotals of Segments                                                         |       | 10,927       |       | 223                                               |       | 88,858            |       | 772                                 |       | 900                                                            |       |
| Corporate                                                                     |       | —       |       | (417                                              | )          | 67,389            |       | —                              |       | —                                                         |       |
| Totals                                                                        |       | $            | 10,927     |                                              | $          | (194              | )          | $                                   | 156,247    |                                                           | $          | 772 |   | $ | 900 |   |
|                                                                          |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| **As restated**                                                               | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                                                           |       | $            | 9,815      |                                              | $          | 289               |       | $                                   | 82,235     |                                                           | $          | 824 |   | $ | 888 |   |
| Membership Division                                                           |       | 1,112        |       | (190                                              | )          | 5,714             |       | 72                                  |       | 12                                                             |       |
| Subtotals of Segments                                                         |       | 10,927       |       | 99                                                |       | 87,949            |       | 896                                 |       | 900                                                            |       |
| Corporate                                                                     |       | —       |       | (417                                              | )          | 67,748            |       | —                              |       | —                                                         |       |
| Totals                                                                        |       | $            | 10,927     |                                              | $          | (318              | )          | $                                   | 155,697    |                                                           | $          | 896 |   | $ | 900 |   |

 
| ** **                                                                    | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income   Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to  Property,  Plant and  Improvements** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------|------------|
| **As of  and for the Six Months Ended June 30, 2006**                         | ** ** | ** **   | ** ** | ** **                                              | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| **As reported and adjusted for the  reclassification as described in Note 7** | ** ** | ** **   | ** ** | ** **                                              | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                                                           |       | $            | 19,725     |                                                    | $          | 1,090             |       | $                                   | 83,144     |                                                           | $          | 1,180 |   | $ | 2,065 |   |
| Membership Division                                                           |       | 2,491        |       | (1                                                      | )          | 5,714             |       | 144                                 |       | 24                                                             |       |
| Subtotals of Segments                                                         |       | 22,216       |       | 1,089                                                   |       | 88,858            |       | 1,324                               |       | 2,089                                                          |       |
| Corporate                                                                     |       | —       |       | (1,299                                                  | )          | 67,389            |       | —                              |       | —                                                         |       |
| Totals                                                                        |       | $            | 22,216     |                                                    | $          | (210              | )          | $                                   | 156,247    |                                                           | $          | 1,324 |   | $ | 2,089 |   |
|                                                                          |       |         |       |                                                    |       |              |       |                                |       |                                                           |       |
| **As restated**                                                               | ** ** | ** **   | ** ** | ** **                                              | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                                                           |       | $            | 19,725     |                                                    | $          | 842               |       | $                                   | 82,235     |                                                           | $          | 1,428 |   | $ | 2,065 |   |
| Membership Division                                                           |       | 2,491        |       | (1                                                      | )          | 5,714             |       | 144                                 |       | 24                                                             |       |
| Subtotals of Segments                                                         |       | 22,216       |       | 841                                                     |       | 87,949            |       | 1,572                               |       | 2,089                                                          |       |
| Corporate                                                                     |       | —       |       | (1,299                                                  | )          | 67,748            |       | —                              |       | —                                                         |       |
| Totals                                                                        |       | $            | 22,216     |                                                    | $          | (458              | )          | $                                   | 155,697    |                                                           | $          | 1,572 |   | $ | 2,089 |   |

 

As a result of therestatement, segment information for the three and six months ended June 30, 2005changed as follows:
| ** **                                                                    | ** ** | **Revenues** | ** ** | **Income (Loss)   Before Income   Taxes** | ** ** | **Total   Assets** | ** ** | **Depreciation   and   Amortization** | ** ** | **Additions to   Property,   Plant and   Improvements** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **As of  and for the Three Months Ended June 30, 2005**                       | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| **As reported and adjusted for the  reclassification as described in Note 7** | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 8,994      |                                                          | $          | 1,573                   |       | $                                               | 79,890     |                                                                             | $          | 421 |   | $ | 1,673 |   |
| Membership Division                                                           |       | 1,020        |       | (173                                                          | )          | 5,929                   |       | 78                                              |       | 32                                                                               |       |
| Subtotals of Segments                                                         |       | 10,014       |       | 1,400                                                         |       | 85,819                  |       | 499                                             |       | 1,705                                                                            |       |
| Corporate                                                                     |       | —       |       | (524                                                          | )          | 16,323                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 10,014     |                                                          | $          | 876                     |       | $                                               | 102,142    |                                                                             | $          | 499 |   | $ | 1,705 |   |
|                                                                          |       |         |       |                                                          |       |                    |       |                                            |       |                                                                             |       |
| **As restated**                                                               | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 8,994      |                                                          | $          | 1,449                   |       | $                                               | 79,477     |                                                                             | $          | 545 |   | $ | 1,673 |   |
| Membership Division                                                           |       | 1,020        |       | (173                                                          | )          | 5,929                   |       | 78                                              |       | 32                                                                               |       |
| Subtotals of Segments                                                         |       | 10,014       |       | 1,276                                                         |       | 85,406                  |       | 623                                             |       | 1,705                                                                            |       |
| Corporate                                                                     |       | —       |       | (524                                                          | )          | 16,486                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 10,014     |                                                          | $          | 752                     |       | $                                               | 101,892    |                                                                             | $          | 623 |   | $ | 1,705 |   |

 

18

----

 
| ** **                                                                    | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to  Property,  Plant and  Improvements** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------|------------|
| **As of  and for the Six Months Ended June 30, 2005**                         | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| **As reported and adjusted for the  reclassification as described in Note 7** | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                                                           |       | $            | 17,751     |                                              | $          | 2,709             |       | $                                   | 79,890     |                                                           | $          | 917 |   | $ | 3,185 |   |
| Membership Division                                                           |       | 2,324        |       | (114                                              | )          | 5,929             |       | 156                                 |       | 188                                                            |       |
| Subtotals of Segments                                                         |       | 20,075       |       | 2,595                                             |       | 85,819            |       | 1,073                               |       | 3,373                                                          |       |
| Corporate                                                                     |       | —       |       | (940                                              | )          | 16,323            |       | —                              |       | —                                                         |       |
| Totals                                                                        |       | $            | 20,075     |                                              | $          | 1,655             |       | $                                   | 102,142    |                                                           | $          | 1,073 |   | $ | 3,373 |   |
|                                                                          |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| **As restated**                                                               | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                                                           |       | $            | 17,751     |                                              | $          | 2,461             |       | $                                   | 79,477     |                                                           | $          | 1,165 |   | $ | 3,185 |   |
| Membership Division                                                           |       | 2,324        |       | (114                                              | )          | 5,929             |       | 156                                 |       | 188                                                            |       |
| Subtotals of Segments                                                         |       | 20,075       |       | 2,347                                             |       | 85,406            |       | 1,321                               |       | 3,373                                                          |       |
| Corporate                                                                     |       | —       |       | (940                                              | )          | 16,486            |       | —                              |       | —                                                         |       |
| Totals                                                                        |       | $            | 20,075     |                                              | $          | 1,407             |       | $                                   | 101,892    |                                                           | $          | 1,321 |   | $ | 3,373 |   |

 

The changes in thesebalances 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 Three Months Ended June 30, 2006** |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                            |       | $            | —     |                                              | $          | (124              | )          | $                                   | (909       | )                                                                                | $          | 124 |   | $ | — |   |
| Membership Division                                            |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of Segments                                          |       | —       |       | (124                                              | )          | (909              | )          | 124                                 |       | —                                                                           |       |
| Corporate                                                      |       | —       |       | —                                            |       | 359               |       | —                              |       | —                                                                           |       |
| Totals                                                         |       | $            | —     |                                              | $          | (124              | )          | $                                   | (550       | )                                                                                | $          | 124 |   | $ | — |   |
|                                                           |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| **Change  as of and for the Six Months Ended June 30, 2006**   |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                            |       | $            | —     |                                              | $          | (248              | )          | $                                   | (909       | )                                                                                | $          | 248 |   | $ | — |   |
| Membership Division                                            |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of Segments                                          |       | —       |       | (248                                              | )          | (909              | )          | 248                                 |       | —                                                                           |       |
| Corporate                                                      |       | —       |       | —                                            |       | 359               |       | —                              |       | —                                                                           |       |
| Totals                                                         |       | $            | —     |                                              | $          | (248              | )          | $                                   | (550       | )                                                                                | $          | 248 |   | $ | — |   |

 

19

----

 

|                                                                | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to   Property,   Plant and   Improvements** | ** ** |
|----------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **Change  as of and for the Three Months Ended June 30, 2005** |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                            |       | $            | —     |                                              | $          | (124              | )          | $                                   | (413       | )                                                                                | $          | 124 |   | $ | — |   |
| Membership Division                                            |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of Segments                                          |       | —       |       | (124                                              | )          | (413              | )          | 124                                 |       | —                                                                           |       |
| Corporate                                                      |       | —       |       | —                                            |       | 163               |       | —                              |       | —                                                                           |       |
| Totals                                                         |       | $            | —     |                                              | $          | (124              | )          | $                                   | (250       | )                                                                                | $          | 124 |   | $ | — |   |
|                                                           |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| **Change  as of and for the Six Months Ended June 30, 2005**   |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                            |       | $            | —     |                                              | $          | (248              | )          | $                                   | (413       | )                                                                                | $          | 248 |   | $ | — |   |
| Membership Division                                            |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of Segments                                          |       | —       |       | (248                                              | )          | (413              | )          | 248                                 |       | —                                                                           |       |
| Corporate                                                      |       | —       |       | —                                            |       | 163               |       | —                              |       | —                                                                           |       |
| Totals                                                         |       | $            | —     |                                              | $          | (248              | )          | $                                   | (250       | )                                                                                | $          | 248 |   | $ | — |   |

 

* * *

20

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**ITEM 2.****                        MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

**SafeHarbor Statement**

The informationcontained in this report may include forward-looking statements. Ouractual results could differ materially from those discussed in anyforward-looking statements. The statements contained in this report that arenot historical are “forward-looking statements” within the meaning ofSection 27A of the Securities Act of 1933, as amended (the “Securities Act”),and Section 21E of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), including statements, without limitation, regarding our expectations,beliefs, intentions or strategies regarding the future. We intend that suchforward-looking statements be subject to the safe-harbor provisions containedin those sections. Such forward-looking statements relate to, among otherthings: (1) increased subscriber growth; (2) expected revenue and earningsgrowth and changes in mix; (3) anticipated expenses including advertising,programming, personnel and others; (4) Nielsen Media Research, which werefer to as Nielsen, estimates regarding total households and cable andsatellite homes subscribing to and viewers (ratings) of The Outdoor Channel;and (5) more control over our programming. We undertake no obligation topublicly update or revise any forward-looking statements, whether as a resultof new information, future events or otherwise.

These statementsinvolve significant risks and uncertainties and are qualified by importantfactors that could cause our actual results to differ materially from thosereflected by the forward-looking statements. Such factors include but are notlimited to risks and uncertainties which are included in Part II, Item 1A RiskFactors below and other risks and uncertainties discussed elsewhere in thisreport. In assessing forward-looking statements, readers are urged to readcarefully all cautionary statements contained in this Form 10-Q/A and inour other filings with the Securities and Exchange Commission. For theseforward-looking statements, we claim the protection of the safe harbor forforward-looking statements in Section 27A of the Securities Act andSection 21E of the Exchange Act.

**Effects of Restatement**

This Form 10-Q/Aamends our previously filed Form 10-Q for the quarter ended June 30, 2006 toreflect adjustments to the unaudited condensed consolidated financialstatements as of June 30, 2006 and December 31, 2005 and for the three and sixmonths ended June 30, 2006 and 2005 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 2006 and 2005 unaudited condensed consolidated financial statements weoriginally issued have been reclassified to either “cost of services” or “otherexpenses” to provide additional detail about our operating results and morefully comply with the Securities and Exchange Commission’s Regulation S-X. Costof services includes programming, satellite transmission fees, production andoperations and other direct costs.  Otherexpenses include advertising, selling, general and administrative anddeprecation and amortization. Also, in accordance with SFAS 123R, we havepresented on a prospective basis the tax benefits from exercise of stockoptions in excess of recognized expense of $705,000 as a cash flow fromfinancing activities in the accompanying unaudited condensed consolidatedstatement of cash flows for the six months ended June 30, 2006, rather than asa cash flow from operating activities. Further, to better match intangibleassets with the segment to which they pertain, we have reclassified theamortizable intangible assets and the goodwill which we recorded in connectionwith the acquisition on September 8, 2004 along with the related amortizationexpense from “Corporate” to the “TOC” segment. Certain other changes have beenmade in the historical condensed consolidated financial statements to conformwith current presentations. The adjustments to the 2006 and 2005 unauditedcondensed consolidated financial statements are a result of a correction of theaccounting treatment for the portion of the excess of the cost of the minorityinterest over the fair value of the underlying interest in the net identifiableassets acquired related to the acquisition of the remaining minority interestin The Outdoor Channel, Inc. (“TOC”) that we did not previously own onSeptember 8, 2004 that was allocated to the MSO relationships.  The adjustments were based on a review in thethird quarter of 2006 of the facts and circumstances, the nature of ourbusiness, our experience with the MSOs and the proclivities of our industry asof September 8, 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, 2005 and thus we did not amend those filings.However, we determined that the effects of the adjustments were material to ourannual and quarterly reports filed for the periods that ended from March 31,2005 through June 30, 2006 and we are amending all of those filings. Theaccompanying unaudited condensed 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 11 and below:

21

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As a result of the determination of theestimated useful life of MSO relationships discussed above we have restated thefollowing Items and sections of this Form 10-Q/A:

Item 1. Financial Statements and Supplementary Data:

Restated Condensed Consolidated BalanceSheets as of June 30, 2006 (Unaudited) and December 31, 2005;

Restated Unaudited Condensed ConsolidatedStatements of Operations for the three and six months ended June30, 2006 and2005;

Restated Unaudited Condensed ConsolidatedStatement of Stockholders’ Equity for the six months ended June 30, 2006;

Restated Unaudited Condensed ConsolidatedStatements of Cash Flows for the six months ended June 30, 2006 and 2005;

Note 3 to Unaudited Condensed ConsolidatedFinancial Statements; Stock Incentive Plans;

Note 4 to Unaudited Condensed ConsolidatedFinancial Statements; Earnings Per Common Share;

Note 7 to Unaudited Condensed ConsolidatedFinancial Statements; Segment Information; and

Note 11 to Unaudited CondensedConsolidated Financial Statements; Restatements of Unaudited CondensedConsolidated Financial Statements.

Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations

Except for the related corrections to Notes3, 4, and 7 to the unaudited condensed consolidated financial statements, andcertain other immaterial corrections, the remaining Items required by Form 10-Qare not amended hereby, but are included herewith for ease of the reader.Except as expressly noted herein, this report continues to speak as of the dateof the original filing, and we have not updated the disclosures in this reportto speak as of a later date.

Except as otherwise expressly notedherein, this Form 10-Q/A does not reflect events occurring after the August 9,2006 filing of our Quarterly Report on Form 10-Q in any way, except thoserequired to reflect the effects of this restatement of our unaudited condensedconsolidated financial statements for the periods presented or as deemed necessaryin connection with the completion of restated financial statements.

While this report primarily relates to the historical periodscovered, events may have taken place since the original filing that might havebeen reflected in this report if they had taken place prior to the originalfiling.

THE EFFECTS ON THE CONDENSED CONSOLIDATED BALANCESHEETS

As a result of the restatement, our unauditedcondensed consolidated balance sheet as of June 30, 2006 changed as follows:
|                                          | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
|                                     |       |                             |       |                 |       |       |       |
| Amortizable  intangible assets, net      |       | $                                | 1,100      |                 | $          | 10,764     |       | $ | 9,664 |   |
|                                     |       |                             |       |                 |       |       |       |
| Other  non-amortizable intangible assets |       | 10,573                           |       | —               |       | (10,573    | )          |
| Deferred tax  assets, net                |       | 9,532                            |       | 9,891                |       | 359        |       |
| Total assets                             |       | 156,247                          |       | 155,697              |       | (550       | )          |
| Accumulated  deficit                     |       | (14,669                          | )          | (15,219              | )          | (550       | )          |
| Total stockholders’  equity         |       | 145,355                          |       | 144,805              |       | (550       | )          |
|                                          |            |                                  |            |                      |            |            |            |  |  |  |

 

As a result of the restatement, our condensedconsolidated balance sheet as of December 31, 2005 changed as follows:
|                                          | ** ** | **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       | )          |
|                                          |            |                                  |            |                      |            |            |            |  |  |  |

 

22

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THE EFFECTS ON THEUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

As a result of therestatement, the unaudited condensed consolidated statements of operations forthree months ended June 30, 2006 changed as follows:
|                                               | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|-----------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  three months ended June 30, 2006** |       |                                   |       |                 |       |       |       |
| Depreciation and amortization                 |       | $                                      | 766        |                 | $          | 890        |       | $ | 124 |   |
| Total other expenses                          |       | 7,829                                  |       | 7,953                |       | 124        |       |
| Income (loss) from operations                 |       | (762                                   | )          | (886                 | )          | (124       | )          |
| Income (loss) before income taxes             |       | (194                                   | )          | (318                 | )          | (124       | )          |
| Income tax provision (benefit)                |       | (571                                   | )          | (620                 | )          | (49        | )          |
| Net income                                    |       | 377                                    |       | 302                  |       | (75        | )          |
| Earnings per common share                     |       |                                   |       |                 |       |       |       |
| Basic                                         |       | $                                      | 0.02       |                 | $          | 0.01       |       | $ | (0.01 | ) |
| Diluted                                       |       | $                                      | 0.01       |                 | $          | 0.01       |       | — |   |

 

As a result of therestatement, the unaudited condensed consolidated statements of operations forthree months ended June 30, 2005 changed as follows:
|                                               | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|-----------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  three months ended June 30, 2005** |       |                                   |       |                 |       |       |       |
| Depreciation and amortization                 |       | $                                      | 499        |                 | $          | 623        |       | $ | 124 |   |
| Total other expenses                          |       | 7,052                                  |       | 7,176                |       | 124        |       |
| Income (loss) from operations                 |       | 839                                    |       | 715                  |       | (124       | )          |
| Income (loss) before income taxes             |       | 876                                    |       | 752                  |       | (124       | )          |
| Income tax provision (benefit)                |       | 364                                    |       | 315                  |       | (49        | )          |
| Net income                                    |       | 512                                    |       | 437                  |       | (75        | )          |
| Earnings per common share                     |       |                                   |       |                 |       |       |       |
| Basic                                         |       | $                                      | 0.03       |                 | $          | 0.02       |       | $ | (0.01 | ) |
| Diluted                                       |       | $                                      | 0.02       |                 | $          | 0.02       |       | — |   |

 

As a result of therestatement, the unaudited condensed consolidated statements of operations forsix months ended June 30, 2006 changed as follows:
|                                             | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                  | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  six months ended June 30, 2006** |       |                                   |       |                 |       |       |       |
| Depreciation and amortization               |       | $                                      | 1,315      |                 | $          | 1,563      |       | $ | 248 |   |
| Total other expenses                        |       | 16,146                                 |       | 16,394               |       | 248        |       |
| Income (loss) from operations               |       | (1,323                                 | )          | (1,571               | )          | (248       | )          |
| Income (loss) before income taxes           |       | (210                                   | )          | (458                 | )          | (248       | )          |
| Income tax provision (benefit)              |       | (505                                   | )          | (603                 | )          | (98        | )          |
| Net income                                  |       | 295                                    |       | 145                  |       | (150       | )          |
| Earnings per common share                   |       |                                   |       |                 |       |       |       |
| Basic                                       |       | $                                      | 0.01       |                 | $          | 0.01       |       | — |   |
| Diluted                                     |       | $                                      | 0.01       |                 | $          | 0.01       |       | — |   |
|                                             |            |                                        |            |                      |            |            |            |  |  |  |

23

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As a result of therestatement, the unaudited condensed consolidated statements of operations forsix months ended June 30, 2005 changed as follows:
|                                             | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                  | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  six months ended June 30, 2005** |       |                                   |       |                 |       |       |       |
| Depreciation and amortization               |       | $                                      | 1,073      |                 | $          | 1,321      |       | $ | 248 |   |
| Total other expenses                        |       | 14,019                                 |       | 14,267               |       | 248        |       |
| Income (loss) from operations               |       | 1,567                                  |       | 1,319                |       | (248       | )          |
| Income (loss) before income taxes           |       | 1,655                                  |       | 1,407                |       | (248       | )          |
| Income tax provision (benefit)              |       | 691                                    |       | 593                  |       | (98        | )          |
| Net income                                  |       | 964                                    |       | 814                  |       | (150       | )          |
| Earnings per common share                   |       |                                   |       |                 |       |       |       |
| Basic                                       |       | $                                      | 0.05       |                 | $          | 0.04       |       | $ | (0.01 | ) |
| Diluted                                     |       | $                                      | 0.04       |                 | $          | 0.04       |       | — |   |

 

THE EFFECTS ON THEUNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

As a result of therestatement, the balance of the accumulated deficit as of January 1, 2006 wasincreased by $400 to $15,364 from $14,964 and the balance as of June 30, 2006was increased by $550 to $15,219 from $14,669.

THE EFFECTS ON THEUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

As a result of therestatement, the unaudited condensed consolidated statements of cash flows forthe six months ended June 30, 2006 changed as follows:
|                                             | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                  | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  six months ended June 30, 2006** |       |                                   |       |                 |       |       |       |
|                                        |       |                                   |       |                 |       |       |       |
| Net income                                  |       | $                                      | 295        |                 | $          | 145        |       | $ | (150 | ) |
| Depreciation and amortization               |       | 1,324                                  |       | 1,572                |       | 248        |       |
| Deferred tax provision (benefit)            |       | (708                                   | )          | (806                 | )          | (98        | )          |
|                                             |            |                                        |            |                      |            |            |            |  |  |  |

 

As a result of therestatement, the unaudited condensed consolidated statements of cash flows forthe six months ended June 30, 2005 changed as follows:
|                                             | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|---------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                  | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  six months ended June 30, 2005** |       |                                   |       |                 |       |       |       |
|                                        |       |                                   |       |                 |       |       |       |
| Net income                                  |       | $                                      | 964        |                 | $          | 814        |       | $ | (150 | ) |
| Depreciation and amortization               |       | 1,073                                  |       | 1,321                |       | 248        |       |
| Deferred tax  provision (benefit)           |       | (6                                     | )          | (104                 | )          | (98        | )          |
|                                             |            |                                        |            |                      |            |            |            |  |  |  |

 

24

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THE EFFECTS ON NOTE 3 –STOCKINCENTIVE PLANS

The effects of therestatements on the historical and pro forma information in Note 3 are setforth below:
|                                               | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **                       | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  three months ended June 30, 2005** |       |                             |       |                 |       |       |       |
|                                          |       |                             |       |                 |       |       |       |
| Net income                                    |       | $                                | 512        |                 | $          | 437        |       | $ | (75 | ) |
| Pro forma net income                          |       | 80                               |       | 5                    |       | (75        | )          |
| Basic earnings (loss) per common share        |       |                             |       |                 |       |       |       |
| As reported                                   |       | $                                | 0.03       |                 | $          | 0.02       |       | $ | (0.01 | ) |
| Pro forma                                     |       | $                                | 0.00       |                 | $          | 0.00       |       | — |   |
|                                          |       |                             |       |                 |       |       |       |
| Diluted earnings (loss) per common share      |       |                             |       |                 |       |       |       |
| As reported                                   |       | $                                | 0.02       |                 | $          | 0.02       |       | — |   |
| Pro forma                                     |       | $                                | 0.00       |                 | $          | 0.00       |       | — |   |

 
|                                             | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                  | ** ** | ** **                       | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the  six months ended June 30, 2005** |       |                             |       |                 |       |       |       |
|                                        |       |                             |       |                 |       |       |       |
| Net income                                  |       | $                                | 964        |                 | $          | 814        |       | $ | (150 | ) |
| Pro forma net income (loss)                 |       | 135                              |       | (15                  | )          | (150       | )          |
| Basic earnings (loss) per common share      |       |                             |       |                 |       |       |       |
| As reported                                 |       | $                                | 0.05       |                 | $          | 0.04       |       | $ | (0.01 | ) |
| Pro forma                                   |       | $                                | 0.01       |                 | $          | 0.00       |       | $ | (0.01 | ) |
|                                        |       |                             |       |                 |       |       |       |
| Diluted earnings (loss) per common share    |       |                             |       |                 |       |       |       |
| As reported                                 |       | $                                | 0.04       |                 | $          | 0.04       |       | — |   |
| Pro forma                                   |       | $                                | 0.01       |                 | $          | 0.00       |       | $ | (0.01 | ) |

 

THE EFFECTS ON NOTE 4 –EARNINGS PER COMMON SHARE

As a result of therestatement, net income - basic for the three months ended June 30, 2006 wasdecreased by $75 to $302 from $377 and for the six months ended June 30, 2006was decreased $150 to $145 from $295.

As a result of therestatement, net income - basic for the three months ended June 30, 2005 wasdecreased by $75 to $437 from $512 and for the six months ended June 30, 2005was decreased $150 to $814 from $964.

