**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q/A**

**(Amendment No. 2)**

**(MarkOne)**

**x****                                ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended March 31, 2005**

**o****                                  ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from                    to                    **

**Commission file number: 000-17287**

**OUTDOOR CHANNEL HOLDINGS, INC.**

(Exact name of Registrant as specified in its charter)

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

 

**43445BUSINESS PARK DRIVE, SUITE 113**

**TEMECULA,CALIFORNIA 92590**

(Address and zip code of principal executive offices)

**(951)699-4749**

(Registrant’s telephone number, including area code)

(Formername, former address and former fiscal year,

if changed since last report)

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filing requirements forthe past 90 days. x Yes  o No

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

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date: 

| **Class**                       |   | **Number  of Shares Outstanding at May 12, 2005** |
|---------------------------------|--------|---------------------------------------------------|
| Common Stock,  $0.001 par value |   | 18,518,739                                        |

 

 

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EXPLANATORY NOTE

Thisamendment on Form 10-Q/A reflects the restatement of the unaudited condensed consolidatedfinancial statements of Outdoor Channel Holdings, Inc. and Subsidiaries as ofMarch 31, 2005 and December 31, 2004 and for the three months ended March 31,2005, as discussed in Management’s Discussion and Analysis of FinancialCondition and Results of Operations (Item 2) and Note 9 to the unauditedcondensed consolidated financial statements to reflect the effects of a revisedestimate of the useful life of intangible assets attributable to MSO relationshipsrecorded in connection with the September 8,2004 acquisition of all of the outstandingshares of The Outdoor Channel, Inc. by Outdoor Channel Holdings, Inc. that it didnot previously own.  Although the revisedestimate of the useful life of these assets resulted in adjustments to and therestatement of our unaudited condensed consolidated balance sheet included in this Form 10-Q/A as of December31, 2004, we determined that the effects of these adjustments wereimmaterial, individually and in the aggregate, to our annual and quarterlyreports filed prior to January 1, 2005 and thus we did not amend those filings.

Inaddition, to provide more detail about our operating results and to more fully complywith the Securities and Exchange Commission’s (the “SEC”)Regulation S-X, wehave modified our presentation of the unaudited condensed consolidatedstatements of operations, as discussed in Management’s Discussion and Analysisof Financial Condition and Results of Operations and Note 1 to the unauditedcondensed consolidated financial statements, by reclassifying the amountsoriginally included under “expenses” in line items under either “cost ofservices” or  “other expenses”. Further, tobetter match intangible assets with the segment to which they pertain, we have reclassifiedthe amortizable intangible assets and the goodwill which were recorded inconnection with the acquisition on September 8, 2004 along with the related amortizationexpense from “Corporate” to the “TOC” segment. Certain other changes have been madein the historical unaudited condensed consolidated financial statements toconform with current presentations.

All ofthe information in this Form 10-Q/A is as of May 16, 2005, the filing date ofthe original Form 10-Q for the quarter ended March 31, 2005, and has not beenupdated for events subsequent to that date other than for the effects of thematter discussed above. Unless otherwise indicated, the exhibits previouslyfiled with the Form 10-Q/A (Amendment No.1) are not filed herewith but areincorporated herein by reference.

2

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OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES

QUARTERLYREPORT ON FORM 10-Q/A

FOR THE THREE MONTHS ENDED MARCH 31, 2005

TABLE OF CONTENTS
|                | ** **                                                                                  |
|----------------|---------------------------------------------------------------------------------------------|
| ** **     | ** **                                                                                  |
| PART I.        | FINANCIAL INFORMATION                                                                       |   |
|           |                                                                                        |   |
| ITEM 1.        | Financial Statements                                                                        |   |
|           |                                                                                        |   |
|           | Restated  Condensed Consolidated Balance Sheets as of March 31, 2005                        |   |
|           | (Unaudited) and  December 31, 2004                                                          |   |
|           |                                                                                        |   |
|           | Unaudited  Condensed Consolidated Statements of Operations for the                          |   |
|           | Three Months  Ended March 31, 2005 (Restated) and 2004                                      |   |
|           |                                                                                        |   |
|           | Restated  Unaudited Condensed Consolidated Statement of Stockholders’                  |   |
|           | Equity for the  Three Months Ended March 31, 2005                                           |   |
|           |                                                                                        |   |
|           | Unaudited  Condensed Consolidated Statements of Cash Flows for the                          |   |
|           | Three Months  Ended March 31, 2005 (Restated) and 2004                                      |   |
|           |                                                                                        |   |
|           | Notes to  Restated Unaudited Condensed Consolidated Financial Statements                    |   |
|           |                                                                                        |   |
| ITEM 2.        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|           |                                                                                        |   |
|           | Risks  and Uncertainties                                                                    |   |
|           |                                                                                        |   |
| ITEM 3.        | Quantitative  and Qualitative Disclosures About Market Risk                                 |   |
|           |                                                                                        |   |
| ITEM 4.        | Controls and  Procedures                                                                    |   |
|           |                                                                                        |   |
| PART  II.      | OTHER  INFORMATION                                                                          |   |
|           |                                                                                        |   |
| ITEM 1.        | Legal Proceedings                                                                           |   |
|           |                                                                                        |   |
| ITEM 2.        | Unregistered  Sales of Equity Securities and Use of Proceeds                                |   |
|           |                                                                                        |   |
| ITEM 3.        | Defaults Upon  Senior Securities                                                            |   |
|           |                                                                                        |   |
| ITEM 4.        | Submission of  Matters to a Vote of Security Holders                                        |   |
|           |                                                                                        |   |
| ITEM 5.        | Other Information                                                                           |   |
|           |                                                                                        |   |
| ITEM  6.       | Exhibits                                                                                    |   |
|           |                                                                                        |   |
| SIGNATURES     |                                                                                        |
|           |                                                                                        |
| CERTIFICATIONS |                                                                                        |

 

* * *

3

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PART I - FINANCIALINFORMATION

