**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q/A**

**(AmendmentNo. 1)**

(Mark One)
| **x** | ** ** | **Quarterly Report  Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|------------|----------------------------------------------------------------------------------------------|

 

**Forthe quarterly period ended June 30, 2005**
| **o** | ** ** | **Transition Report  Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|------------|-----------------------------------------------------------------------------------------------|

 

**Forthe transition periodfrom                   to                   **

**Commissionfile number:****000-17287**

**Outdoor Channel Holdings,Inc.**

(Exactname 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 113**

**Temecula, California 92590**

(Address and zip code of principalexecutive offices)

**(951) 699-4749**

(Issuer’stelephone number, including area code)

(Former name, former address and formerfiscal year, if changed since last report)

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90days.  x Yes    o No

Indicate by check mark whether theregistrant is an accelerated filer (as defined in Rule 12b-2 of the ExchangeAct).  o Yes     x No

Indicate the number of shares outstandingof each of the issuer’s classes of common stock, as of the latest practicabledate:

| Class                          | ** ** | **Number of Shares Outstanding at August 8,  2005** |
|--------------------------------|------------|-----------------------------------------------------|
| Common Stock, $0.001 par value |       | 24,290, 913                                         |

 

 

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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, 2005 andDecember 31, 2004 and for the three and six months ended June 30, 2005, asdiscussed in Management’s Discussion and Analysis of Financial Condition andResults of Operations (Item 2) and Note 9 to the unaudited condensedconsolidated financial statements to reflect the effects of a revised estimateof the useful life of intangible assets attributable to MSO relationshipsrecorded  in connection with theSeptember 8, 2004 acquisition of all of the outstanding shares of The OutdoorChannel, Inc. by Outdoor Channel Holdings, Inc. that it did not previously own.  Although the revised estimate of the usefullife of these assets resulted in adjustments to and the restatement of ourcondensed consolidated balance sheet included in this Form 10-Q/A as ofDecember 31, 2004, we determined that the effects of these adjustments wereimmaterial, individually and in the aggregate, to our annual and quarterlyreports filed prior to January 1, 2005 and thus we did not amend those filings.

Inaddition, to provide more detail about our operating results and to more fullycomply withtheSecurities 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 intangible assets with the segment to whichthey pertain, we have reclassified the amortizable intangible assets and thegoodwill which were recorded in connection with the acquisition on September 8,2004 along with the related amortization expense from “Corporate” to the “TOC”segment. Certain other changes have been made in the historical unauditedcondensed consolidated financial statements to conform with currentpresentations.

All of the information in this Form 10-Q/Ais as of August 17, 2005, the filing date of the original Form 10-Q for thequarter ended June 30, 2005, 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. AND SUBSIDIARIES**

**Quarterly Report on Form10-Q/A**

**For The Period Ended June 30, 2005**

**Table of Contents**
|                |   | **Part I. Financial Information**                                                                                                |   |   |
|----------------|--------|----------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|           |   |                                                                                                                             |   |   |
| **Item 1.**    |   | Financial Statements                                                                                                             |   |   |
|           |   |                                                                                                                             |   |   |
|           |   | Restated  Condensed Consolidated Balance Sheets as of June 30, 2005 (Unaudited) and  December 31, 2004                           |   |   |
|           |   |                                                                                                                             |   |   |
|           |   | Unaudited  Condensed Consolidated Statements of Operations for the Three and Six Months  Ended June 30, 2005 (Restated) and 2004 |   |   |
|           |   |                                                                                                                             |   |   |
|           |   | Restated  Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the  Six Months Ended June 30, 2005        |   |   |
|           |   |                                                                                                                             |   |   |
|           |   | Unaudited  Condensed Consolidated Statements of Cash Flows for the Six Months Ended June  30, 2005 (Restated) and 2004           |   |   |
|           |   |                                                                                                                             |   |   |
|           |   | 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                                                                                                   |   |   |
|           |   |                                                                                                                             |   |   |
|           |   | Risks and Uncertainties                                                                                                          |   |   |
|           |   |                                                                                                                             |   |   |
| **Item 3.**    |   | Quantitative and  Qualitative Disclosures About Market Risk                                                                      |   |   |
|           |   |                                                                                                                             |   |   |
| **Item 4.**    |   | Controls and Procedures                                                                                                          |   |   |
|           |   |                                                                                                                             |   |   |
| ** **     |   | **Part II. Other Information**                                                                                                   |   |   |
|           |   |                                                                                                                             |   |   |
| **Item 1.**    |   | Legal Proceedings                                                                                                                |   |   |
|           |   |                                                                                                                             |   |   |
| **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—FINANCIALINFORMATION**

**ITEM 1.                  FinancialStatements.**

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

**Condensed Consolidated Balance Sheets**

(In thousands, except per share data)
| ** **                                                                                                 | ** ** | **June 30,**                            | ** ** | **December 31,**        | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                                 | ** ** | **2005**                                     | ** ** | **2004**                     | ** ** |
| ** **                                                                                                 | ** ** | **(Unaudited,  Restated, Note 9)** | ** ** | **(Restated,  Note 9)** | ** ** |
| **Assets**                                                                                                 |       |                                         |       |                         |       |
| Current assets:                                                                                            |       |                                         |       |                         |       |
| Cash and cash equivalents                                                                                  |       | $                                            | 9,007      |                         | $          | 13,105 |   |
| Investment in available-for-sale securities                                                                |       | 726                                          |       | 741                          |       |
| Accounts receivable, net of allowance for doubtful accounts of  $347 and $207                              |       | 5,075                                        |       | 4,848                        |       |
| Income tax refund receivable                                                                               |       | 1,919                                        |       | 2,291                        |       |
| Prepaid programming costs                                                                                  |       | 2,606                                        |       | 606                          |       |
| Prepaid offering costs                                                                                     |       | 902                                          |       | —                       |       |
| Other current assets                                                                                       |       | 1,559                                        |       | 135                          |       |
| Total current assets                                                                                       |       | 21,794                                       |       | 21,726                       |       |
|                                                                                                       |       |                                         |       |                         |       |
| Property, plant and equipment at cost, net:                                                                |       |                                         |       |                         |       |
| Membership division                                                                                        |       | 3,562                                        |       | 3,527                        |       |
| Outdoor Channel equipment and improvements                                                                 |       | 5,743                                        |       | 3,199                        |       |
| Property, plant and equipment, net                                                                         |       | 9,305                                        |       | 6,726                        |       |
| Amortizable intangible assets, net                                                                         |       | 11,820                                       |       | 12,347                       |       |
| Deferred tax assets, net                                                                                   |       | 14,249                                       |       | 14,139                       |       |
| Goodwill                                                                                                   |       | 44,457                                       |       | 44,457                       |       |
| Deposits and other assets                                                                                  |       | 267                                          |       | 174                          |       |
| Totals                                                                                                     |       | $                                            | 101,892    |                         | $          | 99,569 |   |
|                                                                                                       |       |                                         |       |                         |       |
| **Liabilities and Stockholders’ Equity**                                                              |       |                                         |       |                         |       |
|                                                                                                       |       |                                         |       |                         |       |
| Current liabilities:                                                                                       |       |                                         |       |                         |       |
| Accounts payable and accrued expenses                                                                      |       | $                                            | 3,289      |                         | $          | 3,705 |   |
| Accrued severance payments                                                                                 |       | 18                                           |       | 28                           |       |
| Current portion of capital lease obligations                                                               |       | 22                                           |       | 26                           |       |
| Deferred tax liabilities, net                                                                              |       | 494                                          |       | 494                          |       |
| Current portion of deferred revenue                                                                        |       | 387                                          |       | 370                          |       |
| Customer deposits                                                                                          |       | 1,003                                        |       | 61                           |       |
| Total current liabilities                                                                                  |       | 5,213                                        |       | 4,684                        |       |
|                                                                                                       |       |                                         |       |                         |       |
| Accrued severance payments, net of current portion                                                         |       | 25                                           |       | 37                           |       |
| Capital lease obligations, net of current portion                                                          |       | —                                       |       | 9                            |       |
| Deferred revenue, net of current portion                                                                   |       | 1,228                                        |       | 1,145                        |       |
| Deferred satellite rent obligations                                                                        |       | 301                                          |       | 312                          |       |
| Total liabilities                                                                                          |       | 6,767                                        |       | 6,187                        |       |
|                                                                                                       |       |                                         |       |                         |       |
| Commitments and contingencies                                                                              |       |                                         |       |                         |       |
| Stockholders’ equity:                                                                                 |       |                                         |       |                         |       |
| Preferred stock; 25,000 shares authorized; none issued                                                     |       | —                                       |       | —                       |       |
| Common stock, $0.001 par value; 75,000 shares authorized: 18,660  and 18,394 shares issued and outstanding |       | 18                                           |       | 18                           |       |
| Additional paid-in capital                                                                                 |       | 113,797                                      |       | 111,912                      |       |
| Deferred compensation                                                                                      |       | (1,983                                       | )          | (1,034                       | )          |
| Accumulated other comprehensive income                                                                     |       | 36                                           |       | 43                           |       |
| Accumulated deficit                                                                                        |       | (16,743                                      | )          | (17,557                      | )          |
| Total stockholders’ equity                                                                            |       | 95,125                                       |       | 93,382                       |       |
| Totals                                                                                                     |       | $                                            | 101,892    |                         | $          | 99,569 |   |

 

SeeNotes to Unaudited Condensed Consolidated Financial Statements.

4

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

**Unaudited Condensed Consolidated Statements ofOperations**

(In thousands, except per share data)
| ** **                                                 | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                 | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                 | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                 | ** ** | **(Restated,  Note 9)**     | ** ** | ** **                     | ** ** | **(Restated,  Note 9)** | ** ** | ** ** | ** ** |
| Revenues:                                                  |       |                             |       |                           |       |   |   |   |   |
| Advertising                                                |       | $                                | 5,257      |                           | $          | 5,352 |   | $ | 10,516 |   | $ | 10,164 |   |
| Subscriber fees                                            |       | 3,894                            |       | 3,219                          |       | 7,536 |   | 6,380 |   |
| Membership  income                                         |       | 863                              |       | 986                            |       | 2,023 |   | 2,218 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Total revenues                                             |       | 10,014                           |       | 9,557                          |       | 20,075 |   | 18,762 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Cost of services:                                          |       |                             |       |                           |       |   |   |   |   |
| Programming                                                |       | 531                              |       | 895                            |       | 1,052 |   | 1,290 |   |
| Satellite  transmission fees                               |       | 616                              |       | 586                            |       | 1,249 |   | 1,177 |   |
| Production and  operations                                 |       | 733                              |       | 499                            |       | 1,726 |   | 1,197 |   |
| Other direct  costs                                        |       | 243                              |       | 204                            |       | 462 |   | 450 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Total cost of  services                                    |       | 2,123                            |       | 2,184                          |       | 4,489 |   | 4,114 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Other expenses:                                            |       |                             |       |                           |       |   |   |   |   |
| Advertising                                                |       | 2,062                            |       | 1,491                          |       | 3,756 |   | 2,805 |   |
| Selling, general  and administrative                       |       | 4,491                            |       | 3,838                          |       | 9,190 |   | 7,225 |   |
| Depreciation and  amortization                             |       | 623                              |       | 299                            |       | 1,321 |   | 598 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Total other  expenses                                      |       | 7,176                            |       | 5,628                          |       | 14,267 |   | 10,628 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Income from operations                                     |       | 715                              |       | 1,745                          |       | 1,319 |   | 4,020 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Interest expense                                           |       | (1                               | )          | —                         |       | (2 | ) | — |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Other income, net                                          |       | 38                               |       | 30                             |       | 90 |   | 59 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Income before income taxes and minority interest           |       | 752                              |       | 1,775                          |       | 1,407 |   | 4,079 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Income tax provision                                       |       | 315                              |       | 704                            |       | 593 |   | 1,633 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Income before minority interest                            |       | 437                              |       | 1,071                          |       | 814 |   | 2,446 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Minority interest in net income of consolidated subsidiary |       | —                           |       | 227                            |       | — |   | 489 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Net income                                                 |       | $                                | 437        |                           | $          | 844 |   | $ | 814 |   | $ | 1,957 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Earnings per common share:                                 |       |                             |       |                           |       |   |   |   |   |
| Basic                                                      |       | $                                | 0.02       |                           | $          | 0.06 |   | $ | 0.04 |   | $ | 0.13 |   |
| Diluted                                                    |       | $                                | 0.02       |                           | $          | 0.04 |   | $ | 0.04 |   | $ | 0.10 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Weighted average number of common shares outstanding:      |       |                             |       |                           |       |   |   |   |   |
| Basic                                                      |       | 18,558                           |       | 15,053                         |       | 18,516 |   | 14,960 |   |
| Diluted                                                    |       | 22,513                           |       | 15,593                         |       | 22,453 |   | 15,556 |   |

 

SeeNotes to Unaudited Condensed Consolidated Financial Statements.

