**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM10-Q/A**

**(Amendment No. 1)**

| **(Mark One)** |
|----------------|
| ** **     |
| **x**          |   | **Quarterly Report Pursuant to Section 13 or 15(d)  of the Securities Exchange Act of 1934** |
| ** **     |   | ** ** |
| ** **     |   | **For the  quarterly period ended March 31, 2006** |
| ** **     |   | ** ** |
| **o**          |   | **Transition Report Pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934** |

 

**For the transition periodfrom               to               **

**Commission file number: 000-17287**

**OutdoorChannel Holdings, Inc.**

(Exact name of Registrant as specified in its charter)

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

 

**43445Business Park Drive, Suite 113**

**Temecula,California 92590**

(Address and zip code of principal executive offices)

**(951)699-4749**

(Issuer’s telephone number, including area code)

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

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  x Yes     o No

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

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

 

 

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

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date:
| Class                           | ** ** | **Number of Shares Outstanding at April 30, 2006** | ** ** |
|---------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| Common Stock,  $0.001 par value |       | 24,600,794                                                                            |       |

 

 

----

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 March 31, 2006 andDecember 31, 2005 and for the three months ended March 31, 2006 and 2005, asdiscussed in Management’s Discussion and Analysis of Financial Condition andResults of Operations (Item 2) and Note 11 to the unaudited condensedconsolidated financial statements to reflect the effects of a revised estimate ofthe 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.

In addition, to providemore detail about our operating results and to more fully comply with theSecurities and Exchange Commission’s (the “SEC”) Regulation S-X, we havemodified our presentation of the unaudited condensed consolidated statements ofoperations , as discussed in Management’s Discussion and Analysis of FinancialCondition and Results of Operations and Note 1 to the unaudited condensedconsolidated financial statements, by reclassifying the amounts originallyincluded under “expenses” in line items under either “cost of services” or “otherexpenses”. Further, to better match the other intangible assets with thesegment to which they pertain, we have reclassified the amortizable intangibleassets and the goodwill which were recorded in connection with the acquisitionon September 8, 2004 along with the related amortization expense from “Corporate”to the “TOC” segment. Also, in accordance with SFAS 123R, we have presented ona prospective basis the tax benefits from exercise of stock options in excessof recognized expense as a cash flow from financing activities in theaccompanying unaudited condensed consolidated statement of cash flows for thethree months ended March 31, 2006, rather than as a cash flow from operatingactivities. 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 May 10, 2006, the filing date of the original Form 10-Q for thequarter ended March 31, 2006, and has not been updated for events subsequent tothat date other than for the effects of the matter discussed above. Unlessotherwise indicated, the exhibits previously filed with the Form 10-Q are notfiled herewith but are incorporated herein by reference.

2

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**OUTDOORCHANNEL HOLDINGS, INC. AND SUBSIDIARIES**

**Quarterly Report on Form 10-Q/AFor The Period Ended March 31, 2006**

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

 

* * *

3

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**PART I—FINANCIAL INFORMATION**

**ITEM 1.****  Financial Statements.**

**OUTDOORCHANNEL HOLDINGS, INC. AND SUBSIDIARIES**

**Condensed Consolidated Balance Sheets**

(In thousands, except per share data)
| ** **                                                                                                  | ** ** | **March 31,  2006**                           | ** ** | **December 31,  2005**           | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                  | ** ** | **(Unaudited)  (As Restated,  Note 11)** | ** ** | **(As Restated,  Note 11)** | ** ** |
| **Assets**                                                                                                  | ** ** | ** **                                         | ** ** | ** **                            | ** ** |
| Current assets:                                                                                             |       |                                               |       |                                  |       |
| Cash and cash  equivalents                                                                                  |       | $                                                  | 19,594     |                                  | $          | 18,276 |   |
| Investment in  available-for-sale securities                                                                |       | 37,349                                             |       | 38,830                                |       |
| Accounts  receivable, net of allowance for doubtful accounts of $350 and $275                               |       | 6,813                                              |       | 5,320                                 |       |
| Income tax  refund receivable                                                                               |       | 3,843                                              |       | 3,843                                 |       |
| Deferred tax  assets, net                                                                                   |       | 1,456                                              |       | 1,015                                 |       |
| Prepaid  programming costs                                                                                  |       | 2,575                                              |       | 2,381                                 |       |
| Other current  assets                                                                                       |       | 1,077                                              |       | 689                                   |       |
| Total current  assets                                                                                       |       | 72,707                                             |       | 70,354                                |       |
|                                                                                                        |       |                                               |       |                                  |       |
| Property, plant and  equipment at cost, net:                                                                |       |                                               |       |                                  |       |
| Membership  division                                                                                        |       | 3,467                                              |       | 3,526                                 |       |
| Outdoor Channel  equipment and improvements                                                                 |       | 12,935                                             |       | 12,097                                |       |
| Property, plant  and equipment, net                                                                         |       | 16,402                                             |       | 15,623                                |       |
| Amortizable intangible  assets, net                                                                         |       | 11,028                                             |       | 11,292                                |       |
| Goodwill                                                                                                    |       | 44,457                                             |       | 44,457                                |       |
|                                                                                                        |       |                                               |       |                                  |       |
| Deferred tax assets,  net                                                                                   |       | 9,666                                              |       | 9,491                                 |       |
| Derivative instruments                                                                                      |       | 7                                                  |       | —                                |       |
| Deposits and other  assets                                                                                  |       | 671                                                |       | 605                                   |       |
| Totals                                                                                                      |       | $                                                  | 154,938    |                                  | $          | 151,822 |   |
|                                                                                                        |       |                                               |       |                                  |       |
| **Liabilities  and Stockholders’ Equity**                                                              | ** ** | ** **                                         | ** ** | ** **                            | ** ** |
| Current liabilities:                                                                                        |       |                                               |       |                                  |       |
| Accounts payable  and accrued expenses                                                                      |       | $                                                  | 3,502      |                                  | $          | 2,864 |   |
| Accrued  severance payments                                                                                 |       | 18                                                 |       | 18                                    |       |
| Current portion  of long-term debt and capital lease obligations                                            |       | 701                                                |       | 708                                   |       |
| Current portion  of deferred revenue                                                                        |       | 1,102                                              |       | 422                                   |       |
| Customer  deposits                                                                                          |       | 641                                                |       | 159                                   |       |
| Total current  liabilities                                                                                  |       | 5,964                                              |       | 4,171                                 |       |
|                                                                                                        |       |                                               |       |                                  |       |
| Accrued severance  payments, net of current portion                                                         |       | 12                                                 |       | 16                                    |       |
| Long-term debt and  capital lease obligations, net of current portion                                       |       | 4,018                                              |       | 4,193                                 |       |
| Deferred revenue, net  of current portion                                                                   |       | 1,250                                              |       | 1,271                                 |       |
| Derivative instruments                                                                                      |       | —                                             |       | 72                                    |       |
| Deferred satellite rent  obligations                                                                        |       | 307                                                |       | 295                                   |       |
| Total  liabilities                                                                                          |       | 11,551                                             |       | 10,018                                |       |
|                                                                                                        |       |                                               |       |                                  |       |
| Commitments and  contingencies                                                                              |       |                                               |       |                                  |       |
| Stockholders’ equity:                                                                                  |       |                                               |       |                                  |       |
| Preferred stock;  25,000 shares authorized; none issued                                                     |       | —                                             |       | —                                |       |
| Common stock,  $0.001 par value; 75,000 shares authorized: 24,577 and 24,409 shares issued  and outstanding |       | 25                                                 |       | 24                                    |       |
| Additional  paid-in capital                                                                                 |       | 158,828                                            |       | 158,700                               |       |
| Deferred  compensation                                                                                      |       | —                                             |       | (1,520                                | )          |
| Accumulated  other comprehensive income (loss):                                                             |       |                                               |       |                                  |       |
| Net unrealized  gains (losses) on derivative instruments                                                    |       | 7                                                  |       | (72                                   | )          |
| Net unrealized  gains on available-for-sale securities                                                      |       | 48                                                 |       | 36                                    |       |
| Total  accumulated other comprehensive income (loss)                                                        |       | 55                                                 |       | (36                                   | )          |
| Accumulated deficit                                                                                         |       | (15,521                                            | )          | (15,364                               | )          |
| Total  stockholders’ equity                                                                            |       | 143,387                                            |       | 141,804                               |       |
| Totals                                                                                                      |       | $                                                  | 154,938    |                                  | $          | 151,822 |   |

 

See Notes toUnaudited Condensed Consolidated Financial Statements.

4

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**OUTDOORCHANNEL HOLDINGS, INC. AND SUBSIDIARIES**

**Unaudited Condensed ConsolidatedStatements of Operations**

(In thousands, except per share data)
| ** **                                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                             | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| ** **                                             | ** ** | **(As Restated,  Note 11)**            | ** ** | **(As Restated,  Note 11)** | ** ** |
| Revenues:                                              |       |                                             |       |   |   |
| Advertising                                            |       | $                                                | 5,685      |   | $ | 5,259 |   |
| Subscriber fees                                        |       | 4,383                                            |       | 3,642 |   |
| Membership income                                      |       | 1,221                                            |       | 1,160 |   |
|                                                   |       |                                             |       |   |   |
| Total revenues                                         |       | 11,289                                           |       | 10,061 |   |
|                                                   |       |                                             |       |   |   |
| Cost of  services:                                     |       |                                             |       |   |   |
| Programming                                            |       | 1,544                                            |       | 521 |   |
| Satellite transmission fees                            |       | 638                                              |       | 633 |   |
| Production and operations                              |       | 1,143                                            |       | 993 |   |
| Other direct costs                                     |       | 208                                              |       | 219 |   |
|                                                   |       |                                             |       |   |   |
| Total costs of services                                |       | 3,533                                            |       | 2,366 |   |
|                                                   |       |                                             |       |   |   |
| Other expenses:                                        |       |                                             |       |   |   |
| Advertising                                            |       | 2,162                                            |       | 1,694 |   |
| Selling, general and administrative                    |       | 5,606                                            |       | 4,698 |   |
| Depreciation and amortization                          |       | 673                                              |       | 699 |   |
|                                                   |       |                                             |       |   |   |
| Total other expenses                                   |       | 8,441                                            |       | 7,091 |   |
|                                                   |       |                                             |       |   |   |
| Income (loss)  from operations                         |       | (685                                             | )          | 604 |   |
|                                                   |       |                                             |       |   |   |
| Interest expense                                       |       | (78                                              | )          | (1 | ) |
|                                                   |       |                                             |       |   |   |
| Other income,  net                                     |       | 623                                              |       | 52 |   |
|                                                   |       |                                             |       |   |   |
| Income (loss)  before income taxes                     |       | (140                                             | )          | 655 |   |
|                                                   |       |                                             |       |   |   |
| Income tax  provision                                  |       | 17                                               |       | 278 |   |
|                                                   |       |                                             |       |   |   |
| Net income  (loss)                                     |       | $                                                | (157       | ) | $ | 377 |   |
|                                                   |       |                                             |       |   |   |
| Earnings (loss)  per common share:                     |       |                                             |       |   |   |
| Basic                                                  |       | $                                                | (0.01      | ) | $ | 0.02 |   |
| Diluted                                                |       | $                                                | (0.01      | ) | $ | 0.02 |   |
|                                                   |       |                                             |       |   |   |
| Weighted average  number of common shares outstanding: |       |                                             |       |   |   |
| Basic                                                  |       | 24,462                                           |       | 18,474 |   |
| Diluted                                                |       | 24,462                                           |       | 22,397 |   |

 

See Notes toUnaudited Condensed Consolidated Financial Statements.

5

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**OUTDOORCHANNEL HOLDINGS, INC. AND SUBSIDIARIES**

**UnauditedCondensed Consolidated Statement of Stockholders’ Equity**

**For the Three Months Ended March 31,2006**

(In thousands)
| ** **                                                                                       | ** ** | **Common Stock** | ** ** | **Additional  Paid-in** | ** ** | **Deferred** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Accumulated**        | ** ** | ** **  | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|--------------|------------|---------------------------------------|------------|------------------------|------------|-------------|------------|
| ** **                                                                                       | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Capital**  | ** ** | **Compensation**                      | ** ** | **Income (Loss)** | ** ** | **Deficit** | ** ** | **Total** | ** ** |
| Balance, January  1, 2006 (as originally reported)                                               |       | 24,409                |       | $                       | 24         |         | $          | 158,700                               |       | $                      | (1,520     | )           | $          | (36 | ) | $ | (14,964 | ) | $ | 142,204 |   |
|                                                                                             |       |                  |       |                    |       |         |       |                                  |       |                   |       |        |       |   |   |
| Cumulative  impact of restatement                                                                |       |                  |       |                    |       |         |       |                                  |       |                   |       | (400        | )          | (400 | ) |
|                                                                                             |       |                  |       |                    |       |         |       |                                  |       |                   |       |        |       |   |   |
| Balance, January  1, 2006 (as restated, Note 11)                                                 |       | 24,409                |       | 24                      |       | 158,700      |       | (1,520                                | )          | (36                    | )          | (15,364     | )          | 141,804 |   |
|                                                                                             |       |                  |       |                    |       |         |       |                                  |       |                   |       |        |       |   |   |
| Comprehensive  income (loss):                                                                    |       |                  |       |                    |       |         |       |                                  |       |                   |       |        |       |   |   |
| Net loss (as restated, Note 11)                                                                  |       |                  |       |                    |       |         |       |                                  |       |                   |       | (157        | )          | (157 | ) |
| Effect of change in fair value of available-for-sale  securities, net of deferred taxes of ($19) |       |                  |       |                    |       |         |       |                                  |       | 12                     |       |        |       | 12 |   |
| Impact of cash flow hedge                                                                        |       |                  |       |                    |       |         |       |                                  |       | 79                     |       |        |       | 79 |   |
| Total comprehensive income (loss) (as restated, Note  11)                                        |       |                  |       |                    |       |         |       |                                  |       |                   |       |        |       | (66) |   |
|                                                                                             |       |                  |       |                    |       |         |       |                                  |       |                   |       |        |       |   |   |
| Reclassification  of deferred compensation upon adoption of SFAS 123R                            |       |                  |       |                    |       | (1,520       | )          | 1,520                                 |       |                   |       |        |       |   |   |
|                                                                                             |       |                  |       |                    |       |         |       |                                  |       |                   |       |        |       |   |   |
| Common stock  issued upon exercise of stock options                                              |       | 174                   |       | 1                       |       | 182          |       |                                  |       |                   |       |        |       | 183 |   |
|                                                                                             |       |                  |       |                    |       |         |       |                                  |       |                   |       |        |       |   |   |
| Forfeited  restricted shares                                                                     |       | (6                    | )          |                    |       |         |       |                                  |       |                   |       |        |       |   |   |
|                                                                                             |       |                  |       |                    |       |         |       |                                  |       |                   |       |        |       |   |   |
| Stock-based  employee compensation expense                                                       |       |                  |       |                    |       | 815          |       |                                  |       |                   |       |        |       | 815 |   |
|                                                                                             |       |                  |       |                    |       |         |       |                                  |       |                   |       |        |       |   |   |
| Tax benefit from  exercise of stock options                                                      |       |                  |       |                    |       | 651          |       |                                  |       |                   |       |        |       | 651 |   |
|                                                                                             |       |                  |       |                    |       |         |       |                                  |       |                   |       |        |       |   |   |
| Balance, March 31, 2006  (as restated, Note 11)                                                  |       | 24,577                |       | $                       | 25         |         | $          | 158,828                               |       | $                      | —     |        | $          | 55 |   | $ | (15,521 | ) | $ | 143,387 |   |

 

See notes tounaudited condensed consolidated financial statements.