25

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THE EFFECTS ON NOTE 7 –SEGMENT INFORMATION

As a result of therestatement, segment information for the three and six months ended June 30,2006 changed as follows:
| ** **                                                                    | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to  Property,  Plant and  Improvements** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------|------------|
| **As of  and for the Three Months Ended June 30, 2006**                       | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| **As reported and adjusted for the  reclassification as described in Note 7** | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                                                           |       | $            | 9,815      |                                              | $          | 413               |       | $                                   | 83,144     |                                                           | $          | 700 |   | $ | 888 |   |
| Membership Division                                                           |       | 1,112        |       | (190                                              | )          | 5,714             |       | 72                                  |       | 12                                                             |       |
| Subtotals of Segments                                                         |       | 10,927       |       | 223                                               |       | 88,858            |       | 772                                 |       | 900                                                            |       |
| Corporate                                                                     |       | —       |       | (417                                              | )          | 67,389            |       | —                              |       | —                                                         |       |
| Totals                                                                        |       | $            | 10,927     |                                              | $          | (194              | )          | $                                   | 156,247    |                                                           | $          | 772 |   | $ | 900 |   |
|                                                                          |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| **As restated**                                                               | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                                                           |       | $            | 9,815      |                                              | $          | 289               |       | $                                   | 82,235     |                                                           | $          | 824 |   | $ | 888 |   |
| Membership Division                                                           |       | 1,112        |       | (190                                              | )          | 5,714             |       | 72                                  |       | 12                                                             |       |
| Subtotals of Segments                                                         |       | 10,927       |       | 99                                                |       | 87,949            |       | 896                                 |       | 900                                                            |       |
| Corporate                                                                     |       | —       |       | (417                                              | )          | 67,748            |       | —                              |       | —                                                         |       |
| Totals                                                                        |       | $            | 10,927     |                                              | $          | (318              | )          | $                                   | 155,697    |                                                           | $          | 896 |   | $ | 900 |   |

 
| ** **                                                                    | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to  Property,  Plant and  Improvements** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------|------------|
| **As of  and for the Six Months Ended June 30, 2006**                         | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| **As reported and adjusted for the  reclassification as described in Note 7** | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                                                           |       | $            | 19,725     |                                              | $          | 1,090             |       | $                                   | 83,144     |                                                           | $          | 1,180 |   | $ | 2,065 |   |
| Membership Division                                                           |       | 2,491        |       | (1                                                | )          | 5,714             |       | 144                                 |       | 24                                                             |       |
| Subtotals of Segments                                                         |       | 22,216       |       | 1,089                                             |       | 88,858            |       | 1,324                               |       | 2,089                                                          |       |
| Corporate                                                                     |       | —       |       | (1,299                                            | )          | 67,389            |       | —                              |       | —                                                         |       |
| Totals                                                                        |       | $            | 22,216     |                                              | $          | (210              | )          | $                                   | 156,247    |                                                           | $          | 1,324 |   | $ | 2,089 |   |
|                                                                          |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| **As restated**                                                               | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                                                           |       | $            | 19,725     |                                              | $          | 842               |       | $                                   | 82,235     |                                                           | $          | 1,428 |   | $ | 2,065 |   |
| Membership Division                                                           |       | 2,491        |       | (1                                                | )          | 5,714             |       | 144                                 |       | 24                                                             |       |
| Subtotals of Segments                                                         |       | 22,216       |       | 841                                               |       | 87,949            |       | 1,572                               |       | 2,089                                                          |       |
| Corporate                                                                     |       | —       |       | (1,299                                            | )          | 67,748            |       | —                              |       | —                                                         |       |
| Totals                                                                        |       | $            | 22,216     |                                              | $          | (458              | )          | $                                   | 155,697    |                                                           | $          | 1,572 |   | $ | 2,089 |   |

 

As a result of therestatement, segment information for the three and six months ended June 30,2005 changed as follows:
| ** **                                                                    | ** ** | **Revenues** | ** ** | **Income (Loss)   Before Income   Taxes** | ** ** | **Total   Assets** | ** ** | **Depreciation   and   Amortization** | ** ** | **Additions to   Property,   Plant and   Improvements** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **As of  and for the Three Months Ended June 30, 2005**                       | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| **As reported and adjusted for the  reclassification as described in Note 7** | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 8,994      |                                                          | $          | 1,573                   |       | $                                               | 79,890     |                                                                             | $          | 421 |   | $ | 1,673 |   |
| Membership Division                                                           |       | 1,020        |       | (173                                                          | )          | 5,929                   |       | 78                                              |       | 32                                                                               |       |
| Subtotals of Segments                                                         |       | 10,014       |       | 1,400                                                         |       | 85,819                  |       | 499                                             |       | 1,705                                                                            |       |
| Corporate                                                                     |       | —       |       | (524                                                          | )          | 16,323                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 10,014     |                                                          | $          | 876                     |       | $                                               | 102,142    |                                                                             | $          | 499 |   | $ | 1,705 |   |
|                                                                          |       |         |       |                                                          |       |                    |       |                                            |       |                                                                             |       |
| **As restated**                                                               | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 8,994      |                                                          | $          | 1,449                   |       | $                                               | 79,477     |                                                                             | $          | 545 |   | $ | 1,673 |   |
| Membership Division                                                           |       | 1,020        |       | (173                                                          | )          | 5,929                   |       | 78                                              |       | 32                                                                               |       |
| Subtotals of Segments                                                         |       | 10,014       |       | 1,276                                                         |       | 85,406                  |       | 623                                             |       | 1,705                                                                            |       |
| Corporate                                                                     |       | —       |       | (524                                                          | )          | 16,486                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 10,014     |                                                          | $          | 752                     |       | $                                               | 101,892    |                                                                             | $          | 623 |   | $ | 1,705 |   |

 

26

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| ** **                                                                    | ** ** | **Revenues** | ** ** | **Income (Loss)   Before Income   Taxes** | ** ** | **Total   Assets** | ** ** | **Depreciation   and   Amortization** | ** ** | **Additions to   Property,   Plant and   Improvements** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **As of and for the Six Months  Ended June 30, 2005**                         | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| **As  reported and adjusted for the reclassification as described in Note 7** | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 17,751     |                                                          | $          | 2,709                   |       | $                                               | 79,890     |                                                                             | $          | 917 |   | $ | 3,185 |   |
| Membership  Division                                                          |       | 2,324        |       | (114                                                          | )          | 5,929                   |       | 156                                             |       | 188                                                                              |       |
| Subtotals of  Segments                                                        |       | 20,075       |       | 2,595                                                         |       | 85,819                  |       | 1,073                                           |       | 3,373                                                                            |       |
| Corporate                                                                     |       | —       |       | (940                                                          | )          | 16,323                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 20,075     |                                                          | $          | 1,655                   |       | $                                               | 102,142    |                                                                             | $          | 1,073 |   | $ | 3,373 |   |
|                                                                          |       |         |       |                                                          |       |                    |       |                                            |       |                                                                             |       |
| **As  restated**                                                              | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 17,751     |                                                          | $          | 2,461                   |       | $                                               | 79,477     |                                                                             | $          | 1,165 |   | $ | 3,185 |   |
| Membership  Division                                                          |       | 2,324        |       | (114                                                          | )          | 5,929                   |       | 156                                             |       | 188                                                                              |       |
| Subtotals of  Segments                                                        |       | 20,075       |       | 2,347                                                         |       | 85,406                  |       | 1,321                                           |       | 3,373                                                                            |       |
| Corporate                                                                     |       | —       |       | (940                                                          | )          | 16,486                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 20,075     |                                                          | $          | 1,407                   |       | $                                               | 101,892    |                                                                             | $          | 1,321 |   | $ | 3,373 |   |

 

The changes in thesebalances 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 Three  Months Ended June 30, 2006** |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                            |       | $            | —     |                                              | $          | (124              | )          | $                                   | (909       | )                                                                                | $          | 124 |   | $ | — |   |
| Membership  Division                                           |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of  Segments                                         |       | —       |       | (124                                              | )          | (909              | )          | 124                                 |       | —                                                                           |       |
| Corporate                                                      |       | —       |       | —                                            |       | 359               |       | —                              |       | —                                                                           |       |
| Totals                                                         |       | $            | —     |                                              | $          | (124              | )          | $                                   | (550       | )                                                                                | $          | 124 |   | $ | — |   |
|                                                           |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| **Change as of and for the Six  Months Ended June 30, 2006**   |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                            |       | $            | —     |                                              | $          | (248              | )          | $                                   | (909       | )                                                                                | $          | 248 |   | $ | — |   |
| Membership  Division                                           |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of  Segments                                         |       | —       |       | (248                                              | )          | (909              | )          | 248                                 |       | —                                                                           |       |
| Corporate                                                      |       | —       |       | —                                            |       | 359               |       | —                              |       | —                                                                           |       |
| Totals                                                         |       | $            | —     |                                              | $          | (248              | )          | $                                   | (550       | )                                                                                | $          | 248 |   | $ | — |   |

 

27

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| ** **                                                     | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to   Property,   Plant and   Improvements** | ** ** |
|----------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **Change  as of and for the Three Months Ended June 30, 2005** |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                            |       | $            | —     |                                              | $          | (124              | )          | $                                   | (413       | )                                                                                | $          | 124 |   | $ | — |   |
| Membership Division                                            |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of Segments                                          |       | —       |       | (124                                              | )          | (413              | )          | 124                                 |       | —                                                                           |       |
| Corporate                                                      |       | —       |       | —                                            |       | 163               |       | —                              |       | —                                                                           |       |
| Totals                                                         |       | $            | —     |                                              | $          | (124              | )          | $                                   | (250       | )                                                                                | $          | 124 |   | $ | — |   |
|                                                           |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| **Change  as of and for the Six Months Ended June 30, 2005**   |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                            |       | $            | —     |                                              | $          | (248              | )          | $                                   | (413       | )                                                                                | $          | 248 |   | $ | — |   |
| Membership Division                                            |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of Segments                                          |       | —       |       | (248                                              | )          | (413              | )          | 248                                 |       | —                                                                           |       |
| Corporate                                                      |       | —       |       | —                                            |       | 163               |       | —                              |       | —                                                                           |       |
| Totals                                                         |       | $            | —     |                                              | $          | (248              | )          | $                                   | (250       | )                                                                                | $          | 248 |   | $ | — |   |

 

**General**

Through ourindirect wholly owned subsidiary, The Outdoor Channel, Inc. or TOC, we ownand operate The Outdoor Channel which is a national television network devotedprimarily to traditional outdoor activities, such as hunting, fishing andshooting sports, as well as off-road motor sports and other outdoor relatedlifestyle programming. We also own and operate related businesses which servethe interests of The Outdoor Channel’s viewers and other outdoor enthusiasts.These related businesses include: LDMA-AU, Inc., which we refer to as LostDutchman’s, and Gold Prospector’s Association of America, LLC, which we referto as GPAA. Lost Dutchman’s is a national gold prospecting campground club withproperties in Arizona, California, Colorado, Georgia, Michigan, North Carolina,Oregon and South Carolina. GPAA is the publisher of the*Gold Prospector & Treasure Hunters in theGreat Outdoors* magazine. In addition, we are the owner of a2,300 acre property near Nome, Alaska used to provide outings for a fee tothe members of Lost Dutchman’s and GPAA. Outdoor Channel Holdings also whollyowns 43455 BPD, LLC which owns the building housing our broadcast facility.

Our revenuesinclude (1) advertising fees from advertisements aired on The OutdoorChannel 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 also include fees paid by third-partyprogrammers to purchase advertising time in connection with the airing of theirprograms on The Outdoor Channel.

**Recent Accounting Developments**

InDecember 2004, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards No. 123 (revised 2004) (“SFAS 123R”)“Share-Based Payment” which revised the standards for the accounting fortransactions in which an entity exchanges its equity instruments for goods orservices and focuses primarily on accounting for transactions in which anentity obtains employee services in share-based payment transactions. SFAS 123Rrequires that the fair value of such equity instruments, including all optionsgranted to employees, be recognized as expense in the historical financialstatements as services are performed. Prior to the adoption of SFAS 123R,we used the intrinsic value method to account for employee stock options and,generally, made no charges against earnings with respect to those options atthe date of grant since our employee options had exercise prices that wereequal to the market price. SFAS 123R is effective for issuers as of thebeginning of the first annual reporting period that begins afterDecember 15, 2005. Accordingly, we adopted the provisions of SFASNo. 123R effective January 1, 2006.

In June 2006, theFASB issued Interpretation No. 48, “**Accountingfor Uncertainty in Income Taxes — an interpretation of FAS No. 109”**(“FIN 48”), which clarifies the accounting for uncertainty in income taxes.Currently, the accounting for uncertainty in income taxes is subject tosignificant and varied interpretations that have resulted in diverse andinconsistent accounting practices and measurements. Addressing such diversity,FIN 48 prescribes a consistent recognition threshold and measurement attribute,as well as clear criteria for subsequently recognizing, derecognizing andmeasuring changes in such 

28

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tax positions forfinancial statement purposes. FIN 48 also requires expanded disclosure withrespect to the uncertainty in income taxes. FIN 48 is effective for fiscalyears beginning after December 15, 2006. We have not yet determined the impactof FIN 48 on our consolidated financial position, results of operations, cashflows or financial statement disclosures.

The FASB hadissued certain other accounting pronouncements as of June 30, 2006 that willbecome effective in subsequent periods; however, our management does notbelieve that any of those pronouncements would have significantly affected ourfinancial accounting measurements or disclosures had they been in effect duringthe three and six months ended June 30, 2006.