5

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

**Unaudited Condensed Consolidated Statement ofStockholders’ Equity**

**For the Six Months Ended June 30, 2005**

(In thousands)
| ** **                                                                                    | ** ** | ** **               | ** ** | ** **            | ** ** | ** **  | ** ** | ** **   | ** ** | ** **        | ** ** | ** **       | ** ** | **Accumulated** | ** ** | ** **  | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------|------------|-------------|------------|--------------|------------|-------------------|------------|------------------|------------|-----------------|------------|-------------|------------|------------|------------|
| ** **                                                                                    | ** ** | ** **               | ** ** | ** **            | ** ** | ** **  | ** ** | ** **   | ** ** | **Additional**    | ** ** | ** **       | ** ** | **Other**       | ** ** | ** **  | ** ** | ** ** | ** ** |
| ** **                                                                                    | ** ** | **Preferred Stock** | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Deferred** | ** ** | **Comprehensive** | ** ** | **Acumulated**   | ** ** | ** **      | ** ** |
| ** **                                                                                    | ** ** | **Shares**               | ** ** | **Amount**            | ** ** | **Shares**  | ** ** | **Amount**   | ** ** | **Capital**       | ** ** | **Compensation** | ** ** | **Income**      | ** ** | **Deficit** | ** ** | **Total**  | ** ** |
| Balance, January 1, 2005  (as originally reported)                                            |       | —                   |       | $                     | —     |        | 18,394     |         | $          | 18                |       | $                | 111,912    |            | $          | (1,034      | )          | $          | 43         |   | $ | (17,457 | ) | $ | 93,482 |   |
|                                                                                          |       |                     |       |                  |       |        |       |         |       |              |       |             |       |            |       |        |       |       |       |
| Cumulative impact of restatment                                                               |       |                     |       |                  |       |        |       |         |       |              |       |             |       |            |       | (100        | )          | (100       | )          |
|                                                                                          |       |                     |       |                  |       |        |       |         |       |              |       |             |       |            |       |        |       |       |       |
| Balance, January 1, 2005 (restated, Note 9)                                                   |       | —                   |       | —                |       | 18,394      |       | 18           |       | 111,912           |       | (1,034           | )          | 43              |       | (17,557     | )          | 93,382     |       |
|                                                                                          |       |                     |       |                  |       |        |       |         |       |              |       |             |       |            |       |        |       |       |       |
| Comprehensive income:                                                                         |       |                     |       |                  |       |        |       |         |       |              |       |             |       |            |       |        |       |       |       |
| Net income (restated)                                                                         |       |                     |       |                  |       |        |       |         |       |              |       |             |       |            |       | 814         |       | 814        |       |
| Effect of change in fair value of available-for-sale securities,  net of deferred taxes of $7 |       |                     |       |                  |       |        |       |         |       |              |       |             |       | (7              | )          |        |       | (7         | )          |
| Total comprehensive income (restated)                                                         |       |                     |       |                  |       |        |       |         |       |              |       |             |       |            |       |        |       | 807        |       |
|                                                                                          |       |                     |       |                  |       |        |       |         |       |              |       |             |       |            |       |        |       |       |       |
| Common stock issued upon exercise of stock options                                            |       |                     |       |                  |       | 194         |       |         |       | 408               |       |             |       |            |       |        |       | 408        |       |
|                                                                                          |       |                     |       |                  |       |        |       |         |       |              |       |             |       |            |       |        |       |       |       |
| Issuance of restricted stock to employees for services to be  rendered                        |       |                     |       |                  |       | 72          |       |         |       | 1,084             |       | (1,084           | )          |            |       |        |       | —     |       |
|                                                                                          |       |                     |       |                  |       |        |       |         |       |              |       |             |       |            |       |        |       |       |       |
| Amortization of deferred compensation                                                         |       |                     |       |                  |       |        |       |         |       |              |       | 135              |       |            |       |        |       | 135        |       |
|                                                                                          |       |                     |       |                  |       |        |       |         |       |              |       |             |       |            |       |        |       |       |       |
| Tax benefit from exercise of non-qualified stock options                                      |       |                     |       |                  |       |        |       |         |       | 393               |       |             |       |            |       |        |       | 393        |       |
|                                                                                          |       |                     |       |                  |       |        |       |         |       |              |       |             |       |            |       |        |       |       |       |
| Balance, June 30, 2005  (restated, Note 9)                                                    |       | —                   |       | $                     | —     |        | 18,660     |         | $          | 18                |       | $                | 113,797    |            | $          | (1,983      | )          | $          | 36         |   | $ | (16,743 | ) | $ | 95,125 |   |

 

SeeNotes to Unaudited Condensed Consolidated Financial Statements.

6

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

**Unaudited Condensed Consolidated Statements ofCash Flows**

(In thousands)
| ** **                                                                                               | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                               | ** ** | **June 30,**              | ** ** |
| ** **                                                                                               | ** ** | **2005**                       | ** ** | **2004** | ** ** |
| ** **                                                                                               | ** ** | **(Restated,  Note 9)**        | ** ** | ** ** | ** ** |
| Operating activities:                                                                                    |       |                           |       |   |   |
| Net income                                                                                               |       | $                              | 814        |   | $ | 1,957 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities:             |       |                           |       |   |   |
| Depreciation and  amortization                                                                           |       | 1,321                          |       | 598 |   |
| Provision for  doubtful accounts                                                                         |       | 140                            |       | — |   |
| Realized gain on  sale of available-for-sale securities                                                  |       | —                         |       | (34 | ) |
| Minority  interest in net income of consolidated subsidiary                                              |       | —                         |       | 489 |   |
| Deferred tax  provision                                                                                  |       | (104                           | )          | — |   |
| Amortization of  deferred compensation                                                                   |       | 135                            |       | — |   |
| Cash provided by  (used in) changes in operating assets and liabilities:                                 |       |                           |       |   |   |
| Accounts  receivable                                                                                     |       | (367                           | )          | (475 | ) |
| Income tax  refund receivable                                                                            |       | 767                            |       | 489 |   |
| Prepaid  programming costs                                                                               |       | (2,000                         | )          | — |   |
| Other current  assets                                                                                    |       | (1,424                         | )          | 26 |   |
| Deposits and  other assets                                                                               |       | (93                            | )          | (673 | ) |
| Accounts payable  and accrued expenses                                                                   |       | (416                           | )          | 232 |   |
| Accrued  severance payments                                                                              |       | (22                            | )          | (214 | ) |
| Deferred revenue                                                                                         |       | 100                            |       | (470 | ) |
| Customer  deposits                                                                                       |       | 942                            |       | 749 |   |
| Deferred  satellite rent obligations                                                                     |       | (11                            | )          | (34 | ) |
| Net cash  provided by (used in) operating activities                                                     |       | (218                           | )          | 2,640 |   |
|                                                                                                     |       |                           |       |   |   |
| Investing activities:                                                                                    |       |                           |       |   |   |
| Purchases of  property, plant and equipment                                                              |       | (3,373                         | )          | (966 | ) |
| Purchases of  available-for-sale securities                                                              |       | —                         |       | (256 | ) |
| Proceeds from  sale of available-for-sale securities                                                     |       | —                         |       | 85 |   |
| Net cash used in  financing activities                                                                   |       | (3,373                         | )          | (1,137 | ) |
|                                                                                                     |       |                           |       |   |   |
| Financing activities:                                                                                    |       |                           |       |   |   |
| Principal  payments on notes payable and capital leases                                                  |       | (13                            | )          | (144 | ) |
| Proceeds from  exercise of stock options                                                                 |       | 408                            |       | 1,011 |   |
| Prepaid offering  costs                                                                                  |       | (902                           | )          | — |   |
| Proceeds from  common stock subscriptions receivable                                                     |       | —                         |       | 30 |   |
| Net cash (used  in) provided by financing activities                                                     |       | (507                           | )          | 897 |   |
| Net increase  (decrease) in cash and cash equivalents                                                    |       | (4,098                         | )          | 2,400 |   |
| Cash and cash equivalents, beginning of period                                                           |       | 13,105                         |       | 7,214 |   |
| Cash and cash equivalents, end of period                                                                 |       | $                              | 9,007      |   | $ | 9,614 |   |
|                                                                                                     |       |                           |       |   |   |
| Supplemental disclosure of cash flow information:                                                        |       |                           |       |   |   |
| Interest paid                                                                                            |       | $                              | 2          |   | $ | — |   |
| Income taxes  paid                                                                                       |       | $                              | 5          |   | $ | 1,139 |   |
|                                                                                                     |       |                           |       |   |   |
| Supplemental disclosures of non-cash investing and financing  activities:                                |       |                           |       |   |   |
| Effect of net increase (decrease) in fair value of  available-for-sale securities, net of deferred taxes |       | $                              | (7         | ) | $ | — |   |

 

SeeNotes to Unaudited Condensed Consolidated Financial Statements.

7

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**OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES****Notes to Unaudited Condensed ConsolidatedFinancial Statements**(In thousands, except per share data)

**NOTE 1—ORGANIZATION ANDBUSINESS**

**Description of Operations**

Outdoor Channel Holdings, Inc. (“Outdoor Channel Holdings,” orcollectively with its subsidiaries, the “Company”) was reincorporated under thelaws of the State of Delaware on September 14, 2004. Originally Outdoor ChannelHoldings was incorporated under the name Global Resources, Inc., an Alaskacorporation, and was subsequently re-named Global Outdoors, Inc. In 2003, thename was changed to Outdoor Channel Holdings, Inc. The Company acquired theremaining 17.6% minority interest in The Outdoor Channel, Inc. (“TOC”), whichit did not previously hold, on September 8, 2004. 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.

Ourrevenues include advertising fees from advertisements aired on The OutdoorChannel, including fees paid by outside producers to purchase advertising timein connection with the airing of their programs on The Outdoor Channel, andfrom advertisements 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 products and services related to goldprospecting, gold expositions, expeditions and outings.

Otherbusiness activities consist of the promotion and sale of a gold prospectingexpedition to our Cripple River property located near Nome, Alaska, and thesale of memberships in Lost Dutchman’s which 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 other properties.

**Restatement of 2005Financial Statements**

Theaccompanying unaudited condensed consolidated financial statements as of June30, 2005 and December 31, 2004 and for the three and six months ended June 30,2005 and the related notes have been restated as further explained in Note 9.

**Reclassifications**

Certain amounts inthe 2005 and 2004 unaudited condensed consolidated financial statements havebeen reclassified either to conform to the 2005 presentations or to provideadditional detail about our operating results and more fully comply with the Securities and ExchangeCommission’s Regulation S-X. In particular certain amounts included under “expenses”in the 2005 and 2004 unaudited condensed consolidated statements of operationswe originally issued have been reclassified in line items under either “cost ofservices” or “other expenses”.  Cost ofservices includes programming, satellite transmission fees, production andoperations and other direct costs. Other expenses include advertising, selling,general and administrative and depreciation and amortization.  Further, to better match intangible assetswith the segment to which they pertain, we have reclassified the amortizableintangible assets and the goodwill which we recorded in connection with theacquisition on September 8, 2004 along with the related amortization expensefrom “Corporate” to the “TOC” segment. Certain other changes have been made in the historical unauditedcondensed consolidated financial statement s to conform with currentpresentations.

**NOTE 2—UNAUDITED INTERIMFINANCIAL STATEMENTS**

Inthe opinion of management, the accompanying unaudited condensed consolidatedfinancial statements reflect all adjustments, consisting of normal recurringadjustments, necessary to present fairly the financial position of the Companyas of June 30, 2005 and its results of operations and cash flows for the threeand six months ended June 30, 2005 and 2004. Information included in theconsolidated balance sheet, as of December 31, 2004 has been derived from, andcertain terms used herein are defined in the audited financial statements ofthe Company as of December 31, 2004 (the “Audited Financial Statements”) includedin the Company’s Annual Report on Form 10-K/A (the “10-K/A”) for the year endedDecember 31, 2004 that was previously filed with the Securities and ExchangeCommission (the “SEC”). Pursuant to the rules and regulations of the SEC,certain information and disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States 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,

8

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these unaudited condensed consolidatedfinancial statements should be read in conjunction with the Audited FinancialStatements and the other information also included in the 10-K/A.

The resultsof the Company’s operations for the three and six months ended June 30, 2005are not necessarily indicative of the results of operations for the full yearending December 31, 2005.

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect reported amounts of assets andliabilities as of the dates of the condensed consolidated balance sheets andreported amount of revenues and expenses for the periods presented.Accordingly, actual results could materially differ from those estimates.

**NOTE3—EARNINGS PER SHARE**

EffectiveSeptember 15, 2004 the Company effected a 5 for 2 split of its common stock inconnection with its reincorporation in Delaware. All share and per share datahas been adjusted where appropriate to reflect this stock split. In addition,the par value of the Company’s common stock was changed from $0.02 to $0.001per share.

TheCompany has presented “basic” and “diluted” earnings per common share in theaccompanying unaudited condensed consolidated statements of operations inaccordance with the provisions of Statement of Financial Accounting StandardsNo. 128, “Earnings Per Share” (“SFAS 128”). Basic earnings per common share iscalculated by dividing net income by the weighted average number of commonshares outstanding during each period. The calculation of diluted earnings percommon share is similar to that of basic earnings per common share, except thatthe denominator is increased to include the number of additional common sharesthat would have been outstanding if all potentially dilutive common shares ofthe Company and TOC, prior to the acquisition of the remaining minorityinterest in TOC, were issued during the period if any such issuances have adilutive effect.

Thecomputation of diluted earnings per share takes into account the effects on theweighted average number of common shares outstanding of the assumed exercise ofall of the outstanding stock options of Outdoor Channel Holdings for the threeand six months ended June 30, 2005 and 2004 and TOC for the three and sixmonths ended June 30, 2004, adjusted for the application of the treasury stockmethod. The computation of diluted earnings per share for the three and sixmonths ended June 30, 2004 also takes into account the reduction in net incomeapplicable to common stock attributable to the increase in the minorityinterest (approximately 17.5% to 33.1%) in the net income of TOC that resultsfrom the assumed exercise of all of TOC’s outstanding stock options. The numberof shares potentially issuable by the Company at June 30, 2005 and 2004 uponthe exercise of stock options that were not included in the computation of netearnings per common share because they were anti-dilutive totaled 110 and 25,respectively.