6

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**OUTDOORCHANNEL HOLDINGS, INC. AND SUBSIDIARIES**

**Unaudited Condensed ConsolidatedStatements of Cash Flows**

(In thousands)
| ** **                                                                                               | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                               | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| ** **                                                                                               | ** ** | **(As Restated,  Note 11)**            | ** ** | **(As Restated,  Note 11)** | ** ** |
| Operating  activities:                                                                                   |       |                                             |       |   |   |
| Net income (loss)                                                                                        |       | $                                                | (157       | ) | $ | 377 |   |
| Adjustments to reconcile net income (loss) to net  cash provided by (used in) operating activities:      |       |                                             |       |   |   |
| Depreciation and amortization                                                                            |       | 676                                              |       | 699 |   |
| Provision for doubtful accounts                                                                          |       | 67                                               |       | 9 |   |
| Stock-based employee compensation                                                                        |       | 815                                              |       | 52 |   |
| Deferred tax provision (benefit), net                                                                    |       | 17                                               |       | (49 | ) |
| Tax benefits from exercise of stock options in  excess of recognized expense                             |       | (651                                             | )          | — |   |
|                                                                                                     |       |                                             |       |   |   |
| Changes in  operating assets and liabilities:                                                            |       |                                             |       |   |   |
| Accounts receivable                                                                                      |       | (1,560                                           | )          | 221 |   |
| Income tax refund receivable                                                                             |       | —                                           |       | 326 |   |
| Prepaid programming costs                                                                                |       | (194                                             | )          | (548 | ) |
| Other current assets                                                                                     |       | (388                                             | )          | (828 | ) |
| Deposits and other assets                                                                                |       | (69                                              | )          | (82 | ) |
| Accounts payable and accrued expenses                                                                    |       | 638                                              |       | (1,241 | ) |
| Deferred revenue                                                                                         |       | 659                                              |       | 20 |   |
| Customer deposits                                                                                        |       | 482                                              |       | 625 |   |
| Accrued severance payments                                                                               |       | (4                                               | )          | (20 | ) |
| Deferred satellite rent obligations                                                                      |       | 12                                               |       | (8 | ) |
| Net cash provided by (used in) operating activities                                                      |       | 343                                              |       | (447 | ) |
|                                                                                                     |       |                                             |       |   |   |
| Investing  activities:                                                                                   |       |                                             |       |   |   |
| Purchases of property, plant and equipment                                                               |       | (1,189                                           | )          | (1,668 | ) |
| Purchases of available-for-sale securities                                                               |       | (32,638                                          | )          | — |   |
| Proceeds from sale of available-for-sale securities                                                      |       | 34,150                                           |       | — |   |
| Net cash provided by (used in) investing activities                                                      |       | 323                                              |       | (1,668 | ) |
|                                                                                                     |       |                                             |       |   |   |
| Financing  activities:                                                                                   |       |                                             |       |   |   |
| Principal payments on long-term debt and capital  leases                                                 |       | (182                                             | )          | (6 | ) |
| Proceeds from exercise of stock options                                                                  |       | 183                                              |       | 170 |   |
| Tax benefits from exercise of stock options in  excess of recognized expense                             |       | 651                                              |       | — |   |
| Net cash provided by financing activities                                                                |       | 652                                              |       | 164 |   |
| Net increase (decrease) in cash and cash equivalents                                                     |       | 1,318                                            |       | (1,951 | ) |
| Cash and cash equivalents, beginning of period                                                           |       | 18,276                                           |       | 13,105 |   |
| Cash and cash equivalents, end of period                                                                 |       | $                                                | 19,594     |   | $ | 11,154 |   |
|                                                                                                     |       |                                             |       |   |   |
| Supplemental  disclosure of cash flow information:                                                       |       |                                             |       |   |   |
|                                                                                                     |       |                                             |       |   |   |
| Interest paid                                                                                            |       | $                                                | 78         |   | $ | 1 |   |
| Income taxes paid                                                                                        |       | $                                                | —     |   | $ | 5 |   |
|                                                                                                     |       |                                             |       |   |   |
| 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 |       | $                                                | 12         |   | $ | (32 | ) |
| Effect of net  increase in fair value of cash flow hedge                                                 |       | $                                                | 79         |   | $ | — |   |

 

See Notes toUnaudited Condensed Consolidated Financial Statements.

7

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**OUTDOORCHANNEL HOLDINGS, INC. AND SUBSIDIARIES**

**Notes to Unaudited CondensedConsolidated Financial Statements**

(In thousands, except per share data)

**NOTE1—ORGANIZATION AND BUSINESS**

**Descriptionof Operations**

Outdoor ChannelHoldings, Inc. or “Outdoor Channel Holdings,” is incorporated under the laws ofthe State of Delaware. Collectively, with its subsidiaries, the terms “we,” “us,”“our” and the “Company” refer to Outdoor Channel Holdings, Inc. as a combinedentity, except where noted or where the context makes clear the reference isonly to Outdoor Channel Holdings, Inc. or one of our subsidiaries. The Companyacquired the remaining 17.6% minority interest in our subsidiary, The OutdoorChannel, Inc. (“TOC”), which it did not previously hold, on September 8, 2004.TOC operates The Outdoor Channel, which is a national television networkdevoted to traditional outdoor activities, such as hunting, fishing andshooting sports, as well as off-road motor sports and other related lifestyleprogramming. TOC also operates Outdoor Channel 2 HD, which also is a nationaltelevision network with similar programming as TOC’s but is produced and airedutilizing high definition technology.

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

Other businessactivities consist of the promotion and sale of a gold prospecting expeditionto our Cripple River property located near Nome, Alaska, and the sale ofmemberships in Lost Dutchman’s that entitle members to engage in goldprospecting on our Arizona, California, Colorado, Georgia, Michigan, NorthCarolina, Oregon, and South Carolina properties. We have signed an agreementwith another organization for the mutual use of these and other properties.

Outdoor ChannelHoldings also wholly owns 43455 BPD, LLC that owns the building housing ourbroadcast facility.

**Restatementof 2006 and 2005 Financial Statements**

The accompanying unaudited condensedconsolidated financial statements as of March 31, 2006 and December 31, 2005and for the three months ended March 31, 2006 and 2005 and the related noteshave been restated as further explained in Note 11.

**Reclassifications**

Certain amounts in the 2006 and 2005unaudited condensed consolidated financial statements have been reclassifiedeither to conform to the 2006 presentations or to provide additional detailabout our operating results and more fully comply with the Securities andExchange Commission’s Regulation S-X. In particular certain amounts includedunder “expenses” in the 2006 and 2005 unaudited condensed consolidatedstatements of operations we originally issued have been reclassified in lineitems under either “cost of services” or “other expenses”.  Cost of services includes programming,satellite transmission fees, production and operations and other direct costs.Other expenses include advertising, selling, general and administrative anddepreciation and amortization.  Further,to better match intangible assets with the segment to which they pertain, wehave reclassified the amortizable intangible assets and the goodwill which werecorded in connection with the acquisition on September 8, 2004 along with therelated amortization expense from “Corporate” to the “TOC” segment. Also, inaccordance with SFAS 123R, we have presented on a prospective basis the taxbenefits from exercise of stock options in excess of recognized expense of $651as a cash flow from financing activities in the accompanying unauditedcondensed consolidated statement of cash flows for the three months ended March31, 2006, rather than as a cash flow from operating activities.  Certain other changes have been made in thehistorical unaudited condensed consolidated financial statements to conform tocurrent presentations.

**NOTE2—UNAUDITED INTERIM FINANCIAL STATEMENTS**

In the opinion ofmanagement, the accompanying unaudited condensed consolidated financialstatements reflect all adjustments, consisting of normal recurring adjustments,necessary to present fairly the financial position of the Company as of March31, 2006 and its results of operations and cash flows for the three monthsended March 31, 2006 and 2005. Information included in the consolidated balancesheet as of December 31, 2005 has been derived from, and certain terms usedherein are defined in, the audited financial statements of the Company as ofDecember 31, 2005 (the “Audited Financial Statements”) included in the Company’sAnnual Report on Form 10-K (the “10-K”) for the year ended December 31, 2005that was previously filed with the Securities and Exchange Commission (the “SEC”).Pursuant to the rules and regulations of the SEC, certain information anddisclosures normally included in financial statements prepared in accordancewith accounting principles generally accepted in the United States of Americahave been condensed or omitted from these 

8

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financialstatements unless significant changes have taken place since the end of themost recent fiscal year. Accordingly, these unaudited condensed consolidatedfinancial statements should be read in conjunction with the Audited FinancialStatements and the other information also included in the 10-K.

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

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

**NOTE3—STOCK INCENTIVE PLANS**

Effective January1, 2006, we adopted Statement of Financial Accounting Standards No. 123(revised 2004), “Share-Based Payment” (“SFAS 123R”). We have elected to use themodified prospective transition method. This method requires compensation costto be recognized in the financial statements over the service period for thefair value of all awards (including awards to employees) granted after the dateof adoption as well as for existing awards for which the requisite service hadnot been rendered as of the date of adoption and requires that prior periods notbe restated. Our stock incentive plans provide for the granting of qualifiedand nonqualified options, restricted stock and stock appreciation rights (“SARs”)to our officers, directors and employees. Outstanding options are generallyexercisable from 90 days to four years after the date of the grant and expireno more than ten years after the grant. We satisfy the exercise of options andawards of restricted stock by issuing previously unissued common shares.Currently we have not awarded any SARs. Prior to the adoption of SFAS 123R, weused the intrinsic value method to account for stock options granted toemployees and made no charges against earnings with respect to those options atthe date of grant since our employee options had exercise prices that wereequal to the market price, however, as explained in the 10-K, we did recognizea charge in the third quarter of 2004 when we issued fully-vested options topurchase shares in Outdoor Channel Holdings in exchange for fully-vestedoptions held by employees of TOC on September 8, 2004. SFAS 123R requires thatwe elect an approved method to calculate the historical pool of windfall taxbenefits upon adoption of SFAS 123R within one year of its adoption. As ofMarch 31, 2006, we have not made that election.

For the threemonths ended March 31, 2006, the adoption of SFAS 123R reduced income (loss)from operations by $713, reduced net income (loss) by $490 and reduced earnings(loss) per basic and diluted share by $0.02 and $0.02, respectively. Also, inaccordance with SFAS 123R, we have presented on a prospective basis the tax benefitsfrom exercise of stock options in excess of recognized expense of $651 as acash flow from financing activities in the accompanying unaudited condensedconsolidated statement of cash flows for the three months ended March 31,2006, rather than as a cash flow from operating activities, as was prescribed underaccounting rules applicable through December 31, 2005. This requirement reducedthe amount reflected as net cash provided by operating activities and net cashprovided by financing activities for that period. Total cash flows remainedunchanged from that which would have been reported under prior accountingrules. We recognize such benefits only if they have been realized which wedetermine by following the tax law method, which provides that currentdeductions are recognized before realizing the benefits of our net operatingloss carry forwards.  Tax benefits fromthe exercise of stock options in excess of recognized expense of $636 has beenpresented as a cash flow from operating activities for the three months endedMarch 31, 2005.

The weightedaverage fair value of employee stock options granted by us in the three monthsended March 31, 2006 was estimated to be $4.48 per share using theBlack-Scholes option pricing model with the following assumptions:
|                              | ** ** | **Three Months Ended  March 31, 2006** | ** ** |
|------------------------------|------------|------------------------------------------------------------|------------|
| Risk-free  interest rate     |       | 4.2 - 4.6                                                  | %          |
| Dividend yield               |       | 0                                                          | %          |
| Expected life of  the option |       | 4.4 yrs.                                                   |       |
| Volatility factor            |       | 28.5 - 31.5                                                | %          |

 

Expectedvolatilities are based on historical volatility of the Company’s stock, andother factors. The Company uses historical experience with exercise andpost-vesting employment termination behavior to determine the options’expected life. The expected life represents the period of time that optionsgranted are expected to be outstanding. The risk-free rate is based onthe U.S. Treasury rate with a maturity date corresponding to the options’expected life.

9

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Our historical netincome and earnings per common share and pro forma net income (loss) andearnings (loss) per common share assuming compensation cost had been determinedfor the three months ended March 31, 2005 based on the fair value instead ofthe intrinsic value at the grant date for all awards by us to our employees,using the Black-Scholes option pricing model consistent with the provisions ofSFAS 123R, and amortized ratably over the vesting period, are set forth below:
|                                                                                                                                         | ** ** | **Three Months  Ended March 31,2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                                              | ** ** | **(As Restated,**Note 11)                  | ** ** |
| Net income  (loss):                                                                                                                     |       |                                                 |       |
| As reported                                                                                                                             |       | $                                                    | 377        |   |
| Deduct: Stock-based employee compensation expense  assuming a fair value-based method had been used for all awards, net of tax  effects |       | (397                                                 | )          |
|                                                                                                                                    |       |                                                 |       |
| Pro forma — basic and diluted                                                                                                      |       | $                                                    | (20        | ) |
|                                                                                                                                    |       |                                                 |       |
| Basic earnings  (loss) per common share:                                                                                                |       |                                                 |       |
| As reported                                                                                                                             |       | $                                                    | 0.02       |   |
| Pro forma                                                                                                                               |       | $                                                    | 0.00       |   |
| Diluted earnings  (loss) per common share:                                                                                              |       |                                                 |       |
| As reported                                                                                                                             |       | $                                                    | 0.02       |   |
| Pro forma                                                                                                                               |       | $                                                    | 0.00       |   |

 

The fair value ofeach option granted by us in the three months ended March 31, 2005 wasestimated on the date of grant using the Black-Scholes option pricing modelwith the following assumptions:
|                              | ** ** | **Three Months Ended  March 31, 2005** | ** ** |
|------------------------------|------------|------------------------------------------------------------|------------|
| Risk-free  interest rate     |       | 4                                                          | %          |
| Dividend yield               |       | 0                                                          | %          |
| Expected life of  the option |       | 10 yrs.                                                    |       |
| Volatility factor            |       | 79                                                         | %          |

 

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

**NOTE4—EARNINGS (LOSS) PER COMMON SHARE**

We have presented “basic”and “diluted” earnings (loss) per common share in the accompanying condensedconsolidated statements of operations in accordance with the provisions ofStatement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS128”). Basic earnings (loss) per common share is calculated by dividing netincome (loss) by the weighted average number of common shares outstandingduring each period. The calculation of diluted earnings (loss) per common shareis similar to that of basic earnings per common share, except that thedenominator is increased to include the number of additional common shares thatwould have been outstanding if all potentially dilutive common shares of theCompany were issued during the period if any such issuances would have had adilutive effect.

For the threemonths ended March 31, 2006, the computation of diluted loss per common sharedoes not take into account any of our outstanding stock options because theeffect of their assumed exercise would be anti-dilutive.  For the three months ended March 31, 2005,the computation of diluted earnings per common share takes into account theeffects on the weighted average number of common shares outstanding of theassumed exercise of the outstanding stock options of the Company, adjusted forthe application of the treasury stock method. The number of sharespotentially issuable by the Company at March 31, 2006 and 2005 upon theexercise of stock options that were not included in the computation of netearnings (loss) per common share because they were anti-dilutive totaled 3,437and 25, respectively.

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The followingtable summarizes the calculation of net income (loss) and the weighted averagecommon shares outstanding for basic and diluted earnings (loss) per commonshare for the three months ended March 31, 2006 and 2005:
|                                                                                                                                                                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                                                                         | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| ** **                                                                                                                                                         | ** ** | **(As Restated,  Note 11)**            | ** ** | **(As Restated,  Note 11)** | ** ** |
| Numerators:                                                                                                                                                        |       |                                             |       |   |   |
| Net income (loss)—basic                                                                                                                                       |       | $                                                | (157       | ) | $ | 377 |   |
|                                                                                                                                                               |       |                                             |       |   |   |
| Denominators:                                                                                                                                                      |       |                                             |       |   |   |
| Weighted average common shares outstanding—basic                                                                                                              |       | 24,462                                           |       | 18,474 |   |
| 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 |       | —                                           |       | 3,923 |   |
| Diluted weighted  average common shares outstanding                                                                                                                |       | 24,462                                           |       | 22,397 |   |
|                                                                                                                                                                    |            |                                                  |            |  |  |  |  |

 

**NOTE5—EQUITY TRANSACTIONS**

**Issuancesof Common Stock by the Company**

During the threemonths ended March 31, 2006 and 2005, we received cash proceeds ofapproximately $183 and $170 from the exercise of options for the purchase of174 and 125 shares of common stock, respectively.

During the threemonths ended March 31, 2006, a total of 6 shares of restricted stock have beencancelled due to employee turnover. As of March 31, 2006, we have 121 shares ofrestricted stock outstanding and $1,418 of expense, with respect to non-vestedrestricted stock awards, has yet to be recognized and will be amortized ascompensation expense over the employees’ remaining requisite service periods.