**Comparisonof Operating Results for the Three Months Ended June 30, 2006 and June 30, 2005**

The followingtable discloses certain financial information for the periods presented,expressed in terms of dollars, dollar change, percentage change and as apercent of total revenue (all dollar amounts are in thousands):
| ** **                          | ** ** | ** **                                | ** ** | ** **                               | ** ** | **Change**                               | ** ** | **% of Total Revenue** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|---------------------------------------|------------|
| ** **                          | ** ** | **2006**                                  | ** ** | **2005**                                 | ** ** | **$**                                    | ** ** | **%**                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                          | ** ** | **(As Restated, Note 11)** | ** ** | **(As Restated Note 11)** | ** ** | **(As Restated Note 11)** | ** ** |
| Revenues:                           |       |                                      |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Advertising                         |       | $                                         | 5,668      |                                     | $          | 5,257                                    |       | $                                     | 411        |   | 7.8 | % | 51.9 | % | 52.5 | % |
| Subscriber fees                     |       | 4,341                                     |       | 3,894                                    |       | 447                                      |       | 11.5                                  |       | 39.7 |   | 38.9 |   |
| Membership income                   |       | 918                                       |       | 863                                      |       | 55                                       |       | 6.4                                   |       | 8.4 |   | 8.6 |   |
| Total revenues                      |       | 10,927                                    |       | 10,014                                   |       | 913                                      |       | 9.1                                   |       | 100.0 |   | 100.0 |   |
|                                |       |                                      |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Cost of  services:                  |       |                                      |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Programming                         |       | 2,206                                     |       | 531                                      |       | 1,675                                    |       | 315.4                                 |       | 20.2 |   | 5.4 |   |
| Satellite transmission fees         |       | 614                                       |       | 616                                      |       | (2                                       | )          | (0.3                                  | )          | 5.6 |   | 6.1 |   |
| Production and operations           |       | 890                                       |       | 733                                      |       | 157                                      |       | 21.4                                  |       | 8.2 |   | 7.3 |   |
| Other direct costs                  |       | 150                                       |       | 243                                      |       | (93                                      | )          | (38.3                                 | )          | 1.3 |   | 2.4 |   |
| Total cost of services              |       | 3,860                                     |       | 2,123                                    |       | 1,737                                    |       | 81.8                                  |       | 35.3 |   | 21.2 |   |
|                                |       |                                      |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Other expenses:                     |       |                                      |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Advertising                         |       | 1,587                                     |       | 2,062                                    |       | (475                                     | )          | (23.0                                 | )          | 14.5 |   | 20.6 |   |
| Selling, general and administrative |       | 5,476                                     |       | 4,491                                    |       | 985                                      |       | 21.9                                  |       | 50.1 |   | 44.9 |   |
| Depreciation and amortization       |       | 890                                       |       | 623                                      |       | 267                                      |       | 42.9                                  |       | 8.2 |   | 6.2 |   |
| Total other expenses                |       | 7,953                                     |       | 7,176                                    |       | 777                                      |       | 10.8                                  |       | 72.8 |   | 71.7 |   |
|                                |       |                                      |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Income (loss)  from operations      |       | (886                                      | )          | 715                                      |       | (1,601                                   | )          | (223.9                                | )          | (8.1 | ) | 7.1 |   |
|                                |       |                                      |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Interest expense                    |       | (77                                       | )          | (1                                       | )          | (76                                      | )          | NMF                                   |       | (0.7 | ) | — |   |
|                                |       |                                      |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Other income,  net                  |       | 645                                       |       | 38                                       |       | 607                                      |       | NMF                                   |       | 5.9 |   | 0.4 |   |
|                                |       |                                      |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Income (loss)  before income taxes  |       | (318                                      | )          | 752                                      |       | (1,070                                   | )          | NMF                                   |       | (2.9 | ) | 7.5 |   |
|                                |       |                                      |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Income tax  provision (benefit)     |       | (620                                      | )          | 315                                      |       | (935                                     | )          | NMF                                   |       | (5.7 | ) | 3.1 |   |
|                                |       |                                      |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Net income                          |       | $                                         | 302        |                                     | $          | 437                                      |       | $                                     | (135       | ) | NMF | % | 2.8 | % | 4.4 | % |

 

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***NMF – Not Meaningful***

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**Comparisonof Operating Results for the Six Months Ended June 30, 2006 and June 30, 2005**

The followingtable discloses certain financial information for the periods presented,expressed in terms of dollars, dollar change, percentage change and as apercent of total revenue (all dollar amounts are in thousands):
| ** **                          | ** ** | ** **                                | ** ** | ** **                                | ** ** | **Change**                                | ** ** | **% of Total Revenue** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------|------------|
| ** **                          | ** ** | **2006**                                  | ** ** | **2005**                                  | ** ** | **$**                                     | ** ** | **%**                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                          | ** ** | **(As Restated, Note 11)** | ** ** | **(As Restated, Note 11)** | ** ** | **(As Restated, Note 11)** | ** ** |
| Revenues:                           |       |                                      |       |                                      |       |                                      |       |                                  |       |   |   |   |   |
| Advertising                         |       | $                                         | 11,353     |                                      | $          | 10,516                                    |       | $                                     | 837        |   | 8.0 | % | 51.1 | % | 52.4 | % |
| Subscriber fees                     |       | 8,724                                     |       | 7,536                                     |       | 1,188                                     |       | 15.8                                  |       | 39.3 |   | 37.5 |   |
| Membership income                   |       | 2,139                                     |       | 2,023                                     |       | 116                                       |       | 5.7                                   |       | 9.6 |   | 10.1 |   |
| Total revenues                      |       | 22,216                                    |       | 20,075                                    |       | 2,141                                     |       | 10.7                                  |       | 100.0 |   | 100.0 |   |
|                                |       |                                      |       |                                      |       |                                      |       |                                  |       |   |   |   |   |
| Cost of  services:                  |       |                                      |       |                                      |       |                                      |       |                                  |       |   |   |   |   |
| Programming                         |       | 3,750                                     |       | 1,052                                     |       | 2,698                                     |       | 256.5                                 |       | 16.9 |   | 5.3 |   |
| Satellite transmission fees         |       | 1,252                                     |       | 1,249                                     |       | 3                                         |       | 0.2                                   |       | 5.7 |   | 6.2 |   |
| Production and operations           |       | 2,033                                     |       | 1,726                                     |       | 307                                       |       | 17.8                                  |       | 9.1 |   | 8.6 |   |
| Other direct costs                  |       | 358                                       |       | 462                                       |       | (104                                      | )          | (22.5                                 | )          | 1.6 |   | 2.3 |   |
| Total cost of services              |       | 7,393                                     |       | 4,489                                     |       | 2,904                                     |       | 64.7                                  |       | 33.3 |   | 22.4 |   |
|                                |       |                                      |       |                                      |       |                                      |       |                                  |       |   |   |   |   |
| Other expenses:                     |       |                                      |       |                                      |       |                                      |       |                                  |       |   |   |   |   |
| Advertising                         |       | 3,749                                     |       | 3,756                                     |       | (7                                        | )          | (0.2                                  | )          | 16.9 |   | 18.7 |   |
| Selling, general and administrative |       | 11,082                                    |       | 9,190                                     |       | 1,892                                     |       | 20.6                                  |       | 49.9 |   | 45.8 |   |
| Depreciation and amortization       |       | 1,563                                     |       | 1,321                                     |       | 242                                       |       | 18.3                                  |       | 7.0 |   | 6.6 |   |
| Total other expenses                |       | 16,394                                    |       | 14,267                                    |       | 2,127                                     |       | 14.9                                  |       | 73.8 |   | 71.1 |   |
|                                |       |                                      |       |                                      |       |                                      |       |                                  |       |   |   |   |   |
| Income (loss)  from operations      |       | (1,571                                    | )          | 1,319                                     |       | (2,890                                    | )          | (219.1                                | )          | (7.1 | ) | 6.5 |   |
|                                |       |                                      |       |                                      |       |                                      |       |                                  |       |   |   |   |   |
| Interest expense                    |       | (155                                      | )          | (2                                        | )          | (153                                      | )          | NMF                                   |       | (0.7 | ) | — |   |
|                                |       |                                      |       |                                      |       |                                      |       |                                  |       |   |   |   |   |
| Other income,  net                  |       | 1,268                                     |       | 90                                        |       | 1,178                                     |       | NMF                                   |       | 5.7 |   | 0.5 |   |
|                                |       |                                      |       |                                      |       |                                      |       |                                  |       |   |   |   |   |
| Income (loss)  before income taxes  |       | (458                                      | )          | 1,407                                     |       | (1,865                                    | )          | NMF                                   |       | (2.1 | ) | 7.0 |   |
|                                |       |                                      |       |                                      |       |                                      |       |                                  |       |   |   |   |   |
| Income tax  provision (benefit)     |       | (603                                      | )          | 593                                       |       | (1,196                                    | )          | NMF                                   |       | (2.7 | ) | 2.9 |   |
|                                |       |                                      |       |                                      |       |                                      |       |                                  |       |   |   |   |   |
| Net income                          |       | $                                         | 145        |                                      | $          | 814                                       |       | $                                     | (669       | ) | NMF | % | 0.6 | % | 4.1 | % |

 

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***NMF – Not Meaningful***

**Revenues**

Our revenuesinclude revenues from (1) advertising fees; (2) subscriber fees; and(3) membership income. Advertising revenue is generated from the sale ofadvertising time on The Outdoor Channel including advertisements shown during aprogram (also known as short-form advertising) and infomercials in whichthe advertisement is the program itself (also known as long-form advertising),and from the sale of advertising space in publications such as the*Gold Prospectors & Treasure Hunters in theGreat Outdoors* magazine. Advertising revenue is also generated fromfees paid by third party programmers that purchase advertising time inconnection with the airing of their programs on The Outdoor Channel. For thethree months ended June 30, 2006 and 2005, The Outdoor Channel generatedapproximately 96.6% and 97.0% of our advertising revenue, respectively. For thesix months ended June 30, 2006 and 2005, The Outdoor Channel generatedapproximately 96.9% and 97.1% of our advertising revenue, respectively.Subscriber fees are solely related to The Outdoor Channel. Membership income isgenerated by our activities other than the operation of The Outdoor Channel andincludes membership sales, magazine sales, merchandise sales, and sponsoredoutings and expeditions in connection with GPAA and Lost Dutchman’s.

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Total revenues forthe three months ended June 30, 2006 were $10,927,000, an increase of $913,000,or 9.1%, compared to revenues of $10,014,000 for the three months ended June30, 2005. Total revenues for the six months ended June 30, 2006 were$22,216,000, an increase of $2,141,000, or 10.7%, compared to revenues of$20,075,000 for the six months ended June 30, 2005. The net increases were theresult of changes in several items comprising revenue as discussed below.

Advertisingrevenue for the three months ended June 30, 2006 was $5,668,000, an increase of$411,000 or 7.8% compared to $5,257,000 for the three months ended June 30,2005. Advertising revenue for the six months ended June 30, 2006 was$11,353,000, an increase of $837,000 or 8.0% compared to $10,516,000 for thesix months ended June 30, 2005. For June 2006, Nielsen estimated that TheOutdoor Channel had 26.6 million viewers compared to 24.6 million for the sameperiod a year ago. (Nielsen revises this estimate each month and forAugust 2006, Nielsen increased its estimate to approximately 27.6 millionsubscribers). The increase in advertising revenue for the three and six monthsended June 30, 2006 principally reflects higher prices paid by third partyprogrammers for advertising time in connection with the airing of theirprograms, incremental advertising inventory retained by us to sell and additionalrevenue generated by our technical services department for providing productionservices for third party programmers. These factors contributing to theincrease were offset somewhat by less demand for our long-form inventory thatresulted in lower prices paid for infomercial blocks. We expect this softnessin the long-form market to continue for the foreseeable future. In addition, weexpect to provide less technical services to third parties in 2007 than in2006.

Subscriber feesfor the three months ended June 30, 2006 were $4,341,000, an increase of$447,000 or 11.5% compared to $3,894,000 for the three months ended June 30,2005. Subscriber fees for the six months ended June 30, 2006 were $8,724,000,an increase of $1,188,000 or 15.8% compared to $7,536,000 for the six monthsended June 30, 2005. The increase in subscriber fees for the period wasprimarily due to an increased number of paying subscribers both from newaffiliates and from existing distributors and contractual subscriber fee rate increaseswith existing service providers carrying The Outdoor Channel. When comparingthe respective quarterly results, most notable growth came from DirecTV, TimeWarner, Comcast and Cox. Principally we attribute the growth to the popularityof our programming as consumers continue to request our channel.

We plan toaccelerate our subscriber growth utilizing various means including deploymentof subscriber acquisition or launch support fees. Such fees are capitalized andamortized over the period that the pay television distributor is required tocarry the newly acquired TOC subscriber. To the extent revenue is associatedwith the incremental subscribers, the amortization is charged to offset therelated revenue. Any excess of launch support amortization over the relatedsubscriber fee revenue is charged to expense. As a result, we anticipate thatsubscriber fee revenue, net of amortization of launch fees, may notincrease over the foreseeable future as we deploy this strategy and, in fact,due to contractual volume discounts, subscriber fee revenue could actuallydecrease over the new or remaining contract lives.

Membership incomefor the three months ended June 30, 2006 was $918,000, an increase of $55,000or 6.4% compared to $863,000 for the three months ended June 30, 2005.Membership income for the six months ended June 30, 2006 was $2,139,000, anincrease of $116,000 or 5.7% compared to $2,023,000 for the six months endedJune 30, 2005. We believe that the recent surge in gold prices has reflecteditself in renewed interest by the consuming public that led to our increasedactivity in 2006. In the near term, we do not expect significant fluctuationsin membership income year-to-year.

**Cost ofServices**

Our cost of servicesconsists 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) satellite transmissionfees; (3) production and operations costs; and (4) other direct costs. Totalcost of services for the three months ended June 30, 2006 was $3,860,000, anincrease of $1,737,000 or 81.8%, compared to $2,123,000 for the three monthsended June 30, 2005. Total cost of services for the six months ended June 30,2006 was $7,393,000, an increase of $2,904,000 or 64.7%, compared to $4,489,000for the six months ended June 30, 2005. As a percentage of revenues, total costof services was 35.3% and 21.2% in the three months ended June 30, 2006 and2005, respectively. As a percentage of revenues, total cost of services was33.3% and 22.4% in the six months ended June 30, 2006 and 2005, respectively.The increase in cost of services is principally attributable to the increase inour programming expenses as we launched our second channel as further discussedbelow. We expect cost of services to continue to increase in the future as weexpand our existing markets and in-house production to support our advertisingstrategy.