Thefollowing table summarizes the calculation of net income and the weightedaverage common shares outstanding for basic and diluted earnings per share forthe three and six months ended June 30, 2005 and 2004:
| ** **                                                                                                                                                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                                                                         | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                                                                                                                         | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                                                         | ** ** | **(Restated,  Note 9)**     | ** ** | ** **                     | ** ** | **(Restated,  Note 9)** | ** ** | ** ** | ** ** |
| Numerators:                                                                                                                                                        |       |                             |       |                           |       |   |   |   |   |
| Net income—basic                                                                                                                                              |       | $                                | 437        |                           | $          | 844 |   | $ | 814 |   | $ | 1,957 |   |
| Deduct increase  in minority interest attributable to assumed exercise of dilutive stock  options of TOC                                                           |       | —                           |       | (196                           | )          | — |   | (421 | ) |
| Net  income—diluted                                                                                                                                           |       | $                                | 437        |                           | $          | 648 |   | $ | 814 |   | $ | 1,536 |   |
|                                                                                                                                                               |       |                             |       |                           |       |   |   |   |   |
| Denominators:                                                                                                                                                      |       |                             |       |                           |       |   |   |   |   |
| Weighted average  common shares outstanding—basic                                                                                                             |       | 18,558                           |       | 15,053                         |       | 18,516 |   | 14,960 |   |
| Dilutive effect  of potentially issuable common shares upon exercise of stock options of the  Company as adjusted for the application of the treasury stock method |       | 3,955                            |       | 540                            |       | 3,937 |   | 596 |   |
| Diluted weighted average common shares outstanding                                                                                                                 |       | 22,513                           |       | 15,593                         |       | 22,453 |   | 15,556 |   |

 

9

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**NOTE 4—PRO FORMA EFFECTSOF STOCK OPTIONS**

Statement of Financial Accounting Standards No. 123, “Accountingfor Stock-Based Compensation” (“SFAS 123”), provides for the use of a fairvalue based method of accounting for employee stock compensation. However, SFAS123 also allows an entity to continue to measure compensation cost for stockoptions granted to employees using the intrinsic value method of accountingprescribed by Accounting Principles Board Opinions No. 25, “Accounting forStock Issued to Employees” (“APB 25”), which only requires charges tocompensation expense for the excess, if any, of the fair value of theunderlying stock at the date a stock option is granted (or at an appropriatesubsequent measurement date) over the amount the employee must pay to acquirethe stock, if such amounts differ materially. The Company has elected tocontinue to account for employee stock options using the intrinsic value methodunder APB 25. By making that election, it is required by SFAS 123 and Statementof Financial Accounting Standards No. 148, “Accounting for Stock-BasedCompensation—Transition and Disclosure” to provide pro forma disclosures of netincome (loss) and earnings (loss) per share as if a fair value based method ofaccounting had been applied.

The Company’s historical net income and earnings per common shareand pro forma net income and earnings per common share assuming compensationcost had been determined for the three and six months ended June 30, 2005 and2004 based on the fair value at the grant date for all awards by the Companyusing the Black-Scholes option pricing model consistent with the provisions ofSFAS 123, and amortized ratably or over the vesting period, are set forthbelow:
| ** **                                                                                                                              | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                                              | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                                                                                              | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                              | ** ** | **(Restated,  Note 9)**     | ** ** | ** **                     | ** ** | **(Restated,  Note 9)** | ** ** | ** ** | ** ** |
| Net income (loss):                                                                                                                      |       |                             |       |                           |       |   |   |   |   |
| As reported                                                                                                                             |       | $                                | 437        |                           | $          | 844 |   | $ | 814 |   | $ | 1,957 |   |
| Deduct:  Stock-based employee compensation expense assuming a fair value based method  had been used for all awards, net of tax effects |       | (432                             | )          | (456                           | )          | (829 | ) | (912 | ) |
|                                                                                                                                    |       |                             |       |                           |       |   |   |   |   |
| Pro forma -  basic                                                                                                                      |       | $                                | 5          |                           | $          | 388 |   | $ | (15 | ) | $ | 1,045 |   |
| Pro forma -  diluted                                                                                                                    |       | $                                | 5          |                           | $          | 192 |   | $ | (15 | ) | $ | 624 |   |
|                                                                                                                                    |       |                             |       |                           |       |   |   |   |   |
| Basic earnings (loss) per share:                                                                                                        |       |                             |       |                           |       |   |   |   |   |
| As reported                                                                                                                             |       | $                                | 0.02       |                           | $          | 0.06 |   | $ | 0.04 |   | $ | 0.13 |   |
| Pro forma                                                                                                                               |       | $                                | 0.00       |                           | $          | 0.03 |   | $ | (0.00 | ) | $ | 0.07 |   |
| Diluted earnings (loss) per share:                                                                                                      |       |                             |       |                           |       |   |   |   |   |
| As reported                                                                                                                             |       | $                                | 0.02       |                           | $          | 0.04 |   | $ | 0.04 |   | $ | 0.10 |   |
| Pro forma                                                                                                                               |       | $                                | 0.00       |                           | $          | 0.01 |   | $ | (0.00 | ) | $ | 0.04 |   |

 

The fair value of each option granted by the Company in the sixmonths ended June 30, 2005 and the year ended December 31, 2004 was estimatedon the date of grant using the Black-Scholes option pricing model with thefollowing assumptions:
|                             | ** ** | **Six Months Ended** | ** ** | **Year Ended**             | ** ** |
|-----------------------------|------------|--------------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **June 30, 2005**    | ** ** | **December 31, 2004** | ** ** |
| Risk-free interest rate     |       | 3.7 - 4.2%                     |       | 1.7 - 4.2%                      |       |
| Dividend yield              |       | 0%                             |       | 0%                              |       |
| Expected life of the option |       | 3.8 - 5.1 yrs.                 |       | 3 mos. - 10 yrs.                |       |
| Volatility factor           |       | 37.7%                          |       | 41.7 - 79%                      |       |

 

As a result of amendments to SFAS 123, the Company will berequired to charge the fair value of employee stock options as of the date ofgrant to expense over the vesting period beginning with its fiscal quarterending March 31, 2006.

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**NOTE 5—EQUITY TRANSACTIONS**

**Issuances of Common Stockby the Company**

During the six months ended June 30, 2005, the Company receivedcash proceeds of approximately $408 from the exercise of options for thepurchase of 194 shares of common stock. Also during the six months ended June30, 2005, the Company issued employees 72 shares of restricted stock. Therights to these shares vest over a three year period. Based on the closingmarket price on the day before the grant of $14.95 per share, the value of thestock was $1,084. This amount has been included in deferred compensation as anoffset to stockholders’ equity and will be amortized to compensation expense asthe rights to the restricted stock vest.

**Outdoor Channel Holdings,Inc. Stock Option Plans**

Descriptions of Outdoor Channel Holdings’ stock option plans areincluded in Note 9 of the Company’s Annual Report on Form 10-K/A for the yearended December 31, 2004. A summary of the status of the options granted underOutdoor Channel Holdings’ stock option plans and outside of those plans as ofJune 30, 2005 and the changes in options outstanding during the six months thenended is presented in the table that follows:
|                                      | ** ** | **As of June 30, 2005** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|
| ** **                           | ** ** | ** **                                  | ** ** | **Weighted** | ** ** |
| ** **                           | ** ** | ** **                                  | ** ** | **Average** | ** ** |
| ** **                           | ** ** | ** **                                  | ** ** | **Exercise** | ** ** |
| ** **                           | ** ** | **Shares**                                  | ** ** | **Price** | ** ** |
| Outstanding at beginning of period   |       | 5,630                                       |       | $ | 4.12 |   |
| Options granted                      |       | 385                                         |       | 14.60 |   |
| Options exercised                    |       | (194                                        | )          | 2.11 |   |
| Options canceled or expired          |       | (3                                          | )          | 6.14 |   |
|                                 |       |                                        |       |   |   |
| Options outstanding at end of period |       | 5,818                                       |       | $ | 4.88 |   |

 

**NOTE 6—RELATED PARTYTRANSACTIONS**

The Company is leasing its administrative facilities from Musk OxProperties, LP, which in turn is owned by Messrs. Perry T. Massie and Thomas H.Massie, principal stockholders and officers of the Company. The leaseagreements currently require monthly rent payments aggregating approximately$21. These lease agreements expire on December 31, 2005. Rent expense paid toMusk Ox Properties, LP totaled approximately $63 and $61 in the three monthsended June 30, 2005 and 2004, respectively, and approximately $126 and $122 inthe six months ended June 30, 2005 and 2004, respectively.

**NOTE 7—SEGMENTINFORMATION**

Pursuantto the Provisions of Statement of Financial Accounting Standards No. 131, “DisclosuresAbout Segments of an Enterprise and Related Information” (“SFAS 131”), theCompany reports segment information in the same format as reviewed by theCompany’s Chief Operating Decision Maker (the “CODM”). The Company segregatesits business activities into TOC and the Membership Division. TOC is a separatebusiness activity that broadcasts television programming on The Outdoor Channel24 hours a day, seven days a week. TOC generates revenue from advertising fees(which include fees paid by outside producers to purchase advertising time inconnection 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, the sale of products and services related to goldprospecting, gold expositions, expeditions and outings. Intersegment salesamounted to approximately $149 in each of the three months ended June 30, 2005and 2004 and $298 in each of the six months ended June 30, 2005 and 2004.

11

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Informationwith respect to these reportable segments as of and for the three and sixmonths ended June 30, 2005 and 2004 follows:
| ** **                                                                  | ** ** | ** **   | ** ** | **Income (Loss)**     | ** ** | ** ** | ** ** | ** **       | ** ** | **Additions to** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------|------------|----------------------------|------------|------------|------------|------------------|------------|-----------------------|------------|
| ** **                                                                  | ** ** | ** **   | ** ** | **Before Income**     | ** ** | ** ** | ** ** | **Depreciation** | ** ** | **Property,**         | ** ** |
| ** **                                                                  | ** ** | ** **   | ** ** | **Taxes and**         | ** ** | **Total**  | ** ** | **and**          | ** ** | **Plant and**    | ** ** |
| ** **                                                                  | ** ** | **Revenues** | ** ** | **Minority Interest** | ** ** | **Assets** | ** ** | **Amortization** | ** ** | **Improvements**      | ** ** |
| ** **                                                                  |       |         |       |                       |       |       |       |             |       |                  |       |
| **As of and for the  Three Months Ended  June 30, 2005 (restated, note 9)** |       |         |       |                       |       |       |       |             |       |                  |       |
| 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 |   |
|                                                                        |       |         |       |                       |       |       |       |             |       |                  |       |
| **June 30, 2004**                                                           |       |         |       |                       |       |       |       |             |       |                  |       |
| TOC                                                                         |       | $            | 8,402      |                       | $          | 2,064      |       | $                | 17,260     |                  | $          | 213 |   | $ | 192 |   |
| Membership Division                                                         |       | 1,155        |       | 25                         |       | 6,613      |       | 86               |       | 348                   |       |
| Subtotals of Segments                                                       |       | 9,557        |       | 2,089                      |       | 23,873     |       | 299              |       | 540                   |       |
| Corporate*                                                                  |       | —       |       | (314                       | )          | —     |       | —           |       | —                |       |
| Totals                                                                      |       | $            | 9,557      |                       | $          | 1,775      |       | $                | 23,873     |                  | $          | 299 |   | $ | 540 |   |
|                                                                        |       |         |       |                       |       |       |       |             |       |                  |       |
| **As of and for the  Six Months Ended  June 30, 2005 (restated, Note 9)**   |       |         |       |                       |       |       |       |             |       |                  |       |
| 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 |   |
|                                                                        |       |         |       |                       |       |       |       |             |       |                  |       |
| **June 30, 2004**                                                           |       |         |       |                       |       |       |       |             |       |                  |       |
| TOC                                                                         |       | $            | 16,282     |                       | $          | 4,471      |       | $                | 17,260     |                  | $          | 426 |   | $ | 504 |   |
| Membership Division                                                         |       | 2,480        |       | 172                        |       | 6,613      |       | 172              |       | 462                   |       |
| Subtotals of Segments                                                       |       | 18,762       |       | 4,643                      |       | 23,873     |       | 598              |       | 966                   |       |
| Corporate*                                                                  |       | —       |       | (564                       | )          | —     |       | —           |       | —                |       |
| Totals                                                                      |       | $            | 18,762     |                       | $          | 4,079      |       | $                | 23,873     |                  | $          | 598 |   | $ | 966 |   |

 

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*The Company captures corporate overhead that is applicable toboth segments, but not directly related to operations in a separate businessunit, as “Corporate.” The expenses allocated to Corporate consisted primarilyof: professional fees including public relations, accounting and legal fees,taxes associated with being incorporated in Delaware, board fees, and othercorporate fees not associated with either TOC or the Membership division.Corporate assets consist primarily of cash not held in our operating accounts,available-for-sale securities, deferred tax asset, net and income tax refundreceivable. In prior periods, essentially all of the amortizable intangibleassets and goodwill, were classified as Corporate.  These amounts relate to, and have beenreclassified as part of, the TOC segment.

**NOTE 8—SUBSEQUENT EVENTS**

On July 1, 2005, the Company completed a public offering of itscommon stock, whereby we sold 3,500 shares of common stock and received netproceeds of $44,415 prior to offering costs. In addition, certain sellingstockholders exercised options to buy 1,688 shares of common stock which wereresold in the public offering. On July 13, 2005, the underwriters exercisedtheir over-allotment option from certain selling stockholders, whereby optionsto buy an additional 442 shares of common stock were exercised. The Companyreceived $2,162 in aggregate from the exercise of these options.