ITEM 1.   Financial Statements

OUTDOORCHANNEL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)
| ** **                                                                                                  | ** ** | **MARCH 31,**              | ** ** | **DECEMBER 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|-----------------------|------------|
| ** **                                                                                                  | ** ** | **2005**                        | ** ** | **2004**              | ** ** |
| ** **                                                                                                  | ** ** | **(Unaudited,**                 | ** ** | **(Restated,**        | ** ** |
| ** **                                                                                                  | ** ** | **Restated, Note 9)** | ** ** | **Note 9)**      | ** ** |
| ASSETS                                                                                                      |       |                            |       |                  |       |
|                                                                                                        |       |                            |       |                  |       |
| Current assets:                                                                                             |       |                            |       |                  |       |
| Cash and cash  equivalents                                                                                  |       | $                               | 11,154     |                  | $          | 13,105 |   |
| Investment in  available-for-sale securities                                                                |       | 687                             |       | 741                   |       |
| Accounts  receivable, net of allowance for doubtful accounts of $216 and $207                               |       | 4,618                           |       | 4,848                 |       |
| Inventories                                                                                                 |       | 85                              |       | 85                    |       |
| Income tax  refund receivable                                                                               |       | 1,965                           |       | 2,291                 |       |
| Prepaid  programming costs                                                                                  |       | 1,154                           |       | 606                   |       |
| Other current  assets                                                                                       |       | 879                             |       | 50                    |       |
|                                                                                                        |       |                            |       |                  |       |
| Total current  assets                                                                                       |       | 20,542                          |       | 21,726                |       |
|                                                                                                        |       |                            |       |                  |       |
| Property, plant and  equipment at cost, net:                                                                |       |                            |       |                  |       |
| Membership  division                                                                                        |       | 3,607                           |       | 3,527                 |       |
| Outdoor Channel  equipment and improvements                                                                 |       | 4,353                           |       | 3,199                 |       |
|                                                                                                        |       |                            |       |                  |       |
| Property, plant  and equipment, net                                                                         |       | 7,960                           |       | 6,726                 |       |
|                                                                                                        |       |                            |       |                  |       |
| Amortizable intangible  assets, net                                                                         |       | 12,083                          |       | 12,347                |       |
| Deferred tax assets,  net                                                                                   |       | 14,823                          |       | 14,139                |       |
| Goodwill                                                                                                    |       | 44,457                          |       | 44,457                |       |
| Deposits and other  assets                                                                                  |       | 256                             |       | 174                   |       |
|                                                                                                        |       |                            |       |                  |       |
| Totals                                                                                                      |       | $                               | 100,121    |                  | $          | 99,569 |   |
|                                                                                                        |       |                            |       |                  |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                  |       |                            |       |                  |       |
|                                                                                                        |       |                            |       |                  |       |
| Current liabilities:                                                                                        |       |                            |       |                  |       |
| Accounts payable  and accrued expenses                                                                      |       | $                               | 2,464      |                  | $          | 3,705 |   |
| Accrued severance  payments                                                                                 |       | 13                              |       | 28                    |       |
| Current portion  of capital lease obligations                                                               |       | 29                              |       | 26                    |       |
| Deferred tax  liabilities, net                                                                              |       | 473                             |       | 494                   |       |
| Current portion  of deferred revenue                                                                        |       | 422                             |       | 370                   |       |
| Customer  deposits                                                                                          |       | 686                             |       | 61                    |       |
|                                                                                                        |       |                            |       |                  |       |
| Total current  liabilities                                                                                  |       | 4,087                           |       | 4,684                 |       |
|                                                                                                        |       |                            |       |                  |       |
| Accrued severance  payments, net of current portion                                                         |       | 32                              |       | 37                    |       |
| Capital lease  obligations, net of current portion                                                          |       | —                          |       | 9                     |       |
| Deferred revenue, net  of current portion                                                                   |       | 1,113                           |       | 1,145                 |       |
| Deferred satellite rent  obligations                                                                        |       | 304                             |       | 312                   |       |
|                                                                                                        |       |                            |       |                  |       |
| Total  liabilities                                                                                          |       | 5,536                           |       | 6,187                 |       |
|                                                                                                        |       |                            |       |                  |       |
| Commitments and  contingencies                                                                              |       |                            |       |                  |       |
| Stockholders’ equity:                                                                                  |       |                            |       |                  |       |
| Preferred stock;  25,000 shares authorized; none issued                                                     |       | —                          |       | —                |       |
| Common stock,  $0.001 par value; 75,000 shares authorized: 18,519 and 18,394  shares issued and outstanding |       | 18                              |       | 18                    |       |
| Additional  paid-in capital                                                                                 |       | 112,718                         |       | 111,912               |       |
| Deferred  compensation                                                                                      |       | (982                            | )          | (1,034                | )          |
| Accumulated  other comprehensive income                                                                     |       | 11                              |       | 43                    |       |
| Accumulated  deficit                                                                                        |       | (17,180                         | )          | (17,557               | )          |
|                                                                                                        |       |                            |       |                  |       |
| Total  stockholders’ equity                                                                            |       | 94,585                          |       | 93,382                |       |
|                                                                                                        |       |                            |       |                  |       |
| Totals                                                                                                      |       | $                               | 100,121    |                  | $          | 99,569 |   |

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

4

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OUTDOORCHANNEL HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS

(In thousands, except per share data)
| ** **                                                  | ** ** | **THREE MONTHS ENDED MARCH 31,** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| ** **                                                  | ** ** | **(Restated,**                                       | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | **Note 9)**                                     | ** ** | ** ** | ** ** |
|                                                        |       |                                                 |       |   |   |
| Revenues:                                                   |       |                                                 |       |   |   |
| Advertising                                                 |       | $                                                    | 5,259      |   | $ | 4,812 |   |
| Subscriber fees                                             |       | 3,642                                                |       | 3,161 |   |
| Membership income                                           |       | 1,160                                                |       | 1,232 |   |
|                                                        |       |                                                 |       |   |   |
| Total revenues                                              |       | 10,061                                               |       | 9,205 |   |
|                                                        |       |                                                 |       |   |   |
| Cost of  services:                                          |       |                                                 |       |   |   |
| Programming                                                 |       | 521                                                  |       | 395 |   |
| Satellite transmission fees                                 |       | 633                                                  |       | 591 |   |
| Production and operations                                   |       | 993                                                  |       | 698 |   |
| Other direct costs                                          |       | 219                                                  |       | 246 |   |
|                                                        |       |                                                 |       |   |   |
| Total cost of services                                      |       | 2,366                                                |       | 1,930 |   |
|                                                        |       |                                                 |       |   |   |
| Other expenses:                                             |       |                                                 |       |   |   |
| Advertising                                                 |       | 1,694                                                |       | 1,314 |   |
| Selling, general and administrative                         |       | 4,698                                                |       | 3,387 |   |
| Depreciation and amortization                               |       | 699                                                  |       | 299 |   |
|                                                        |       |                                                 |       |   |   |
| Total other expenses                                        |       | 7,091                                                |       | 5,000 |   |
|                                                        |       |                                                 |       |   |   |
| Income from  operations                                     |       | 604                                                  |       | 2,275 |   |
|                                                        |       |                                                 |       |   |   |
| Interest expense                                            |       | (1                                                   | )          | — |   |
|                                                        |       |                                                 |       |   |   |
| Other income,  net                                          |       | 52                                                   |       | 29 |   |
|                                                        |       |                                                 |       |   |   |
| Income before  income taxes and minority interest           |       | 655                                                  |       | 2,304 |   |
|                                                        |       |                                                 |       |   |   |
| Income tax  provision                                       |       | 278                                                  |       | 929 |   |
|                                                        |       |                                                 |       |   |   |
| Income before  minority interest                            |       | 377                                                  |       | 1,375 |   |
|                                                        |       |                                                 |       |   |   |
| Minority  interest in net income of consolidated subsidiary |       | —                                               |       | 262 |   |
|                                                        |       |                                                 |       |   |   |
| Net income                                                  |       | $                                                    | 377        |   | $ | 1,113 |   |
|                                                        |       |                                                 |       |   |   |
| Earnings per common  share:                                 |       |                                                 |       |   |   |
| Basic                                                       |       | $                                                    | 0.02       |   | $ | 0.08 |   |
|                                                        |       |                                                 |       |   |   |
| Diluted                                                     |       | $                                                    | 0.02       |   | $ | 0.06 |   |
|                                                        |       |                                                 |       |   |   |
| Weighted average  number of common shares outstanding:      |       |                                                 |       |   |   |
| (as adjusted for a five for two split)                      |       |                                                 |       |   |   |
| Basic                                                       |       | 18,474                                               |       | 14,827 |   |
|                                                        |       |                                                 |       |   |   |
| Diluted                                                     |       | 22,397                                               |       | 15,479 |   |

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

5

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OUTDOORCHANNEL HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OFSTOCKHOLDERS’ EQUITY