**OutdoorChannel Holdings, Inc. Stock Option Plans**

Descriptions ofOutdoor Channel Holdings’ stock option plans are included in Note 11 of theCompany’s Annual Report on Form 10-K for the year ended December 31, 2005. Asummary of the status of the options granted under Outdoor Channel Holdings’stock option plans and outside of those plans as of March 31, 2006 and thechanges in options outstanding during the three months then ended is presentedin the table that follows:
|                                       | ** ** | **Shares** | ** ** | **Weighted  average  Exercise Price** | ** ** | **Weighted Average  Remaining  Contractual Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------|------------|------------|------------|--------------------------------------------|------------|-------------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at  beginning of period   |       | 3,564      |       | $                                          | 7.31       |                                                        |       |                            |       |   |
| Options granted                       |       | 60         |       | 14.26                                      |       |                                                        |       |                            |       |
| Options  exercised                    |       | (174       | )          | 1.05                                       |       |                                                        |       |                            |       |
| Options canceled  or expired          |       | (13        | )          | 11.85                                      |       |                                                        |       |                            |       |
| Options  outstanding at end of period |       | 3,437      |       | $                                          | 7.73       |                                                        | 3.6 years  |                            | $          | 14,076 |   |
|                                  |       |       |       |                                       |       |                                                        |       |                            |       |
| Options exercisable at  end of period |       | 2,395      |       | $                                          | 5.82       |                                                        | 3.0 years  |                            | $          | 13,945 |   |

 

Theweighted-average grant-date fair value of options granted during the threemonths ended March 31, 2006 was $4.48. The total intrinsic value of stock options exercised during the threemonths ended March 31, 2006 was $1,754.

A summary of thestatus of Outdoor Channel Holdings’ non-vested restricted shares as of March31, 2006 and the changes in restricted shares outstanding during the threemonths then ended is presented in the table that follows:
|                                                 | ** ** | **Shares** | ** ** | **Weighted-Average  Grant Date  Fair Value** | ** ** |
|-------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|
| Non-vested  shares at beginning of period       |       | 127        |       | $                                                      | 14.43      |   |
| Granted                                         |       | —     |       | —                                                 |       |
| Vested                                          |       | —     |       | —                                                 |       |
| Canceled                                        |       | (6         | )          | 14.95                                                  |       |
|                                            |       |       |       |                                                   |       |
| Non-vested shares  outstanding at end of period |       | 121        |       | $                                                      | 14.14      |   |

 

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As of March 31,2006, $7,589 of expense with respect to non-vested share-based arrangements hasyet to be recognized which is expected to be recognized over a weighted averageperiod of 1.9 years.

**NOTE6—RELATED PARTY TRANSACTIONS**

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

**NOTE7—SEGMENT INFORMATION**

Pursuant to theProvisions of Statement of Financial Accounting Standards No. 131, “DisclosuresAbout Segments of an Enterprise and Related Information” (“SFAS 131”), wereport segment information in the same format as reviewed by our Chief OperatingDecision Maker (the “CODM”). We segregate our business activities into TOC andthe Membership Division. TOC is a separate business activity that broadcaststelevision programming on The Outdoor Channel 24 hours a day, seven days aweek. TOC generates revenue from advertising fees (which include fees paid byoutside producers to purchase advertising time in connection with the airing oftheir programs on The Outdoor Channel) and subscriber fees. Lost Dutchman’s andGPAA membership sales and related activities are reported in the MembershipDivision. The Membership Division also includes magazine sales, the sale ofproducts and services related to gold prospecting, gold expositions,expeditions and outings. Intersegment sales amounted to $149 in each of the threemonths ended March 31, 2006 and 2005.

Information withrespect to these reportable segments as of and for the three months ended March31, 2006 and 2005 is as follows:
| ** **                                                                       | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to  Property,  Plant and  Improvements** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------|------------|
| **As of  and for the Three Months Ended: March 31, 2006 (As Restated, Note 11)** | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                                                              |       | $            | 9,910      |                                              | $          | 554               |       | $                                   | 80,956     |                                                           | $          | 605 |   | $ | 1,177 |   |
| Membership  Division                                                             |       | 1,379        |       | 189                                               |       | 5,854             |       | 71                                  |       | 12                                                             |       |
| Subtotals of Segments                                                            |       | 11,289       |       | 743                                               |       | 86,810            |       | 676                                 |       | 1,189                                                          |       |
| Corporate*                                                                       |       | —       |       | (883                                              | )          | 68,128            |       | —                              |       | —                                                         |       |
| Totals                                                                           |       | $            | 11,289     |                                              | $          | (140              | )          | $                                   | 154,938    |                                                           | $          | 676 |   | $ | 1,189 |   |
|                                                                             |       |         |       |                                              |       |              |       |                                |       |                                                           |       |
| **March  31, 2005 (As Restated, Note 11)**                                       | ** ** | ** **   | ** ** | ** **                                        | ** ** | ** **        | ** ** | ** **                          | ** ** | ** **                                                     | ** ** |
| TOC                                                                              |       | $            | 8,757      |                                              | $          | 1,012             |       | $                                   | 78,238     |                                                           | $          | 621 |   | $ | 1,511 |   |
| Membership  Division                                                             |       | 1,304        |       | 59                                                |       | 4,979             |       | 78                                  |       | 157                                                            |       |
| Subtotals of Segments                                                            |       | 10,061       |       | 1,071                                             |       | 83,217            |       | 699                                 |       | 1,668                                                          |       |
| Corporate*                                                                       |       | —       |       | (416                                              | )          | 16,904            |       | —                              |       | —                                                         |       |
| Totals                                                                           |       | $            | 10,061     |                                              | $          | 655               |       | $                                   | 100,121    |                                                           | $          | 699 |   | $ | 1,668 |   |

 

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*We capturecorporate overhead that is applicable to both segments, but not directlyrelated to operations in a separate business unit, as “Corporate.” The expensesallocated to Corporate consisted primarily of: professional fees includingpublic relations, accounting and legal fees, taxes associated with being incorporatedin Delaware, board fees, and other corporate fees not associated directly witheither TOC or the Membership division. Corporate assets consist primarily ofcash not held in our operating accounts, available-for-sale securities,deferred tax assets, net and income tax refund receivable. In prior periods,essentially all of the amortizable intangible assets and goodwill wereclassified as Corporate.  These amountsrelate to, and have been reclassified as part of, the TOC segment.

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

The Company’sshort term investments in marketable debt and equity securities are classifiedas available-for-sale and are recorded at fair value at the end of each period.Gross realized gains and losses on sales of these securities during the threemonths ended March 31, 2006 and 2005 and all amounts related to suchinvestments prior to the three months ended March

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31, 2006 and theyear ended December 31, 2005 were not material. Also included in investments inavailable-for-sale securities at March 31, 2006 and December 31, 2005 areinvestments in commercial paper and auction rate securities with short-terminterest rates that generally can be reset every 28 days. The auction ratesecurities have long-term maturity dates and provide us with enhanced yields.However, we believe we have the ability to quickly liquidate them at theiroriginal cost, although there is no guaranty, and, accordingly, they arecarried at cost, which approximates fair value, and classified as currentassets. All income generated from these investments is recorded as interestincome. We had unrealized net holding gains on marketable equity securities atMarch 31, 2006 and December 31, 2005 of $48 and $36, respectively, thatare in “accumulated other comprehensive income”.

The investment inavailable-for-sale securities is as follows:
|                                      | ** ** | **As of  March 31, 2006** | ** ** | **As of  December 31, 2005** | ** ** |
|--------------------------------------|------------|------------------------------------------|------------|---------------------------------------------|------------|
| Auction rate  securities             |       | $                                        | 33,500     |                                        | $          | 38,000 |   |
| Commercial paper                     |       | 2,989                                    |       | —                                      |       |
| Equities                             |       | 860                                      |       | 830                                         |       |
| Total  available-for-sale securities |       | $                                        | 37,349     |                                        | $          | 38,830 |   |

 

**NOTE9—INCOME TAX PROVISION**

The income taxprovision reflected in the accompanying unaudited condensed consolidatedstatement of operations for the three months ended March 31, 2006 is differentthan that computed based on the applicable statutory Federal income tax rate of34%. That portion of the current year SFAS 123R compensation expense relatingto qualified incentive stock options, or ISOs, is recognized for financialstatement purposes but is generally not deductible for tax purposes and thus istreated as a permanent difference between the two. We recognized a charge of$151,000 related to ISOs under SFAS 123R compensation expense. Because of this,and along with the effects of certain other income tax adjustments, we recordedpositive taxable income resulting in income tax expense despite the financialstatement loss.

**NOTE10—SUBSEQUENT EVENTS**

We have twolong-term loans and a line of credit with U.S. Bank N.A. (the “Bank”).Aggregate outstanding borrowings as of March 31, 2006 under the long-term loanswere $4,717. We did not have any borrowings under the line of credit.  These loans and the line of credit containcustomary covenants including certain minimum profitability metrics measured ateach quarter end including quarter profitability and trailing twelve monthsprofitability. As of March 31, 2006, we did not meet some of these covenantsand were in violation thereof. On May 9, we received notice from the Bankgiving us a waiver of the covenant violation and a permanent amendment of thecovenant to exclude non-cash stock based employee compensation expense in theprofitability metrics.

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

This Form 10-Q/A amendsour previously filed Form 10-Q for the quarter ended March 31, 2006 to reflectadjustments to the unaudited condensed consolidated financial statements as ofMarch 31, 2006 and December 31, 2005 and for the three  months ended March 31, 2006 and 2005 arisingfrom the effects of a reclassification of all of the amounts originallyallocated to the cost of multi-system cable operator (“MSO”) relationships fromother non-amortizable intangible assets to amortizable intangible assets andthe determination that they have an estimated useful life of 21 years and 4months. In addition,certain amounts included under “expenses” in the 2006 and 2005 unaudited condensedconsolidated statements of operations  weoriginally issued have been reclassified in line items under either “cost ofservices” or “other expenses” and certain intangible assets and the relatedamortization expense have been reclassified from “Corporate” to the “TOC”segment as explained in Note 1. Also, in accordance with SFAS 123R, we havepresented on a prospective basis the tax benefits from exercise of stockoptions in excess of recognized expense of $651 as a cash flow from financingactivities in the accompanying unaudited condensed consolidated statement ofcash flows for the three months ended March 31, 2006, rather than as a cashflow from operating activities. The adjustments to the 2006 and 2005unaudited condensed consolidated financial statements are a result of acorrection of the accounting treatment for the portion of the excess of thecost of the minority interest over the fair value of the underlying interest inthe net identifiable assets acquired related to the acquisition of the remainingminority interest in The Outdoor Channel, Inc. (“TOC”) that we did notpreviously own on September 8, 2004 that was allocated to the MSOrelationships. The adjustments were based on a review in the third quarter of2006 of the facts and circumstances, the nature of our business, our experiencewith the MSOs and the proclivities of our industry as of September 8, 2004. Theaccompanying unaudited condensed consolidated financial statements and relatednotes thereto have been restated in comparison to those in our previously filedForm 10-Q for the quarter ended March 31, 2006 to reflect the effects of thoseadjustments as explained below:

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THE EFFECTS ON THE CONDENSED CONSOLIDATED BALANCESHEETS

As a result of the restatement, our unauditedcondensed consolidated balance sheet as of March 31, 2006 changed as follows:
|                                          | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
|                                     |       |                             |       |                 |       |       |       |
| Amortizable intangible  assets, net      |       | $                                | 1,240      |                 | $          | 11,028     |       | $ | 9,788 |   |
|                                     |       |                             |       |                 |       |       |       |
| Other non-amortizable  intangible assets |       | 10,573                           |       | —               |       | (10,573    | )          |
| Deferred tax assets,  net                |       | 9,356                            |       | 9,666                |       | 310        |       |
| Total assets                             |       | 155,413                          |       | 154,938              |       | (475       | )          |
| Accumulated deficit                      |       | (15,046                          | )          | (15,521              | )          | (475       | )          |
| Total stockholders’ equity          |       | 143,862                          |       | 143,387              |       | (475       | )          |
|                                          |            |                                  |            |                      |            |            |            |  |  |  |

 

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

 

THE EFFECTS ON THEUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

As a result of therestatement, the unaudited condensed consolidated statements of operations forthree months ended March 31, 2006 changed as follows:
|                                                | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                     | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the three months ended  March 31, 2006** |       |                                   |       |                 |       |       |       |
| Depreciation and  amortization                 |       | $                                      | 549        |                 | $          | 673        |       | $ | 124 |   |
| Total other  expenses                          |       | 8,317                                  |       | 8,441                |       | 124        |       |
| Income (loss)  from operations                 |       | (561                                   | )          | (685                 | )          | (124       | )          |
| Income (loss)  before income taxes             |       | (16                                    | )          | (140                 | )          | (124       | )          |
| Income tax  provision                          |       | 66                                     |       | 17                   |       | (49        | )          |
| Net income  (loss)                             |       | (82                                    | )          | (157                 | )          | (75        | )          |
| Earnings (loss)  per common share              |       |                                   |       |                 |       |       |       |
| Basic                                          |       | $                                      | 0.00       |                 | $          | (0.01      | )          | $ | (0.01 | ) |
| Diluted                                        |       | $                                      | 0.00       |                 | $          | (0.01      | )          | $ | (0.01 | ) |

 

As a result of therestatement, the unaudited condensed consolidated statements of operations forthree months ended March 31, 2005 changed as follows:
|                                                | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                     | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the three months ended  March 31, 2005** |       |                                   |       |                 |       |       |       |
| Depreciation and  amortization                 |       | $                                      | 575        |                 | $          | 699        |       | $ | 124 |   |
| Total other  expenses                          |       | 6,967                                  |       | 7,091                |       | 124        |       |
| Income (loss)  from operations                 |       | 728                                    |       | 604                  |       | (124       | )          |
| Income (loss)  before income taxes             |       | 779                                    |       | 655                  |       | (124       | )          |
| Income tax  provision                          |       | 327                                    |       | 278                  |       | (49        | )          |
| Net income  (loss)                             |       | 452                                    |       | 377                  |       | (75        | )          |
| Earnings (loss)  per common share              |       |                                   |       |                 |       |       |       |
| Basic                                          |       | $                                      | 0.02       |                 | $          | 0.02       |       | — |   |
| Diluted                                        |       | $                                      | 0.02       |                 | $          | 0.02       |       | — |   |
|                                                |            |                                        |            |                      |            |            |            |  |  |  |

 

14

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THE EFFECTS ON THEUNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

As a result of therestatement, the balance of the accumulated deficit as of January 1, 2006 wasincreased by $400 to $15,364 from $14,964 and the balance as of March 31, 2006was increased by $475 to $15,521 from $15,046.

THE EFFECTS ON THEUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

As a result of therestatement, the unaudited condensed consolidated statements of cash flows forthe three months ended March 31, 2006 changed as follows:
|                                                | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                     | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the three months ended  March 31, 2006** |       |                                   |       |                 |       |       |       |
|                                           |       |                                   |       |                 |       |       |       |
| Net income  (loss)                             |       | $                                      | (82        | )                    | $          | (157       | )          | $ | (75 | ) |
| Depreciation and  amortization                 |       | 552                                    |       | 676                  |       | 124        |       |
| Deferred tax  provision (benefit), net         |       | 66                                     |       | 17                   |       | (49        | )          |
|                                                |            |                                        |            |                      |            |            |            |  |  |  |

 

As a result of therestatement, the unaudited condensed consolidated statements of cash flows forthe three months ended March 31, 2005 changed as follows:
|                                                | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                     | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the three months ended  March 31, 2005** |       |                                   |       |                 |       |       |       |
|                                           |       |                                   |       |                 |       |       |       |
| Net income  (loss)                             |       | $                                      | 452        |                 | $          | 377        |       | $ | (75 | ) |
| Depreciation and  amortization                 |       | 575                                    |       | 699                  |       | 124        |       |
| Deferred tax  provision (benefit), net         |       | —                                 |       | (49                  | )          | (49        | )          |
|                                                |            |                                        |            |                      |            |            |            |  |  |  |

 

THE EFFECTS ON NOTE 3 —STOCK INCENTIVE PLANS

The effects of therestatements on the historical and pro forma information in Note 3 are setforth below:
|                                                | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                     | ** ** | ** **                       | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the three months ended  March 31, 2005** |       |                             |       |                 |       |       |       |
|                                           |       |                             |       |                 |       |       |       |
| Net income (loss)                              |       | $                                | 452        |                 | $          | 377        |       | $ | (75 | ) |
| Pro forma net income                           |       | 55                               |       | (20                  | )          | (75        | )          |
| Basic and diluted  earnings per common share   |       |                             |       |                 |       |       |       |
| As reported                                    |       | $                                | 0.02       |                 | $          | 0.02       |       | — |   |
| Pro forma                                      |       | $                                | 0.00       |                 | $          | 0.00       |       | — |   |
|                                                |            |                                  |            |                      |            |            |            |  |  |  |

 

THE EFFECTS ON NOTE 4 —EARNINGS (LOSS) PER COMMON SHARE

As a result of therestatement, net loss - basic for the three months ended March 31, 2006 wasincreased by $75 to ($157) from ($82) and net income-basic for the three monthsended March 31, 2005 was decreased by $75 to $377 from $452.