**NOTE9****—****RESTATEMENTS OF UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

This Form 10-Q/Aamends our previously filed Form 10-Q for the quarter ended June 30, 2005 toreflect adjustments to the unaudited condensed consolidated financial statementsas of June 30, 2005 and December 31, 2004 and for the three and six monthsended June 30, 2005 arising from the effects of a reclassification of all ofthe amounts 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. Although the revised estimate of the useful life ofthese assets resulted in adjustments to and the restatement of our condensedconsolidated balance sheet included in this form 10-Q/A as of December 31, 2004(the adjustments did not affect the financial statements for the three and sixmonths ended June 30, 2004) we determined that the effects of these adjustmentswere immaterial, individually and in the aggregate, to our annual and quarterlyreports filed prior to January 1, 2005 and thus we did not amend thosefilings.  In addition, certain amounts includedunder “expenses” in the 2005 and 2004 unaudited condensed consolidatedstatements of operations we originally issued have been reclassified in lineitems under either “cost of services”

12

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or “other expenses” andcertain intangible assets and the related amortization expense have been reclassifiedfrom “Corporate” to the “TOC” segment as explained in Note 1. The adjustmentsto the 2005 and 2004 unaudited condensed consolidated financial statements area result of a correction of the accounting treatment for the portion of theexcess of the cost of the minority interest over the fair value of theunderlying interest in the net identifiable assets acquired related to theacquisition of the remaining minority interest in 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 therelated notes have been restated in comparison to those in our previously filedForm 10-Q for the quarter ended June 30, 2005 to reflect the effects of theseadjustments as explained below:

THE EFFECTS ON THE CONDENSED CONSOLIDATED BALANCESHEETS

As a result of therestatement, our unaudited condensed consolidated balance sheet as of June 30,2005 changed as follows:
|                                          | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
|                                     |       |                             |       |                 |       |       |       |
| Amortizable  intangible assets, net      |       | $                                | 1,660      |                 | $          | 11,820     |       | $ | 10,160 |   |
|                                     |       |                             |       |                 |       |       |       |
| Other  non-amortizable intangible assets |       | 10,573                           |       | —               |       | (10,573    | )          |
| Deferred tax  assets, net                |       | 14,086                           |       | 14,249               |       | 163        |       |
| Total assets                             |       | 102,142                          |       | 101,892              |       | (250       | )          |
| Accumulated  deficit                     |       | (16,493                          | )          | (16,743              | )          | (250       | )          |
| Total stockholders’  equity         |       | 95,375                           |       | 95,125               |       | (250       | )          |
|                                          |            |                                  |            |                      |            |            |            |  |  |  |

 

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

 

THE EFFECTS ON THEUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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 from operations                           |       | 839                                    |       | 715                  |       | (124       | )          |
| Income before income taxes and minority interest |       | 876                                    |       | 752                  |       | (124       | )          |
| Income tax provision                             |       | 364                                    |       | 315                  |       | (49        | )          |
| Income before minority interest                  |       | 512                                    |       | 437                  |       | (75        | )          |
| Net income                                       |       | 512                                    |       | 437                  |       | (75        | )          |
| Earnings per share                               |       |                                   |       |                 |       |       |       |
| Basic                                            |       | $                                      | 0.03       |                 | $          | 0.02       |       | $ | (0.01 | ) |
| Diluted                                          |       | $                                      | 0.02       |                 | $          | 0.02       |       | — |   |
|                                             |       |                                   |       |                 |       |       |       |

 

13

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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 from operations                           |       | 1,567                                  |       | 1,319                |       | (248       | )          |
| Income before income taxes and minority interest |       | 1,655                                  |       | 1,407                |       | (248       | )          |
| Income tax provision                             |       | 691                                    |       | 593                  |       | (98        | )          |
| Income before minority interest                  |       | 964                                    |       | 814                  |       | (150       | )          |
| Net income                                       |       | 964                                    |       | 814                  |       | (150       | )          |
| Earnings per 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, 2005 wasincreased by $100 to $17,557 from $17,457and the balance as of June 30, 2005was increased by $250 to $16,743 from $16,493.

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, 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                      |       | (6                                     | )          | (104                 | )          | (98        | )          |
|                                        |       |                                   |       |                 |       |       |       |
|                                             |            |                                        |            |                      |            |            |            |  |  |  |

 

THE EFFECTS ON NOTE 3 –EARNINGSPER SHARE

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 by $150 to $814 from $964.

14

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THE EFFECTS ON NOTE 4 –PROFORMA EFFECTS OF STOCK OPTIONS

The effects of therestatements on the historical and pro forma information in Note 4 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 and diluted earnings per share          |       |                             |       |                 |       |       |       |
| As reported                                   |       | $                                | 0.03       |                 | $          | 0.02       |       | $ | (0.01 | ) |
| 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 and diluted earnings (loss) per share |       |                             |       |                 |       |       |       |
| As reported                                 |       | $                                | 0.05       |                 | $          | 0.04       |       | $ | (0.01 | ) |
| Pro forma                                   |       | $                                | 0.01       |                 | $          | (0.00      | )          | $ | (0.01 | ) |
|                                        |       |                             |       |                 |       |       |       |

 

THE EFFECTS ON NOTE 7 –SEGMENT INFORMATION

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 |   |
| ** **                                                                    | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |

 

15

----

 
| ** **                                                                    | ** ** | **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 inthese balances were as follows:
| ** **                                                     | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to   Property,   Plant and   Improvements** | ** ** |
|----------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **Change as of and for the 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 |   | $ | — |   |
|                                                           |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |

 

* * *

16

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| **ITEM 2.** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.** |
|-------------|--------------------------------------------------------------------------------------------------|

 

**Safe Harbor Statement**

Theinformation contained in this report may include forward-looking statements.The Company’s actual results could differ materially from those discussed inany forward-looking statements. The statements contained in this report thatare not 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 such forward-lookingstatements be subject to the safe-harbor provisions contained in thosesections. Such forward-looking statements relate to, among other things: (1)expected revenue and earnings growth and changes in mix; (2) anticipatedexpenses including advertising, programming, personnel and others; (3) NielsenMedia Research, which we refer to as Nielsen, estimates regarding totalhouseholds and cable and satellite homes subscribing to and viewers (ratings)of The Outdoor Channel; and (4) other matters. We undertake no obligation topublicly update or revise any forward-looking statements, whether as a resultof new information, future events or otherwise.

Thesestatements involve significant risks and uncertainties and are qualified byimportant factors that could cause our actual results to differ materially fromthose reflected by the forward-looking statements. Such factors include but arenot limited to risks and uncertainties which are discussed below under thecaption “Risks and Uncertainties” and other risks and uncertainties discussedelsewhere in this report. In assessing forward-looking statements containedherein, readers are urged to read carefully all cautionary statements containedin this Form 10-Q/A and in our other filings with the Securities and ExchangeCommission. For these forward-looking statements, we claim the protection ofthe safe harbor for forward-looking statements in Section 27A of the SecuritiesAct and Section 21E of the Exchange Act.

**Effects of Restatement**

ThisForm 10-Q/A amends our previously filed Form 10-Q for the quarter ended June30, 2005 to reflect adjustments to the unaudited condensed consolidatedfinancial statements as of June 30, 2005 and December 31, 2004 and for thethree and six months ended June 30, 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 2005 and 2004 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. Other expenses include advertising, selling,general and administrative and depreciation and amortization.  Further, to better match intangible assetswith the segment to which they pertain, we have reclassified the amortizableintangible assets and the goodwill which we recorded in connection with theacquisition on September 8, 2004 along with the related amortization expensefrom “Corporate” to the “TOC” segment. Certain other changes have been made in the historical condensedconsolidated financial statements to conform with current presentations. Theadjustments to the 2005 and 2004 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 The Outdoor Channel, Inc.(“TOC”) that we did not previously own on September 8, 2004 that was allocatedto the MSO relationships. The adjustments were based on a review in the thirdquarter of 2006 of the facts and circumstances, the nature of our business, ourexperience with the MSOs and the proclivities of our industry as of September8, 2004. Although the revised estimate of the useful life of these assetsresulted in adjustments to and the restatement of our condensed consolidatedbalance sheet included in this Form 10-Q/A as of December 31, 2004 (theadjustments did not affect the financial statements for the three and sixmonths ended June 30, 2004), we determined that the effects of theseadjustments were immaterial, individually and in the aggregate, to our annualand quarterly reports filed prior to January 1, 2005 and thus we did not amendthose filings.  The accompanyingunaudited condensed consolidated financial statements and the related noteshave been restated to reflect the effects of the adjustments arising from thereassessment of the estimated useful life of the MSO relationships as explainedin Note 9 and below:

17

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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, 2005 (Unaudited) and December 31, 2004;

Unaudited Condensed ConsolidatedStatements of Operations for the three and six months ended June 30, 2005(Restated) and 2004;

Restated Unaudited Condensed ConsolidatedStatement of Stockholders’ Equity for the six months ended June 30, 2005;

Unaudited Condensed ConsolidatedStatements of Cash Flows for the six months ended June 30, 2005 (Restated) and2004;

Note 3 to Unaudited Condensed ConsolidatedFinancial Statements; Earnings Per Share;

Note 4 to Unaudited Condensed ConsolidatedFinancial Statements; Pro Forma Effects of Stock Options;

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

Note 9 to Unaudited Condensed ConsolidatedFinancial Statements; Restatements of Unaudited Condensed ConsolidatedFinancial Statements.

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

Except for the related corrections toNotes 3, 4,  and 7 to the unauditedcondensed consolidated financial statements, and certain other immaterialcorrections, the remaining Items required by Form 10-Q are not amended hereby,but are included herewith for ease of the reader. Except as expressly notedherein, this report continues to speak as of the date of the original filing,and we have not updated the disclosures in this report to speak as of a laterdate.

Except as otherwise expressly notedherein, this Form 10-Q/A does not reflect events occurring after the August 17,2005 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 deemednecessary in connection with the completion of restated financial statements.

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

THE EFFECTS ON THE CONDENSED CONSOLIDATED BALANCESHEETS

As a result of therestatement, our unaudited condensed consolidated balance sheet as of June 30,2005 changed as follows:
|                                          | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
|                                     |       |                             |       |                 |       |       |       |
| Amortizable  intangible assets, net      |       | $                                | 1,660      |                 | $          | 11,820     |       | $ | 10,160 |   |
|                                     |       |                             |       |                 |       |       |       |
| Other  non-amortizable intangible assets |       | 10,573                           |       | —               |       | (10,573    | )          |
| Deferred tax  assets, net                |       | 14,086                           |       | 14,249               |       | 163        |       |
| Total assets                             |       | 102,142                          |       | 101,892              |       | (250       | )          |
| Accumulated  deficit                     |       | (16,493                          | )          | (16,743              | )          | (250       | )          |
| Total stockholders’  equity         |       | 95,375                           |       | 95,125               |       | (250       | )          |
|                                          |            |                                  |            |                      |            |            |            |  |  |  |

 

18

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

 

THE EFFECTS ON THEUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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 from operations                           |       | 839                                    |       | 715                  |       | (124       | )          |
| Income before income taxes and minority interest |       | 876                                    |       | 752                  |       | (124       | )          |
| Income tax provision                             |       | 364                                    |       | 315                  |       | (49        | )          |
| Income before minority interest                  |       | 512                                    |       | 437                  |       | (75        | )          |
| Net income                                       |       | 512                                    |       | 437                  |       | (75        | )          |
| Earnings per 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, 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 from operations                           |       | 1,567                                  |       | 1,319                |       | (248       | )          |
| Income before income taxes and minority interest |       | 1,655                                  |       | 1,407                |       | (248       | )          |
| Income tax provision                             |       | 691                                    |       | 593                  |       | (98        | )          |
| Income before minority interest                  |       | 964                                    |       | 814                  |       | (150       | )          |
| Net income                                       |       | 964                                    |       | 814                  |       | (150       | )          |
| Earnings per 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, 2005 wasincreased by $100 to $17,557 from $17,457 and the balance as of June 30, 2005was increased by $250 to $16,743 from $16,493.

19

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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, 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                      |       | (6                                     | )          | (104                 | )          | (98        | )          |
|                                             |            |                                        |            |                      |            |            |            |  |  |  |

 

THE EFFECTS ON NOTE 3 –EARNINGSPER SHARE

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 by $150 to $814 from $964.

THE EFFECTS ON NOTE 4 –PROFORMA EFFECTS OF STOCK OPTIONS

The effects of therestatements on the historical and pro forma information in Note 4 are set forthbelow:
|                                               | ** ** | **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 and diluted earnings per share          |       |                             |       |                 |       |       |       |
| As reported                                   |       | $                                | 0.03       |                 | $          | 0.02       |       | $ | (0.01 | ) |
| 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 and diluted earnings (loss) per share |       |                             |       |                 |       |       |       |
| As reported                                 |       | $                                | 0.05       |                 | $          | 0.04       |       | $ | (0.01 | ) |
| Pro forma                                   |       | $                                | 0.01       |                 | $          | (0.00      | )          | $ | (0.01 | ) |

 

20

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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 30,2005 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 |   |

 
| ** **                                                                    | ** ** | **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 |   |

 

21

----

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, 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**

OutdoorChannel Holdings, Inc. (which we refer to as “Outdoor Channel Holdings” orcollectively with its subsidiaries, the “Company”), through its indirectwholly-owned subsidiary The Outdoor Channel, Inc. (“TOC”), owns and operatesThe Outdoor Channel which is a national television network devoted primarily totraditional outdoor activities, such as hunting, fishing and shooting sports,as well as off-road motor sports and other related life style programming. TheCompany also owns and operates related businesses which serve the interests ofThe Outdoor Channel’s viewers and other outdoor enthusiasts. These relatedbusinesses include: LDMA-AU, Inc. (“Lost Dutchman’s”) and Gold Prospector’sAssociation of America, LLC. (“GPAA”). Lost Dutchman’s is a national goldprospecting campground club with approximately 6,700 members and properties inArizona, California, Colorado, Georgia, Michigan, North Carolina, Oregon andSouth Carolina. We believe GPAA is one of the largest gold prospecting clubs inthe world with approximately 32,300 active members. GPAA is the publisher ofthe “Gold Prospectors & Treasure Hunters in the Great Outdoors” magazineand owner of a 2,300 acre property near Nome, Alaska used to provide an annualexpedition for a fee to its members.

TheCompany’s revenues include (1) advertising fees from advertisements aired onThe Outdoor Channel and from advertisements in “Gold Prospectors & TreasureHunters in the Great Outdoors” magazine; (2) subscriber fees paid by cable andsatellite service providers that air The Outdoor Channel; and (3) membershipfees from members in both Lost Dutchman’s and GPAA and other income includingmagazine sales, products and services related to gold prospecting, goldexpositions, expeditions and outings. Advertising fees include fees paid bythird-party programmers to purchase advertising time in connection with theairing of their programs on The Outdoor Channel.