Programming expenses forthe three months ended June 30, 2006 were $2,206,000, an increase of $1,675,000or 315.4% compared to $531,000 for the three months ended June 30, 2005.Programming expenses for the six months ended June 30, 2006 were $3,750,000, anincrease of $2,698,000 or 256.5% compared to $1,052,000 for the six monthsended June 30, 2005. The increase is principally a result of our decision tolaunch our second channel, Outdoor Channel 2 HD, on July 1, 2005. Weincurred minimal programming costs relative to this channel in the first andsecond quarters of 2005 as most of such costs incurred at that time werecharged to prepaid programming expense in anticipation of its launch in thesecond half of 2005.

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Duringthe first and second quarters of 2006, Outdoor Channel 2 HD wasfully-programmed.

Our policy is tocharge costs of specific show production to programming expense over theexpected airing period beginning when the program first airs. The cost of programmingis generally first recorded as prepaid programming costs and is then charged toprogramming expense based on the anticipated airing schedule. The anticipatedairing schedule is typically over 2 or 4 quarters that generally does notextend more than 2 years. As the anticipated airing schedule changes, thetiming and amount of the charge to expense is prospectively adjustedaccordingly. At the time we determine a program is unlikely to air or re-air,we charge programming expense with the remaining associated cost recorded inprepaid programming.

Programming expenses areexpected to increase as a percentage of revenue as we pursue our strategy toproduce, or acquire, more programming in-house as opposed to selling the airtime to third party producers. As a result, we believe we will control more ofour programs’ quality, advertising inventory, sponsorship opportunities, andthe potential to re-package our programming for other uses such asvideo-on-demand, international licensing, and production of DVDs for retaildistribution. Since we have limited experience in re-packaging our programmingfor these other uses, we do not retain costs in prepaid programming to matchwith these potential revenue sources. When we develop a sufficient history, ourpolicy might change.

Satellitetransmission fees for the three months ended June 30, 2006 were $614,000, adecrease of $2,000, or 0.3%, compared to $616,000 for the three months endedJune 30, 2005. Satellite transmission fees for the six months ended June 30, 2006were $1,252,000, an increase of $3,000, or 0.2%, compared to $1,249,000 for thesix months ended June 30, 2005. The noted changes reflect the relative fixednature of our contracts for uplink and transmission of our signals.

Production and operationscosts for the three months ended June 30, 2006 were $890,000, an increase of$157,000, or 21.4%, compared to $733,000 for the three months ended June 30,2005. Production and operations costs for the six months ended June 30, 2006were $2,033,000, an increase of $307,000, or 17.8%, compared to $1,726,000 forthe six months ended June 30, 2005. The increase in costs principally relatesto increased personnel to support our growing infrastructure as we produce moreshows in-house and to support our new broadcast facility.

Other direct costs forthe three months ended June 30, 2006 were $150,000, a decrease of $93,000, or38.3%, compared to $243,000 for the three months ended June 30, 2005. Otherdirect costs for the six months ended June 30, 2006 were $358,000, a decreaseof $104,000, or 22.5%, compared to $462,000 for the six months ended June 30,2005. This improvement principally relates to the timing of delivery of ourmagazine.  Generally we expect otherdirect costs to increase commensurate with Membership income.

**OtherExpenses**

Other expensesconsist of the cost of (1) advertising; (2) selling, general andadministrative expenses; and (4) depreciation and amortization.

Total otherexpenses for the three months ended June 30, 2006 were $7,953,000, an increaseof $777,000 or 10.8%, compared to $7,176,000 for the three months ended June30, 2005. Total other expenses for the six months ended June 30, 2006 were$16,394,000, an increase of $2,127,000 or 14.9%, compared to $14,267,000 forthe six months ended June 30, 2005. As a percentage of revenues, total otherexpenses were 72.8% and 71.7% in the three months ended June 30, 2006 and 2005,respectively. As a percentage of revenues, total other expenses were 73.8% and71.1% in the six months ended June 30, 2006 and 2005, respectively. Theincrease in other expenses was due to several factors including adoption ofSFAS 123R effective January 1, 2006, additional depreciation expense resultingfrom our broadcast facility which was placed into service effective April 1,2006, and other items more fully described as follows.

Advertisingexpenses for the three months ended June 30, 2006 were $1,587,000, a decreaseof $475,000 or 23.0% compared to $2,062,000 for the three months ended June 30,2005. Advertising expenses for the six months ended June 30, 2006 were$3,749,000, a decrease of $7,000 or 0.2% compared to $3,756,000 for the sixmonths ended June 30, 2005. In the first quarter of 2006, we conducted anaggressive campaign that was part of our strategic plan to support continuedsubscriber growth. In the second quarter of 2006, we reduced our spending onadvertising to levels that, in aggregate, matched our six month plan. Generallywe expect spending levels on advertising related expenses to trend with theaggregate six month levels with moderate increases to support our effort todrive subscriber growth and ultimately revenue growth.

Selling, generaland administrative expenses for the three months ended June 30, 2006 were$5,476,000, an increase of $985,000 or 21.9% compared to $4,491,000 for thethree months ended June 30, 2005. Selling, general and administrative expensesfor the six months ended June 30, 2006 were $11,082,000, an increase of$1,892,000 or 20.6% compared to $9,190,000 for the six months ended June 30,2005. As a percentage of revenues, selling, general and administrative expenseswere 50.1% and 44.9% in the three months ended June 30, 2006 and 2005,respectively. As a percentage of revenues, selling, general andadministrative expenses were 49.9% and 45.8% in the six months ended June 30,2006 and 2005, respectively. The increase was primarily attributable tothe adoption of SFAS 123R as of January 1, 2006 which now requires 

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us to charge thefair value of stock options we have issued to our employees over the vestingperiod to compensation expense which we did not have to record in 2005. Thenon-cash charge in the three and six months ended June 30, 2006 amounted to$756,000 and $1,470,000, respectively. The remainder of the increase in selling,general and administrative fees related primarily to increased research fees tosupport our selling efforts, accounting fees for completion of ourSarbanes-Oxley audit in 2006 related to the 2005 fiscal year, legal feesincurred in the first quarter as a result of our ongoing efforts related to ourcarriage agreement negotiations, and to other operating costs.

We anticipate thatselling, general and administrative costs will continue to increase over theforeseeable future. Such increases are expected to result from the adoption ofSFAS 123R as well as from increases in other corporate expenses.

Depreciation andamortization for the three months ended June 20, 2006 were $890,000 an increaseof $267,000 or 42.9% compared to $623,000 for the three months ended June 20,2005. Depreciation and amortization for the six months ended June 30, 2006 were$1,563,000 an increase of $242,000 or 18.3% compared to $1,321,000 for the sixmonths ended June 20, 2005. The increase primarily relates to the depreciationincurred related to our broadcast facility placed into service April 1, 2006.

**Income(Loss) from Operations**

Income (loss) fromoperations for the three months ended June 30, 2006 was a loss of $886,000, adecrease of $1,601,000 compared to income of $715,000 for the three monthsended June 30, 2005. Income (loss) from operations for the six months endedJune 30, 2006 was a loss of $1,571,000, a decrease of $2,890,000 compared toincome of $1,319,000 for the six months ended June 30, 2005. As discussedabove, this decrease is primarily a result of the increased programming costsassociated with the launch of our second channel, Outdoor Channel 2 HD,increased compensation expense resulting from the adoption of SFAS 123R,increased legal fees relating to our carriage agreements and depreciationrelated to our newly opened broadcast facility. As we continue to striveto drive growth of our subscriber base including the ongoing and plannedpayment of launch support, and as we further develop our second channel, OutdoorChannel 2 HD, we will continue to incur increased expenses such as programming,marketing and advertising that are unlikely to be immediately offset byrevenues. As a result, we anticipate our operating margins will be negativelyimpacted for the foreseeable future. There can be no assurance that thesestrategies will be successful.

**InterestExpense**

Interest expensefor the three months ended June 30, 2006 was $77,000, an increase of $76,000compared to $1,000 for the three months ended June 30, 2005. Interest expensefor the six months ended June 30, 2006 was $155,000, an increase of $153,000compared to $2,000 for the six months ended June 30, 2005. This is attributableto having obtained two term loans in November 2005 with original aggregateprincipal amount of $4,950,000 with effective fixed interest rates of 6.59% and6.35%.

**OtherIncome, Net**

Other income, netfor the three months ended June 30, 2006 was $645,000, an increase of $607,000compared to $38,000 for the three months ended June 30, 2005. Other income, netfor the six months ended June 30, 2006 was $1,268,000, an increase of$1,178,000 compared to $90,000 for the six months ended June 30, 2005. Thisimprovement was primarily due to increased dividends and interest earned on ourincreased investment in available-for-sale securities and cash and cashequivalent balances.

**Income(Loss) Before Income Taxes**

Income (loss)before income taxes as a percentage of revenues was (2.9%) for the three monthsended June 30, 2006 compared to 7.5% for the three months ended June 30, 2005.Income (loss) before income taxes as a percentage of revenues was (2.1%) forthe six months ended June 30, 2006 compared to 7.0% for the six months endedJune 30, 2005.

The TOC segment’sincome before income taxes decreased to $289,000 for the three months endedJune 30, 2006 from $1,449,000 for the three months ended June 30, 2005. The TOCsegment’s income before income taxes decreased to $842,000 for the six monthsended June 30, 2006 from $2,461,000 for the six months ended June 30, 2005.Expressed as a percentage of revenue, the TOC segment’s income before incometaxes decreased to 2.9% for the three months ended June 30, 2006, compared to16.1% for the three months ended June 30, 2005. Expressed as a percentage ofrevenue, the TOC segment’s income before income taxes decreased to 4.3% for thesix months ended June 30, 2006, compared to 13.9% for the six months ended June30, 2005. The decrease was due mainly to increased programming costs as aresult of having launched our second channel, Outdoor Channel 2 HD, at thebeginning of the third quarter of 2005 thus related costs were incurred in thefirst and second quarters of 2006 that were not incurred in the same periods in2005. Contributing to the decline was the adoption of SFAS 123R whereby the TOCsegment recognized $222,000 and $390,000 of compensation expense related to 

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employee stockoptions in the three and six months ended June 30, 2006, respectively, (2.0% ofsegment revenue) that it did not have in the same period in 2005. TOC placedour new broadcast facility into service April 1, 2006 which resulted indepreciation expense of $199,000 in the second quarter of 2006 that did notexist in 2005. Also, we incurred incremental expenses in subscriptions andresearch to support our programming and selling efforts.

The MembershipDivision segment’s loss before income taxes increased to $190,000 for the threemonths ended June 30, 2006 from a loss of $173,000 for the three months endedJune 30, 2005. The Membership Division segment’s loss before income taxesdecreased to $1,000 for the six months ended June 30, 2006 from a loss of$114,000 for the six months ended June 30, 2005. Expressed as a percentage ofrevenues, the Membership Division segment’s loss before income taxes increasedto 17.1% for the three months ended June 30, 2006 compared to 17.0% for thethree months ended June 30, 2005. Expressed as a percentage of revenues, theMembership Division segment’s loss before income taxes improved to 0.0% for thesix months ended June 30, 2006 compared to (4.9%) for the six months ended June30, 2005. Revenue increased $92,000 or 9.0% and $167,000 or 7.2% in the threeand six months ended June 30, 2006, respectively. The improvement isprincipally a result of a renewed interest in gold prospecting which we believeis partially driven by rising gold prices. Also contributing to the improvingsegment margins is a slight decrease in personnel with the commensurate savingsof payroll, payroll related expenses and travel costs.

Corporate incurreda loss before income taxes for the three months ended June 30, 2006 amountingto $417,000, a decrease of $107,000 compared to a loss of $524,000 for thethree months ended June 30, 2005. Corporate incurred a loss before income taxesfor the six months ended June 30, 2006 amounting to $1,299,000, an increase of$359,000 compared to a loss of $940,000 for the six months ended June 30, 2005.The expenses allocated to Corporate include: professional fees such as publicrelations, accounting and legal fees, business insurance, board of directorsfees and expenses, and an allocation of corporate officers’ payroll and relatedexpenses. Effective January 1, 2006, we prospectively adopted SFAS 123R andCorporate incurred a charge to compensation expense related to stock options of$490,000 and $1,007,000 in the three and six months ended June 30, 2006,respectively. In the first three months of 2006, our Corporate loss was greaterthan the same period in 2005 due to the incurrence of a charge to compensationexpense for SFAS 123R of $517,000 not incurred in 2005, as well as anaggressive ad campaign conducted in the first quarter of 2006, accountingexpenses incurred with our first Sarbanes-Oxley 404 audit conducted in 2006 forDecember 31, 2005, and certain legal fees incurred as a result of our ongoingefforts related to our carriage agreement negotiations. The increased expenseswere somewhat offset by interest and dividend income earned on our cash andinvestment in available-for-sale securities. In the second three months of 2006our Corporate loss was less than the same period in 2005. As noted above, weincurred approximately $490,000 of additional compensation expense as a resultof the adoption of SFAS 123R in the second quarter that we did not have in thesecond quarter of 2005 but we also realized approximately $622,000 of interestand dividend income in the 2006 quarter which was not generated in the sameperiod in 2005.