15

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THE EFFECTS ON NOTE 7 — SEGMENTINFORMATION

As a result of therestatement, segment information for the three months ended March 31, 2006changed 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 March 31, 2006**                      | ** ** | ** **   | ** ** | ** **                                              | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| **As reported and adjusted for  the reclassification as described in Note 7** | ** ** | ** **   | ** ** | ** **                                              | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 9,910      |                                                    | $          | 678                     |       | $                                               | 81,741     |                                                                             | $          | 481 |   | $ | 1,177 |   |
| Membership  Division                                                          |       | 1,379        |       | 189                                                     |       | 5,854                   |       | 71                                              |       | 12                                                                               |       |
| Subtotals of  Segments                                                        |       | 11,289       |       | 867                                                     |       | 87,595                  |       | $                                               | 552        |                                                                             | 1,189      |   |
| Corporate                                                                     |       | —       |       | (883                                                    | )          | 67,818                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 11,289     |                                                    | $          | (16                     | )          | $                                               | 155,413    |                                                                             | $          | 552 |   | $ | 1,189 |   |
|                                                                          |       |         |       |                                                    |       |                    |       |                                            |       |                                                                             |       |
| **As restated**                                                               | ** ** | ** **   | ** ** | ** **                                              | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 9,910      |                                                    | $          | 554                     |       | $                                               | 80,956     |                                                                             | $          | 605 |   | $ | 1,177 |   |
| Membership  Division                                                          |       | 1,379        |       | 189                                                     |       | 5,854                   |       | 71                                              |       | 12                                                                               |       |
| Subtotals of  Segments                                                        |       | 11,289       |       | 743                                                     |       | 86,810                  |       | 676                                             |       | 1,189                                                                            |       |
| Corporate                                                                     |       | —       |       | (883                                                    | )          | 68,128                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 11,289     |                                                    | $          | (140                    | )          | $                                               | 154,938    |                                                                             | $          | 676 |   | $ | 1,189 |   |

 

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 March 31, 2006** |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                             |       | $            | —     |                                              | $          | 124               |       | $                                   | (785       | )                                                                                | $          | 124 |   | $ | — |   |
| Membership  Division                                            |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of  Segments                                          |       | —       |       | 124                                               |       | (785              | )          | 124                                 |       | —                                                                           |       |
| Corporate                                                       |       | —       |       | —                                            |       | 310               |       | —                              |       | —                                                                           |       |
| Totals                                                          |       | $            | —     |                                              | $          | 124               |       | $                                   | (475       | )                                                                                | $          | 124 |   | $ | — |   |

 

As a result of therestatement, segment information for the three months ended March 31, 2005 changedas 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 March 31, 2005**                      | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| **As reported and adjusted for  the reclassification as described in Note 7** | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 8,757      |                                                          | $          | 1,136                   |       | $                                               | 78,527     |                                                                             | $          | 497 |   | $ | 1,511 |   |
| Membership  Division                                                          |       | 1,304        |       | 59                                                            |       | 4,979                   |       | 78                                              |       | 157                                                                              |       |
| Subtotals of  Segments                                                        |       | 10,061       |       | 1,195                                                         |       | 83,506                  |       | 575                                             |       | 1,668                                                                            |       |
| Corporate                                                                     |       | —       |       | (416                                                          | )          | 16,790                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 10,061     |                                                          | $          | 779                     |       | $                                               | 100,296    |                                                                             | $          | 575 |   | $ | 1,668 |   |
|                                                                          |       |         |       |                                                          |       |                    |       |                                            |       |                                                                             |       |
| **As restated**                                                               | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 8,757      |                                                          | $          | 1,012                   |       | $                                               | 78,238     |                                                                             | $          | 621 |   | $ | 1,511 |   |
| Membership  Division                                                          |       | 1,304        |       | 59                                                            |       | 4,979                   |       | 78                                              |       | 157                                                                              |       |
| Subtotals of  Segments                                                        |       | 10,061       |       | 1,071                                                         |       | 83,217                  |       | 699                                             |       | 1,668                                                                            |       |
| Corporate                                                                     |       | —       |       | (416                                                          | )          | 16,904                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 10,061     |                                                          | $          | 655                     |       | $                                               | 100,121    |                                                                             | $          | 699 |   | $ | 1,668 |   |

 

16

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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 March 31, 2005** |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                             |       | $            | —     |                                              | $          | 124               |       | $                                   | (289       | )                                                                                | $          | 124 |   | $ | — |   |
| Membership  Division                                            |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of  Segments                                          |       | —       |       | 124                                               |       | (289              | )          | 124                                 |       | —                                                                           |       |
| Corporate                                                       |       | —       |       | —                                            |       | 114               |       | —                              |       | —                                                                           |       |
| Totals                                                          |       | $            | —     |                                              | $          | 124               |       | $                                   | (175       | )                                                                                | $          | 124 |   | $ | — |   |

 

* * *

17

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**ITEM 2.****      MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

**SafeHarbor Statement**

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

These statementsinvolve significant risks and uncertainties and are qualified by importantfactors that could cause our actual results to differ materially from thosereflected by the forward-looking statements. Such factors include but are notlimited to risks and uncertainties which are included in Part II, Item 1A RiskFactors below and other risks and uncertainties discussed elsewhere in thisreport. In assessing forward-looking statements contained herein, readers areurged to read carefully all cautionary statements contained in thisForm 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 theSecurities Act and Section 21E of the Exchange Act.

**Effectsof Restatement**

This Form 10-Q/A amendsour previously filed Form 10-Q for the quarter ended March 31, 2006 to reflectadjustments to the unaudited condensed consolidated financial statements as ofMarch 31, 2006 and December 31, 2005 and for the three months ended March 31,2006 and 2005, arising from the effects of a reclassification of all of theamounts originally allocated to the cost of MSO relationships from othernon-amortizable intangible assets to amortizable intangible assets and thedetermination that they have an estimated useful life of 21 years and 4 months. In addition, certain amounts included under “expenses”in the 2006 and 2005 unaudited condensed consolidated financial statements weoriginally issued have been reclassified to either “cost of services” or “otherexpenses”  to provide additional detailabout our operating results and more fully comply with the Securities andExchange Commission’s Regulation S-X Cost of services includes programming, satellite transmission fees,production and operations and other direct costs. Other expenses includeadvertising, selling, general and administrative and depreciation andamortization. Also, in accordance with SFAS 123R, we have presented on aprospective basis the tax benefits from exercise of stock options in excess ofrecognized expense of $651,000 as a cash flow from financing activities in theaccompanying unaudited condensed consolidated statement of cash flows for thethree months ended March 31, 2006, rather than as a cash flow from operatingactivities. Further, to better match intangible assets with the segment towhich they pertain, we have reclassified the amortizable intangible assets andthe goodwill which we recorded in connection with the acquisition on September8, 2004 along with the related amortization expense from “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 2006 and 2005 unaudited condensed consolidated financialstatements are a result of a correction of the accounting treatment for theportion of the excess of the cost of the minority interest over the fair valueof the underlying interest in the net identifiable assets acquired related tothe acquisition of the remaining minority interest in The Outdoor Channel, Inc.(“TOC”) that we did not previously own on September 8, 2004 that was allocatedto the MSO relationships. Theadjustments were based on a review in the third quarter of 2006 of the factsand circumstances, the nature of our business, our experience with the MSOs andthe proclivities of our industry as of September 8, 2004. We determined thatthe effects of these adjustments were immaterial, individually and in theaggregate, to our annual and quarterly reports filed prior to January 1, 2005and thus we did not amend those filings. However, we determined that theeffects of the adjustments were material to our annual and quarterly reports filedfor the periods that ended from March 31, 2005 through June 30, 2006 and we areamending all of those filings. The accompanying unaudited condensedconsolidated financial statements and the related notes have been restated toreflect the effects of the adjustments arising from the reassessment of theestimated useful life of the MSO relationships as explained in Note 11 andbelow:

18

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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 andSupplementary Data:

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

Restated Unaudited Condensed ConsolidatedStatements of Operations for the three months ended March 31, 2006 and 2005;

Restated Unaudited Condensed ConsolidatedStatement of Stockholders’ Equity for the three months ended March 31, 2006;

Restated Unaudited Condensed ConsolidatedStatements of Cash Flows for the three months ended March 31, 2006 and 2005;

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

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

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

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

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

Except for the related corrections toNotes 3, 4, and 7 to the unaudited condensed consolidated financial statementsand certain other immaterial corrections, the remaining Items required by Form10-Q are not amended hereby, but are included herewith for ease of the reader.Except as expressly noted herein, this report continues to speak as of the dateof the original filing, and we have not updated the disclosures in this reportto speak as of a later date.

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

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

THE EFFECTS ON THE CONDENSED CONSOLIDATED BALANCESHEETS

As a result of the restatement, our unauditedcondensed consolidated balance sheet as of March 31, 2006 changed as follows:
|                                          | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
|                                     |       |                             |       |                 |       |       |       |
| Amortizable intangible  assets, net      |       | $                                | 1,240      |                 | $          | 11,028     |       | $ | 9,788 |   |
|                                     |       |                             |       |                 |       |       |       |
| Other non-amortizable  intangible assets |       | 10,573                           |       | —               |       | (10,573    | )          |
| Deferred tax assets,  net                |       | 9,356                            |       | 9,666                |       | 310        |       |
| Total assets                             |       | 155,413                          |       | 154,938              |       | (475       | )          |
| Accumulated deficit                      |       | (15,046                          | )          | (15,521              | )          | (475       | )          |
| Total stockholders’ equity          |       | 143,862                          |       | 143,387              |       | (475       | )          |
|                                          |            |                                  |            |                      |            |            |            |  |  |  |

 

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

 

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THE EFFECTS ON THEUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

As a result of therestatement, the unaudited condensed consolidated statements of operations forthree months ended March 31, 2006 changed as follows:
|                                                | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                     | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the three months ended  March 31, 2006** |       |                                   |       |                 |       |       |       |
| Depreciation and  amortization                 |       | $                                      | 549        |                 | $          | 673        |       | $ | 124 |   |
| Total other  expenses                          |       | 8,317                                  |       | 8,441                |       | 124        |       |
| Income (loss)  from operations                 |       | (561                                   | )          | (685                 | )          | (124       | )          |
| Income (loss)  before income taxes             |       | (16                                    | )          | (140                 | )          | (124       | )          |
| Income tax  provision                          |       | 66                                     |       | 17                   |       | (49        | )          |
| Net income  (loss)                             |       | (82                                    | )          | (157                 | )          | (75        | )          |
| Earnings (loss)  per common share              |       |                                   |       |                 |       |       |       |
| Basic                                          |       | $                                      | 0.00       |                 | $          | (0.01      | )          | $ | (0.01 | ) |
| Diluted                                        |       | $                                      | 0.00       |                 | $          | (0.01      | )          | $ | (0.01 | ) |

 

As a result of therestatement, the unaudited condensed consolidated statements of operations forthree months ended March 31, 2005 changed as follows:
|                                                | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                     | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the three months ended  March 31, 2005** |       |                                   |       |                 |       |       |       |
| Depreciation and  amortization                 |       | $                                      | 575        |                 | $          | 699        |       | $ | 124 |   |
| Total other  expenses                          |       | 6,967                                  |       | 7,091                |       | 124        |       |
| Income (loss)  from operations                 |       | 728                                    |       | 604                  |       | (124       | )          |
| Income (loss)  before income taxes             |       | 779                                    |       | 655                  |       | (124       | )          |
| Income tax  provision                          |       | 327                                    |       | 278                  |       | (49        | )          |
| Net income  (loss)                             |       | 452                                    |       | 377                  |       | (75        | )          |
| Earnings (loss)  per common share              |       |                                   |       |                 |       |       |       |
| Basic                                          |       | $                                      | 0.02       |                 | $          | 0.02       |       | — |   |
| Diluted                                        |       | $                                      | 0.02       |                 | $          | 0.02       |       | — |   |
|                                                |            |                                        |            |                      |            |            |            |  |  |  |

 

THE EFFECTS ON THEUNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

As a result of therestatement, the balance of the accumulated deficit as of January 1, 2006 wasincreased by $400 to $15,364 from $14,964 and the balance as of March 31, 2006was increased by $475 to $15,521 from $15,046.

THE EFFECTS ON THEUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

As a result of therestatement, the unaudited condensed consolidated statements of cash flows forthe three months ended March 31, 2006 changed as follows:
|                                                | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                     | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the three months ended  March 31, 2006** |       |                                   |       |                 |       |       |       |
|                                           |       |                                   |       |                 |       |       |       |
| Net income  (loss)                             |       | $                                      | (82        | )                    | $          | (157       | )          | $ | (75 | ) |
| Depreciation and  amortization                 |       | 552                                    |       | 676                  |       | 124        |       |
| Deferred tax  provision (benefit), net         |       | 66                                     |       | 17                   |       | (49        | )          |
|                                                |            |                                        |            |                      |            |            |            |  |  |  |

 

20

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As a result of therestatement, the unaudited condensed consolidated statements of cash flows forthe three months ended March 31, 2005 changed as follows:
|                                                | ** ** | **As Originally   Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------------|------------|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                     | ** ** | ** **                             | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the three months ended  March 31, 2005** |       |                                   |       |                 |       |       |       |
|                                           |       |                                   |       |                 |       |       |       |
| Net income  (loss)                             |       | $                                      | 452        |                 | $          | 377        |       | $ | (75 | ) |
| Depreciation and  amortization                 |       | 575                                    |       | 699                  |       | 124        |       |
| Deferred tax  provision (benefit), net         |       | —                                 |       | (49                  | )          | (49        | )          |
|                                                |            |                                        |            |                      |            |            |            |  |  |  |

 

THE EFFECTS ON NOTE 3 —STOCK INCENTIVE PLANS

The effects of therestatements on the historical and pro forma information in Note 3 are setforth below:
|                                                | ** ** | **As Originally  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                     | ** ** | ** **                       | ** ** | ** **           | ** ** | ** ** | ** ** |
| **For the three months ended  March 31, 2005** |       |                             |       |                 |       |       |       |
|                                           |       |                             |       |                 |       |       |       |
| Net income  (loss)                             |       | $                                | 452        |                 | $          | 377        |       | $ | (75 | ) |
| Pro forma net  income (loss)                   |       | 55                               |       | (20                  | )          | (75        | )          |
| Basic and  diluted earnings per common share   |       |                             |       |                 |       |       |       |
| As reported                                    |       | $                                | 0.02       |                 | $          | 0.02       |       | — |   |
| Pro forma                                      |       | $                                | 0.00       |                 | $          | 0.00       |       | — |   |
|                                                |            |                                  |            |                      |            |            |            |  |  |  |

 

THE EFFECTS ON NOTE 4 —EARNINGS (LOSS) PER COMMON SHARE

As a result of therestatement, net loss - basic for the three months ended March 31, 2006 wasincreased by $75 to ($157) from ($82) and net income-basic for the three monthsended March 31, 2005 was decreased by $75 to $377 from $452.