**Recent Accounting Developments**

InDecember 2004, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards No. 123 (R) (“SFAS 123 (R)”). “Share-BasedPayment” which establishes standards for the accounting for transactions inwhich an entity exchanges its equity instruments for goods or services andfocuses primarily on accounting for transactions in which an entity obtainsemployee services in share-based payment transactions. SFAS 123 (R) requiresthat the fair value of such equity instruments, including all options grantedto employees, be recognized as expense in the historical financial statements asservices are performed. Prior to SFAS 123 (R), only certain pro formadisclosures of fair value were required. SFAS 123 (R) shall be effective forissuers as of the beginning of the first annual reporting period that beginsafter December 15, 2005. The Company intends to adopt the standards of SFAS No.123 (R) effective January 1, 2006. Since the Company has used the intrinsicvalue method to account for stock options, the adoption of SFAS 123 (R) isexpected to have a material impact on the financial statements of OutdoorChannel Holdings, Inc.

TheFASB had issued certain other accounting pronouncements as of June 30, 2005that will become effective in subsequent periods; however, management of theCompany does not believe that any of those pronouncements would havesignificantly affected the Company’s financial accounting measurements ordisclosures had they been in effect during the three and six months ended June30, 2005.

22

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**Comparison of OperatingResults for the Three Months Ended****June30****, 2005and June****30****, 2004**

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** | ** ** |
|------------------------------------------------------------|------------|----------------|------------|------------|------------|----------------|------------|---------------------------------------|------------|
| ** **                                                 | ** ** | **2005**       | ** ** | **2004**   | ** ** | **$**          | ** ** | **%**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                 | ** ** | **(Restated)** | ** ** | ** ** | ** ** | **(Restated)** | ** ** | **(Restated)**                        | ** ** | ** ** | ** ** |
| Revenues:                                                  |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Advertising                                                |       | $              | 5,257      |       | $          | 5,352          |       | $                                     | (95        | ) | (1.8 | )% | 52.5 | % | 56.0 | % |
| Subscriber fees                                            |       | 3,894          |       | 3,219      |       | 675            |       | 21.0                                  |       | 38.9 |   | 33.7 |   |
| Membership  income                                         |       | 863            |       | 986        |       | (123           | )          | (12.5                                 | )          | 8.6 |   | 10.3 |   |
| Total revenues                                             |       | 10,014         |       | 9,557      |       | 457            |       | 4.8                                   |       | 100.0 |   | 100.0 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Cost of services:                                          |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Programming                                                |       | 531            |       | 895        |       | (364           | )          | (40.7                                 | )          | 5.4 |   | 9.4 |   |
| Satellite  transmission fees                               |       | 616            |       | 586        |       | 30             |       | 5.1                                   |       | 6.1 |   | 6.1 |   |
| Production and operations                                  |       | 733            |       | 499        |       | 234            |       | 46.9                                  |       | 7.3 |   | 5.2 |   |
| Other direct  costs                                        |       | 243            |       | 204        |       | 39             |       | 19.1                                  |       | 2.4 |   | 2.1 |   |
| Total cost of  services                                    |       | 2,123          |       | 2,184      |       | (61            | )          | (2.8                                  | )          | 21.2 |   | 22.8 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Other expenses:                                            |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Advertising                                                |       | 2,062          |       | 1,491      |       | 571            |       | 38.3                                  |       | 20.6 |   | 15.6 |   |
| Selling, general  and administrative                       |       | 4,491          |       | 3,838      |       | 653            |       | 17.0                                  |       | 44.9 |   | 40.2 |   |
| Depreciation and  amortization                             |       | 623            |       | 299        |       | 324            |       | 108.4                                 |       | 6.2 |   | 3.1 |   |
| Total other  expenses                                      |       | 7,176          |       | 5,628      |       | 1,548          |       | 27.5                                  |       | 71.7 |   | 58.9 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Income from operations                                     |       | 715            |       | 1,745      |       | (1,030         | )          | (59.0                                 | )          | 7.1 |   | 18.3 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Other income, net                                          |       | 37             |       | 30         |       | 7              |       | 23.3                                  |       | 0.4 |   | 0.3 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Income before income taxes and minority interest           |       | 752            |       | 1,775      |       | (1,023         | )          | (57.6                                 | )          | 7.5 |   | 18.6 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Income tax provision                                       |       | 315            |       | 704        |       | (389           | )          | (55.3                                 | )          | 3.1 |   | 7.4 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Income before minority interest                            |       | 437            |       | 1,071      |       | (634           | )          | (59.2                                 | )          | 4.4 |   | 11.2 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Minority interest in net income of consolidated subsidiary |       | —         |       | 227        |       | (227           | )          | (100.0                                | )          | — |   | 2.4 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Net income                                                 |       | $              | 437        |       | $          | 844            |       | $                                     | (407       | ) | (48.2 | )% | 4.4 | % | 8.8 | % |

 

23

----

**Comparison of OperatingResults for the Six Months Ended June****30****, 2005and June****30****, 2004**

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** | ** ** |
|------------------------------------------------------------|------------|----------------|------------|------------|------------|----------------|------------|---------------------------------------|------------|
| ** **                                                 | ** ** | **2005**       | ** ** | **2004**   | ** ** | **$**          | ** ** | **%**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                 | ** ** | **(Restated)** | ** ** | ** ** | ** ** | **(Restated)** | ** ** | **(Restated)**                        | ** ** | ** ** | ** ** |
| Revenues:                                                  |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Advertising                                                |       | $              | 10,516     |       | $          | 10,164         |       | $                                     | 352        |   | 3.5 | % | 52.4 | % | 54.2 | % |
| Subscriber fees                                            |       | 7,536          |       | 6,380      |       | 1,156          |       | 18.1                                  |       | 37.5 |   | 34.0 |   |
| Membership income                                          |       | 2,023          |       | 2,218      |       | (195           | )          | (8.8                                  | )          | 10.1 |   | 11.8 |   |
| Total revenues                                             |       | 20,075         |       | 18,762     |       | 1,313          |       | 7.0                                   |       | 100.0 |   | 100.0 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Cost of services:                                          |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Programming                                                |       | 1,052          |       | 1,290      |       | (238           | )          | (18.4                                 | )          | 5.3 |   | 6.9 |   |
| Satellite transmission fees                                |       | 1,249          |       | 1,177      |       | 72             |       | 6.1                                   |       | 6.2 |   | 6.2 |   |
| Production and operations                                  |       | 1,726          |       | 1,197      |       | 529            |       | 44.2                                  |       | 8.6 |   | 6.4 |   |
| Other direct costs                                         |       | 462            |       | 450        |       | 12             |       | 2.7                                   |       | 2.3 |   | 2.4 |   |
| Total cost of services                                     |       | 4,489          |       | 4,114      |       | 375            |       | 9.1                                   |       | 22.4 |   | 21.9 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Other expenses:                                            |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Advertising                                                |       | 3,756          |       | 2,805      |       | 951            |       | 33.9                                  |       | 18.7 |   | 15.0 |   |
| Selling, general and administrative                        |       | 9,190          |       | 7,225      |       | 1,965          |       | 27.2                                  |       | 45.8 |   | 38.5 |   |
| Depreciation and amortization                              |       | 1,321          |       | 598        |       | 723            |       | 120.9                                 |       | 6.6 |   | 3.2 |   |
| Total other expenses                                       |       | 14,267         |       | 10,628     |       | 3,639          |       | 34.2                                  |       | 71.1 |   | 56.7 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Income from operations                                     |       | 1,319          |       | 4,020      |       | (2,701         | )          | (67.2                                 | )          | 6.5 |   | 21.4 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Other income, net                                          |       | 88             |       | 59         |       | 29             |       | 49.2                                  |       | 0.5 |   | 0.3 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Income before income taxes and minority interest           |       | 1,407          |       | 4,079      |       | (2,672         | )          | (65.5                                 | )          | 7.0 |   | 21.7 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Income tax provision                                       |       | 593            |       | 1,633      |       | (1,040         | )          | (63.7                                 | )          | 2.9 |   | 8.7 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Income before minority interest                            |       | 814            |       | 2,446      |       | (1,632         | )          | (66.7                                 | )          | 4.1 |   | 13.0 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Minority interest in net income of consolidated subsidiary |       | —         |       | 489        |       | (489           | )          | (100.0                                | )          | — |   | 2.6 |   |
|                                                       |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Net income                                                 |       | $              | 814        |       | $          | 1,957          |       | $                                     | (1,143     | ) | (58.4 | )% | 4.1 | % | 10.4 | % |

**Revenues**

Ourrevenues include 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 which theadvertisement is the program itself (also known as long-form advertising) andfrom the sale of advertising space in publications such as the “GoldProspectors & Treasure Hunters in the Great Outdoors” magazine. For thethree months ended June 30, 2005 and 2004, The Outdoor Channel generatedapproximately 97.0% and 96.9% of our advertising revenue, respectively. For thesix months ended June 30, 2005 and 2004, The Outdoor Channel generatedapproximately 97.1% and 97.4% 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.

Totalrevenues for the three months ended June 30, 2005 were $10,014,000, an increaseof $457,000, or 4.8%, compared to revenues of $9,557,000 for the three monthsended June 30, 2004. Total revenues for the six months ended June 30, 2005 were$20,075,000, an increase of $1,313,000, or 7.0%, compared to revenues of$18,762,000 for the six months ended June 30, 2004. The net increases were theresult of changes in several items comprising revenue as discussed below.

Advertisingrevenue for the three months ended June 30, 2005 was $5,257,000, a decrease of$95,000 or 1.8% compared to $5,352,000 for the three months ended June 30,2004. Advertising revenue for the six months ended June 30, 2005 was$10,516,000, an increase of $352,000 or 3.5% compared to $10,164,000 for thesix months ended June 30, 2004. The decline in advertising revenue for thethree months ended June 30, 2005 principally reflects our decision to use someinfomercial inventory for a program produced internally that introduces TheOutdoor Channel viewers to Outdoor Channel 2 

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HD. As a result we did not earn anyrevenue from this inventory of time. The increase in advertising revenue forthe six months ended June 30, 2005 reflects our ability to demonstrate thevalue of short-form advertising on The Outdoor Channel to national advertisersand thus sell a larger percentage of our advertising inventory to theseaccounts, generally at higher prices.

ForJune of 2005, Nielsen estimated that The Outdoor Channel had 24.6 millionviewers, down from 26.0 million for the same period a year ago. (Nielsenrevises this estimate each month and for August, Nielsen increased its estimateto approximately 25.2 million subscribers). Despite the decrease in Nielsen’suniverse estimate in the first half of 2005 as compared to Nielsen’s universeestimate in the first half of 2004, we were able to increase our effectiverates realized on our advertising time on The Outdoor Channel during the firstquarter of 2005 and then maintain the effective advertising rates during thesecond quarter of 2005.

Subscriberfees for the three months ended June 30, 2005 were $3,894,000, an increase of$675,000 or 21.0% compared to $3,219,000 for the three months ended June 30,2004. Subscriber fees for the six months ended June 30, 2005 were $7,536,000,an increase of $1,156,000 or 18.1% compared to $6,380,000 for the six monthsended June 30, 2004. The increase in subscriber fees for the period wasprimarily due to: an increased number of paying subscribers compared to thesame periods a year ago, both from new affiliates and from existingdistributors such as National Cable Television Cooperative (“NCTC”), DIRECTV,Comcast, DISH Network and Charter, and contractual subscriber fee rateincreases with existing service providers carrying The Outdoor Channel.

Membershipincome for the three months ended June 30, 2005 was $863,000, a decrease of$123,000 or 12.5% compared to $986,000 for the three months ended June 30,2005. Membership income for the six months ended June 30, 2005 was $2,023,000,a decrease of $195,000 or 8.8% compared to $2,218,000 for the six months endedJune 30, 2004. The decline is principally a result of timing of our LDMAmembership sales relative to revenue recognition of these sales and also areduction in our GPAA membership renewal rate in the first half of 2005compared to the first half of 2004.

**Cost ofServices**

Our cost ofservices consists primarily of the cost of providing our broadcast signal andprogramming to the distributors for transmission to the consumer and costsassociated with the production and delivery of our magazine and merchandisesales. Cost of services includes (1) programming costs; (2) satellitetransmission fees; (3) production and operations costs; and (4) other directcosts. Total cost of services for the three months ended June 30, 2005 was$2,123,000, a decrease of $61,000 or 2.8%, compared to $2,184,000 for the threemonths ended June 30, 2004. Total cost of services for the six months endedJune 30, 2005 was $4,489,000 an increase of $375,000 or 9.1%, compared to$4,114,000 for the six months ended June 30, 2004. As a percentage of revenues,total cost of services was 21.2% and 22.8% in the three months ended June 30,2005 and 2004, respectively. As a percentage of revenues, total cost of serviceswas 22.4% and 21.9% in the six months ended June 30, 2005 and 2004,respectively. We expect cost of services to continue to increase in the futureas we expand our existing markets and in-house production to support ouradvertising strategy.

Programmingexpenses for the three months ended June 30, 2005 were $531,000, a decrease of$364,000 or 40.7% compared to $895,000 for the three months ended June 30,2004. Programming expenses for the six months ended June 30, 2005 were$1,052,000, a decrease of $238,000 or 18.4% compared to $1,290,000 for the sixmonths ended June 30, 2004. The decreases are principally a resultfrom our decision to not produce in 2005 a special that we had produced andaired in 2004. Further contributing to the decreases was our decision topostpone until the second half of 2005 the airing of the 2005 season of oneprogram that in 2004 we had aired in the first half.

Our policy is to charge costs of specific shows to programmingexpense over the expected airing period beginning when the program first airs.Much of the cost of programming has been recorded as prepaid programming costsin anticipation of airing the programs in the third and fourth quarter of 2005on The Outdoor Channel or corresponding with the full launch of Outdoor Channel2 HD. A substantial portion of the prepaid programming costs will be charged toexpense in these quarters. Programming expenses are expected to increase as apercentage of revenue as we pursue our strategy to produce or own moreprogramming in-house as opposed to contracting with third party producers. As aresult, we believe we will control more of our programs’ quality, advertisinginventory and potential to re-package our programming for other use such asinternational licensing and production of DVDs for retail distribution.  Since we have limited experience inre-packaging our programming for these other uses, we do not retain costs inprepaid programming to match with these potential revenue sources. When wedevelop a sufficient history, our policy might change.