FORTHE THREE MONTHS ENDED MARCH 31, 2005

(In thousands)
| ** **                                                                                        | ** ** | **PREFERRED STOCK** | ** ** | **COMMON STOCK** | ** ** | **ADDITIONAL  PAID-IN** | ** ** | **DEFERRED** | ** ** | **ACCUMULATED  OTHER  COMPREHENSIVE** | ** ** | **ACCUMULATED**  | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------|------------|-------------------------|------------|--------------|------------|---------------------------------------|------------|------------------|------------|------------|------------|
| ** **                                                                                        | ** ** | **SHARES**               | ** ** | **AMOUNT**            | ** ** | **SHARES**              | ** ** | **AMOUNT**   | ** ** | **CAPITAL**                           | ** ** | **COMPENSATION** | ** ** | **INCOME** | ** ** | **DEFICIT** | ** ** | **TOTAL** | ** ** |
| ** **                                                                                        | ** ** | ** **               | ** ** | ** **            | ** ** | ** **              | ** ** | ** **   | ** ** | ** **                            | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance, January  1, 2005  (as originally reported)                                               |       | —                   |       | $                     | —     |                    | 18,394     |         | $          | 18                                    |       | $                | 111,912    |       | (1,034     | ) | $ | 43 |   | $ | (17,457 | ) | $ | 93,482 |   |
|                                                                                              |       |                     |       |                  |       |                    |       |         |       |                                  |       |             |       |       |       |   |   |   |   |
| Cumulative impact  of  restatement                                                                |       |                     |       |                  |       |                    |       |         |       |                                  |       |             |       |       |       | (100 | ) | (100 | ) |
|                                                                                              |       |                     |       |                  |       |                    |       |         |       |                                  |       |             |       |       |       |   |   |   |   |
| Balance, January  1, 2005  (restated, Note 9)                                                     |       |                     |       |                  |       | 18,394                  |       | 18           |       | 111,912                               |       | (1,034           | )          | 43         |       | (17,557 | ) | 93,382 |   |
|                                                                                              |       |                     |       |                  |       |                    |       |         |       |                                  |       |             |       |       |       |   |   |   |   |
| Comprehensive  income:                                                                            |       |                     |       |                  |       |                    |       |         |       |                                  |       |             |       |       |       |   |   |   |   |
| Net income (restated)                                                                             |       |                     |       |                  |       |                    |       |         |       |                                  |       |             |       |       |       | 377 |   | 377 |   |
| Effect of change in fair  value of available-for-  sale securities, net of  deferred taxes of $22 |       |                     |       |                  |       |                    |       |         |       |                                  |       |             |       | (32        | )          |   |   | (32 | ) |
|                                                                                              |       |                     |       |                  |       |                    |       |         |       |                                  |       |             |       |       |       |   |   |   |   |
| Total comprehensive income (restated, Note 9)                                                |       |                     |       |                  |       |                    |       |         |       |                                  |       |             |       |       |       |   |   | 345 |   |
|                                                                                              |       |                     |       |                  |       |                    |       |         |       |                                  |       |             |       |       |       |   |   |   |   |
| Common stock  issued upon  exercise of stock options                                              |       |                     |       |                  |       | 125                     |       |         |       | 170                                   |       |             |       |       |       |   |   | 170 |   |
| Amortization of  deferred  compensation                                                           |       |                     |       |                  |       |                    |       |         |       |                                  |       | 52               |       |       |       |   |   | 52 |   |
|                                                                                              |       |                     |       |                  |       |                    |       |         |       |                                  |       |             |       |       |       |   |   |   |   |
| Tax benefit from  exercise  of non-qualified stock  options                                       |       |                     |       |                  |       |                    |       |         |       | 636                                   |       |             |       |       |       |   |   | 636 |   |
|                                                                                              |       |                     |       |                  |       |                    |       |         |       |                                  |       |             |       |       |       |   |   |   |   |
| Balance, March 31, 2005  (restated)                                                               |       | —                   |       | $                     | —     |                    | 18,519     |         | $          | 18                                    |       | $                | 112,718    |       | $          | (982 | ) | $ | 11 |   | $ | (17,180 | ) | $ | 94,585 |   |
|                                                                                                   |            |                          |            |                       |            |                         |            |              |            |                                       |            |                  |            |            |            |  |  |  |  |  |  |  |  |  |  |  |

 

See Notes to Unaudited Condensed Consolidated Financial Statements

6

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OUTDOORCHANNEL HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS

(In thousands)
| ** **                                                                                                | ** ** | **THREE MONTHS ENDED MARCH 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| ** **                                                                                                | ** ** | **(Restated,**                                       | ** ** | ** ** | ** ** |
| ** **                                                                                                | ** ** | **Note 9)**                                          | ** ** | ** ** | ** ** |
|                                                                                                      |       |                                                 |       |   |   |
| Operating  activities:                                                                                    |       |                                                 |       |   |   |
|                                                                                                      |       |                                                 |       |   |   |
| Net income                                                                                                |       | $                                                    | 377        |   | $ | 1,113 |   |
|                                                                                                      |       |                                                 |       |   |   |
| Adjustments to reconcile net income to net cash provided  by (used in)operating activities:               |       |                                                 |       |   |   |
| Depreciation and amortization                                                                             |       | 699                                                  |       | 299 |   |
| Provision for doubtful accounts                                                                           |       | 9                                                    |       | — |   |
| Minority interest in net income of consolidated  subsidiary                                               |       | —                                               |       | 262 |   |
| Deferred tax provision                                                                                    |       | (49                                                  | )          | — |   |
| Amortization of deferred compensation                                                                     |       | 52                                                   |       | — |   |
|                                                                                                      |       |                                                 |       |   |   |
| Cash provided by (used in) changes in operating  assets and liabilities:                                  |       |                                                 |       |   |   |
| Accounts receivable                                                                                       |       | 221                                                  |       | (49 | ) |
| Inventories                                                                                               |       | —                                               |       | 1 |   |
| Income tax refund receivable                                                                              |       | 326                                                  |       | 929 |   |
| Prepaid programming costs                                                                                 |       | (548                                                 | )          | — |   |
| Other current assets                                                                                      |       | (828                                                 | )          | (69 | ) |
| Deposits and other assets                                                                                 |       | (82                                                  | )          | 3 |   |
| Accounts payable and accrued expenses                                                                     |       | (1,241                                               | )          | (93 | ) |
| Accrued severance payments                                                                                |       | (20                                                  | )          | (159 | ) |
| Deferred revenue                                                                                          |       | 20                                                   |       | (420 | ) |
| Customer deposits                                                                                         |       | 625                                                  |       | — |   |
| Deferred satellite rent obligations                                                                       |       | (8                                                   | )          | (17 | ) |
|                                                                                                      |       |                                                 |       |   |   |
| Net cash provided by (used in) operating activities                                                       |       | (447                                                 | )          | 1,800 |   |
|                                                                                                      |       |                                                 |       |   |   |
| Investing  activities - purchases of property, plant and equipment                                        |       | (1,668                                               | )          | (430 | ) |
|                                                                                                      |       |                                                 |       |   |   |
| Financing  activities:                                                                                    |       |                                                 |       |   |   |
| Principal payments on capital lease                                                                       |       | (6                                                   | )          | (36 | ) |
| Proceeds from exercise of stock options                                                                   |       | 170                                                  |       | 834 |   |
| Proceeds from common stock subscriptions receivable                                                       |       | —                                               |       | 30 |   |
|                                                                                                      |       |                                                 |       |   |   |
| Net cash provided by financing activities                                                                 |       | 164                                                  |       | 828 |   |
|                                                                                                      |       |                                                 |       |   |   |
| Net increase (decrease) in cash and cash equivalents                                                      |       | (1,951                                               | )          | 2,198 |   |
|                                                                                                      |       |                                                 |       |   |   |
| Cash and cash  equivalents, beginning of period                                                           |       | 13,105                                               |       | 7,214 |   |
|                                                                                                      |       |                                                 |       |   |   |
| Cash and cash  equivalents, end of period                                                                 |       | $                                                    | 11,154     |   | $ | 9,412 |   |
|                                                                                                      |       |                                                 |       |   |   |
| Supplemental  disclosures of cash flow information:                                                       |       |                                                 |       |   |   |
|                                                                                                      |       |                                                 |       |   |   |
| 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 |       | $                                                    | (32        | ) | $ | 1 |   |