**IncomeTax Provision (Benefit)**

Income taxprovision (benefit) for the three months ended June 30, 2006 was ($620,000), adecrease of $935,000 as compared to $315,000 for the three months ended June30, 2005. Income tax provision (benefit) for the six months ended June 30, 2006was ($603,000), a decrease of $1,196,000 as compared to $593,000 for the sixmonths ended June 30, 2005. The decrease was principally due to the Companyincurring a loss in the first six months of 2006 as compared to incomegenerated in the first six months of 2005. The effective income tax rate forthe three and six months ended June 30, 2006 is (195.0%) and (131.6%),respectively. For the three and six months ended June 30, 2005, the effectiveincome tax was approximately 41.9% and 42.1%, respectively. These benefit ratesexceed the expected tax benefits computed based on the pre-tax losses and theapplicable statutory Federal income tax rate of 34%. Interim tax provisions andbenefits are determined using an estimate of the annual effective tax rate. Ourestimated annual effective tax rate is affected by permanent differencesbetween income before taxes for financial reporting purposes and taxableincome. Our most significant permanent difference, and the principal reason whyour estimated effective income tax rate is substantially greater than thestatutory Federal income tax rate, relates to the portion of our compensationexpense recognized for financial statement reporting purposes that isattributable to the non-cash charges recorded under SFAS 123R for the fairvalue of qualified incentive stock options, or ISOs, granted to employees whichare generally not deductible for tax reporting purposes. We recognized non-cashcharges to compensation expense of $192 and $343 in the three and six monthsended June 30, 2006, respectively, related to ISOs under SFAS 123R.

**NetIncome**

Net income for thethree months ended June 30, 2006 was $302,000, a decrease of $135,000 comparedto $437,000 for the three months ended June 30, 2005. Net income for the sixmonths ended June 30, 2006 was $145,000, a decrease of $669,000 compared to$814,000 for the six months ended June 30, 2005. The decrease was due to thereasons stated above.

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**Liquidityand Capital Resources**

We generated$668,000 of cash in our operating activities in the six months ended June 30,2006, compared to cash used in operating activities of $218,000 in the sixmonths ended June 30, 2005 and had a cash and cash equivalent balance of$22,040,000 at June 30, 2006, an increase of $3,764,000 from the balance of$18,276,000 at December 31, 2005. We also had short-term investmentsclassified as available-for-sale securities of $34,566,000 at June 30, 2006, adecrease of $4,264,000 from the balance of $38,830,000 at December 31,2005. The investments at June 30, 2006 were comprised principally ofauction rate securities ($33,730,000) with interest rates that generally resetevery 28 days. The auction rate securities have long-term maturity datesand provide us with enhanced yields. Various equity securities ($836,000) makeup the remainder of the June 30, 2006 balance. We believe we have the abilityto quickly liquidate the auction rate securities at their original costalthough there is no guaranty we would be able to do so. Net working capitalincreased to $67,234,000 at June 30, 2006, compared to $66,183,000 at December 31,2005.

Net cash providedby investing activities was $2,181,000 in the six months ended June 30, 2006compared to cash used of $3,373,000 for the six months ended June 30, 2005. Theincrease in cash provided by investing activities was related principally tothe net difference of sales and purchases of short-term auction rate securitieswhich did not exist in the first and second quarters of 2005. Additionallycontributing to the increase in cash provided by investing activities was adecrease in capital expenditures in the first six months of 2006 compared tothe same time period in 2005. In the first half of 2005 we acquired equipmentrelated to our HD signal and production in anticipation of the launch of oursecond channel on July 1, 2005. In 2005, we also purchased a number of vehicleswe use in support of affiliate sales and our annual Alaska trip. After wereassessed our facilities requirements including floor space utilization,master control equipment, uplink equipment, and other needs, we announced ourintention to purchase a 28,000 square foot building in Temecula, California forapproximately $2.6 million, on February 22, 2005. We completed thepurchase during the third quarter of 2005. We have substantially completed thebuilding improvements and placed the facility into service on April 1, 2006.Additional capital expenditures were for fixed asset replacements.  Cash provided by financing activities was$915,000 in the six months ended June 30, 2006 compared to cash used of$507,000 for the six months ended June 30, 2005. The cash provided by financingactivities in the six months ended June 30, 2006 was proceeds from the sale ofshares upon the exercise of stock options and tax benefits from the exercise ofstock options in excess of recognized expense, offset by principal payments onoutstanding debt. The cash used in financing activities in the six months endedJune 30, 2005 was primarily for prepaid costs for our public offering completedon July 1, 2005 partially offset by the proceeds from the exercise of stockoptions.  In accordance with SFAS 123R,we have presented on a prospective bases the tax benefits from exercise ofstock options in excess of recognized expense of $705,000 as a cash flow fromfinancing activities in the accompanying unaudited condensed consolidatedstatement of cash flows for the six months ended June 30, 2006, rather than asa cash flow from operating activities, as was prescribed under accounting rulesapplicable through December 31, 2005. Tax benefits from the exercise of stock options in excess of recognizedexpense of $740,000 has been presented as a cash flow from operating activitiesfor the six months ended June 30, 2005.

OnNovember 2, 2005, we renewed our revolving line of credit agreement (the “revolver”)with U.S. Bank N.A. (the “Bank”), extending the maturity date toSeptember 7, 2007 and increasing the total amount which can be drawn uponunder the revolver from $5,000,000 to $8,000,000. The revolver providesthat 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 and certainminimum profitability metrics (which, as amended, exclude the effects ofnon-cash stock based employee compensation expense) measured at each quarterend. As of June 30, 2006 and as of the date of this report, we did not have anyamounts outstanding under this credit facility.

OnNovember 2, 2005, we obtained a $1,950,000 mortgage loan from the Bank onour recently purchased building that houses our broadcast facility located inTemecula, California which has a 10 year term loan with a 25 year amortizationschedule. This loan carries a variable interest rate of LIBOR plus 1.35%. Thisloan is secured primarily by a Deed of Trust on the property and is alsosecondarily secured by the same assets as the revolver. It also containscustomary financial and other covenants and restrictions including a change ofcontrol provision and certain minimum profitability metrics (which, as amended,exclude the effects of non-cash stock based employee compensation expense)measured at each quarter end. 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 loanat 6.59%.

OnNovember 2, 2005, we obtained a $3,000,000, five year fully amortizingterm loan. This loan carries a variable interest rate of LIBOR plus 1.35%. Thisterm loan is secured by the same assets as the revolver and contains customaryfinancial and other covenants and restrictions including a change of controlprovision and certain minimum profitability metrics (which, as amended, excludethe effects of non-cash stock based employee compensation expense) measured ateach quarter end. On November 7, 2005, we entered into an interest rateswap agreement with the Bank to reduce the potential impact of increasinginterest rates and effectively fixed the interest rate on this term loan at6.35%. This loan was obtained to help finance the equipment and leaseholdimprovements bought in relation the build out of our broadcast facilityincluding delivery of our HD signal and production.

As of June 30,2006, we had sufficient cash on hand and had been generating sufficient cashflow from operations to meet our short-term cash flow requirements includingthe payment of unpaid taxes to those states in which we have sufficient nexusbut have not previously apportioned income. Management believes that ouranticipated cash flows from operating activity along with our existing cashresources including cash on-hand, available-for-sale securities and access to the

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revolver, will besufficient to fund our operations at current levels and anticipated capitalrequirements through at least September 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.

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK.**

At June 30, 2006and December 31, 2005, our investment portfolio included fixed-income andequity securities of $34,566,000 and $38,830,000, 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 asignificant level of transactions denominated in currencies other than U.S.dollars and as a result we have very limited foreign currency exchange raterisk. The effect of an immediate 10% change in foreign exchange rates wouldhave no material impact on our financial condition, operating results or cashflows.

As of June 30,2006 and as of August 9, 2006, the date of the original Form 10-Q for thequarter ended June 30, 2006, we had aggregate outstanding borrowings ofapproximately $4,543,000 and $4,426,000, respectively. The rates of interest onour currently outstanding debt are fixed while the rate of interest on ourline-of-credit is variable, but we currently have no outstanding balance underthis credit facility. Because of these reasons, an immediate 10% change ininterest rates would have no material, immediate impact on our financialcondition, operating results or cash flows.

**ITEM 4. 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 pursuantto the regulations of the Securities and Exchange Commission. Disclosurecontrols and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under theExchange 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 Executive Officer and Chief FinancialOfficer, evaluated the effectiveness of our disclosure controls and proceduresas of June 30, 2006, the end of the period covered by this report, andconcluded that our disclosure controls and procedures were effective as of June30, 2006.

*Changesin internal control over financial reporting.* During thethree months ended June 30, 2006, there was no change in our internal controlover financial reporting that materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

**PART II—OTHER INFORMATION**

**ITEM1.                Legal Proceedings.**

From time to time,we may be involved in litigation relating to claims arising out of ouroperations. As of the date of this report, we are not a party to any legalproceedings that are expected, individually or in the aggregate, to have amaterial adverse effect on our business, financial condition or operatingresults.

**ITEM1A.             Risk Factors.**

Ourbusiness and operations are subject to a number of risks and uncertainties, andthe following list should not be considered to be a definitive list of allfactors that may affect our business, financial condition and futureoperating results and should be read in conjunction with the risks anduncertainties, including risk factors, contained in our other filings with theSecurities and Exchange Commission. Any forward-looking statements made by usare made with the intention of obtaining the benefits of the “safe harbor”provisions of the Securities Litigation Reform Act and a number offactors, including, but not limited to those discussed below, could cause ouractual results and experiences to differ materially from the anticipatedresults or expectations expressed in any forward-looking statements.

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**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.**

Amajor component of our growth strategy is based on increasing the number ofsubscribers to our channels. Growing our subscriber base depends upon manyfactors, such as the success of our marketing efforts in driving consumerdemand for our channels; overall growth in cable and satellite subscribers; thepopularity of our programming; our ability to negotiate new carriageagreements, or amendments to, or renewals of, current carriage agreements, andmaintain existing distribution; plus other factors that are beyond our control.There can be no assurance that we will be able to maintain or increase thesubscriber base of our channels on cable and satellite systems or that ourcurrent carriage will not decrease as a result of a number of factors. Inparticular, negotiations for new carriage agreements, or amendments to, orrenewals of, current carriage agreements, are lengthy and complex, and we arenot able to predict with any accuracy when such increases in our subscriberbase may occur, if at all. If we are unable to grow our subscriber base,our subscriber and advertising revenues may not increase and coulddecrease. In addition, as we plan and prepare for such projected growth in oursubscriber base, we plan to increase our expenses accordingly. If we are notable to increase our revenue to offset these increased expenses, ourprofitability 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.**

Althoughwe currently have plans to increase our marketing and sales efforts in anattempt to increase the number of our subscribers, we may not be able todo so economically or at all. If we are unable to increase the number of oursubscribers on a cost-effective basis, or if the benefits of doing so do notmaterialize, our business and operating results would be harmed. In particular,if we make any upfront cash payments to service providers for an increase in oursubscriber base, our cash flow could be adversely impacted, and wemay incur negative cash flow for some time. In addition, if we were tomake such upfront cash payments or provide other incentives to serviceproviders, we expect to amortize such amounts ratably over the term of theagreements with the service providers. However, if a service providerterminates any such agreement prior to the expiration of the term of suchagreement, then under current accounting rules we may incur a large expensein that quarter in which the agreement is terminated equal to the remainingun-amortized amounts and our operating results could accordingly be adverselyaffected.

**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.**

Manyof our existing agreements with cable and satellite service providers contain “mostfavored nation” clauses. These clauses typically provide that if we enter intoan agreement with another service provider on more favorable terms, these termsmust be offered to the existing service provider, subject to some exceptionsand conditions. Future agreements with service providers may also containsimilar “most favored nation” clauses. If, in our attempt to increase ournumber of subscribers, we structure launch support fees to effectively offermore favorable terms to any service provider, these clauses may require usto reduce the effective subscriber fee rates that we receive from other serviceproviders, and this could negatively affect our operating results.

**If our channels are placed in unpopular program packages bycable or satellite service providers, or if service fees are increased for oursubscribers, the number of viewers of our channels may decline which couldharm our business and operating results.**

We donot control the channels with which our channels are packaged by cable orsatellite service providers. The placement by a cable or satellite serviceprovider of our channels in unpopular program package could reduce or impairthe growth of the number of our viewers and subscriber fees paid by serviceproviders to us. In addition, we do not set the prices charged by cable andsatellite service providers to their subscribers when our channels are packagedwith other television channels. The prices for the channel packages in whichour channels are bundled may be set too high to appeal to individuals whomight otherwise be interested in our networks. Further, if our channels arebundled by service providers with networks that do not appeal to our viewers oris moved to packages with fewer subscribers, we may lose viewers. Thesefactors may reduce the number of viewers of our channel, which in turnwould reduce our subscriber fees and advertising revenue.

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

Thesuccess of The Outdoor Channel is dependent, in part, on our ability to enterinto new carriage agreements and maintain existing agreements with, andcarriage by, satellite systems and multiple system operators’, which we referto as MSOs, affiliated regional or individual cable systems. Although we haverelationships or agreements with most of the largest MSOs and satellite serviceproviders, execution of an agreement with an MSO does not ensure that itsaffiliated regional or

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individual cablesystems will carry The Outdoor Channel. Under our current agreements, TheOutdoor Channel typically offers MSOs and their cable affiliates the right tobroadcast The Outdoor Channel to their subscribers, but such contracts do notrequire that The Outdoor Channel be offered to all subscribers of, or any tiersoffered by, the MSO. Because certain carriage agreements do not specify onwhich service levels The Outdoor Channel is carried, such as analog versusbasic digital, expanded digital or specialty tiers, and in which geographicmarkets The Outdoor Channel will be offered, we have no assurance that TheOutdoor Channel will be carried and available to viewers of any particular MSOor to all satellite subscribers. In addition, if we are unable to fully complywith the terms of such agreements, the service providers could discontinuecarrying The Outdoor Channel. If cable and satellite service providersdiscontinue or refrain from carrying The Outdoor Channel, this could reduce thenumber of viewers and harm our operating results.