Satellitetransmission fees for the three months ended June 30, 2005 were $616,000, anincrease of $30,000, or 5.1%, compared to $586,000 for the three months endedJune 30, 2004. Satellite transmission fees for the six months ended 

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June 30, 2005 were $1,249,000, an increaseof $72,000, or 6.1%, compared to $1,177,000 for the six months ended June 30,2004. This increase reflects an additional charge for the back-up satellitecapability negotiated with our satellite provider during the fourth quarter of2004. We are scheduled for a price increase in satellite transmission feesstarting October 2005 amounting to $5,000 per month. However, we currently haveplans to build our own broadcast facility during 2005 that we anticipate shouldbe operational before the end of 2005 which is expected to reduce directsatellite transmission fees resulting in an approximate savings of $12,000 permonth.

Production andoperations costs for the three months ended June 30, 2005 were $733,000, anincrease of $234,000, or 46.9%, compared to $499,000 for the three months endedJune 30, 2004. Production and operations costs for the six months ended June30, 2005 were $1,726,000, an increase of $529,000, or 44.2%, compared to$1,197,000 for the six months ended June 30, 2004.  The increase in costs principally relates toincreased personnel to support our growing infrastructure as we produce moreshows in-house and to support our new broadcast facility.

Other direct costsfor the three months ended June 30, 2005 were $243,000, an increase of $39,000,or 19.1%, compared to $204,000 for the three months ended June 30, 2005. Otherdirect costs for the six months ended September 30, 2004 were $462,000, anincrease of $12,000, or 2.7%, compared to $450,000 for the six months endedSeptember 30, 2005.  Other direct costsinclude such items as the costs of our magazine, outings, trips and merchandisesold. These costs will likely fluctuate with the sales of our membershipdivision.

**OtherExpenses**

Other expenses consist of the cost of(1) advertising; (2) selling, general and administrative expenses;and (3) depreciation and amortization.

Totalother expenses for the three months ended June 30, 2005 were $7,176,000, anincrease of $1,548,000, or 27.5%, compared to $5,628,000 for the three monthsended June 30, 2004. As a percentage of revenues, total expenses were 71.7% and58.9% in the three months ended June 30, 2005 and 2004, respectively. Totalexpenses for the six months ended June 30, 2005 were $14,267,000, an increaseof $3,639,000, or 34.2%, compared to $10,628,000 for the six months ended June30, 2004. As a percentage of revenues, total expenses were 71.1% and 56.7% inthe six months ended June 30, 2005 and 2004, respectively. The increase inexpenses was due to several factors, such as increased corporate costsincluding: (1) amortization of intangible assets; (2) costs associated withcompliance with Sarbanes-Oxley Act of 2002; and (3) costs associated withincorporation in Delaware and listing on Nasdaq National Market, to which theCompany became subject as of September 2004. The increase is also attributableto increased personnel costs, costs associated with the launch of our secondchannel, Outdoor Channel 2 HD, marketing and promotion costs incurred to supportthe growth of the number of subscribers of The Outdoor Channel, and other itemsmore fully described as follows.

Advertisingexpenses for the three months ended June 30, 2005 were $2,062,000, an increaseof $571,000 or 38.3% compared to $1,491,000 for the three months ended June 30,2004. Advertising expenses for the six months ended June 30, 2005 were$3,756,000, an increase of $951,000 or 33.9% compared to $2,805,000 for the sixmonths ended June 30, 2004. The increase in advertising expenses is principallya result of our increased spending on consumer and trade industry awarenesscampaigns designed to build demand for The Outdoor Channel and for OutdoorChannel 2 HD. We plan on continuing to spend on these awareness programs, andwhen expressed as a percentage of revenues, we are trending at higher ratesthan 2004.

Selling,general and administrative expenses for the three months ended June 30, 2005were $4,491,000, an increase of $653,000 or 17.0% compared to $3,838,000 forthe three months ended June 30, 2004. As a percent of revenues, selling,general and administrative expenses were 44.9% and 40.2% for the three monthsended  June 30, 2005 and 2004,respectively. Selling, general and administrative expenses for the six monthsended June 30, 2005 were $9,190,000, an increase of $1,965,000 or 27.2%compared to $7,225,000 for the six months ended June 30, 2004. As a percent ofrevenues, selling, general and administrative expenses were 45.8% and 38.5% forthe six months ended  June 30, 2005 and2004, respectively. The increase was primarily due to the increase in thenumber of employees compared to the end of June 2005. We opened our New YorkCity advertising sales office with a resultant expense in 2005 that did notexist in the same period a year ago. It currently has a staff of threeemployees. We have also added an executive to our management team who holds theposition of General Counsel. Others have been added in all departments tosupport our launch of a second channel—Outdoor Channel 2 HD, and to support ourincreased efforts of providing more of our shows in-house. We also experiencedincreased travel and related costs associated with our larger advertising salesstaff, support of our service providers and the promotion of The Outdoor Channeland Outdoor Channel 2 HD through a stronger presence at trade shows,conferences and seminars. Depreciation and small equipment purchases haveincreased as a result of pre-launch activity of Outdoor Channel 2 HD.

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Depreciation and amortization expense forthe three months ended June 30, 2005 was $623,000, an increase of $324,000 or108.4% compared to $299,000 for the three months ended June 30, 2004.Depreciation and amortization for the six months ended June 30, 2005 were$1,321,000, an increase of $723,000 or 120.9% compared to $598,000 for the sixmonths ended June 30, 2004.  The increasein depreciation primarily relates todepreciation and amortization of intangible assets recorded in connection withthe acquisition in September 2004 of the remaining minority interest of TOC wedid not already own. These expenses did not exist in the first half of 2004.

**Income from Operations**

Incomefrom operations for the three months ended June 30, 2005 was $715,000, adecrease of $1,030,000 or 59.0% compared to $1,745,000 for the three monthsended June 30, 2004. As a percent of revenues, income from operations was 7.1%and 18.3%, respectively. Income from operations for the six months ended June30, 2005 was $1,319,000, a decrease of $2,701,000 or 67.2% compared to $4,020,000for the six months ended June 30, 2004. As a percent of revenues, income fromoperations was 6.5% and 21.4%, respectively. As we continue to strive to drivegrowth of our subscriber base and as we launch Outdoor Channel 2 HD, we willincur increased expenses such as programming, marketing, and advertising aswell as start-up and operating costs in 2005 that are unlikely to beimmediately offset by revenues. As a result, we anticipate our operatingmargins will be negatively impacted for the foreseeable future. There can be noassurance that these strategies will be successful.

**Other Income, Net**

Otherincome, net for the three months ended June 30, 2005 was $37,000, an increaseof $7,000 or 23.3% compared to $30,000 for the three months ended June 30,2004. Other income, net for the six months ended June 30, 2005 was $88,000, anincrease of $29,000 or 49.2% compared to $59,000 for the six months ended June30, 2004. This improvement was primarily due to increased dividends andinterest earned on our investment in available-for-sale securities and cashbalances.

**Income Before IncomeTaxes and Minority Interest in Net Income of Consolidated Subsidiary**

Incomebefore income taxes and minority interest decreased as a percentage of revenuesto 7.5% for the three months ended June 30, 2005 compared to 18.3% for thethree months ended June 30, 2004. Income before income taxes and minorityinterest decreased as a percentage of revenues to 7.0% for the six months endedJune 30, 2005 compared to 21.7% for the six months ended June 30, 2004.

TheTOC segment’s income before income taxes and minority interest expressed as apercentage of revenue decreased to 17.5% for the three months ended June 30,2005, compared to 24.6% for the three months ended June 30, 2004. The TOCsegment’s income before income taxes and minority interest expressed as apercentage of revenue decreased to 13.9% for the six months ended June 30,2005, compared to 27.5% for the six months ended June 30, 2004. The decreasewas due mainly to the growth of our advertising, personnel and travel relatedexpenses and amortization of intangible assets required in September 2004acquisition of the minority interest of TOC we did not already own. As noted,we have increased our staff in support of the launch of our second channel,Outdoor Channel 2 HD and in pursuit of growing the subscriber base of TheOutdoor Channel.

TheMembership Division segment’s income before income taxes and minority interestexpressed as a percentage of revenues decreased to a loss of 17.0% for thethree months ended June 30, 2005 compared to an income of 2.2% for the threemonths ended June 30, 2004. The Membership Division segment’s income beforeincome taxes and minority interest expressed as a percentage of revenuesdecreased to a loss of 4.9% for the six months ended June 30, 2005 compared toan income of 6.9% for the six months ended June 30, 2004. This decreaseprincipally reflects the combined effects of the decline in revenue of theMembership Division of approximately $135,000 and $156,000 and the increase inexpenses of $63,000 and $130,000 in the three and six months ended June 30,2005 and 2004, respectively. The reduction is principally a result of timing ofour LDMA membership sales relative to revenue recognition of these sales and areduction of our GPAA membership renewal rate. Further, we held five gold showsin the first quarter of this year compared to four last year which increasedour overall expense. We did not realize as much revenue per show as last yearas we held shows in areas we have never been before or have not been to forsometime. Often it takes a year or two for shows held in new areas to gainmomentum. Our Denver show was negatively impacted by heavy snow fall which keptattendance down.

Corporateincurred a loss before income taxes and minority interest for the three monthsended June 30, 2005 amounting to $524,000, an increase of $210,000 or 66.9%compared to a loss of $314,000 for the three months ended June 30, 2004.Corporate incurred a loss before income taxes and minority interest for the sixmonths ended June 30, 2005 amounting to $940,000, an increase of $376,000 or66.7% compared to $564,000 for the six months ended June 30, 2004. 

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The expenses allocated to Corporateinclude: professional fees such as public relations, accounting and legal fees,business insurance, board of directors fees and expenses and an allocation ofcorporate officers’ payroll and related expenses. The increase in the expensesof Corporate is principally related to accounting services incurred inpositioning the Company to be in compliance with the requirements of theSarbanes-Oxley Act of 2002, taxes associated with being incorporated inDelaware and listing fees of Nasdaq National Market. Increased board fees alsocontribute to the increase of expenses reflecting the increase in the number ofindependent board members from two in the first half of 2004 to five in thefirst half of 2005.

**Income Tax****Provision**

Incometax provision for the three months ended June 30, 2005 was $315,000, a decreaseof $389,000 or 55.3% as compared to $704,000 for the three months ended June30, 2004. Income tax provision for the six months ended June 30, 2005 was$593,000, a decrease of $1,040,000 or 63.7% as compared to $1,633,000 for the sixmonths ended June 30, 2004. The decrease was principally due to the Companyearning less taxable income in the first half of 2005 as compared to the firsthalf of 2004. The effective income tax rate was approximately 41.9% and 39.7%for the three months ended June 30, 2005 and 2004, respectively. The effectiveincome tax rate was approximately 42.1% and 40.0% for the six months ended June30, 2005 and 2004, respectively.

**Minority Interest in NetIncome of Consolidated Subsidiary**

Minorityinterest for the three and six months ended June 30, 2004 was $227,000 and$489,000, respectively. Minority interest was eliminated in September 2004 as aresult of our acquisition of the remaining minority interest in TOC we did notalready own. Therefore, there was no minority interest for the three and sixmonths ended June 30, 2005.

**Net Income**

Netincome for the three months ended June 30, 2005 was $437,000 a decrease of$407,000 or 48.2% compared to $844,000 for the three months ended June 30,2004. Net income for the six months ended June 30, 2005 was $814,000 a decreaseof $1,143,000 or 58.4% compared to $1,957,000 for the six months ended June 30,2004. The decrease was due to reasons stated above.

**Liquidity and CapitalResources**

Weused $218,000 of cash in our operating activities in the six months ended June30, 2005, compared to the cash provided by operating activities of $2,640,000in the six months ended June 30, 2004 and had a cash and cash equivalentsbalance of $9,007,000 at June 30, 2005, which was a decrease of $4,098,000 fromthe balance of $13,105,000 at December 31, 2004. Net working capital decreasedto $16,581,000 at June 30, 2005, compared to $17,042,000 at December 31, 2004.

Netcash used in investing activities was $3,373,000 in the six months ended June30, 2005 compared to $1,137,000 for the six months ended June 30, 2004. Theincrease in cash used in investing activities was primarily related toadditional capital expenditures to build our inventory of cameras and editequipment to support our increased efforts to produce more of our programmingin-house as opposed to licensing such programming from third parties and inparticular to increase our HD camera and editing equipment. Also included incapital expenditures is “construction in progress” and equipment related to thebuild-out of our new broadcast facility described below.

Weused $507,000 of cash in our financing activities in the six months ended June30, 2005 compared to the cash provided by financing activities of $897,000 forthe six months ended June 30, 2004. The cash used by financing activities in2005 was primarily for prepaid costs for our public offering completed on July1, 2005 partially offset by the proceeds from the exercise of stock options.The cash from financing activities in 2004 was primarily a result of theexercise of employee and service provider stock options from our 1995 incentivestock option plan. More options from this plan were eligible for exercise in2004 than in the comparable period in 2005.

During2004, the Company entered into a credit facility providing for a revolving lineof credit of up to $5,000,000 of available borrowings. The borrowings under thecredit facility are secured by accounts receivable, instruments, documents,chattel paper, general intangibles, contract rights, investment property,certificates of deposit, deposit accounts, letter of credit rights, inventory,and equipment. The credit facility matures on September 5, 2005 and containscustomary financial and other covenants and restrictions including a change ofcontrol provision. As of June 30, 2005 and as of the date of this report, theCompany did not have any amounts outstanding under the credit facility.