THE EFFECTS ON NOTE 7 —SEGMENT INFORMATION

As a result of therestatement, segment information for the three months ended March 31, 2006changed 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 March 31, 2006**                      | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| **As reported and adjusted for  the reclassification as described in Note 7** | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 9,910      |                                                          | $          | 678                     |       | $                                               | 81,741     |                                                                             | $          | 481 |   | $ | 1,177 |   |
| Membership  Division                                                          |       | 1,379        |       | 189                                                           |       | 5,854                   |       | 71                                              |       | 12                                                                               |       |
| Subtotals of  Segments                                                        |       | 11,289       |       | 867                                                           |       | 87,595                  |       | $                                               | 552        |                                                                             | 1,189      |   |
| Corporate                                                                     |       | —       |       | (883                                                          | )          | 67,818                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 11,289     |                                                          | $          | (16                     | )          | $                                               | 155,413    |                                                                             | $          | 552 |   | $ | 1,189 |   |
|                                                                          |       |         |       |                                                          |       |                    |       |                                            |       |                                                                             |       |
| **As restated**                                                               | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 9,910      |                                                          | $          | 554                     |       | $                                               | 80,956     |                                                                             | $          | 605 |   | $ | 1,177 |   |
| Membership  Division                                                          |       | 1,379        |       | 189                                                           |       | 5,854                   |       | 71                                              |       | 12                                                                               |       |
| Subtotals of  Segments                                                        |       | 11,289       |       | 743                                                           |       | 86,810                  |       | 676                                             |       | 1,189                                                                            |       |
| Corporate                                                                     |       | —       |       | (883                                                          | )          | 68,128                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 11,289     |                                                          | $          | (140                    | )          | $                                               | 154,938    |                                                                             | $          | 676 |   | $ | 1,189 |   |

 

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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 March 31, 2006** |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                             |       | $            | —     |                                              | $          | 124               |       | $                                   | (785       | )                                                                                | $          | 124 |   | $ | — |   |
| Membership  Division                                            |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of  Segments                                          |       | —       |       | 124                                               |       | (785              | )          | 124                                 |       | —                                                                           |       |
| Corporate                                                       |       | —       |       | —                                            |       | 310               |       | —                              |       | —                                                                           |       |
| Totals                                                          |       | $            | —     |                                              | $          | 124               |       | $                                   | (475       | )                                                                                | $          | 124 |   | $ | — |   |

 

As a result of therestatement, segment information for the three months ended March 31, 2005changed as follows:
| ** **                                                                    | ** ** | **Revenues** | ** ** | **Income (Loss)   Before Income   Taxes** | ** ** | **Total   Assets** | ** ** | **Depreciation   and   Amortization** | ** ** | **Additions to   Property,   Plant and   Improvements** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **As of and for the Three Months  Ended March 31, 2005**                      | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| **As reported and adjusted for  the reclassification as described in Note 7** | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 8,757      |                                                          | $          | 1,136                   |       | $                                               | 78,527     |                                                                             | $          | 497 |   | $ | 1,511 |   |
| Membership Division                                                           |       | 1,304        |       | 59                                                            |       | 4,979                   |       | 78                                              |       | 157                                                                              |       |
| Subtotals of  Segments                                                        |       | 10,061       |       | 1,195                                                         |       | 83,506                  |       | 575                                             |       | 1,668                                                                            |       |
| Corporate                                                                     |       | —       |       | (416                                                          | )          | 16,790                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 10,061     |                                                          | $          | 779                     |       | $                                               | 100,296    |                                                                             | $          | 575 |   | $ | 1,668 |   |
|                                                                          |       |         |       |                                                          |       |                    |       |                                            |       |                                                                             |       |
| **As restated**                                                               | ** ** | ** **   | ** ** | ** **                                                    | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** **                                                                       | ** ** |
| TOC                                                                           |       | $            | 8,757      |                                                          | $          | 1,012                   |       | $                                               | 78,238     |                                                                             | $          | 621 |   | $ | 1,511 |   |
| Membership  Division                                                          |       | 1,304        |       | 59                                                            |       | 4,979                   |       | 78                                              |       | 157                                                                              |       |
| Subtotals of  Segments                                                        |       | 10,061       |       | 1,071                                                         |       | 83,217                  |       | 699                                             |       | 1,668                                                                            |       |
| Corporate                                                                     |       | —       |       | (416                                                          | )          | 16,904                  |       | —                                          |       | —                                                                           |       |
| Totals                                                                        |       | $            | 10,061     |                                                          | $          | 655                     |       | $                                               | 100,121    |                                                                             | $          | 699 |   | $ | 1,668 |   |

 

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 March 31, 2005** |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                             |       | $            | —     |                                              | $          | 124               |       | $                                   | (289       | )                                                                                | $          | 124 |   | $ | — |   |
| Membership  Division                                            |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of  Segments                                          |       | —       |       | 124                                               |       | (289              | )          | 124                                 |       | —                                                                           |       |
| Corporate                                                       |       | —       |       | —                                            |       | 114               |       | —                              |       | —                                                                           |       |
| Totals                                                          |       | $            | —     |                                              | $          | 124               |       | $                                   | (175       | )                                                                                | $          | 124 |   | $ | — |   |

 

**General**

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

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Channel Holdingsalso wholly-owns 43455 BPD, LLC which owns the building housing our broadcastfacility.

Our revenuesinclude (1) advertising fees from advertisements aired on The OutdoorChannel and from advertisements in*GoldProspector & Treasure Hunters in the Great Outdoors* magazine;(2) subscriber fees paid by cable and satellite service providers that airThe Outdoor Channel; and (3) membership fees from members in both LostDutchman’s and GPAA and other income including magazine sales, products andservices related to gold prospecting, gold expositions, expeditions andoutings. Advertising fees include fees paid by third-party programmers topurchase advertising time in connection with the airing of their programs onThe Outdoor Channel.

**Recent Accounting Developments**

In December 2004,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 123 (revised 2004) (“SFAS 123R”) “Share-BasedPayment” which revised the 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 123R requiresthat the fair value of such equity instruments, including all options grantedto employees, be recognized as expense in the historical financial statementsas services are performed. Prior to SFAS 123R, only certain pro formadisclosures of fair value were required. SFAS 123R shall be effective for issuersas of the beginning of the first annual reporting period that begins afterDecember 15, 2005. Accordingly, we adopted the provisions of SFASNo. 123R effective January 1, 2006. Prior to adoption, we used theintrinsic value method to account for employee stock options.

The FASB hadissued certain other accounting pronouncements as of March 31, 2006 thatwill become effective in subsequent periods; however, our management does notbelieve that any of those pronouncements would have significantly affected ourfinancial accounting measurements or disclosures had they been in effect duringthe three months ended March 31, 2006.

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**Comparisonof Operating Results for the Three Months Ended March 31, 2006 and March 31,2005**

The followingtable discloses certain financial information for the periods presented,expressed in terms of dollars, dollar change, percentage change and as a percentof total revenue (all dollar amounts are in thousands):
| ** **                           | ** ** | ** **                       | ** ** | ** **                               | ** ** | **Change**                               | ** ** | **% of Total Revenue** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|---------------------------------------|------------|
| ** **                           | ** ** | **2006**                         | ** ** | **2005**                                 | ** ** | **$**                                    | ** ** | **%**                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                           | ** ** | **(Restated Note 11)** | ** ** | **(As Restated Note 11)** | ** ** | **(As Restated Note 11)** | ** ** |
| Revenues:                            |       |                             |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Advertising                          |       | $                                | 5,685      |                                     | $          | 5,259                                    |       | $                                     | 426        |   | 8.1 | % | 50.4 | % | 52.3 | % |
| Subscriber fees                      |       | 4,383                            |       | 3,642                                    |       | 741                                      |       | 20.3                                  |       | 38.8 |   | 36.2 |   |
| Membership  income                   |       | 1,221                            |       | 1,160                                    |       | 61                                       |       | 5.3                                   |       | 10.8 |   | 11.5 |   |
| Total revenues                       |       | 11,289                           |       | 10,061                                   |       | 1,228                                    |       | 12.2                                  |       | 100.0 |   | 100.0 |   |
|                                 |       |                             |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Cost of services:                    |       |                             |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Programming                          |       | 1,544                            |       | 521                                      |       | 1,023                                    |       | 196.4                                 |       | 13.7 |   | 5.2 |   |
| Satellite  transmission fees         |       | 638                              |       | 633                                      |       | 5                                        |       | 0.8                                   |       | 5.7 |   | 6.3 |   |
| Production and  operations           |       | 1,143                            |       | 993                                      |       | 150                                      |       | 15.1                                  |       | 10.1 |   | 9.8 |   |
| Other direct  costs                  |       | 208                              |       | 219                                      |       | (11                                      | )          | (5.0                                  | )          | 1.8 |   | 2.2 |   |
| Total cost of  services              |       | 3,533                            |       | 2,366                                    |       | 1,167                                    |       | 49.3                                  |       | 31.3 |   | 23.5 |   |
|                                 |       |                             |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Other expenses:                      |       |                             |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Advertising                          |       | 2,162                            |       | 1,694                                    |       | 468                                      |       | 27.6                                  |       | 19.1 |   | 16.8 |   |
| Selling, general  and administrative |       | 5,606                            |       | 4,698                                    |       | 908                                      |       | 19.3                                  |       | 49.7 |   | 46.7 |   |
| Depreciation and  amortization       |       | 673                              |       | 699                                      |       | (26                                      | )          | (3.7                                  | )          | 6.0 |   | 7.0 |   |
| Total other  expenses                |       | 8,441                            |       | 7,091                                    |       | 1,350                                    |       | 19.0                                  |       | 74.8 |   | 70.5 |   |
|                                 |       |                             |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Income (loss) from  operations       |       | (685                             | )          | 604                                      |       | (1,289                                   | )          | (213.4                                | )          | (6.1 | ) | 6.0 |   |
|                                 |       |                             |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Interest expense                     |       | (78                              | )          | (1                                       | )          | (77                                      | )          | NMF                                   |       | (0.7 | ) | 0.0 |   |
|                                 |       |                             |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Other income, net                    |       | 623                              |       | 52                                       |       | 571                                      |       | NMF                                   |       | 5.5 |   | 0.5 |   |
|                                 |       |                             |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Income (loss) before  income taxes   |       | (140                             | )          | 655                                      |       | (795                                     | )          | (121.4                                | )          | (1.3 | ) | 6.5 |   |
|                                 |       |                             |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Income tax provision  (benefit)      |       | 17                               |       | 278                                      |       | (261                                     | )          | (93.9                                 | )          | 0.1 |   | 2.7 |   |
|                                 |       |                             |       |                                     |       |                                     |       |                                  |       |   |   |   |   |
| Net income (loss)                    |       | $                                | (157       | )                                        | $          | 377                                      |       | $                                     | (534       | ) | (141.6 | )% | (1.4 | )% | 3.8 | % |

 

***NMF — Not Meaningful***

**Revenues**

Our revenuesinclude revenues from (1) advertising fees; (2) subscriber fees; and(3) membership income. Advertising revenue is generated from the sale ofadvertising time on The Outdoor Channel including advertisements shown during aprogram (also known as short-form advertising) and infomercials in whichthe advertisement is the program itself (also known aslong-form advertising) and from the sale of advertising space inpublications such as the*GoldProspectors & Treasure Hunters in the Great Outdoors*magazine. Advertising revenue is also generated from fees paid by third partyprogrammers that purchase advertising time in connection with the airing oftheir programs on The Outdoor Channel. For the three months endedMarch 31, 2006 and 2005, The Outdoor Channel generated approximately 97.2%and 97.3% of our advertising revenue, respectively. Subscriber fees are solelyrelated to The Outdoor Channel. Membership income is generated by our activitiesother than the operation of The Outdoor Channel and includes membership sales,magazine sales, merchandise sales, and sponsored outings and expeditions inconnection with GPAA and Lost Dutchman’s.

Total revenues forthe three months ended March 31, 2006 were $11,289,000, an increase of$1,228,000, or 12.2%, compared to revenues of $10,061,000 for the three monthsended March 31, 2005. The net increases were the result of changes inseveral items comprising revenue as discussed below.

Advertisingrevenue for the three months ended March 31, 2006 was $5,685,000, anincrease of $426,000 or 8.1% compared to $5,259,000 for the three months endedMarch 31, 2005. For March 2006, Nielsen estimated that The OutdoorChannel had

24

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26.2 millionviewers compared to 24.4 million for the same period a year ago. (Nielsenrevises this estimate each month and for May 2006, Nielsen increased itsestimate to approximately 26.7 million subscribers). The increase inadvertising revenue for the three months ended March 31, 2006 reflects alarger percentage of our short-form advertising inventory being sold tonational and endemic advertisers, generally at higher rates, than inventorybeing sold to direct response advertisers or long-form (infomercial)advertisers.

Subscriber feesfor the three months ended March 31, 2006 were $4,383,000, an increase of$741,000 or 20.3% compared to $3,642,000 for the three months endedMarch 31, 2005. The increase in subscriber fees for the period wasprimarily due to an increased number of paying subscribers both from newaffiliates and from existing distributors and contractual subscriber fee rateincreases with existing service providers carrying The Outdoor Channel. Mostnotable growth when comparing the respective quarterly results came from DirecTV,Time Warner, Comcast and Cox in addition to Cablevision which did not carry TheOutdoor Channel in the first quarter of 2005. Principally we attribute thegrowth to the popularity of our programming as consumers continue to requestour channel.

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

Membership incomefor the three months ended March 31, 2006 was $1,221,000, an increase of$61,000 or 5.3% compared to $1,160,000 for the three months endedMarch 31, 2005. We believe that the recent surge in gold prices hasreflected itself in renewed interest by the consuming public that led to ourincreased activity in 2006. Given that, we do not expect significant changes inthe balance from year-to-year in the near term.

**Cost ofServices**

Our cost of servicesconsists primarily of the cost of providing our broadcast signal andprogramming to the distributors for transmission to the consumer and costsassociated with the production and delivery of our magazine and merchandisesales. Cost of services includes (1) programming costs; (2) satellitetransmission fees; (3) production and operations costs; and (4) other directcosts. Total cost of services for the three months ended March 31, 2006 was$3,533,000, an increase of $1,167,000 or 49.3%, compared to $2,366,000 for thethree months ended March 31, 2005. As a percentage of revenues, total cost ofservices was 31.3% and 23.5% in the three months ended March 31, 2006 and 2005,respectively. Cost of services increased principally due to increasedprogramming costs related to the launch of our second channel discussed below.We expect cost of services to continue to increase in the future as we expandour existing markets and in-house production to support our advertisingstrategy.

Programmingexpenses for the three months ended March 31, 2006 were $1,544,000, anincrease of $1,023,000 or 196.4% compared to $521,000 for the three monthsended March 31, 2005. The increase is principally a result of our decisionto launch our second channel, Outdoor Channel 2 HD, on July 1, 2005. Weincurred minimal programming costs relative to this channel in the firstquarter of 2005 as most of such costs incurred at that time were charged toprepaid programming expense in anticipation of its launch in the second half of2005. During the first quarter of 2006, Outdoor Channel 2 HD wasfully-programmed.

Our policy is tocharge costs of specific shows to programming expense over the expected airingperiod beginning when the program first airs. The cost of programming isgenerally first recorded as prepaid programming costs and is then charged toprogramming expense based on the anticipated airing schedule. If theanticipated airing schedule changes, the timing and amount of the chargeto expense is adjusted accordingly. Programming expenses are expected toincrease as a percentage of revenue as we pursue our strategy to produce, oracquire, more programming in-house as opposed to selling the air time to thirdparty producers. As a result, we believe we will control more of our programs’quality, advertising inventory, sponsorship opportunities and the potential tore-package our programming for other uses such as video-on-demand,international licensing and production of DVDs for retail distribution. Sincewe have limited experience in re-packaging our programming for these otheruses, we do not retain costs in prepaid programming to match with thesepotential revenue sources. When we develop a sufficient history, our policymight change.

Satellitetransmission fees for the three months ended March 31, 2006 were $638,000,an increase of $5,000, or 0.8%, compared to $633,000 for the three months endedMarch 31, 2005. The noted change reflects the relative fixed nature of ourcontracts for uplink and transmission of our signals.

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Production and operationscosts for the three months ended March 31, 2006 were $1,143,000, an increase of$150,000, or 15.1%, compared to $993,000 for the three months ended March 31,2005. The increase in costs principally relates to increased infrastructure tosupport the production of more shows in-house and to support our new broadcastfacility.  Additionally, we increased ourexposure at a key trade show in 2006.

Other direct costs forthe three months ended March 31, 2006 were $208,000, a decrease of $11,000, or5.0%, compared to $219,000 for the three months ended March 31, 2005.