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

7

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OUTDOORCHANNEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIALSTATEMENTS

(In thousands, except per share data)

NOTE1 - ORGANIZATION AND BUSINESS

DESCRIPTIONOF OPERATIONS

Outdoor Channel Holdings, Inc. (“Outdoor Channel Holdings,” orcollectively with its subsidiaries, the “Company”) was reincorporated under thelaws of the State of Delaware on September 14, 2004. Originally Outdoor ChannelHoldings was incorporated under the name Global Resources, Inc., an Alaskacorporation, and was subsequently re-named Global Outdoors, Inc. In 2003, thename was changed to Outdoor Channel Holdings, Inc. The Company acquired theremaining 17.6% minority interest in The Outdoor Channel, Inc. (“TOC”), whichit did not previously hold on September 8, 2004. TOC operates The Outdoor Channelwhich is a national television network devoted to traditional outdooractivities, such as hunting, fishing andshooting sports, as well as off road motor sports and other related lifestyleprogramming.

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 mining expedition to ourCripple River property located near Nome, Alaska, and the sale of membershipsin Lost Dutchman’s which entitle members to engage in gold prospecting on ourArizona, California, Colorado, Georgia, Michigan, North Carolina, Oregon, andSouth Carolina properties. We have signed an agreement with anotherorganization for the mutual use of other properties.

RESTATEMENTOF 2005 FINANCIAL STATEMENTS

The accompanyingunaudited condensed consolidated financial statements as of March 31, 2005 andDecember 31, 2004 and for the three months ended March 31, 2005 and the relatednotes have been restated as further explained in Note 9.

RECLASSIFICATIONS

Certainamounts in the 2005 and 2004 unaudited condensed consolidated financialstatements have been reclassified either to conform to the 2005 presentationsor to provide additional detail about our operating results and more fullycomply with the Securities and Exchange Commission’s Regulation S-X. Inparticular certain amounts included under “expenses” in the 2005 and 2004unaudited condensed consolidated statements of operations we originally issuedhave been reclassified in line items under either “cost of services” or “otherexpenses”. 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. 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 changeshave been made in the historical unaudited condensed consolidated financialstatements to conform with current presentations.

NOTE2 - UNAUDITED INTERIM FINANCIAL STATEMENTS

In the opinion of management, the accompanying unaudited condensedconsolidated financial statements reflect all adjustments, consisting of normalrecurring adjustments, necessary to present fairly the financial position ofthe Company as of March 31, 2005 and its results of operations and cash flowsfor the three months ended March 31, 2005 and 2004. Information included in theconsolidated balance sheet, restated, as of December 31, 2004 has been derivedfrom, and certain terms used herein are defined in the audited financialstatements of the Company as of December 31, 2004 (the “Audited FinancialStatements”) included in the Company’s Annual Report on Form 10-K/A (the“10-K/A”) for the year ended December 31, 2004 that was previously filed withthe Securities and Exchange Commission (the “SEC”). Pursuant to the rules andregulations of the SEC, certain information and disclosures normally includedin financial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been condensed oromitted from these financial statements unless significant changes have takenplace since the end of the most recent fiscal year. Accordingly, theseunaudited condensed consolidated financial statements should be read inconjunction with the Audited

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FinancialStatements and the other information also included in the 10-K/A.

The results of theCompany’s operations for the three months ended March 31, 2005 are notnecessarily indicative of the results of operations for the full year endingDecember 31, 2005.

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 - EARNINGS PER SHARE

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

The Company haspresented “basic” and “diluted” earnings per common share in the accompanyingunaudited condensed consolidated statements of operations in accordance withthe provisions of Statement of Financial Accounting Standards No. 128,“Earnings Per Share” (“SFAS 128”). Basic earnings per common share iscalculated by dividing net income by the weighted average number of commonshares outstanding during each period. The calculation of diluted earnings percommon share is similar to that of basic earnings per common share, except thatthe denominator is increased to include the number of additional common sharesthat would have been outstanding if all potentially dilutive common shares ofthe Company and TOC, prior to the acquisition of the remaining minorityinterest in TOC, were issued during the period if any such issuances have adilutive effect.

The computation ofdiluted earnings per share takes into account the effects on the weightedaverage number of common shares outstanding of the assumed exercise of all ofthe outstanding stock options of Outdoor Channel Holdings for the three monthsended March 31, 2005 and 2004 and TOC for the three months ended March 31,2004, adjusted for the application of the treasury stock method. Thecomputation of diluted earnings per share for the three months ended March 31,2004 also takes into account the reduction in net income applicable to commonstock attributable to the minority interest (approximately 17.5% to 33.1%) inthe net income of TOC that results from the assumed exercise of all of TOC’soutstanding stock options. The number of shares potentially issuable by theCompany at March 31, 2005 upon the exercise of stock options that were notincluded in the computation of net earnings per common share because they wereanti-dilutive totaled 25. All of the options of the Company and TOC outstandingas of March 31, 2004 were included in the computation of diluted earnings pershare.

The followingtable summarizes the calculation of net income and the weighted average commonshares outstanding for basic and diluted earnings per share for the threemonths ended March 31, 2005 and 2004:
| ** **                                                                                                                                                         | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                                                                         | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| ** **                                                                                                                                                         | ** ** | **(Restated,**                                       | ** ** | ** ** | ** ** |
| ** **                                                                                                                                                         | ** ** | **Note 9)**                                     | ** ** | ** ** | ** ** |
|                                                                                                                                                               |       |                                                 |       |   |   |
| Numerators:                                                                                                                                                        |       |                                                 |       |   |   |
| Net income - basic                                                                                                                                                 |       | $                                                    | 377        |   | $ | 1,113 |   |
| Deduct increase in minority interest attributable to  assumed exercise of dilutive stock options of The Outdoor Channel                                            |       | —                                               |       | (225 | ) |
|                                                                                                                                                               |       |                                                 |       |   |   |
| Net income -  diluted                                                                                                                                              |       | $                                                    | 377        |   | $ | 888 |   |
|                                                                                                                                                               |       |                                                 |       |   |   |
| Denominators:                                                                                                                                                      |       |                                                 |       |   |   |
| Weighted average common shares outstanding - basic                                                                                                                 |       | 18,474                                               |       | 14,827 |   |
| 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                                                |       | 652 |   |
|                                                                                                                                                               |       |                                                 |       |   |   |
| Diluted weighted  average common shares outstanding                                                                                                                |       | 22,397                                               |       | 15,479 |   |

 

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NOTE4 - PRO FORMA EFFECTS OF STOCK OPTIONS

Statement ofFinancial Accounting Standards No. 123, “Accounting for Stock-BasedCompensation” (“SFAS 123”), provides for the use of a fair value based methodof accounting for employee stock compensation. However, SFAS 123 also allows anentity to continue to measure compensation cost for stock options granted toemployees using the intrinsic value method of accounting prescribed byAccounting Principles Board Opinions No. 25, “Accounting for Stock Issued toEmployees” (“APB 25”), which only requires charges to compensation expense forthe excess, if any, of the fair value of the underlying stock at the date a stockoption is granted (or at an appropriate subsequent measurement date) over theamount the employee must pay to acquire the stock, if such amounts differmaterially. The Company has elected to continue to account for employee stockoptions using the intrinsic value method under APB 25. By making that election,it is required by SFAS 123 and Statement of Financial Accounting Standards No.148, “Accounting for Stock-Based Compensation - Transition and Disclosure” toprovide pro forma disclosures of net income (loss) and earnings (loss) pershare as if a fair value based method of accounting had been applied.