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

Cableand satellite operators continue to consolidate, making The Outdoor Channelincreasingly dependent on fewer operators. If these operators fail to carry TheOutdoor Channel, use their increased distribution and bargaining power tonegotiate less favorable terms of carriage or to obtain additional volumediscounts, our business and operating results would suffer.

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

Wehave undergone rapid and significant growth in revenue and subscribers over thelast several years, and our strategic objectives include not only furtherdeveloping and enhancing our existing business, but also expanding our in-houseproduction capabilities. There are risks inherent in rapid growth and thepursuit of new strategic objectives, including among others: investment anddevelopment of appropriate infrastructure, such as facilities, informationtechnology systems and other equipment to support a growing organization;hiring and training new management, sales and marketing, production, and otherpersonnel and the diversion of management’s attention and resources fromcritical areas and existing projects; and implementing systems and proceduresto successfully manage growth, such as monitoring operations, controllingcosts, maintaining effective quality and service, and implementing andmaintaining adequate internal controls. Although we have recently moved intoour new Temecula, California production facility, we expect that additionalexpenditures will be required as we continue to upgrade our facilities. Wecannot assure you that we will be able to successfully manage our growth, thatfuture growth will occur or that we will be successful in managing our businessobjectives. We can provide no assurance that our profitability or revenues willnot be harmed by future changes in our business. Our operating results could beharmed if such growth does not occur, or is slower or less profitable thanprojected.

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

Ourability to secure national advertising accounts, which generally pay higheradvertising rates, depends upon the size of our audience, the popularity of ourprogramming and the demographics of our viewers, as well as strategies taken byour competitors, strategies taken by advertisers and the relative bargainingpower of advertisers. Competition for national advertising accounts and relatedadvertising expenditures is intense. We face competition for such advertisingexpenditures from a variety of sources, including other cable network companiesand other media. We cannot assure you that our sponsors will pay advertisingrates for commercial air time at levels sufficient for us to make a profit orthat we will be able to attract new advertising sponsors or increaseadvertising revenues. If we are unable to attract national advertising accountsin sufficient quantities, our revenues and profitability may be harmed.

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

We arerequired to pay income taxes in various states in which we conduct our businessoperations. In the past, we have paid state income taxes only in California(where our headquarters is located) and have not paid income taxes to any otherstate. We have determined that we may have state income tax liability inthe eight states other than California in which our gold prospecting propertiesare located. Although we expect in the near future to gather sufficientinformation to enable us to apportion our income to such states and file incometax returns in those states for past years, we can offer no assurances as towhen we will be able to file state income tax returns in those states where wemay have outstanding, current and future tax liabilities. In general, webelieve any income taxes that we may be required to pay to states otherthan California will be partially offset by a refund from the State ofCalifornia for income tax amounts we have overpaid to California in past years.We may, however, be limited as to the number of years for which we can receivea refund from California for taxes previously paid, and we cannot predict whenwe would receive any such refund. In addition, because each state to which wemay owe outstanding income taxes has a different methodology forcalculating tax owed and a different tax rate, our aggregate state income taxliability could be greater than what we have paid to California in prior years.Our aggregate state income tax liability, on which we may owe accrued interestand penalties, could be material to our results of operations.

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**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.**

Theaverage cost of programming has increased recently for the cable industry andsuch increases may continue. We plan to build our programming librarythrough the acquisition of long-term broadcasting rights from third partyproducers, in-house production and outright acquisition of programming, andthis may lead to increases in our programming costs. The development,production and editing of television programming requires a significant amountof capital and there are substantial financial risks inherent in developing andproducing television programs. Actual programming and production costsmay exceed their budgets. Factors such as labor disputes, death ordisability of key spokespersons or program hosts, damage to film negatives,master tapes and recordings or adverse weather conditions may cause costoverruns and delay or prevent completion of a project. If we are not able tosuccessfully recover the costs of developing or acquiring programming throughincreased revenues, whether the programming is produced by us or acquired fromthird-party producers, our business and operating results will be harmed.

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

InJuly 2005, we launched an all new, all native high definition networkcalled Outdoor Channel 2 HD. There can be no assurance that Outdoor Channel 2HD will not incur unexpected costs and expenses. Distribution of OutdoorChannel 2 HD will depend on successfully executing new or amended distributionagreements with cable and satellite service providers. There can be noassurance that such agreements can be made, and if they are made, that theywill 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 Outdoor Channel2 HD beyond our control or expectations. All of these factors, combined orseparately, could increase costs or restrain revenue and adversely affect ouroperating 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.**

Ouroperations are influenced by many factors. These factors may cause ourfinancial results to vary significantly in the future and our operating resultsmay not meet the expectations of securities analysts or investors. If thisoccurs, the price of our stock may decline. Factors that can cause ourresults to fluctuate include, but are not limited to:

•  carriagedecisions of cable and satellite service providers;

•  demand foradvertising, advertising rates and offerings of competing media;

•  changes inthe growth rate of cable and satellite subscribers;

•  cable andsatellite service providers’ capital and marketing expenditures and theirimpact on programming offerings and penetration;

•  seasonaltrends in viewer interests and activities;

•  pricing,service, marketing and acquisition decisions that could reduce revenues andimpair quarterly financial results;

•  the mix of cabletelevision and satellite-delivered programming products and services sold andthe distribution channels for those products and services;

•  ourability to react quickly to changing consumer trends;

•  specificeconomic conditions in the cable television and related industries; and

•  changingregulatory requirements.

Due tothe foregoing and other factors, many of which are beyond our control, ourrevenue and operating results vary from period to period and are difficult toforecast. Our expense levels are based in significant part on ourexpectations of future revenue. Therefore, our failure to meet revenueexpectations would seriously harm our business, operating results, financialcondition and cash flows. Further, an unanticipated decline in revenue for aparticular calendar quarter may disproportionately affect ourprofitability because our expenses would remain relatively fixed and would notdecrease correspondingly.

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

Weprepare our financial statements to conform to generally acceptedaccounting principles (“GAAP”), which are subject to interpretations by theFinancial Accounting Standards Board, the Securities and Exchange Commissionand various bodies formed to interpret and create appropriate accountingpolicies. A change in those policies can have a significant effect on ourreported 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.**

Ouroperating results depend significantly upon the generation of advertisingrevenue. Our ability to generate advertising revenues is largely dependent onour Nielsen ratings, which estimates the number of viewers of The OutdoorChannel, and this directly impacts the level of interest of advertisers andrates we are able to charge. If we fail to program popular shows that maintainor increase our current number of viewers, our Nielsen ratings could decline,which in turn could cause our advertising revenue to decline and adverselyimpact our business and operating results. In addition, if we fail to programpopular shows the number of subscribers to our channel may also decrease,resulting in a decrease in our subscriber fee and advertising revenue.

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

Ourability to sell advertising is largely dependent on television ratings and oursubscriber base estimated by Nielsen. We do not control the methodology used byNielsen for these estimates. If Nielsen modifies its methodology or changes thestatistical sample it uses for these estimates, such as the demographiccharacteristics of the households, our ratings could be negatively affectedresulting 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.**

Wecompete for viewers with other pay cable television and broadcast networks,including OLN, Spike TV, ESPN2 and others. If these or other competitors, manyof which have substantially greater financial and operational resources thanus, significantly expand their operations with respect to outdoor-relatedprogramming or their market penetration, our business could be harmed. Inaddition, certain technological advances, including the deployment of fiberoptic cable, which are already substantially underway, are expected to allowcable systems to greatly expand their current channel capacity, which coulddilute our market share and lead to increased competition for viewers fromexisting or new programming services.

Wealso compete with television network companies that generally have largesubscriber bases and significant investments in, and access to, competitiveprogramming sources. In some cases, we compete with cable and satellite serviceproviders that have the financial and technological resources to create anddistribute their own television networks, such as OLN, which is owned andoperated by Comcast. In order to compete for subscribers, we may payeither launch fees or marketing support or both for carriage in certaincircumstances 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 with our attempts for broaderdistribution of The Outdoor Channel and the number of such securities could besignificant. We compete for advertising sales with other pay television networks,broadcast networks, and local over-the-air television stations. We also competefor advertising sales with satellite and broadcast radio and the print media.We compete with other cable television networks for subscriber fees from, andaffiliation agreements with, cable and satellite service providers. Actions bythe Federal Communications Commission, which we refer to as the FCC, and thecourts have removed certain of the impediments to entry by local telephonecompanies into the video programming distribution business, and otherimpediments could be eliminated or modified in the future. These localtelephone companies may distribute programming that is competitive withthe programming provided by us to cable operators.

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

TheSarbanes-Oxley Act of 2002 required us to change or supplement some of ourcorporate governance and securities disclosure and compliance practices. TheSecurities and Exchange Commission and NASDAQ have revised, and continue torevise, their regulations and listing standards. These developments haveincreased, and may continue to increase, our legal compliance and financialreporting 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.**

Ourability to attract new members and retain existing members in our club organizations,GPAA and Lost Dutchman’s, depends, in part, upon our marketing efforts,including our programming on The Outdoor Channel and such other efforts asdirect mail campaigns, continued sponsorship of expositions dedicated to goldprospecting, treasure hunting and related interests around the country andintroductory outings held at our campsites. We cannot assure you that we willsuccessfully attract new members or retain existing members. A decline inmembership in our club organizations could harm our business and operatingresults.

**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.**

Ourability to deliver programming to service providers, and their subscribers, isdependent upon the satellite equipment and software that we use to workproperly to distribute our programming. If this satellite system fails, or asignal with a higher priority replaces our signal, which is determined by ouragreement with the owner of the satellite, we may not be able to deliverprogramming to our cable and satellite service provider customers and theirsubscribers within the time periods advertised. We have negotiated for back-upcapability with our satellite provider on an in-orbit spare satellite, whichprovides us carriage on the back-up satellite in the event that catastrophicfailure occurs on the primary satellite. Our contract provides that our mainsignal is subject to preemption and until the back-up satellite is in position,we could lose our signal for a period of time. A loss of our signal could harmour reputation and reduce our revenues and profits.

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

Oursystems and operations may be vulnerable to damage or interruption fromearthquakes, floods, fires, power loss, telecommunication failures and similarevents. They also could be subject to break-ins, sabotage and intentional actsof vandalism. Since our production facilities for The Outdoor Channel are alllocated in Temecula, California, the results of such events could beparticularly disruptive because we do not have readily available alternativefacilities from which to conduct our business. Our business interruptioninsurance may not be sufficient to compensate us for losses thatmay occur. Despite any precautions we may take, the occurrence of anatural disaster or other unanticipated problems at our facilities could resultin interruptions in our services. Interruptions in our service could harm ourreputation and reduce our revenues and profits.

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

Seasonaltrends are likely to affect our viewership, and consequently, could causefluctuations in our advertising revenues. Our business reflects seasonalpatterns of advertising expenditures, which is common in the broadcastindustry. For this reason, fluctuations in our revenues and net income couldoccur from period to period depending upon the availability of advertisingrevenues. Due, in part, to these seasonality factors, the results of any onequarter are not necessarily indicative of results for future periods, and ourcash flows may not correlate with revenue recognition.

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

Ourfuture capital requirements will depend on numerous factors, including thesuccess of our efforts to increase advertising revenues, the amount of resourcesdevoted to increasing distribution of The Outdoor Channel, and acquiring andproducing programming for The Outdoor Channel. As a result, we could berequired to raise substantial additional capital through debt or equityfinancing. To the extent that we raise additional capital through the sale ofequity or convertible debt securities, the issuance of such securities couldresult in dilution to existing stockholders. If we raise additional capitalthrough the issuance of debt securities, the debt securities would have rights,preferences and privileges senior to holders of common stock and the terms ofsuch debt could impose restrictions on our operations. In November 2005,we entered into an aggregate of up to thirteen million dollars in debt financingfrom a commercial bank. We cannot assure you that additional capital, ifrequired, will be available on acceptable terms, or at all. If we are unable toobtain additional capital, our current business strategies and plans andability to fund future operations may be harmed.

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

Oursuccess depends to a significant degree upon the continued contributions of theprincipal members of our sales, marketing, production and management personnel,many of whom would be difficult to replace. None of our employees are undercontract and all of our employees are “at-will.” Any of our officers or keyemployees could leave at any time, and we do not have “key person” lifeinsurance policies covering any of our employees. The competition for qualifiedpersonnel has been strong in our industry. This competition could make it moredifficult to retain our key personnel and to recruit new highly qualifiedpersonnel. The loss of Perry T. Massie, our President and Chief ExecutiveOfficer and Co-President of The Outdoor Channel, Inc., or Thomas H.Massie, our Executive Vice President, or William A. Owen, our Chief FinancialOfficer, or Andrew J. Dale, the Chief Executive Officer and Co-President of TheOutdoor Channel, Inc., or Thomas E. Hornish, our General Counsel, couldadversely impact our business. To attract and retain qualified personnel, wemay be required to grant large option or other stock-based incentiveawards, which may be highly dilutive to existing stockholders. Wemay also be required to pay significant base salaries and cash bonuses toattract and retain these individuals, which payments could harm our operatingresults. If we are not able to attract and retain the necessary personnel wemay not be able to implement our business plan.