**OtherExpenses**

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

Total otherexpenses for the three months ended March 31, 2006 were $8,441,000, anincrease of $1,350,000 or 19.0%, compared to $7,091,000 for the three monthsended March 31, 2005. As a percentage of revenues, total expenses were74.8% and 70.5% in the three months ended March 31, 2006 and 2005,respectively. The increase in other expenses was due to several factors,including an aggressive campaign that is part of our strategic plan to supportcontinued subscriber growth that we conducted during the first quarter, whichincluded full-page newspaper ads in targeted regions and the launch ofwww.IWantMyOutdoorChannel.com. This campaign, along with other ongoing effortsrelated to carriage agreement negotiations, resulted in additional firstquarter expenses of approximately $750,000. In addition, programming costsincreased as a result of the launch of our second channel, Outdoor Channel 2HD, at the beginning of the third quarter of 2005 and other items more fullydescribed as follows.

Advertisingexpenses for the three months ended March 31, 2006 were $2,162,000, anincrease of $468,000 or 27.6% compared to $1,694,000 for the three months endedMarch 31, 2005. The increase was due principally to the aggressivecampaign that is part our strategic plan to support continued subscriber growththat we conducted during the first quarter, which included full-page newspaperads in targeted regions and the launch of www.IWantMyOutdoorChannel.com.

Selling, generaland administrative expenses for the three months ended March 31, 2006 were$5,606,000, an increase of $908,000 or 19.3% compared to $4,698,000 for thethree months ended March 31, 2005. As a percentage of revenues, selling,general and administrative expenses were 49.7% and 46.7% in the three monthsended March 31, 2006 and 2005, respectively.  The increase was primarily attributable tothe adoption of SFAS 123R as of January 1, 2006 which now requires us to chargethe fair value of stock options we have issued to our employees over thevesting period to compensation expense which we did not have to record in 2005.The charge in the three months ended March 31, 2006 amounted to $713,000.Restricted stock issued to employees in June and July of 2005 resulted in acharge of $66,000. The remainder of the increase in selling, general and administrativefees related primarily to increased legal fees incurred as a result of ourongoing efforts related to our carriage agreement negotiations and to otheroperating costs.

We anticipate thatselling, general and administrative costs will continue to increase over theforeseeable future both in dollars and when expressed as a percent of revenueas we continue to work to gain increased distribution of both channelsincluding increases from the recognition of amortization of subscriberacquisition fees, also referred to as launch support fees, in excess of therelated subscriber revenue, and as a result of the adoption of SFAS 123R aswell as other corporate expenses.

Depreciation andamortization for the three months ended March 31, 2006 were $673,000, adecrease of $26,000 or 3.7% compared to $699,000 for the three months endedMarch 31, 2005.

**Income(Loss) from Operations**

Income (loss) fromoperations for the three months ended March 31, 2006 was a loss of$685,000, a decrease of $1,289,000 compared to income of $604,000 for the threemonths ended March 31, 2005. As discussed above, this decrease isprimarily a result of the increased compensation expense resulting from theadoption of SFAS 123R, the increased expenses relating to the aggressive campaignconducted during the first quarter that is part of our strategic plan tosupport continued subscriber growth and the increased legal fees relating toour carriage agreements.  As we continueto strive to drive growth of our subscriber base including the ongoing andplanned payment of launch support, and as we further develop our secondchannel, Outdoor Channel 2 HD, we will incur increased expenses such asprogramming, marketing and advertising that are unlikely to be immediatelyoffset by revenues. As a result, we anticipate our operating margins will benegatively impacted for the foreseeable future. There can be no assurance thatthese strategies will be successful.

**InterestExpense**

Interest expensefor the three months ended March 31, 2006 was $78,000, an increase of$77,000 compared to $1,000 for the three months ended March 31, 2005. Thisis attributable to having obtained two term loans in November 2005 withoriginal aggregate principal amount of $4,950,000 with effective fixed interestrates of 6.59% and 6.35%.

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**OtherIncome, Net**

Other income, netfor the three months ended March 31, 2006 was $623,000, an increase of$571,000 compared to $52,000 for the three months ended March 31, 2005.This improvement was primarily due to increased dividends and interest earnedon our increased investment in available-for-sale securities and cash and cashequivalent balances.

**Income(Loss) Before Income Taxes**

Income (loss)before income taxes as a percentage of revenues was (1.3%) for the three monthsended March 31, 2006 compared to 6.5% for the three months endedMarch 31, 2005.

The TOC segment’sincome before income taxes decreased to $554,000 for the three months endedMarch 31, 2006 from $1,012,000 for the three months ended March 31,2005. Expressed as a percentage of revenue, the TOC segment’s income beforeincome taxes decreased to 5.6% for the three months ended March 31, 2006,compared to 11.7% for the three months ended March 31, 2005. The decreasewas due mainly to an aggressive campaign we conducted during the first quarterof 2006 that is part our strategic plan to support continued subscriber growth.Contributing to the decline was the adoption of SFAS 123R whereby the TOCsegment recognized $167,000 of compensation expense (1.7% of segment revenue)that it did not have in the same period in 2005. Also, programming costsincreased as a result of having launched our second channel, Outdoor Channel 2HD, at the beginning of the third quarter of 2005 thus related costs wereincurred in the first quarter of 2006 that were not incurred in the same periodin 2005.

The MembershipDivision segment’s income before income taxes increased to $189,000 for thethree months ended March 31, 2006 from $59,000 for the three months endedMarch 31, 2005. Expressed as a percentage of revenues, the MembershipDivision segment’s income before income taxes increased to 13.7% for the threemonths ended March 31, 2006 compared to 4.5% for the three months endedMarch 31, 2005. The increase is principally a result of a renewed interestin gold prospecting which we believe is partially driven by rising gold prices.Revenue increased $75,000 or 5.8%. Also contributing to the improving segmentmargins is a decrease in personnel by a few persons with the commensuratesavings of payroll, payroll related expenses and travel costs.

Corporate incurreda loss before income taxes for the three months ended March 31, 2006amounting to $883,000, an increase of $467,000 compared to a loss of $416,000for the three months ended March 31, 2005. The expenses allocated toCorporate include: professional fees such as public relations, accounting andlegal fees,  business insurance, board ofdirectors fees and expenses and an allocation of corporate officers’ payrolland related expenses. Effective January 1, 2006, we prospectively adopted SFAS123R and Corporate incurred a charge to compensation expense of $517,000.

**IncomeTax Provision**

Income taxprovision for the three months ended March 31, 2006 was $17,000, adecrease of $261,000 as compared to $278,000 for the three months endedMarch 31, 2005. The decrease was principally due to the Company incurringa loss in the three months ended March 31, 2006 as compared to income forthe three months ended March 31, 2005. Many of our options are qualifiedincentive stock options or ISOs. That portion of the current year SFAS 123Rcompensation expense relating to ISOs is recognized for financial statementpurposes but is generally not deductible for tax purposes and thus is treatedas a permanent difference between the two. We recognized a charge of $151,000related to ISOs under SFAS 123R compensation expense. Because of this, andalong with the effects of certain other income tax adjustments, we recordedpositive taxable income resulting in income tax expense despite the financialstatement loss. The effective income tax rate for the three months ended March31, 2006 is not meaningful. For the three months ended March 31, 2005, theeffective income tax was approximately 42.4%.

**NetIncome (Loss)**

Net income (loss)for the three months ended March 31, 2006 was ($157,000), a decrease of$534,000 compared to $377,000 for the three months ended March 31, 2005.The decrease was due to the reasons stated above.

**Liquidityand Capital Resources**

We generated$343,000 of cash in our operating activities in the three months ended March31, 2006, compared to cash used in operating activities of $447,000 in thethree months ended March 31, 2005 and had a cash and cash equivalent balance of$19,594,000 at March 31, 2006, an increase of $1,318,000 from the balance of$18,276,000 at December 31, 2005. We also had short-term investmentsclassified as available-for-sale securities of $37,349,000 at March 31, 2006, adecrease of $1,481,000 from the balance of $38,830,000 at December 31,2005. The investments at March 31, 2006 were comprised almost entirely ofauction rate securities ($33,500,000) with interest rates that generally resetevery 28 days. The auction rate securities have long-term maturity datesand provide us with enhanced yields. Commercial paper ($2,989,000) andvarious

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equity securities($860,000) make up the remainder of the March 31, 2006 balance. We believe wehave the ability to quickly liquidate the auction rate securities andcommercial paper at their original cost although there is no guaranty we wouldbe able to do so. Net working capital increased to $66,743,000 atMarch 31, 2006, compared to $66,183,000 at December 31, 2005.

Net cash providedby investing activities was $323,000 in the three months ended March 31, 2006compared to cash used of $1,668,000 for the three months ended March 31, 2005.The increase in cash provided by investing activities was related principallyto the net difference of sales and purchases of short-term auction ratesecurities which did not exist in the first quarter of 2005 partially offsetby a decrease in capital expenditures on “construction in progress” andequipment related to the build-out of our new broadcast facility as furtherdiscussed below. Additional capital expenditures were for fixed assetreplacements.

Cash provided byfinancing activities was $652,000 in the three months ended March 31, 2006compared to $164,000 for the three months ended March 31, 2005. The cashprovided by financing activities in the three months ended March 31, 2006 was proceedsfrom the sale of shares upon the exercise of stock options and tax benefitsfrom the exchange of stock options in excess of recognized expense, offset byprincipal payments on outstanding debt. The cash provided by financingactivities in the three months ended March 31, 2005 was from the exercise ofemployee and service provider stock options from our 1995 incentive stockoption plan. In accordance with SFAS 123R, we have presented on aprospective basis the tax benefits from exercise of stock options in excess ofrecognized expense of $651,000 as a cash flow from financing activities in theaccompanying unaudited condensed consolidated statement of cash flows for thethree months ended March 31, 2006, rather than as a cash flow fromoperating activities, as was prescribed under accounting rules applicablethrough December 31, 2005. Tax benefits from the exercise of stock optionsin excess of recognized expense of $636,000 has been presented as a cash flowfrom operating activities for the three months ended March 31, 2005.

OnNovember 2, 2005, we renewed our revolving line of credit agreement (the “revolver”)with U.S. Bank N.A. (the “Bank”), extending the maturity date toSeptember 7, 2007 and increasing the total amount which can be drawn uponunder the revolver from $5,000,000 to $8,000,000. The revolver providesthat the interest rate shall be LIBOR plus 1.25%. The revolver iscollateralized by substantially all of our assets. This credit facilitycontains customary financial and other covenants and restrictions, as amendedon November 2, 2005, including a change of control provision. As ofMarch 31, 2006 and as of the date of this report, we did not have anyamounts outstanding under this credit facility.

OnNovember 2, 2005, we obtained a $1,950,000 mortgage loan from the Bank onour recently purchased building that houses our broadcast facility located inTemecula, California which has a 10 year term loan with a 25 year amortizationschedule. This loan carries a variable interest rate of LIBOR plus 1.35%. Thisloan is secured primarily by a Deed of Trust on the property and is alsosecondarily secured by the same assets as the revolver. It also containscustomary financial and other covenants and restrictions including a change ofcontrol provision. On November 7, 2005, we entered into an interest rateswap agreement with the Bank to reduce the potential impact of increasinginterest rates and effectively fixed the interest rate on this loan at 6.59%.

OnNovember 2, 2005, we obtained a $3,000,000, five year fully amortizingterm loan. This loan carries a variable interest rate of LIBOR plus 1.35%. Thisterm loan is secured by the same assets as the revolver and contains customaryfinancial and other covenants and restrictions including a change of controlprovision. On November 7, 2005, we entered into an interest rate swapagreement with the Bank to reduce the potential impact of increasing interestrates and effectively fixed the interest rate on this term loan at 6.35%.

Driven by a needto increase office space, we reassessed our facilities including floor spaceutilization, master control equipment, uplink equipment, and other needs duringthe year ended December 31, 2004. On February 22, 2005, we announcedour intention to purchase a 28,000 square foot building in Temecula, Californiafor approximately $2.6 million. We completed the purchase during the thirdquarter of 2005. We have been completing the building improvements since thattime and as of March 31, 2006 are nearly complete. We estimated that aggregatecapital expenditures to complete the build-out including updated equipmentcould exceed $8 million. As of March 31, 2006, we have spent approximately$6 million on such upgrades, and we expect to spend less than $1 million tocomplete the project prior to the end of 2006. Effective April 1, 2006, we haveplaced the building and most of the capital expenditures incurred to date “in-service”.In addition to the remaining capital expenditures relating to this building, wealso expect to have other capital expenditures of approximately $2 million forthe year ended December 31, 2006.

Because of our netloss of $157,000 for the three months ended March 31, 2006, we were inviolation as of March 31, 2006 of a covenant relating to our two term loans andour revolving line-of-credit facility requiring profitability of greater than$250,000 each fiscal quarter. On May 9, 2006, we received notice from the bankservicing our debt that it has given us a waiver of this covenant violation.  In addition, the bank modified such covenantto exclude the non-cash compensation expense relating to SFAS 123R whencalculating the profitability under this covenant.  Because of this modification, we currentlyanticipate to be in compliance with such covenant for at least the next 12months.

As ofMarch 31, 2006, we had sufficient cash on hand and had been generatingsufficient cash flow from operations to meet our short-term cash flowrequirements. Management believes that our anticipated cash flows fromoperating activity along with our existing cash resources including cashon-hand, available-for-sale securities and access to the revolver, will besufficient to fund our operations at current levels and anticipated capitalrequirements through at least June 1, 2007. To the extent that suchamounts are insufficient to finance our working capital requirements or ourdesire to expand operations

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beyond currentlevels, we could seek additional financing. There can be no assurance thatequity or debt financing will be available if needed or, if available, will beon terms favorable to us.

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

At March 31, 2006and December 31, 2005, our investment portfolio included fixed-income securitiesof $37,349,000 and $38,830,000, respectively. These securities are subject tointerest rate risk and will decline in value if interest rates increase.However, due to the short duration of our investment portfolio, an immediate10% change in interest rates would have no material impact on our financialcondition, operating results or cash flows. Declines in interest rates overtime will, however, reduce our interest income while increases in interestrates over time may increase our interest expense.

We do not have asignificant level of transactions denominated in currencies other than U.S.dollars and as a result we have very limited foreign currency exchange raterisk. The effect of an immediate 10% change in foreign exchange rates wouldhave no material impact on our financial condition, operating results or cashflows.

As of March 31,2006 and as of May 10, 2006, the date of the original Form 10-Q for the quarterended March 31, 2006, we had aggregate outstanding borrowings of approximately$4,719,000 and $4,601,000, respectively. The rates of interest on our currentlyoutstanding debt are fixed while the rate of interest on our line-of-credit isvariable, but we currently have no outstanding balance under this creditfacility. Because of these reasons, an immediate 10% change in interest rateswould have no material, immediate impact on our financial condition, operatingresults or cash flows.

**ITEM 4. CONTROLS AND PROCEDURES.**

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

Our management,with the participation of our Chief Executive Officer and Chief FinancialOfficer, evaluated the effectiveness of our disclosure controls and proceduresas of March 31, 2006, the end of the period covered by this report, andconcluded that our disclosure controls and procedures were effective as ofMarch 31, 2006.

*Changesin internal control over financial reporting.* During thethree months ended March 31, 2006, there was no change in our internal controlover financial reporting that materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

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**PART II—OTHER INFORMATION**
| **ITEM 1.**   | ** ** | **Legal Proceedings.** |
|---------------|------------|------------------------|
| ** **    | ** ** | ** **             |
| None.         |       |                   |
|          |       |                   |
| **ITEM  1A.** | ** ** | **Risk Factors.**      |

 

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

**We may not be able to grow our subscriber base at asufficient rate to offset planned increased costs or at all, and as a resultour revenues and profitability may not increase and could decrease.**

A major component of our growth strategyis based on increasing the number of subscribers to our channels. Growing oursubscriber base depends upon many factors, such as the success of our marketingefforts in driving consumer demand for our channels; overall growth in cableand satellite subscribers; the popularity of our programming; our ability tonegotiate new carriage agreements, or amendments to current carriageagreements, and maintain existing distribution; plus other factors that arebeyond our control. There can be no assurance that we will be able to maintainor increase the subscriber base of our channels on cable and satellite systemsor that our current carriage will not decrease as a result of a number offactors. In particular, negotiations for new carriage agreements, or amendmentsto current carriage agreements, are lengthy and complex, and we are not able topredict with any accuracy when such increases in our subscriber basemay occur, if at all. If we are unable to grow our subscriber base, oursubscriber and advertising revenues may not increase and could decrease.In addition, as we plan and prepare for such projected growth in our subscriberbase, we plan to increase our expenses accordingly. If we are not able toincrease our revenue to offset these increased expenses, our profitabilitycould decrease.