The Company’shistorical net income and earnings per common share and pro forma net income(loss) and earnings (loss) per common share assuming compensation cost had beendetermined for the three months ended March 31, 2005 and 2004 based on the fairvalue at the grant date for all awards by the Company using the Black-Scholesoption pricing model consistent with the provisions of SFAS 123, and amortized ratablyor over the vesting period, are set forth below:
| ** **                                                                                                                             | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                                             | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| ** **                                                                                                                             | ** ** | **(Restated,**                                       | ** ** | ** ** | ** ** |
| ** **                                                                                                                             | ** ** | **Note 9)**                                          | ** ** | ** ** | ** ** |
|                                                                                                                                   |       |                                                 |       |   |   |
| Net income  (loss):                                                                                                                    |       |                                                 |       |   |   |
| As reported                                                                                                                            |       | $                                                    | 377        |   | $ | 1,113 |   |
| Add: stock-based compensation expense included in  net income                                                                          |       | —                                               |       | — |   |
| Deduct: Stock-based employee compensation expense assuming  a fair value based method had been used for all awards, net of tax effects |       | (397                                                 | )          | (456 | ) |
|                                                                                                                                   |       |                                                 |       |   |   |
| Pro forma                                                                                                                              |       | $                                                    | (20        | ) | $ | 657 |   |
|                                                                                                                                   |       |                                                 |       |   |   |
| Basic earnings  (loss) per share:                                                                                                      |       |                                                 |       |   |   |
| As reported                                                                                                                            |       | $                                                    | 0.02       |   | $ | 0.08 |   |
| Pro forma                                                                                                                              |       | $                                                    | 0.00       |   | $ | 0.04 |   |
|                                                                                                                                   |       |                                                 |       |   |   |
| Diluted earnings  (loss) per common share:                                                                                             |       |                                                 |       |   |   |
| As reported                                                                                                                            |       | $                                                    | 0.02       |   | $ | 0.06 |   |
| Pro forma                                                                                                                              |       | $                                                    | 0.00       |   | $ | 0.03 |   |

 

The fair value ofeach option granted by the Company in the three months ended March 31, 2004 (nooptions were granted for the three months ended March 31, 2005) was estimatedon the date of grant using the Black-Scholes option pricing model, assuming noexpected dividends with the following assumptions:
|                              | ** ** | **Three Months Ended** | ** ** |
|------------------------------|------------|----------------------------------|------------|
| ** **                   | ** ** | **March 31, 2004**     | ** ** |
|                         |       |                             |       |
| Risk-free  interest rate     |       | 4                                | %          |
| Expected  dividends          |       | 0                                | %          |
| Expected life of  the option |       | 10 years                         |       |
| Volatility factor            |       | 79                               | %          |

 

As a result of amendments to SFAS 123, the Company will be required tocharge the fair value of employee stock options as of the date of grant toexpense over the vesting period beginning with its fiscal quarter ending March31, 2006.

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NOTE5 - EQUITY TRANSACTIONS

ISSUANCESOF COMMON STOCK BY THE COMPANY

During the threemonths ended March 31, 2005, the Company received cash proceeds ofapproximately $170 from the exercise of options for the purchase of 125 sharesof common stock.

STOCKOPTION PLANS

Descriptions ofOutdoor Channel Holdings’ and TOC’s stock option plans are included in Note 9of the Company’s Annual Report on Form 10-K/A for the year ended December 31,2004. A summary of the status of the options granted under Outdoor ChannelHoldings’ stock option plans and outside of those plans as of March 31, 2005and the changes in options outstanding during the three months then ended ispresented in the table that follows:
| ** **                            | ** ** | **As of March 31, 2005** | ** ** |
|---------------------------------------|------------|----------------------------------------------|------------|
| ** **                            | ** ** | **Shares**                                   | ** ** | **Weighted Average  Exercise Price** | ** ** |
|                                  |       |                                         |       |   |   |
| Outstanding at  beginning of period   |       | 5,630                                        |       | $ | 4.12 |   |
| Options granted                       |       | —                                       |       | — |   |
| Options  exercised                    |       | (125                                         | )          | 1.36 |   |
| Options canceled  or expired          |       | (3                                           | )          | 6.14 |   |
|                                  |       |                                         |       |   |   |
| Options outstanding at  end of period |       | 5,502                                        |       | $ | 4.18 |   |

 

NOTE6 - RELATED PARTY TRANSACTIONS

The Company isleasing its administrative facilities from Musk Ox Properties, LP, which inturn is owned by Messrs. Perry T. Massie and Thomas H. Massie, principalstockholders and officers of the Company. The lease agreements currentlyrequire monthly rent payments aggregating to approximately $21. These leaseagreements expire on December 31, 2005. Rent expense paid to Musk Ox Properties,LP totaled approximately $63 and $61 in the three months ended March 31, 2005and 2004, respectively.

NOTE7 - SEGMENT INFORMATION

Pursuant to the Provisions of Statement of Financial AccountingStandards No. 131, “Disclosures About Segments of an Enterprise and RelatedInformation” (“SFAS 131”), the Company reports segment information in the sameformat as reviewed by the Company’s Chief Operating Decision Maker (the“CODM”). The Company segregates its business activities into TOC and the MembershipDivision.

TOC is a separate business activity that broadcasts televisionprogramming 24 hours a day, seven days a week. TOC generates revenue fromadvertising fees (which include fees paid by outside producers to purchaseadvertising time in connection with the airing of their programs on The OutdoorChannel) and subscriber fees.

Lost Dutchman’s and GPAA membership sales and related activities arereported in the Membership Division. The Membership Division also includesmagazine sales, the sale of products and services related to gold prospecting,gold expositions, expeditions and outings.