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

Anumber of new personal video recorders, such as TiVo® in the United States,have emerged in recent years. These recorders often contain features allowingviewers to watch pre-recorded programs without watching advertising. The effectof these recorders on viewing patterns and exposure to advertising could harmour operations and results if our advertisers reduce the advertising rates theyare willing to pay because they believe television advertisements are lesseffective 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.**

Thedelivery of subscription programming requires the use of conditional accesstechnology to limit access to programming to only those who subscribe toprogramming and are authorized to view it. Conditional access systems use,among other things, encryption technology to protect the transmitted signalfrom unauthorized access. It is illegal to create, sell or otherwise distributesoftware or devices to circumvent conditional access technologies. However,theft of cable and satellite programming has been widely reported, and theaccess or “smart” cards used in cable and satellite service providers’conditional access systems have been compromised and could be furthercompromised in the future. When conditional access systems are compromised, wedo 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.**

Currentlyapproximately 70% of programs we air on The Outdoor Channel are provided bythird-party television and film producers. In order to build a library ofprograms and programming distribution rights, we must obtain all of thenecessary rights, releases and consents from the parties involved in developinga project or from the owners of the rights in a completed program. There can beno assurance that we will be able to obtain the necessary rights on acceptableterms, or at all, or properly maintain and document such rights. In addition,protecting our intellectual property rights by pursuing those who infringe ordilute our rights can be costly and time consuming. If we are unable to protectour portfolio of trademarks, service marks, copyrighted material andcharacters, trade names and other intellectual property rights, our businessand our ability to compete could be harmed.

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

Otherparties may assert intellectual property infringement claims against us,and our products may infringe the intellectual property rights of thirdparties. From time to time, we receive letters alleging infringement ofintellectual property rights of others. Intellectual property litigation can beexpensive and time-consuming and could divert management’s attention from ourbusiness. If there is a successful claim of infringement against us, wemay be required to pay substantial damages to the party claiminginfringement or enter into royalty or license agreements that may not beavailable on acceptable or desirable terms, if at all. Our failure to licensethe proprietary rights on a timely basis would harm our business.

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

Ourcurrent officers, directors and greater than 5% stockholders together currentlycontrol greater than 50% of our outstanding common stock. As a result, thesestockholders, acting together, would be able to exert significant influenceover all matters requiring stockholder approval, including the election ofdirectors and approval of significant corporate transactions. In addition, thisconcentration of ownership may delay or prevent a change in control of ourcompany, even when a change may be in the best interests of stockholders.In addition, the interests of these stockholders may not always coincidewith our interests as a company or the interests of other stockholders.Accordingly, these stockholders could cause us to enter into transactions oragreements that you would not approve.

**Themarket price of our common stock has been and may continue to be subjectto wide fluctuations.**

Ourstock has historically been and continues to be traded at relatively lowvolumes and therefore has been subject to price volatility. Various factorscontribute to the volatility of our stock price, including, for example, lowtrading volume, quarterly variations in our financial results, increasedcompetition and general economic and market conditions. While we cannot predictthe individual effect that these factors may have on the market price ofour common stock, these factors, either individually or in the aggregate, couldresult in significant volatility in our stock price during any given period oftime. There can be no assurance that a more active trading market in our stockwill develop. As a result, relatively small trades may have a significantimpact on the price of our common stock. Moreover, companies that haveexperienced volatility in the market price of their stock often are subject tosecurities class action litigation. If we were the subject of suchlitigation, it could result in substantial costs and divert management’sattention 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.**

Provisionsof Delaware law, our certificate of incorporation and bylaws could discourage,delay or prevent a merger, acquisition or other change in control that stockholdersmay consider favorable, including transactions in which you mightotherwise receive a premium for your shares. These provisions also could limitthe price that investors might be willing to pay in the future for shares ofour common stock, thereby depressing the market price of our common stock.Furthermore, these provisions could prevent attempts by our stockholders toreplace or remove our management. These provisions:

•  allow theauthorized number of directors to be changed only by resolution of our board ofdirectors;

•  establisha classified board of directors, providing that not all members of the board beelected at one time;

•  require a66 2/3% stockholder vote to remove a director, and only for cause;

•  authorize ourboard of directors to issue without stockholder approval blank check preferredstock that, if issued, could operate as a “poison pill” to dilute the stockownership of a potential hostile acquirer to prevent an acquisition that is notapproved by our board of directors;

•  require thatstockholder actions must be effected at a duly called stockholder meeting andprohibit stockholder action by written consent;

•  establish advancenotice requirements for stockholder nominations to our board of directors orfor stockholder proposals that can be acted on at stockholder meetings;

•  except asprovided by law, allow only our board of directors to call a special meeting ofthe stockholders; and

•  require a66 2/3% stockholder vote to amend our certificate of incorporation or bylaws.

Inaddition, because we are incorporated in Delaware, we are governed by theprovisions of Section 203 of the Delaware General Corporation Law, whichmay, unless certain criteria are met, prohibit large stockholders, inparticular those owning 15% or more of our outstanding voting stock, frommerging or combining with us for a prescribed period of time.

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**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.**

Thetechnologies used in the cable and satellite television industry are rapidlyevolving. Many technologies and technological standards are in development andhave the potential to significantly transform the ways in whichprogramming is created and transmitted. In addition, under some of our MSOcontracts, we may be required to encrypt our signal. We cannot accuratelypredict the effects that implementing new technologies will have on ourprogramming 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.**

Thecable television industry is subject to extensive legislation and regulation atthe federal and local levels, and, in some instances, at the state level, andmany aspects of such regulation are currently the subject of judicialproceedings and administrative or legislative proposals. Similarly, thesatellite television industry is subject to federal regulation. Operating in aregulated industry increases our cost of doing business as a video programmer.

TheCable Television Consumer Protection and Competition Act of 1992, to which werefer as the 1992 Cable Act, includes provisions that preclude cable operatorsaffiliated with video programmers from favoring their programmers overcompetitors. The 1992 Cable Act also precludes such programmers from sellingtheir programming exclusively to cable operators. These provisions potentiallybenefit independent programmers such as us by limiting the ability of cableoperators affiliated with programmers from carrying only programming in whichthey have an ownership interest and from offering exclusive programmingarrangements. However, the United States Court of Appeals for the District ofColumbia Circuit vacated the FCC Rule limiting the carriage of affiliatedprogrammers by cable operators. Although the FCC issued further notices ofproposed rulemaking in 2001 and 2005 addressing this issue, it has not adoptednew rules. The exclusivity provision is scheduled to expire inOctober 2007 unless the FCC then determines that a further extension isnecessary to protect competition and diversity. If these provisions of the 1992Cable Act expire or become no longer applicable, and if we are still able toincrease the number of subscribers to our channel, then the costs associatedwith doing so may increase significantly.

Regulatorycarriage requirements also could reduce the number of channels available tocarry The Outdoor Channel. The 1992 Cable Act granted television broadcasters achoice of must-carry rights or retransmission consent rights. Therules adopted by the FCC generally provided for mandatory carriage bycable systems of all local full-power commercial television broadcast signalsselecting must-carry rights and, depending on a cable system’s channelcapacity, 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. On June 21, 2006, this matter wasscheduled to be heard by the FCC at its open meeting, but was removed from theagenda without discussion. The imposition of such additional must-carryregulation, in conjunction with any limited cable system channel capacity,would increase the likelihood that cable operators may be forced to dropsome cable programming services and could reduce carriage of The OutdoorChannel.

TheTelecommunications Act of 1996 required the FCC to establish rules and animplementation schedule to ensure that video programming is fullyaccessible 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.Failure to meet these closed captioning requirements could cause a serviceprovider to discontinue carrying The Outdoor Channel.

If wedistribute television programming through other types of media, we may berequired to obtain federal, state and local licenses or other authorizations tooffer such services. We may not be able to obtain licenses orauthorizations in a timely manner, or at all, or conditions could be imposedupon licenses and authorizations that may not be favorable to us.

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In thefuture, any increased regulation of rates, and in particular the rates forbasic cable services, could, among other things, put downward pressure on therates charged by cable programming services, and affect the ability orwillingness of cable system operators to retain or to add The Outdoor Channelnetwork on their cable systems.

Inaddition, government-mandated or increased tiering of a limited number ofchannels by cable system operators could impact our viewership levels if TheOutdoor Channel is moved to such a tier. In response to a request from theCommittee on Energy and Commerce of the House of Representatives, the FCC’sMedia 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. Forexample, on July 20, 2006, a bill was introduced in the House ofRepresentatives (the “Family Choice Act”) that would require the FCC toregulate pay-TV providers for indecent content, which, under one option, wouldrequire offering consumers a family tier that may or may not include servicessuch as The Outdoor Channel. If, in response to any statue enacted by Congress,or any rate or other government regulation, cable system operators implementchannel offerings that require subscribers to affirmatively choose to pay aseparate fee to receive The Outdoor Channel, either by itself or in combinationwith a limited number of other channels, the number of viewers for The OutdoorChannel could be reduced.

Theregulation of programming services, cable television systems and satellitelicensees is subject to the political process and has been in constant fluxover the past decade. Further material changes in the law and regulatoryrequirements are difficult to anticipate and our business may be harmed byfuture legislation, new regulation, deregulation or court decisionsinterpreting laws and regulations.

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

Ourrecreational outdoor activity entities, GPAA and Lost Dutchman’s, share thegeneral risks of all outdoor recreational activities such as personal injury,environmental compliance and real estate and environmental regulation. Inaddition 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. In addition,failure to maintain required permits or licenses, or to comply with applicableregulations, could result in substantial fines or costs or revocation of ouroperating licenses, which would have a material adverse effect on our businessand 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.**

Asignificant portion of our assets consists of goodwill and other indefinite-livedintangible assets. In accordance with Statement of Financial AccountingStandards No. 142, “Goodwill and Other Intangible Assets”, or SFAS 142, wetest goodwill and other indefinite-lived intangible assets for impairmentduring the fourth quarter of each year, and on an interim date if factors orindicators become apparent that would require an interim test. A significantdownward revision in the present value of estimated future cash flows for areporting 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.

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

We areauthorized to issue up to 25,000,000 shares of preferred stock. The issuance ofany preferred stock could adversely affect the rights of the holders of sharesof our common stock, and therefore reduce the value of such shares. Noassurance can be given that we will not issue shares of preferred stock in thefuture.

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**We donot expect to pay dividends in the foreseeable future.**

We donot anticipate paying cash dividends on our common stock in the foreseeablefuture. Any payment of cash dividends will also depend on our financialcondition, operating results, capital requirements and other factors and willbe at the discretion of our board of directors. Furthermore, at the time of anypotential payment of a cash dividend we may subject to contractualrestrictions on, or prohibitions against, the payment of dividends.

**ITEM2.                Unregistered Sales of Equity Securities and Use of Proceeds.**

None.

**ITEM3.                Defaults Upon Senior Securities.**

None.

**ITEM4.                Submission of Matters to a Vote of Security Holders.**

(a) Annual meeting of stockholders was held on May 16,2006.

(b) Stockholders voted for the election of Mr. ThomasH. Massie, Mr. David C. Merritt and Ms. Elizabeth J. Sanderson as directorswhose term shall expire in 2009. Messrs. Perry T. Massie and T. Bahnson Stanleycontinued as directors whose term shall expire in 2007. Messrs. Jerry R.Berglund and Ray V. Miller continued as directors whose term shall expirein 2008.

(c) Proposal One to elect three directors to theCompany’s board of directors to serve until the 2009 annual meeting ofstockholders resulted in the election of Mr. T. Massie with 17,520,158 (97.94%)votes for and 369,010 (2.06%) withheld, Mr. Merritt with 17,707,800 (98.99%)votes for and 181,368 (1.01%) withheld and Ms. Sanderson with 17,820,805(99.62%) votes for and 68,363 (0.38%) withheld.

**ITEM5.                Other Information.**

None.

**ITEM6.                Exhibits.**
| Exhibit  Number | ** ** | **Description** |
|-----------------|------------|-----------------|
|            |       |            |
| 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 and Exhibit 4.1 to the  Company’s Form 10-Q for the period ended June 30, 2005 which is incorporated  herein by reference) |
| 10.1            |       |            | Amendments to Revolving Credit Agreement and Term  Loan Agreement by and between the Company and U.S. Bank N.A. dated as of May  15, 2006 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form  10-Q on August 9, 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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*       Pursuant to Commission Release No. 33-8238, this certification will be treatedas “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part ofsuch report for purposes of Section 18 of the Securities Exchange Act of 1934,as amended, or otherwise subject to the liability of Section 18 of the SecuritiesExchange Act of 1934, as amended, and this certification will not be deemed tobe incorporated by reference into any filing under the Securities Act of 1933,as amended, or the Securities Exchange Act of 1934, as amended, except to theextent that the registrant specifically incorporates it by reference.

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|            | ** ** | **OUTDOOR CHANNEL HOLDINGS, INC.**                                                              |
|------------|------------|-------------------------------------------------------------------------------------------------|
|       |       |                                                                                            |
|       |       | /s/ William A. Owen                                                                             |   |
| ** ** | ** ** | **William A. Owen**                                                                             |
|       |       | Authorized Officer, Chief Financial Officer and  Controller  (Principal and Accounting Officer) |
|       |       | Date: February 12, 2007                                                                         |

 

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