**If we offer increased launch support fees or other incentives toservice providers in order to grow our subscriber base, our operating resultsmay be harmed.**

Although we currently have plans toincrease our marketing and sales efforts in an attempt to increase the numberof our subscribers, we may not be able to do so economically or at all. Ifwe are unable to increase the number of our subscribers on a cost-effectivebasis, or if the benefits of doing so do not materialize, our business andoperating results would be harmed. In particular, if we make any upfront cashpayments to service providers for an increase in our subscriber base, our cashflow could be adversely impacted, and we may incur negative cash flow forsome time. In addition, if we were to make such upfront cash payments or provideother incentives to service providers, we expect to amortize such amountsratably over the term of the agreements with the service providers. However, ifa service provider terminates any such agreement prior to the expiration of theterm of such agreement, then under current accounting rules wemay incur a large expense in that quarter in which the agreement isterminated equal to the remaining un-amortized amounts and our operatingresults could accordingly be adversely affected.

**If, in our attempt to increase our number of subscribers, westructure launch support fees with one service provider in a way that wouldrequire us to offer the same support or incentives to all other serviceproviders, our operating results may be harmed.**

Many of our existing agreements with cableand satellite service providers contain “most favored nation” clauses. Theseclauses typically provide that if we enter into an agreement with anotherservice provider on more favorable terms, these terms must be offered to theexisting service provider, subject to some exceptions and conditions. Futureagreements with service providers may also contain similar “most favorednation” clauses. If, in our attempt to increase our number of subscribers, westructure launch support fees to effectively offer more favorable terms to anyservice provider, these clauses may require us to reduce the effectivesubscriber fee rates that we receive from other service providers, and thiscould negatively affect our operating results.

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

We do not control the channels with whichour channels are packaged by cable or satellite service providers. Theplacement by a cable or satellite service provider of our channels in unpopularprogram package could reduce or impair the growth of the number of our viewersand subscriber fees paid by service providers to us. In addition, we do not setthe prices charged by cable and satellite service providers to theirsubscribers when our channels are packaged with other television channels. Theprices for the channel packages in which our channels are bundled may beset too high to appeal to individuals who might otherwise be interested in ournetworks. Further, if our channels are bundled by service providers withnetworks that do not appeal to our viewers or is moved to packages with fewersubscribers, we may lose viewers. These factors may reduce the numberof viewers of our channel, which in turn would reduce our subscriber fees andadvertising revenue.

**Cable and satellite service providers could discontinue or refrainfrom carrying The Outdoor Channel, which could reduce the number of viewers andharm our operating results.**

The success of The Outdoor Channel isdependent, in part, on our ability to enter into new carriage agreements andmaintain existing agreements with, and carriage by, satellite systems andmultiple system operators’, which we refer to as MSOs, affiliated regional orindividual cable systems. Although we have relationships or agreements withmost of the largest MSOs and satellite service providers, execution of anagreement with an MSO does not ensure that its affiliated regional orindividual cable systems will carry The Outdoor Channel. Under our currentagreements, The Outdoor Channel typically offers MSOs and their cableaffiliates the right to broadcast The Outdoor Channel to their subscribers, butsuch contracts do not require that The Outdoor Channel be offered to allsubscribers of, or any tiers offered by, the MSO. Because certain carriageagreements do not specify on which service levels The Outdoor Channel iscarried, such as analog versus basic digital, expanded digital or specialtytiers, and in which geographic markets The Outdoor Channel will be offered, wehave no assurance that The Outdoor Channel will be carried and available toviewers of any particular MSO or to all satellite subscribers. If cable andsatellite service providers discontinue or refrain from carrying The OutdoorChannel, this could reduce the number of viewers and harm our operatingresults.

**We may not be able to effectively manage our future growth,and our growth may not continue, which may substantially harm ourbusiness and prospects.**

We have undergone rapid and significantgrowth in revenue and subscribers over the last several years, and ourstrategic objectives include not only further developing and enhancing ourexisting business, but also expanding our in-house production capabilities.There are risks inherent in rapid growth and the pursuit of new strategicobjectives, including among others: investment and development of appropriateinfrastructure, such as facilities, information technology systems and otherequipment to support a growing organization; hiring and training newmanagement, sales and marketing, production, and other personnel and the diversionof management’s attention and resources from critical areas and existingprojects; and implementing systems and procedures to successfully managegrowth, such as monitoring operations, controlling costs, maintaining effectivequality and service, and implementing and maintaining adequate internalcontrols. Although we have recently upgraded our Temecula, Californiaproduction facility, we expect that additional expenditures will be required aswe continue to upgrade our facilities and to begin transmitting our channelfrom our facilities directly. In particular, we have purchased a building nearour current headquarters and are currently building out this property primarilyfor use as our broadcast facility in the future. We could incur cost overruns,delays and other difficulties with this construction. In addition, moving ourbroadcast facility and some of our personnel into this new facility could bedisruptive to our operations. We cannot assure you that we will be able tosuccessfully manage our growth, that future growth will occur or that we willbe successful in managing our business objectives. We can provide no assurancethat our profitability or revenues will not be harmed by future changes in ourbusiness. Our operating results could be harmed if such growth does not occur,or is slower or less profitable than projected.

**We may not be able to secure national advertising accounts,and as a result, our revenues and profitability may be negativelyimpacted.**

Our ability to secure national advertisingaccounts, which generally pay higher advertising rates, depends upon the sizeof our audience, the popularity of our programming and the demographics of ourviewers, as well as strategies taken by our competitors, strategies taken byadvertisers and the relative bargaining power of advertisers. Competition fornational advertising accounts and related advertising expenditures is intense.We face competition for such advertising expenditures from a variety ofsources, including other cable network companies and other media. We cannotassure you that our sponsors will pay advertising rates for commercial air timeat levels sufficient for us to make a profit or that we will be able to attractnew advertising sponsors or increase advertising revenues. If we are unable toattract national advertising accounts in sufficient quantities, our revenuesand profitability may be harmed.

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**We may berequired to pay additional state income taxes for past years.**

We are required to pay income taxes invarious states in which we conduct our business operations. In the past, wehave paid state income taxes only in California (where our headquarters islocated) and have not paid income taxes to any other state. We have determinedthat we may have state income tax liability in the eight states other thanCalifornia in which our gold prospecting properties are located. Although weexpect in the near future to gather sufficient information to enable us toapportion our income to such states and file income tax returns in those statesfor past years, we can offer no assurances as to when we will be able to filestate income tax returns in those states where we may have outstanding,current and future tax liabilities. In general, we believe any income taxesthat we may be required to pay to states other than California will bepartially offset by a refund from the State of California for income taxamounts we have overpaid to California in past years. We may, however, belimited as to the number of years for which we can receive a refund fromCalifornia for taxes previously paid, and we cannot predict when we wouldreceive any such refund. In addition, because each state to which wemay owe outstanding income taxes has a different methodology forcalculating tax owed and a different tax rate, our aggregate state income taxliability could be greater than what we have paid to California in prior years.Our aggregate state income tax liability, on which we may owe accruedinterest and penalties, could be material to our results of operations.

**Expenses relating to programming costs are generally increasingand a number of factors can cause cost overruns and delays, and our operatingresults may be adversely impacted if we are not able to successfullyrecover the costs of developing and acquiring new programming.**

The average cost of programming hasincreased recently for the cable industry and such increases may continue.We plan to build our programming library through the acquisition of long-termbroadcasting rights from third party producers, in-house production andoutright acquisition of programming, and this may lead to increases in ourprogramming costs. The development, production and editing of televisionprogramming requires a significant amount of capital and there are substantialfinancial risks inherent in developing and producing television programs.Actual programming and production costs may exceed their budgets. Factorssuch as labor disputes, death or disability of key spokespersons or programhosts, damage to film negatives, master tapes and recordings or adverse weatherconditions 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 results may be negatively impacted if ourOutdoor Channel 2 HD network is not as successful as we anticipate.**

In July 2005, we launched an all new,all native high definition network called Outdoor Channel 2 HD. There can be noassurance that Outdoor Channel 2 HD will not incur unexpected costs andexpenses. Distribution of Outdoor Channel 2 HD will depend on successfullyexecuting new or amended distribution agreements with cable and satelliteservice providers. There can be no assurance that such agreements can be made,and if they are made, that they will be on terms favorable to us or that theywill 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 OutdoorChannel 2 HD from achieving sufficient distribution from service providers toreach profitability. Competition for quality HD content may increase thecosts of programming for Outdoor Channel 2 HD beyond our control orexpectations. All of these factors, combined or separately, could increasecosts or restrain revenue and adversely affect our operating results.

**Our operating results may vary significantly, and historicalcomparisons of our operating results are not necessarily meaningful and shouldnot be relied upon as an indicator of future performance.**

Our operations are influenced by manyfactors. These factors may cause our financial results to varysignificantly in the future and our operating results may not meet theexpectations of securities analysts or investors. If this occurs, the price ofour stock may decline. Factors that can cause our results to fluctuateinclude, but are not limited to:

·      carriage decisions of cable andsatellite service providers;

·      demand for advertising, advertisingrates and offerings of competing media;

·      changes in the growth rate of cableand satellite subscribers;

·      cable and satellite serviceproviders’ capital and marketing expenditures and their impact on programmingofferings and penetration;

·      seasonal trends in viewer interestsand activities;

·      pricing, service, marketing andacquisition decisions that could reduce revenues and impair quarterly financialresults;

·      the mix of cable television andsatellite-delivered programming products and services sold and the distribution

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channels for those products and services;

·      our ability to react quickly tochanging consumer trends;

·      specific economic conditions in thecable television and related industries; and

·      changing regulatory requirements.

Due to the foregoing and other factors,many of which are beyond our control, our revenue and operating results varyfrom period to period and are difficult to forecast. Our expense levels arebased in significant part on our expectations of future revenue. Therefore,our failure to meet revenue expectations would seriously harm our business,operating results, financial condition and cash flows. Further, anunanticipated decline in revenue for a particular calendar quartermay disproportionately affect our profitability because our expenses wouldremain relatively fixed and would not decrease correspondingly.

**Changes to financial accounting standards or our accountingestimates may affect our reported operating results.**

We prepare our financial statements toconform with generally accepted accounting principles (“GAAP”), which aresubject to interpretations by the Financial Accounting Standards Board, theSecurities and Exchange Commission and various bodies formed to interpret andcreate appropriate accounting policies. A change in those policies can have asignificant effect on our reported results and may even affect ourreporting of transactions completed before a change is announced. Accountingpolicies affecting many other aspects of our business, including rules relatingto business 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 orthe way we conduct our business. In addition, our preparation of financialstatements in accordance with GAAP requires that we make estimates, judgmentsand assumptions that affect the recorded amounts of assets and liabilities,disclosure of those assets and liabilities at the date of the financialstatements and the recorded amounts of revenue and expenses during thereporting period. A change in the facts and circumstances surrounding thoseestimates, including the interpretation of the terms and conditions of ourcontractual obligations, could result in a change to our estimates and couldimpact our future operating results.

**If we fail to develop and distribute popular programs, ourviewership would likely decline, which could cause advertising and subscriberfee revenues to decrease.**

Our operating results depend significantlyupon the generation of advertising revenue. Our ability to generate advertisingrevenues is largely dependent on our Nielsen ratings, which estimates thenumber of viewers of The Outdoor Channel, and this directly impacts the levelof interest of advertisers and rates we are able to charge. If we fail toprogram popular shows that maintain or increase our current number of viewers,our Nielsen ratings could decline, which in turn could cause our advertising revenueto decline and adversely impact our business and operating results. Inaddition, if we fail to program popular shows the number of subscribers to ourchannel may also decrease, resulting in a decrease in our subscriber feeand advertising revenue.

**Changes in the methodology used by Nielsen to estimate oursubscriber base or television ratings, or inaccuracies in such estimates, couldcause our advertising revenue to decrease.**

Our ability to sell advertising is largelydependent on television ratings and our subscriber base estimated by Nielsen.We do not control the methodology used by Nielsen for these estimates. IfNielsen modifies its methodology or changes the statistical sample it uses forthese estimates, such as the demographic characteristics of the households, ourratings could be negatively affected resulting in a decrease in our advertisingrevenue.

**The market in which we operate is highlycompetitive, and we may not be able to compete effectively, particularlyagainst competitors with greater financial resources, brand recognition,marketplace presence and relationships with service providers.**

We compete for viewers with other paycable television and broadcast networks, including OLN, Spike TV, ESPN2 andothers. If these or other competitors, many of which have substantially greaterfinancial and operational resources than us, significantly expand theiroperations with respect to outdoor-related programming or their marketpenetration, our business could be harmed. In addition, certain technologicaladvances, including the deployment of fiber optic cable, which are alreadysubstantially underway, are expected to allow cable systems to greatly expandtheir current channel capacity, which could dilute our market share and lead toincreased competition for viewers from existing or new programming services.

We also compete with television networkcompanies that generally have large subscriber bases and significantinvestments in, and access to, competitive programming sources. In some cases,we compete with cable and satellite service providers that have the financialand technological resources to create and distribute their own televisionnetworks, such as OLN, which is owned and operated by Comcast. In order tocompete for subscribers, we may pay either launch fees or marketingsupport or both for carriage in certain circumstances in the future, whichmay require significant cash

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expenditures,harming our operating results and margins. We may also issue oursecurities from time to time in connection with our attempts for broaderdistribution of The Outdoor Channel and the number of such securities could besignificant. We compete for advertising sales with other pay televisionnetworks, broadcast networks, and local over-the-air television stations. Wealso compete for advertising sales with satellite and broadcast radio and theprint media. We compete with other cable television networks for subscriberfees from, and affiliation agreements with, cable and satellite serviceproviders. Actions by the Federal Communications Commission, which we refer toas the FCC, and the courts have removed certain of the impediments to entry bylocal telephone companies into the video programming distribution business, andother impediments could be eliminated or modified in the future. These localtelephone companies may distribute programming that is competitive withthe programming provided by us to cable operators.

**Changes in corporate governance and securitiesdisclosure and compliance practices have increased and may continue toincrease our legal compliance and financial reporting costs.**

The Sarbanes-Oxley Act of 2002 required usto change or supplement some of our corporate governance and securitiesdisclosure and compliance practices. The Securities and Exchange Commission andNasdaq have revised, and continue to revise, their regulations and listingstandards. These developments have increased, and may continue toincrease, our legal compliance and financial reporting costs.

**We may not be able to attract new, or retain existing,members in our club organizations, and as a result our revenues andprofitability may be harmed.**

Our ability to attract new members andretain existing members in our club organizations, GPAA and Lost Dutchman’s,depends, in part, upon our marketing efforts, including our programming on TheOutdoor Channel and such other efforts as direct mail campaigns, continuedsponsorship of expositions dedicated to gold prospecting, treasure hunting andrelated interests around the country and introductory outings held at ourcampsites. We cannot assure you that we will successfully attract new membersor retain existing members. A decline in membership in our club organizationscould harm our business and operating results.

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

Cable and satellite operators continue toconsolidate, making The Outdoor Channel increasingly dependent on feweroperators. If these operators fail to carry The Outdoor Channel, use theirincreased distribution and bargaining power to negotiate less favorable termsof carriage or to obtain additional volume discounts, our business andoperating results would suffer.

**The satellite infrastructure that we use may fail or bepreempted by another signal, which could impair our ability to deliverprogramming to our cable and satellite service providers.**

Our ability to deliver programming toservice providers, and their subscribers, is dependent upon the satelliteequipment and software that we use to work properly to distribute ourprogramming. If this satellite system fails, or a signal with a higher priorityreplaces our signal, which is determined by our agreement with the owner of thesatellite, we may not be able to deliver programming to our cable andsatellite service provider customers and their subscribers within the timeperiods advertised. We have negotiated for back-up capability with oursatellite provider on an in-orbit spare satellite, which provides us carriageon the back-up satellite in the event that catastrophic failure occurs on theprimary satellite. Our contract provides that our main signal is subject topreemption and until the back-up satellite is in position, we could lose oursignal for a period of time. A loss of our signal could harm our reputation andreduce our revenues and profits.