Drivenby a need to increase office space, we reassessed our facilities including floorspace utilization, master control equipment, uplink equipment, and other needsduring the year ended December 31, 2004. On February 22, 2005 we announced ourintention to purchase a 28,000 square foot building in Temecula, California forapproximately $2.6 million and have executed a Purchase and Sale Agreement andEscrow Instructions to complete the purchase later this year. We have enteredinto a lease agreement for this property whereby we are leasing the premisesuntil the expected closing. This building 

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is planned to house our broadcast facilityincluding our master control, our uplink satellite dish and various programmingpersonnel. We currently estimate that capital expenditures to complete thebuild-out including updated equipment could exceed $8 million. While theCompany believes that such estimated capital expenditures can be funded fromits cash on hand or cash from operations, the Company is currently exploringlong-term debt financing and other alternatives with regard to the possible fundingof a portion of these estimated capital expenditures. As of the date of thefiling of this report, the Company has not obtained any actual commitments withregard to such financing.

OnJuly 1, 2005, the Company completed a public offering of its common stock,whereby we sold 3,500,000 shares of common stock and received net proceeds of$44,415,000 prior to offering costs. In addition, certain selling stockholdersexercised options to buy 1,688,000 shares of common stock which were resold inthe public offering. On July 13, 2005, the underwriters exercised theirover-allotment option from certain selling stockholders, whereby options to buyan additional 442,000 shares of common stock were exercised. The Companyreceived $2,162,000 in aggregate from the exercise of these options.

As ofJune 30, 2005, the Company had sufficient cash on hand and generated sufficientcash flow from operations to meet its short-term cash flow requirements.Management believes that the Company’s existing cash resources at June 30,2005, the proceeds from the offering on July 1, 2005 and anticipated cash flowsfrom operations will be sufficient to fund the Company’s operations at currentlevels and anticipated capital requirements through at least July 1, 2006. Tothe extent that such amounts are insufficient to finance the Company’s workingcapital requirements or the Company’s desire to expand operations beyondcurrent levels, the Company could seek additional financing. There can be noassurance that equity or debt financing will be available if needed or, ifavailable, will be on terms favorable to the Company or its stockholders.

**Risk and Uncertainties**

TheCompany’s business and operations are subject to a number of risks anduncertainties, and the following list should not be considered to be adefinitive list of all factors that may affect the Company’s business,financial condition and future operating results and should be read inconjunction with the risks and uncertainties contained in the Company’s otherfilings with the Securities and Exchange Commission. Any forward-lookingstatements made by the Company are made with the intention of obtaining thebenefits of the “safe harbor” provisions of the Securities Litigation ReformAct and a number of factors, including, but not limited to those discussedbelow, could cause the Company’s actual results and experiences to differmaterially from the anticipated results or expectations expressed in anyforward-looking statements.

*We may not be able togrow our subscriber base, and as a result our revenues and profitability maynot increase.*

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 The Outdoor Channel, overall growth in cable and satellitesubscribers, the popularity of our programming, our ability to negotiate newcarriage agreements and maintain existing distribution, and other factors thatare beyond our control. There can be no assurance that we will be able tomaintain or increase the subscriber base of The Outdoor Channel on cable andsatellite systems or that such carriage will not decrease as a result of anumber of factors. If we are unable to grow our subscriber base, our subscriberand advertising revenues may not increase and could decrease.

*If we offer increasedlaunch support fees or other incentives to service providers in order to growour 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 to do soeconomically or at all. If we are unable to increase the number of our subscriberson a cost-effective basis, or if the benefits of doing so do not materialize,our business and operating results would be harmed. In particular, if we makeany upfront cash payments to service providers for an increase in oursubscriber base, our cash flow could be adversely impacted, and we may incurnegative cash flow for some time. In addition, if we were to make such upfrontcash payments or provide other incentives to service providers, we expect toamortize such amounts ratably over the term of the agreements with the serviceproviders. However, if a service provider terminates any such agreement priorto the expiration of the term of such agreement, then under current accountingrules we may incur a large expense in that quarter in which the agreement isterminated equal to the remaining un-amortized amounts and our operatingresults could accordingly be adversely affected.

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*If, in our attempt to increase our number of subscribers, we structurelaunch support fees with one service provider in a way that would require us tooffer the same support or incentives to all other service providers, ouroperating results 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 us toreduce the effective subscriber fee rates that we receive from other serviceproviders, and this could negatively affect our operating results.

*If The OutdoorChannel is placed in unpopular program packages by cable or satellite serviceproviders, or if service fees are increased for our subscribers, the number ofviewers of The Outdoor Channel may decline which could harm our business andoperating results.*

We donot control the cable channels with which The Outdoor Channel is packaged bycable or satellite service providers. The placement by a cable or satelliteservice provider of The Outdoor Channel in an unpopular program package couldreduce or impair the growth of the number of our viewers and subscriber feespaid by service providers to us. In addition, we do not set the prices chargedby cable and satellite service providers to their subscribers when The OutdoorChannel is packaged with other television channels. The prices for the channelpackages in which The Outdoor Channel is bundled may be set too high to appealto individuals who might otherwise be interested in our network. Further, ifThe Outdoor Channel is bundled by service providers with networks that do notappeal to our viewers or is moved to packages with fewer subscribers, we maylose viewers. These factors may reduce the number of viewers of The OutdoorChannel, which in turn would reduce our subscriber fees and advertisingrevenue.

*Cable and satellite service providers could discontinue or refrain fromcarrying The Outdoor Channel, which could reduce the number of viewers and harmour operating 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 individual cable systems will carry The Outdoor Channel.Under our current agreements, The Outdoor Channel typically offers MSOs andtheir cable affiliates the right to broadcast The Outdoor Channel to theirsubscribers, but such contracts do not require that The Outdoor Channel beoffered to all subscribers of, or any tiers offered by, the MSO. Becausecertain carriage agreements do not specify on which service levels The OutdoorChannel is carried, such as analog versus basic digital, expanded digital orspecialty tiers, and in which geographic markets The Outdoor Channel will beoffered, we have no assurance that The Outdoor Channel will be carried andavailable to viewers of any particular MSO or to all satellite subscribers. Ifcable and satellite service providers discontinue or refrain from carrying TheOutdoor Channel, this could reduce the number of viewers and harm our operatingresults.

*We may not be able toeffectively manage our future growth, and our growth may not continue, whichmay substantially harm our business and prospects.*

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 from criticalareas and existing projects; and implementing systems and procedures tosuccessfully manage growth, such as monitoring operations, controlling costs,maintaining effective quality and service, and implementing and maintainingadequate internal controls. Although we have recently upgraded our Temecula,California production facility, we expect that additional expenditures will berequired as we continue to upgrade our facilities and to begin transmitting ourchannel from our facilities directly. In particular, we have signed anagreement to purchase a building near our current headquarters and arecurrently building out this property primarily for use as our broadcastfacility in the future. We could incur cost overruns, delays and otherdifficulties with this construction. In addition, moving our broadcast facilityand some of our personnel into this new facility could be disruptive to ouroperations. We cannot assure you that we will be able to successfully manageour growth, that future growth will occur 

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or that we will be successful in managingour business objectives. We can provide no assurance that our profitability orrevenues will not be harmed by future changes in our business. Our operatingresults could be harmed if such growth does not occur, or is slower or lessprofitable than projected.

*We may not be able to secure national advertising accounts, and as aresult, 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 companies andother media. We cannot assure you that our sponsors will pay advertising ratesfor commercial air time at levels sufficient for us to make a profit or that wewill be able to attract new advertising sponsors or increase advertisingrevenues. If we are unable to attract national advertising accounts insufficient quantities, our revenues and profitability may be harmed.

*We may be required topay additional state income taxes for past years.*

Weare required to pay income taxes in various states in which we conduct ourbusiness operations. In the past, we have paid state income taxes only inCalifornia (where our headquarters is located) and have not paid income taxesto any other state. We have recently determined that we may have state incometax liability in the eight states other than California in which our goldprospecting properties are located. Although we expect in the near future togather sufficient information to enable us to apportion our income to suchstates and file income tax returns in those states for past years, we can offerno assurances as to when we will be able to file state income tax returns inthose states where we may have outstanding, current and future tax liabilities.In general, we believe any income taxes that we may be required to pay tostates other than California will be partially offset by a refund from theState of California for income tax amounts we have overpaid to California inpast years. We may, however, be limited as to the number of years for which wecan receive a refund from California for taxes previously paid, and we cannotpredict when we would receive any such refund. In addition, because each stateto which we may 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.

*If we fail to develop and distribute popular programs, our viewershipwould likely decline, which could cause advertising and subscriber fee revenuesto 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.

*Changes in themethodology used by Nielsen to estimate our subscriber base or televisionratings, or inaccuracies in such estimates, could cause our advertising revenueto 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.

*Expenses relating to programming costs are generally increasing and anumber of factors can cause cost overruns and delays, and our operating resultsmay be adversely impacted if we are not able to successfully recover the costsof developing 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 library throughthe acquisition of long-term broadcasting rights from third party producers,in-house production and outright acquisition of programming, and this may leadto increases in our programming costs. The 

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development, production and editing oftelevision programming requires a significant amount of capital and there aresubstantial financial risks inherent in developing and producing televisionprograms. Actual programming and production costs may exceed their budgets.Factors such as labor disputes, death or disability of key spokespersons orprogram hosts, damage to film negatives, master tapes and recordings or adverseweather conditions may cause cost overruns and delay or prevent completion of aproject. If we are not able to successfully recover the costs of developing oracquiring programming through increased revenues, whether the programming isproduced by us or acquired from third-party producers, our business andoperating results will be harmed.

*Our operating resultsmay be negatively impacted if our Outdoor Channel 2 HD network is not assuccessful as we anticipate.*

InMarch 2005, we began transmitting an all new, all native high definitionnetwork called Outdoor Channel 2 HD. A formal consumer marketing campaign wasinitiated in July 2005. There can be no assurance that Outdoor Channel 2 HDwill not incur unexpected costs and expenses. Distribution of Outdoor Channel 2HD will depend on successfully executing distribution agreements with cable andsatellite service providers. There can be no assurance that such agreements canbe made, and if they are made, that they will be on terms favorable to us orthat they will not require us to grant periods of free service and/or marketingcommitments to encourage carriage. The public may not adopt HD consumertelevision equipment in numbers sufficient to allow profits for anadvertiser-supported service. Bandwidth constraints may keep Outdoor Channel 2HD from achieving sufficient distribution from service providers to reachprofitability. Competition for quality HD content may increase the costs ofprogramming for Outdoor Channel 2 HD beyond our control or expectations. All ofthese factors, combined or separately, could increase costs or restrain revenueand adversely affect our operating results.

*The market in which we operate is highly competitive, and we may not beable to compete effectively, particularly against competitors with greaterfinancial resources, brand recognition, marketplace presence and relationshipswith service providers.*

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

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 the Outdoor Life Network,which is owned and operated by Comcast. In order to compete for subscribers, wemay pay either launch fees or marketing support or both for carriage in certaincircumstances in the future, which may require significant cash expenditures,harming our operating results and margins. We may also issue our securitiesfrom time to time in connection with our attempts for broader distribution ofThe Outdoor Channel and the number of such securities could be significant. Wecompete for advertising sales with other pay television networks, broadcastnetworks, and local over-the-air television stations. We also compete foradvertising sales with satellite and broadcast radio and the print media. Wecompete with other cable television networks for subscriber fees from, and affiliationagreements with, cable and satellite service providers. Actions by the FederalCommunications Commission, which we refer to as the FCC, and the courts haveremoved certain of the impediments to entry by local telephone companies intothe video programming distribution business, and other impediments could beeliminated or modified in the future. These local telephone companies maydistribute programming that is competitive with the programming provided by usto cable operators.

*We may not be able toattract new, or retain existing, members in our club organizations, and as aresult our revenues and profitability may be harmed.*

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

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*Consolidation among cable and satellite distributors may harm ourbusiness.*

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.

*The satelliteinfrastructure that we use may fail or be preempted by another signal, whichcould impair our ability to deliver programming to our cable and satelliteservice 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 recently negotiated forback-up capability with our satellite provider on an in-orbit spare satellite,which provides us carriage on the back-up satellite in the event thatcatastrophic failure occurs on the primary satellite. Our contract providesthat our main signal is subject to preemption and until the back-up satelliteis in position, we could lose our signal for a period of time. A loss of oursignal could harm our reputation and reduce our revenues and profits.

*Natural disasters and other events beyond our control could interruptour 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 that may occur.Despite any precautions we may take, the occurrence of a natural disaster orother unanticipated problems at our facilities could result in interruptions inour services. Interruptions in our service could harm our reputation and reduceour revenues and profits.

*Our operating results may vary significantly, and historicalcomparisons of our operating results are**not necessarily meaningful and should not be relied upon as an indicator offuture 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 our resultsto fluctuate include, but are not limited to:

·    carriage decisions of cable and satelliteservice providers;

·    demand for advertising, advertising ratesand offerings of competing media;

·    changes in the growth rate of cable andsatellite subscribers;

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

·    seasonal trends in viewer interests andactivities;

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

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

·    our ability to react quickly to changingconsumer trends;

·    specific economic conditions in the cabletelevision and related industries; and

·    changing regulatoryrequirements.

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Dueto the 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 our expectationsof future revenue. Therefore, our failure to meet revenue expectations wouldseriously harm our business, operating results, financial condition and cashflows. Further, an unanticipated decline in revenue for a particular calendarquarter may disproportionately affect our profitability because our expenseswould remain relatively fixed and would not decrease correspondingly.

*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.

*We may be unable to access capital on acceptable terms to fund ourfuture operations.*

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. We cannot assure youthat additional capital, if required, will be available on acceptable terms, orat all. If we are unable to obtain additional capital, our current businessstrategies and plans and ability to fund future operations may be harmed.

*We may not be able toattract 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, ourExecutive Vice President, or William A. Owen, our Chief Financial Officer, orAndrew J. Dale, the Chief Executive Officer and Co-President of The OutdoorChannel, Inc., or Thomas E. Hornish, our General Counsel, could adverselyimpact our business. To attract and retain qualified personnel, we may berequired to grant large option or other stock-based incentive awards, which maybe highly dilutive to existing stockholders. We may also be required to paysignificant base salaries and cash bonuses to attract and retain theseindividuals, which payments could harm our operating results. If we are notable to attract and retain the necessary personnel we may not be able toimplement our business plan.