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Information with respect to these reportable segments as of and for thethree months ended March 31, 2005 and 2004 follows:
| ** **                                | ** ** | ** **   | ** ** | **Income (Loss)** | ** ** | ** ** | ** ** | ** **       | ** ** | ** **            | ** ** |
|-------------------------------------------|------------|--------------|------------|------------------------|------------|------------|------------|------------------|------------|-----------------------|------------|
| **As of and for the** | ** ** | ** **   | ** ** | **Before Income** | ** ** | ** ** | ** ** | ** **       | ** ** | **Additions to** | ** ** |
| **Three Months Ended**          | ** ** | ** **   | ** ** | **Taxes and**     | ** ** | ** ** | ** ** | **Depreciation** | ** ** | **Property,**         | ** ** |
| **March 31, 2005**              | ** ** | ** **   | ** ** | **Minority**           | ** ** | **Total**  | ** ** | **and**          | ** ** | **Plant and**    | ** ** |
| **(Restated, Note 9)**          | ** ** | **Revenues** | ** ** | **Interest**           | ** ** | **Assets** | ** ** | **Amortization** | ** ** | **Improvements**      | ** ** |
|                                      |       |         |       |                   |       |       |       |             |       |                  |       |
| TOC                                       |       | $            | 8,757      |                   | $          | 1,012      |       | $                | 78,238     |                  | $          | 621 |   | $ | 1,511 |   |
| Membership Division                       |       | 1,304        |       | 59                     |       | 4,979      |       | 78               |       | 157                   |       |
|                                      |       |         |       |                   |       |       |       |             |       |                  |       |
| Subtotal of Segments                      |       | 10,061       |       | 1,071                  |       | 83,217     |       | 699              |       | 1,668                 |       |
| Corporate*                                |       | —       |       | (416                   | )          | 16,904     |       | —           |       | —                |       |
|                                      |       |         |       |                   |       |       |       |             |       |                  |       |
| Totals                                    |       | $            | 10,061     |                   | $          | 655        |       | $                | 100,121    |                  | $          | 699 |   | $ | 1,668 |   |

 
| **March 31,  2004**  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
|                 |       |       |       |       |       |       |       |       |       |       |       |
| TOC                  |       | $          | 7,879      |       | $          | 2,406      |       | $          | 15,756     |       | $          | 213 |   | $ | 311 |   |
| Membership Division  |       | 1,326      |       | 148        |       | 6,071      |       | 86         |       | 119        |       |
|                 |       |       |       |       |       |       |       |       |       |       |       |
| Subtotal of Segments |       | 9,205      |       | 2,554      |       | 21,827     |       | 299        |       | 430        |       |
| Corporate*           |       | —     |       | (250       | )          | —     |       | —     |       | —     |       |
|                 |       |       |       |       |       |       |       |       |       |       |       |
| Totals               |       | $          | 9,205      |       | $          | 2,304      |       | $          | 21,827     |       | $          | 299 |   | $ | 430 |   |

 

Intersegment salesamounted to approximately $149 in both of the three months ended March 31, 2005and 2004.

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*The Companycaptures corporate overhead that is applicable to both segments, but notdirectly related to operations in a separate business unit, as “Corporate.” Theexpenses allocated to corporate consisted primarily of: professional feesincluding public relations, accounting and legal fees, taxes associated withbeing incorporated in Delaware, board fees, and other corporate fees notassociated with either TOC or the Membership Division. Corporate assets consistprimarily of cash not held in our operating accounts, available-for-salesecurities deferred tax assets, net and income tax refund receivable. In priorperiods, essentially all of the amortizable intangible assets and goodwill wereclassified as Corporate. These amounts relate to, and have been reclassified aspart of, the TOC segment.

NOTE8 - SUBSEQUENT EVENTS

On April 25, 2005,the Compensation Committee awarded an officer of the Company three options tobuy 100,000 shares of our common stock, each with an exercise price of $14.50per share. The expiration dates and vesting periods for the grants aresummarized below:

| Shares Granted | ** ** | **Expiration Date** | ** ** | **Vesting**                                         | ** ** |
|---------------------|------------|--------------------------|------------|-----------------------------------------------------|------------|
|                |       |                     |       |                                                |       |
| 100,000             |       | April  25, 2011          |       | 20% on April 25, 2006  and 20% per annum thereafter |       |
| 100,000             |       | April  25, 2012          |       | 20% on April 25, 2007  and 20% per annum thereafter |       |
| 100,000             |       | April  25, 2013          |       | 20% on April 25, 2008  and 20% per annum thereafter |       |
|                |       |                     |       |                                                |       |
| 300,000             |       |                     |       |                                                |       |

 

Effective April 21, 2005, the Company adopted an Executive Annual CashBonus Plan (the “Bonus Plan”). The Bonus Plan is designed to increasestockholder Value through effective use of cash awards. The Bonus Plan servesas a vehicle for retaining executives of the Company and sustaining exceptionalperformance, and is an important component of the Company’s overall competitivecompensation package. The participants in this Bonus Plan shall be those seniorexecutive officers of the Company who have been designated as participants withrespect to each fiscal year of the Company by the Compensation Committee of theCompany’s Board of Directors in its sole and absolute discretion. The BonusPlan shall reward the eligible participants for performance against yearlyperformance objectives, as well as against the Company’s performance. The amountof any bonus payable under the Bonus Plan, and the timing of such bonuspayment, shall be as determined by the Compensation Committee in its sole andabsolute discretion.

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NOTE9 – RESTATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

This Form 10-Q/Aamends our previously filed Form 10-Q for the quarter ended March 31, 2005, asamended on May 16, 2005, to reflect adjustments to the unaudited condensedconsolidated financial statements as of March 31, 2005 and December 31, 2004and for the three months ended March 31, 2005 arising from the effects of areclassification of all of the amounts originally allocated to the cost ofmulti-system cable operator (“MSO”) relationships from other non-amortizableintangible assets to amortizable intangible assets and the determination theyhave an estimated useful life of 21 years and 4 months. Although the revisedestimate of the useful life of these assets resulted in adjustments to and therestatement of our condensed consolidated balance sheet included in this form10-Q/A as of December 31, 2004 (the adjustments did not affect the financialstatements for the three months ended March 31, 2004) we determined that theeffects 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. In addition, certain amounts included under “expenses” in the 2005 and2004 unaudited condensed consolidated statements of operations we originallyissued have been reclassified in line items under either “cost of services” or“other expenses” and certain intangible assets and the related amortizationexpense have been reclassified from “Corporate” to the “TOC” segment asexplained in Note 1. The adjustments to the 2005 and 2004 unaudited condensedconsolidated financial statements are a result of a correction of theaccounting treatment for the portion of the excess of the cost of the minorityinterest over the fair value of the underlying interest in the net identifiableassets acquired related to the acquisition of the remaining minority interestin 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. The accompanyingunaudited condensed consolidated financial statements and the related notes theretohave been restated in comparison to those in our previously filed Form 10-Q/Afor the quarter ended March 31, 2005, as amended on May 16, 2005, to reflectthe effects of those adjustments as explained below:

THE EFFECTS ON THE CONDENSEDCONSOLIDATED BALANCE SHEETS

As a result of therestatement, our unaudited condensed consolidated balance sheet as of March 31,2005 changed as follows:
|                                          | ** ** | **As  Previously  Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|------------------------------------------|------------|------------------------------|------------|----------------------|------------|------------|------------|
|                                     |       |                         |       |                 |       |       |       |
| Amortizable  intangible assets, net      |       | $                            | 1,799      |                 | $          | 12,083     |       | $ | 10,284 |   |
|                                     |       |                         |       |                 |       |       |       |
| Other  non-amortizable intangible assets |       | 10,573                       |       | —               |       | (10,573    | )          |
| Deferred tax  assets, net                |       | 14,709                       |       | 14,823               |       | 114        |       |
| Total assets                             |       | 100,296                      |       | 100,121              |       | (175       | )          |
| Accumulated  deficit                     |       | (17,005                      | )          | (17,180              | )          | (175       | )          |
| Total stockholders’  equity         |       | 94,760                       |       | 94,585               |       | (175       | )          |
|                                          |            |                              |            |                      |            |            |            |  |  |  |

 

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

 

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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, 2005 changed as follows:
|                                                          | ** ** | **As Previously  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 and minority interest |       | 779                              |       | 655                  |       | (124       | )          |
| Income tax provision  (benefit)                          |       | 327                              |       | 278                  |       | (49        | )          |
| Income (loss) before  minority interest                  |       | 452                              |       | 377                  |       | (75        | )          |
| Net income (loss)                                        |       | 452                              |       | 377                  |       | (75        | )          |
| Earnings (loss) per  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, 2005 wasincreased by $100 to $17,557 from $17,457 and the balance as of March 31, 2005was increased by $175 to $17,180 from $17,005.