**Natural disastersand other events beyond our control could interrupt our signal.**

Our systems and operations may bevulnerable to damage or interruption from earthquakes, floods, fires, powerloss, telecommunication failures and similar events. They also could be subjectto break-ins, sabotage and intentional acts of vandalism. Since our productionfacilities for The Outdoor Channel are all located in Temecula, California, theresults of such events could be particularly disruptive because we do not havereadily available alternative facilities from which to conduct our business.Our business interruption insurance may not be sufficient to compensate usfor losses that may occur. Despite any precautions we may take, theoccurrence of a natural disaster or other unanticipated problems at ourfacilities could result in interruptions in our services. Interruptions in ourservice could harm our reputation and reduce our revenues and profits.

**Seasonal increasesor decreases in advertising revenue may negatively affect our business.**

Seasonal trends are likely to affect ourviewership, and consequently, could cause fluctuations in our advertisingrevenues. Our business reflects seasonal patterns of advertising expenditures,which is common in the broadcast industry. For this reason, fluctuations in ourrevenues and net income could occur from period to period depending upon theavailability of advertising revenues. Due, in part, to these seasonalityfactors, the results of any one quarter are not necessarily indicative of

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results for futureperiods, and our cash flows may not correlate with revenue recognition.

**We may beunable to access capital on acceptable terms to fund our future operations.**

Our future capital requirements willdepend on numerous factors, including the success of our efforts to increaseadvertising revenues, the amount of resources devoted to increasingdistribution of The Outdoor Channel, and acquiring and producing programmingfor The Outdoor Channel. As a result, we could be required to raise substantialadditional capital through debt or equity financing. To the extent that weraise additional capital through the sale of equity or convertible debtsecurities, the issuance of such securities could result in dilution toexisting stockholders. If we raise additional capital through the issuance ofdebt securities, the debt securities would have rights, preferences andprivileges senior to holders of common stock and the terms of such debt couldimpose restrictions on our operations. In November 2005, we entered intoan aggregate of up to thirteen million dollars in debt financing from acommercial bank. We cannot assure you that additional capital, if required,will be available on acceptable terms, or at all. If we are unable to obtainadditional capital, our current business strategies and plans and ability tofund future operations may be harmed.

**We may not beable to attract and retain key personnel.**

Our success depends to a significantdegree upon the continued contributions of the principal members of our sales,marketing, production and management personnel, many of whom would be difficultto replace. None of our employees are under contract and all of our employeesare “at-will.” Any of our officers or key employees could leave at any time,and we do not have “key person” life insurance policies covering any of ouremployees. The competition for qualified personnel has been strong in ourindustry. This competition could make it more difficult to retain our keypersonnel and to recruit new highly qualified personnel. The loss of Perry T.Massie, our President and Chief Executive Officer and Co-President of TheOutdoor Channel, Inc., or Thomas H. Massie, our Executive Vice President,or William A. Owen, our Chief Financial Officer, or Andrew J. Dale, the ChiefExecutive Officer and Co-President of The Outdoor Channel, Inc., or ThomasE. Hornish, our General Counsel, could adversely impact our business. Toattract and retain qualified personnel, we may be required to grant largeoption or other stock-based incentive awards, which may be highly dilutiveto existing stockholders. We may also be required to pay significant basesalaries and cash bonuses to attract and retain these individuals, which paymentscould harm our operating results. If we are not able to attract and retain thenecessary personnel we may not be able to implement our business plan.

**New videorecording technologies may reduce our advertising revenue.**

A number of new personal video recorders,such as TiVo® in the United States, have emerged in recent years. Theserecorders often contain features allowing viewers to watch pre-recordedprograms without watching advertising. The effect of these recorders on viewingpatterns and exposure to advertising could harm our operations and results ifour advertisers reduce the advertising rates they are willing to pay becausethey believe television advertisements are less effective with thesetechnologies.

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

The delivery of subscription programmingrequires the use of conditional access technology to limit access toprogramming to only those who subscribe to programming and are authorized toview it. Conditional access systems use, among other things, encryptiontechnology to protect the transmitted signal from unauthorized access. It isillegal to create, sell or otherwise distribute software or devices tocircumvent conditional access technologies. However, theft of cable andsatellite programming has been widely reported, and the access or “smart” cardsused in cable and satellite service providers’ conditional access systems havebeen compromised and could be further compromised in the future. Whenconditional access systems are compromised, we do not receive the potentialsubscriber fee revenues from the cable and satellite service providers.Further, measures that could be taken by cable and satellite service providersto limit such theft are not under our control. Piracy of our copyrightedmaterials could reduce our revenue from subscriber fees and advertising andnegatively affect our business and operating results.

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

We currently license approximately 78% ofprograms we air on The Outdoor Channel from third-party television and filmproducers. In order to build a library of programs and programming distributionrights, we must obtain all of the necessary rights, releases and consents fromthe parties involved in developing a project or from the owners of the rightsin a completed program. There can be no assurance that we will be able toobtain the necessary rights on acceptable terms, or at all, or properlymaintain and document such rights. In addition, protecting our intellectualproperty rights by pursuing those who infringe or dilute our rights can becostly and time consuming. If we are unable to protect our portfolio oftrademarks, service marks, copyrighted material and characters, trade names andother intellectual property rights, our business and our ability to competecould be harmed.

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

Other parties may assert intellectualproperty infringement claims against us, and our products may infringe theintellectual property rights of third parties. From time to time, we receiveletters alleging infringement of intellectual property rights of others.Intellectual property litigation can be expensive and time-consuming and coulddivert management’s attention from our business. If there is a successful claimof infringement against us, we may be required to pay substantial damagesto the party claiming infringement or enter into royalty or license agreementsthat may not be available on acceptable or desirable terms, if at all. Ourfailure to license the proprietary rights on a timely basis would harm ourbusiness.

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

Our current officers, directors andgreater than 5% stockholders together currently control greater than 50% of ouroutstanding common stock. As a result, these stockholders, acting together,would be able to exert significant influence over all matters requiringstockholder approval, including the election of directors and approval ofsignificant corporate transactions. In addition, this concentration ofownership may delay or prevent a change in control of our company, evenwhen a change may be in the best interests of stockholders. In addition,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.

**The market priceof our common stock has been and may continue to be subject to widefluctuations.**

Our stock has historically been andcontinues to be traded at relatively low volumes and therefore has been subjectto price volatility. Various factors contribute to the volatility of our stockprice, including, for example, low trading volume, quarterly variations in ourfinancial results, increased competition and general economic and marketconditions. While we cannot predict the individual effect that these factorsmay have on the market price of our common stock, these factors, eitherindividually or in the aggregate, could result in significant volatility in ourstock price during any given period of time. There can be no assurance that amore active trading market in our stock will develop. As a result, relativelysmall trades may have a significant impact on the price of our commonstock. Moreover, companies that have experienced volatility in the market priceof their stock often are subject to securities class action litigation. Ifwe were the subject of such litigation, it could result in substantial costsand divert management’s attention and resources.

**Anti-takeover provisions in our certificate of incorporation, ourbylaws and under Delaware law may enable our incumbent management toretain control of us and discourage or prevent a change of control thatmay be beneficial to our stockholders.**

Provisions of Delaware law, our certificateof incorporation and bylaws could discourage, delay or prevent a merger,acquisition or other change in control that stockholders may considerfavorable, including transactions in which you might otherwise receive apremium for your shares. These provisions also could limit the price thatinvestors might be willing to pay in the future for shares of our common stock,thereby depressing the market price of our common stock. Furthermore, theseprovisions could prevent attempts by our stockholders to replace or remove ourmanagement. These provisions:

·      allow the authorized number ofdirectors to be changed only by resolution of our board of directors;

·      establish a classified board ofdirectors, providing that not all members of the board be elected at one time;

·      require a 66 2¤3% stockholder vote to remove adirector, and only for cause;

·      authorize our board of directors toissue without stockholder approval blank check preferred stock that, if issued,could operate as a “poison pill” to dilute the stock ownership of a potentialhostile acquirer to prevent an acquisition that is not approved by our board ofdirectors;

·      require that stockholder actionsmust be effected at a duly called stockholder meeting and prohibit stockholderaction by written consent;

·      establish advance noticerequirements for stockholder nominations to our board of directors or forstockholder proposals that can be acted on at stockholder meetings;

·      except as provided by law, allowonly our board of directors to call a special meeting of the stockholders; and

·      require a 66 2¤3% stockholder vote to amend ourcertificate of incorporation or bylaws.

In addition, because we are incorporatedin Delaware, we are governed by the provisions of Section 203 of theDelaware General Corporation Law, which may, unless certain criteria are met,prohibit large stockholders, in particular those owning 15% or more of ouroutstanding voting stock, from merging or combining with us for a prescribedperiod of time.

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**Technologies in the cable and satellite television industry areconstantly changing, and our failure to acquire or maintain state-of-the-arttechnology may harm our business and competitive advantage.**

The technologies used in the cable andsatellite television industry are rapidly evolving. Many technologies andtechnological standards are in development and have the potential tosignificantly transform the ways in which programming is created andtransmitted. In addition, under some of our MSO contracts, we may berequired to encrypt our signal. We cannot accurately predict the effects thatimplementing new technologies will have on our programming and broadcastingoperations. We may be required to incur substantial capital expendituresto 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 increase ourcosts and expose us to penalties for failure to comply.**

The cable television industry is subjectto extensive legislation and regulation at the federal and local levels, and,in some instances, at the state level, and many aspects of such regulation arecurrently the subject of judicial proceedings and administrative or legislativeproposals. Similarly, the satellite television industry is subject to federalregulation. Operating in a regulated industry increases our cost of doingbusiness as a video programmer.

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

Regulatory carriage requirements alsocould reduce the number of channels available to carry The Outdoor Channel. The1992 Cable Act granted television broadcasters a choice of must-carry rights orretransmission consent rights. The rules adopted by the FCC generallyprovided for mandatory carriage by cable systems of all local full-powercommercial television broadcast signals selecting must-carry rights and,depending on a cable system’s channel capacity, non-commercial televisionbroadcast signals. Such statutorily mandated carriage of broadcast stations,coupled with the provisions of the Cable Communications Policy Act of 1984,which require cable television systems with 36 or more “activated” channels toreserve a percentage of such channels for commercial use by unaffiliated thirdparties and permit franchise authorities to require the cable operator toprovide channel capacity, equipment and facilities for public, educational andgovernment access channels, could reduce carriage of The Outdoor Channel bylimiting its carriage in cable systems with limited channel capacity. In 2001,the FCC adopted rules relating to the cable carriage of digital televisionsignals. Among other things, the rules clarify that a digital-onlytelevision station can assert a right to analog or digital carriage on a cablesystem. The FCC initiated a further proceeding to determine whether televisionbroadcasters may assert the rights to carriage of both analog and digitalsignals during the transition to digital television and to carriage of alldigital signals. On February 10, 2005, the FCC decided that televisionbroadcasters do not have such additional must-carry rights. Broadcastersformally have requested that the FCC reconsider this decision and are seekinglegislative change to require such carriage. The imposition of such additionalmust-carry regulation, in conjunction with any limited cable system channelcapacity, would increase the likelihood that cable operators may be forcedto drop some cable programming services and could reduce carriage of TheOutdoor Channel.

The Telecommunications Act of 1996required the FCC to establish rules and an implementation schedule toensure that video programming is fully accessible to the hearing impairedthrough closed captioning. The rules adopted by the FCC requiresubstantial closed captioning over a six to ten year phase-in period, whichbegan in 2000, with only limited exemptions. As a result, we will continue toincur additional costs for closed captioning.

If we distribute television programmingthrough other types of media, we may be required to obtain federal, stateand local licenses or other authorizations to offer such services. Wemay not be able to obtain licenses or authorizations in a timely manner,or at all, or conditions could be imposed upon licenses and authorizations thatmay not be favorable to us.

In the future, any increased regulation ofrates, and in particular the rates for basic cable services, could, among otherthings, put downward pressure on the rates charged by cable programmingservices, and affect the ability or willingness of cable system operators toretain or to add The Outdoor Channel network on their cable systems. Inresponse to a request from

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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 increasethe cost of programming to consumers and injure programmers. OnFebruary 9, 2006, the Media Bureau released a further report which statedthat the 2004 report was flawed and which concluded that a-la-carte sales couldbe in the best interests of consumers. Although the FCC cannot mandatea-al-carte sales, its endorsement of the concept could encourage Congress toconsider proposals to mandate a-ala-carte sales or otherwise seek to imposegreater regulatory controls on how cable programming is sold. If, in responseto any statue enacted by Congress, or any rate or other government regulation,cable system operators implement channel offerings that require subscribers toaffirmatively choose to pay a separate fee to receive The Outdoor Channel,either by itself or in combination with a limited number of other channels, thenumber of viewers for The Outdoor Channel could be reduced.

The regulation of programming services,cable television systems and satellite licensees is subject to the politicalprocess and has been in constant flux over the past decade. Further materialchanges in the law and regulatory requirements are difficult to anticipate andour business may be harmed by future legislation, new regulation,deregulation or court decisions interpreting laws and regulations.

**We must comply with many local, state, federal and environmentalregulations, for which compliance may be costly and may expose us tosubstantial penalties.**

Our recreational outdoor activityentities, GPAA and Lost Dutchman’s, share the general risks of all outdoorrecreational activities such as personal injury, environmental compliance andreal estate and environmental regulation. In addition to the general cabletelevision industry regulations, we are also subject to various local, stateand federal regulations, including, without limitation, regulations promulgatedby federal and state environmental, health and labor agencies. Our prospectingclubs are subject to various local, state and federal statutes, ordinances, rules andregulations concerning zoning, development and other utilization of theirproperties. We cannot predict what impact current or future regulationsmay have on these businesses. In addition, failure to maintain requiredpermits or licenses, or to comply with applicable regulations, could result insubstantial fines or costs or revocation of our operating licenses, which wouldhave a material adverse effect on our business and operating results.

**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.**

A significant portion of our assetsconsists of goodwill and other indefinite-lived intangible assets. Inaccordance with Statement of Financial Accounting Standards No. 142, “Goodwilland Other Intangible Assets”, or SFAS 142, we test goodwill and otherindefinite-lived intangible assets for impairment during the fourth quarter ofeach year, and on an interim date if factors or indicators become apparent thatwould require an interim test. A significant downward revision in the presentvalue of estimated future cash flows for a reporting unit could result in animpairment of goodwill or other indefinite-lived intangibles under SFAS 142 anda non-cash charge would be required. Such a charge could have a significanteffect on our reported net earnings.

**Future issuance by us of preferred shares could adversely affectthe holders of existing shares, and therefore reduce the value of existingshares.**

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 common stock, andtherefore reduce the value of such shares. No assurance can be given that wewill not issue shares of preferred stock in the future.

**We do not expectto pay dividends in the foreseeable future.**

We do not anticipate paying cash dividendson our common stock in the foreseeable future. Any payment of cash dividendswill also depend on our financial condition, operating results, capitalrequirements and other factors and will be at the discretion of our board ofdirectors. Furthermore, we may in the future become subject to contractualrestrictions on, or prohibitions against, the payment of dividends.

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**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.**

On May 9, 2006, weentered into a modification of our existing loans with U.S. Bank N.A. toexclude the non-cash compensation expense relating to SFAS 123R whencalculating the profitability under a covenant requiring profitability ofgreater than $250,000 each fiscal quarter.

**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             |       | Instruments defining the rights of security holders,  including debentures (see Exhibits 3.1 and 3.2 above and Exhibit 4.1 to the  Company’s Form 10-Q for the period ended June 30, 2005)                                             |
| 31.1            |       | Certification by Chief Executive Officer                                                                                                                                                                                                    |
| 31.2            |       | Certification by Chief Financial Officer                                                                                                                                                                                                    |
| 32.1 *          |       | Section 1350 Certification by Chief Executive  Officer                                                                                                                                                                                      |
| 32.2 *          |       | Section 1350 Certification by Chief Financial  Officer                                                                                                                                                                                      |

 

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*       Pursuant to Commission Release No. 33-8238, this certification will be treatedas “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part ofsuch report for purposes of Section 18 of the Securities Exchange Act of 1934,as amended, or otherwise subject to the liability of Section 18 of theSecurities Exchange Act of 1934, as amended, and this certification will not bedeemed to be incorporated by reference into any filing under the Securities Actof 1933, as amended, or the Securities Exchange Act of 1934, as amended, exceptto the extent that the registrant specifically incorporates it by reference.

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**SIGNATURES**

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

 

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