*New video 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.

*Cable and satellite television programming signals have beenstolen or could be stolen in the future, which reduces our potential revenuefrom subscriber fees and 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.

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*Because we expect to become increasingly dependent upon ourintellectual property rights, our inability to protect those rights couldnegatively impact our ability to compete.*

Wecurrently license approximately 80% of programs we air on The Outdoor Channel fromthird-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 or defending against third party claims can be costly andtime consuming. If we are unable to protect our portfolio of trademarks,service marks, copyrighted material and characters, trade names and other intellectualproperty rights, our business and our ability to compete could be harmed.

*We may face intellectual property infringement claims thatcould be time-consuming, costly to defend and result in our loss of significantrights.*

Otherparties may assert intellectual property infringement claims against us, andour products may infringe the intellectual property rights of third parties.From time to time, we receive letters alleging infringement of intellectualproperty rights of others. Intellectual property litigation can be expensiveand time-consuming and could divert management’s attention from our business.If there is a successful claim of infringement against us, we may be requiredto pay substantial damages to the party claiming infringement or enter intoroyalty or license agreements that may not be available on acceptable ordesirable terms, if at all. Our failure to license the proprietary rights on atimely basis would harm our business.

*Some of our existing stockholders can exert control over usand may not make decisions that are in the best interests of all stockholders.*

Ourcurrent officers, directors and greater than 5% stockholders together currentlycontrol approximately 52.8% 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. Inaddition, the interests of these stockholders may not always coincide with ourinterests as a company or the interests of other stockholders. Accordingly,these stockholders could cause us to enter into transactions or agreements thatyou would not approve.

*Anti-takeover provisions in our certificate ofincorporation, our bylaws and under Delaware law may enable our incumbentmanagement to retain control of us and discourage or prevent a change ofcontrol that may be beneficial to our stockholders.*

Provisionsof Delaware law, our certificate of incorporation and bylaws could discourage,delay or prevent a merger, acquisition or other change in control thatstockholders may 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 the authorized number of directors to be changed only byresolution of our board of directors;

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

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

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

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

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

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

·    requirea 66 2/3% stockholder vote to amend our certificate of incorporation or bylaws.

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Inaddition, because we are incorporated in Delaware, we are governed by theprovisions of Section 203 of the Delaware General Corporation Law, which may,unless certain criteria are met, prohibit large stockholders, in particularthose owning 15% or more of our outstanding voting stock, from merging orcombining with us for a prescribed period of time.

*Technologies in the cable and satellite television industryare constantly changing, and our failure to acquire or maintainstate-of-the-art technology may harm our business 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 which programming iscreated and transmitted. In addition, under some of our MSO contracts, we maybe required to encrypt our signal. We cannot accurately predict the effectsthat implementing new technologies will have on our programming andbroadcasting operations. We may be required to incur substantial capitalexpenditures to implement new technologies, or, if we fail to do so, may facesignificant new challenges due to technological advances adopted bycompetitors, which in turn could result in harming our business and operatingresults.

*The cable and satellite television industry is subject tosubstantial governmental regulation for which compliance may be expensive, timeconsuming and may expose us to substantial compliance costs and penalties forfailure 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.

TheCable Television Consumer Protection and Competition Act of 1992, to which werefer to as the 1992 Cable Act, precludes video programmers affiliated withcable companies from favoring their affiliated cable operators over competitorsand requires such programmers to sell their programming to other multi-channelvideo distributors. This provision benefits independent programmers such as usby limiting the ability of vertically integrated cable programmers to offerexclusive programming arrangements to cable companies. This provision was scheduledto expire in October 2002. However, the FCC deferred the expiration date toOctober 2007 unless the FCC then determines that another extension is necessaryto protect competition and diversity. If this provision expires, it could havean adverse effect on our ability to obtain carriage by service providers.

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. The rules adoptedby the FCC generally provided for mandatory carriage by cable systems of alllocal full-power commercial television broadcast signals selecting must-carryrights and, depending on a cable system’s channel capacity, non-commercialtelevision broadcast signals. Such statutorily mandated carriage of broadcaststations, coupled with the provisions of the Cable Communications Policy Act of1984, which require cable television systems with 36 or more “activated”channels to reserve a percentage of such channels for commercial use byunaffiliated third parties and permit franchise authorities to require thecable operator to provide channel capacity, equipment and facilities forpublic, educational and government access channels, could reduce carriage ofThe Outdoor Channel by limiting its carriage in cable systems with limitedchannel capacity. In 2001, the FCC adopted rules relating to the cable carriageof digital television signals. Among other things, the rules clarify that adigital-only television station can assert a right to analog or digitalcarriage on a cable system. The FCC initiated a further proceeding to determinewhether television broadcasters may assert the rights to carriage of bothanalog and digital signals during the transition to digital television and tocarriage of all digital signals. On February 10, 2005, the FCC decided thattelevision broadcasters do not have such additional must-carry rights.Broadcasters have appealed to the FCC this decision and are seeking legislativechange. The imposition of such additional must-carry regulation, in conjunctionwith the current limited cable system channel capacity, would make it likelythat cable operators will be forced to drop some cable programming services andcould reduce carriage of 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 or authorizations ina timely manner, or at all, or conditions could be imposed upon licenses andauthorizations that may not be favorable to us.

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Inthe future, 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. In response to a request from the Committee onEnergy and Commerce of the House of Representatives, the FCC’s Media Bureauconducted a study in 2004 regarding, among other things, government-mandated ala carte or mini-tier packaging of programming services in which eachsubscriber would purchase only those channels that he or she desired instead ofthe larger bundles of different channels as is typical today. The Media Bureau’sreport on November 18, 2004 observed that such packaging would increase thecost of programming to consumers and injure programmers. If, in response to anyrate or other government regulation, cable system operators implement channeloffering structures that require subscribers to affirmatively choose to pay aseparate fee to receive The Outdoor Channel network, either by itself or incombination with a limited number of other channels, the number of viewers forThe Outdoor Channel could be reduced.

Theregulation of programming services, cable television systems and satellite licenseesis subject to the political process and has been in constant flux over the pastdecade. Further material changes in the law and regulatory requirements aredifficult to anticipate and our business may be harmed by future legislation,new regulation, deregulation or court decisions interpreting laws andregulations.

*We must comply with many local, state, federal andenvironmental regulations, for which compliance may be costly and may expose usto substantial penalties.*

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, state andfederal 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.

*Changes in corporate governance and securities disclosureand compliance practices have increased and may continue to increase our legalcompliance and financial reporting 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.

*Failure to achieve and maintain effective internal controlsin accordance with Section 404 of the Sarbanes-Oxley Act could have a materialadverse effect on our business and stock price.*

Weare beginning the processes necessary to satisfy the requirements of Section404 of the Sarbanes-Oxley Act, which requires an annual management assessmentof the effectiveness of internal controls over financial reporting and anopinion by our independent registered public accounting firm addressing theassessment. During the course of our testing we may identify deficiencies whichwe may not be able to remediate in time to meet the deadline for compliancewith the requirements of Section 404. In addition, if we fail to maintain theadequacy of our internal controls, as such standards are modified, supplementedor amended from time to time, we may not be able to ensure that we can concludeon an ongoing basis that we have effective internal controls over financialreporting in accordance with Section 404. Effective internal controls arenecessary for us to produce reliable financial reports and are important in theprevention of financial fraud. If we cannot produce reliable financial reportsor prevent fraud, our business and operating results could be harmed, investorscould lose confidence in our reported financial information and our stock pricecould decrease.

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*If our goodwill or other indefinite-lived intangibles becomeimpaired, we will be required to take a non-cash charge which could have asignificant effect on our reported net earnings.*

Asignificant portion of our assets consists of goodwill and otherindefinite-lived intangible assets. In accordance with Statements of FinancialAccounting Standards No. 142, “Goodwill and Other Intangible Assets”, or SFAS142, we test goodwill and other indefinite-lived intangible assets forimpairment during the fourth quarter of each year, and on an interim date iffactors or indicators become apparent that would require an interim test. Asignificant downward revision in the present value of estimated future cashflows for a reporting unit could result in an impairment of goodwill or otherindefinite-lived intangibles under SFAS 142 and a non-cash charge would berequired. Such a charge could have a significant effect on our reported netearnings.

*Changes to financial accounting standards may affect ourreported operating results.*

Weprepare our financial statements to conform with GAAP, which are subject tointerpretations by the Financial Accounting Standards Board, the Securities andExchange Commission and various bodies formed to interpret and createappropriate accounting policies. A change in those policies can have asignificant effect on our reported results and may even affect our reporting oftransactions completed before a change is announced. Accounting policiesaffecting many other aspects of our business, including rules relating tobusiness combinations and employee stock option grants have recently beenrevised or are under review. Changes to those rules or the questioning ofcurrent practices may adversely affect our reported financial results or theway we conduct our business. In addition, our preparation of financialstatements in accordance with GAAP requires that we make estimates 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 expenses during the reporting period. Achange in the facts and circumstances surrounding those estimates could resultin a change to our estimates and could impact our future operating results.

*Future issuance by us of preferred shares could adverselyaffect the holders of existing shares, and therefore reduce the value ofexisting shares.*

We are authorized to issue up to25,000,000 shares of preferred stock. The issuance of any preferred stock couldadversely affect the rights of the holders of shares of our commonstock, and therefore reduce the value of such shares. No assurance can be giventhat we will not issue shares of preferred stock in the future.

*We do not expect to pay dividends in the foreseeable future.*

We do not anticipate paying cash dividends onour common stock in the foreseeable future. Any payment of cash dividends willalso depend on our financial condition, operating results, capital requirementsand other factors and will be at the discretion of our board of directors.Furthermore, we may in the future become subject to contractual restrictions onor prohibitions against, the payment of dividends.

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK.**

AtJune 30, 2005 and December 31, 2004, our investment portfolio includedfixed-income securities of $726,000 and $741,000, respectively. Thesesecurities are subject to interest rate risk and will decline in value ifinterest rates increase. However, due to the short duration of our investmentportfolio, an immediate 10% change in interest rates would have no materialimpact on our financial condition, operating results or cash flows. Declines ininterest rates over time will, however, reduce our interest income whileincreases in interest rates over time may increase our interest expense.

We donot have a significant level of transactions denominated in currencies otherthan U.S. dollars and as a result we have very limited foreign currencyexchange rate risk. The effect of an immediate 10% change in foreign exchangerates would have no material impact on our financial condition, operatingresults or cash flows.

We donot have any outstanding borrowings on our line-of-credit and as a result animmediate 10% change in interest rates would have no material impact on ourfinancial condition, operating results or cash flows.

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**ITEM 4. CONTROLS AND PROCEDURES.**

Wemaintain disclosure controls and procedures designed to provide reasonableassurance of achieving the objective that information in our Exchange Actreports is recorded, processed, summarized and reported within the time periodsspecified and pursuant to the regulations of the Securities and ExchangeCommission. Disclosure controls and procedures, as defined in Rule 13a-15(e)and 15d-15(e) under the Exchange Act, include controls and procedures designedto ensure the information required to be disclosed by us in the reports we fileor submit under the Exchange Act is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate, to allow timely decisions regarding required disclosure. Itshould be noted that our system of controls, however well designed andoperated, can provide only reasonable, and not absolute, assurance that theobjectives of the system are met.

Ourmanagement, with the participation of our Chief Executive Officer and ChiefFinancial Officer, evaluated the effectiveness of our disclosure controls andprocedures as of June 30, 2005, the end of the period covered by this report,and concluded that our disclosure controls and procedures were effective as ofJune 30, 2005.

Duringthe fiscal quarter ended June 30, 2005, there was no change in our internalcontrol over financial reporting that materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting other thanthe remedial action we took to address the material weakness in our internalcontrol over financial reporting with respect to accounting for complex andnon-standard transactions. Aswe previously disclosed in our Form 10-Q, as amended, for the quarterended March 31, 2005, we engaged additional resources to advise our managementon the financial reporting and accounting treatment of such transactions as the remedial action.

**PART II—OTHER INFORMATION**
| **ITEM 1.**  | **Legal  Proceedings.**                                           |
|--------------|-------------------------------------------------------------------|
|         | ** **                                                        |
|         | None                                                              |
|         | ** **                                                        |
| **ITEM  2.** | **Unregistered  Sales of Equity Securities and Use of Proceeds.** |
|         | ** **                                                        |
|         | None                                                              |
|         | ** **                                                        |
| **ITEM  3.** | **Defaults  Upon Senior Securities.**                             |
| ** **   | ** **                                                        |
| ** **   | None                                                              |
| ** **   | ** **                                                        |
| **ITEM  4.** | **Submission  of Matters to a Vote of Security Holders.**         |
| ** **   | ** **                                                        |
| ** **   | None                                                              |
| ** **   | ** **                                                        |
| **ITEM  5.** | **Other  Information.**                                           |
| ** **   | ** **                                                        |
| ** **   | None                                                              |

 

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**ITEM 6.**** ****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                 |       |       |            | Specimen stock certificate for shares of common  stock of the Company (filed as Exhibit 4.1 to the Company’s Quarterly Report  on Form 10-Q filed on August 12, 2005 and incorporated herein by reference) |
| 10.1                |       |       |            | Selling Stockholders Registration Rights Agreement,  dated as of June 27, 2005, among Outdoor Channel Holdings, Inc. and the  selling stockholders who are a party (filed as Exhibit 10.1 to the  Company’s current report on Form 8-K filed on June 28, 2005 and incorporated  herein by reference) |
| 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 treated as “accompanying” this QuarterlyReport on Form 10-Q and not “filed” as part of such report for purposes ofSection 18 of the Securities Exchange Act of 1934, as amended, or otherwisesubject to the liability of Section 18 of the Securities Exchange Act of 1934,as amended, and this certification will not be deemed to be incorporated byreference into any filing under the Securities Act of 1933, as amended, or theSecurities Exchange Act of 1934, as amended, except to the extent that theregistrant specifically incorporates it by reference.

**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.
| ** ** | **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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