THEEFFECTS ON THE UNAUDITED 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, 2005 changed as follows:
| ** **                                     | ** ** | **As Previously   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                         |       | —                                 |       | (49                  | )          | (49        | )          |
|                                                |            |                                        |            |                      |            |            |            |  |  |  |

** **

THEEFFECTS ON NOTE 3 - EARNINGS PER SHARE

As a result of therestatement, net income - basic for the three months ended March 31, 2005 wasdecreased by $75 to $377 from $452.

THEEFFECTS ON NOTE 4 - PRO FORMA EFFECTS OF STOCK OPTIONS

The effects of therestatements on the historical and pro forma information in Note 4 are setforth below:
|                                                | ** ** | **As Previously  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 (loss) per share   |       |                             |       |                 |       |       |       |
| As reported                                    |       | $                                | 0.02       |                 | $          | 0.02       |       | — |   |
| Pro forma                                      |       | $                                | 0.00       |                 | $          | (0.00      | )          | — |   |
|                                                |            |                                  |            |                      |            |            |            |  |  |  |

 

14

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THEEFFECTS ON NOTE 7 - SEGMENT INFORMATION

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 inthese balances were as follows:
|                                                                 | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to   Property,   Plant and   Improvements** | ** ** |
|-----------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **Change  as of and for the Three Months Ended March 31, 2005** |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                             |       | $            | —     |                                              | $          | (124              | )          | $                                   | (289       | )                                                                                | $          | 124 |   | $ | — |   |
| Membership Division                                             |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of Segments                                           |       | —       |       | (124                                              | )          | (289              | )          | 124                                 |       | —                                                                           |       |
| Corporate                                                       |       | —       |       | —                                            |       | 114               |       | —                              |       | —                                                                           |       |
| Totals                                                          |       | $            | —     |                                              | $          | (124              | )          | $                                   | (175       | )                                                                                | $          | 124 |   | $ | — |   |

 

* * *

15

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ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS.

SAFEHARBOR STATEMENT

The informationcontained in this report may include forward-looking statements. The Company’sactual 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 of Section27A of the Securities Act of 1933, as amended (the “Securities Act”), andSection 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) expected revenue and earnings growth and changes in mix; (2)anticipated expenses including advertising, programming, personnel and others;(3) Nielsen Media Research, which we refer to as Nielsen, estimates regardingtotal households and cable and satellite homes subscribing to and viewers(ratings) of The Outdoor Channel; and (4) other matters. We undertake no obligationto publicly update or revise any forward-looking statements, whether as aresult of 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 discussed below under the caption“Risks and Uncertainties” and other risks and uncertainties discussed elsewherein this report. In assessing forward-looking statements contained herein,readers are urged to read carefully all cautionary statements contained in thisForm 10-Q/A and in our other filings with the Securities and Exchange Commission.For these forward-looking statements, we claim the protection of the safeharbor for forward-looking statements in Section 27A of the Securities Act andSection 21E of the Exchange Act.

EFFECTSOF RESTATEMENT

ThisForm 10-Q/A amends our previously filed Form 10-Q for the quarter ended March31, 2005, as amended on May 16, 2005, to reflect adjustments to the unauditedcondensed consolidated financial statements as of March 31, 2005 and December31, 2004 and for the three months ended March 31, 2005 arising from the effectsof a reclassification of all of the amounts originally allocated to the cost ofMSO relationships from other non-amortizable intangible assets to amortizableintangible assets and the determination that they have an estimated useful lifeof 21 years and 4 months. In addition, certain amounts included under“expenses” in the 2005 and 2004 unaudited condensed consolidated financialstatements we originally issued have been reclassified to either “cost ofservices” or “other expenses” to provide additional detail about our operatingresults and more fully comply with the Securities and Exchange Commission’sRegulation S-X. Cost of services includes programming, satellite transmissionfees, production and operations and other direct costs. Other expenses includeadvertising, selling, general and administrative and depreciation andamortization. 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 changeshave been made in the historical condensed consolidated financial statements toconform with current presentations. The adjustments to the 2005 and 2004unaudited 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 theremaining minority interest in The Outdoor Channel, Inc. (“TOC”) that we didnot previously 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. Althoughthe revised estimate of the useful life of these assets resulted in adjustmentsto and the restatement of our condensed consolidated balance sheet included inthis Form 10-Q/A as of December 31, 2004, (the adjustments did not affect thefinancial statements for the three months ended March 31, 2004), we determinedthat the 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. The accompanying unaudited condensed consolidated financial statementsand the related notes have been restated to reflect the effects of theadjustments arising from the reassessment of the estimated useful life of theMSO relationships as explained in Note 9 and below:

As a result of the determination of theestimated useful life of MSO relationships discussed above we have restated thefollowing Items and sections of the Form 10-Q/A for the three months endedMarch 31, 2005 as amended on May 16, 2005:

16

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| Item 1. Financial Statements and  Supplementary Data:                       |
|-----------------------------------------------------------------------------|
|                                                                        |
| Restated  Condensed Consolidated Balance Sheets as of March 31, 2005        |
| (Unaudited) and  December 31, 2004;                                         |
| Unaudited  Condensed Consolidated Statements of Operations for the          |
| three months  ended March 31, 2005 (Restated) and 2004;                     |
| Restated  Unaudited Condensed Consolidated Statements of Stockholders’ |
| Equity for the  three months ended March 31, 2005;                          |
| Unaudited  Condensed Consolidated Statements of Cash Flows for the          |
| three months  ended March 31, 2005 (Restated) and 2004;                     |
| Note 3 to  Unaudited Condensed Consolidated Financial Statements;           |
| Earnings Per  Share;                                                        |
| Note 4 to  Unaudited Condensed Consolidated Financial Statements; Pro       |
| Forma Effects of  Stock Options;                                            |
| Note 7 to Unaudited  Condensed Consolidated Financial Statements;           |
| Segment  Information; and                                                   |
| Note 9 to  Unaudited Condensed Consolidated Financial Statements;           |
| Restatements of  Unaudited Condensed Consolidated Financial                 |
| Statements.                                                                 |

 

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

Exceptfor the related corrections to Notes 3, 4, and 7 to the unaudited condensedconsolidated financial statements, and certain other immaterial corrections,the remaining Items required by Form 10-Q are not amended hereby, but areincluded herewith for ease of the reader. Except as expressly noted herein,this report continues to speak as of the date of the original filing, and wehave not updated the disclosures in this report to speak as of a later date.

Exceptas otherwise expressly noted herein, this Form 10-Q/A does not reflect eventsoccurring after the May 16, 2005 filing of our Quarterly Report on Form 10-Q/Ain any way, except those required to reflect the effects of this restatement ofour unaudited condensed consolidated financial statements for the periodspresented or as deemed necessary in connection with the completion of restatedfinancial statements.

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

THE EFFECTS ON THE CONDENSED CONSOLIDATED BALANCESHEETS

As a result of therestatement, our unaudited condensed consolidated balance sheet as of March 31,2005 changed as follows:
|                                         | ** ** | **As  Previously**

**Reported** | ** ** | **As Restated** | ** ** | **Change** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|
|                                    |       |                             |       |                 |       |       |       |
| Amortizable intangible assets, net      |       | $                                | 1,799      |                 | $          | 12,083     |       | $ | 10,284 |   |
|                                    |       |                             |       |                 |       |       |       |
| Other non-amortizable intangible assets |       | 10,573                           |       | —               |       | (10,573    | )          |
| Deferred tax assets, net                |       | 14,709                           |       | 14,823               |       | 114        |       |
| Total assets                            |       | 100,296                          |       | 100,121              |       | (175       | )          |
| Accumulated deficit                     |       | (17,005                          | )          | (17,180              | )          | (175       | )          |
| Total  stockholders’ equity        |       | 94,760                           |       | 94,585               |       | (175       | )          |
|                                         |            |                                  |            |                      |            |            |            |  |  |  |

 

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

 

17

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THEEFFECTS ON THE UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

As a result of therestatement, the unaudited condensed consolidated statements of operations forthree months ended March 31, 2005 changed as follows:

|                                                          | ** ** | **As  Previously   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 and minority interest |       | 779                                |       | 655                  |       | (124       | )          |
| Income tax provision  (benefit)                          |       | 327                                |       | 278                  |       | (49        | )          |
| Income (loss) before  minority interest                  |       | 452                                |       | 377                  |       | (75        | )          |
| Net income (loss)                                        |       | 452                                |       | 377                  |       | (75        | )          |
| Earnings (loss) per  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, 2005 wasincreased by $100 to $17,557 from $17,457 and the balance as of March 31, 2005was increased by $175 to $17,180 from $17,005.

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, 2005 changed as follows:
|                                                | ** ** | **As  Previously  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                         |       | —                       |       | (49                  | )          | (49        | )          |
|                                                |            |                              |            |                      |            |            |            |  |  |  |

 

THEEFFECTS ON NOTE 3 - EARNINGS PER SHARE

As a result of therestatement, net income basic for the three months ended March 31, 2005 wasdecreased by $75 to $377 from $452.

THE EFFECTS ON NOTE 4 -PRO FORMA EFFECTS OF STOCK OPTIONS

The effects of therestatements on the historical and pro forma information in Note 4 are setforth below:

|                                                | ** ** | **As  Previously  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 (loss) per share   |       |                         |       |                 |       |       |       |
| As reported                                    |       | $                            | 0.02       |                 | $          | 0.02       |       | — |   |
| Pro forma                                      |       | $                            | 0.00       |                 | $          | (0.00      | )          | — |   |
|                                                |            |                              |            |                      |            |            |            |  |  |  |

 

THEEFFECTS ON NOTE 7 - SEGMENT INFORMATION

As a result of therestatement, segment information for the three months ended March 31, 2005changed as follows:

18

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| ** **                                                                    | ** ** | **Revenues** | ** ** | **Income (Loss)   Before Income   Taxes** | ** ** | **Total   Assets** | ** ** | **Depreciation   and   Amortization** | ** ** | **Additions to   Property,   Plant and   Improvements** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **As of and for the 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 these balances were as follows:
|                                                                 | ** ** | **Revenues** | ** ** | **Income (Loss)  Before Income  Taxes** | ** ** | **Total  Assets** | ** ** | **Depreciation  and  Amortization** | ** ** | **Additions to   Property,   Plant and   Improvements** | ** ** |
|-----------------------------------------------------------------|------------|--------------|------------|---------------------------------------------------|------------|-------------------|------------|-------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| **Change  as of and for the Three Months Ended March 31, 2005** |       |         |       |                                              |       |              |       |                                |       |                                                                             |       |
| TOC                                                             |       | $            | —     |                                              | $          | (124              | )          | $                                   | (289       | )                                                                                | $          | 124 |   | $ | — |   |
| Membership Division                                             |       | —       |       | —                                            |       | —            |       | —                              |       | —                                                                           |       |
| Subtotals of Segments                                           |       | —       |       | (124                                              | )          | (289              | )          | 124                                 |       | —                                                                           |       |
| Corporate                                                       |       | —       |       | —                                            |       | 114               |       | —                              |       | —                                                                           |       |
| Totals                                                          |       | $            | —     |                                              | $          | (124              | )          | $                                   | (175       | )                                                                                | $          | 124 |   | $ | — |   |

 

* * *

19

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GENERAL

Outdoor ChannelHoldings, Inc. (which we refer to as “Outdoor Channel Holdings” or collectivelywith its subsidiaries, the “Company”), through its indirect wholly-ownedsubsidiary The Outdoor Channel, Inc. (“TOC”), owns and operates The OutdoorChannel which is a national television network devoted primarily to traditionaloutdoor activities, such as hunting, fishing and shooting sports, as well asoff road motor sports and other related life style programming. The Companyalso owns and operates related businesses which serve the interests of TheOutdoor Channel’s viewers and other outdoor enthusiasts. These relatedbusinesses include: LDMA-AU, Inc. (“Lost Dutchman’s”) and Gold Prospector’sAssociation of America, LLC. (“GPAA”). Lost Dutchman’s is a national goldprospecting campground club with approximately 6,700 members and properties inArizona, California, Colorado, Georgia, Michigan, North Carolina, Oregon andSouth Carolina. We believe GPAA is one of the largest gold prospecting clubs inthe world with approximately 32,800 active members. GPAA is the publisher ofthe “Gold Prospectors & Treasure Hunters in the Great Outdoors” magazineand owner of a 2,300 acre property near Nome, Alaska used to provide an annualexpedition for a fee to its members.

The Company’srevenues include (1) advertising fees from advertisements aired on The OutdoorChannel and from advertisements in “Gold Prospectors & Treasure Hunters inthe Great Outdoors” magazine; (2) subscriber fees paid by cable and satelliteservice providers that air The Outdoor Channel; and (3) membership fees frommembers in both Lost Dutchman’s and GPAA and other income including magazinesales, products and services related to gold prospecting, gold expositions,expeditions and outings. Advertising fees include fees paid by third-partyprogrammers to purchase advertising time in connection with the airing of theirprograms on The Outdoor Channel.

RECENTACCOUNTING DEVELOPMENTS

In December 2004, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards No. 123 (R) (“SFAS 123 (R)”).“Share-Based Payment” which establishes standards for the accounting fortransactions in which an entity exchanges its equity instruments for goods orservices and focuses primarily on accounting for transactions in which anentity obtains employee services in share-based payment transactions. SFAS 123(R) requires that the fair value of such equity instruments, including alloptions granted to employees, be recognized as expense in the historicalfinancial statements as services are performed. Prior to SFAS 123 (R), onlycertain pro forma disclosures of fair value were required. SFAS 123 (R) shallbe effective for issuers as of the beginning of the first annual reportingperiod that begins after December 15, 2005. The Company intends to adopt thestandards of SFAS No. 123 (R) effective January 1, 2006. Since the Company hasused the intrinsic value method to account for stock options, the adoption ofSFAS 123 (R) is expected to have a material impact on the financial statementsof Outdoor Channel Holdings, Inc.

The FASB had issued certainother accounting pronouncements as of March 31, 2005 that will become effectivein subsequent periods; however, management of the Company does not believe thatany of those pronouncements would have significantly affected the Company’sfinancial accounting measurements or disclosures had they been in effect duringthe three months ended March 31, 2005.

20

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COMPARISONOF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND MARCH 31,2004

The followingtable discloses certain financial information for the periods presented,expressed in terms of dollars, dollar change, percentage change and as apercent of total revenue (all dollar amounts are in thousands):
| ** **                                                  | ** ** | ** **     | ** ** | ** ** | ** ** | **Change**     | ** ** | **% of Total Revenue** | ** ** |
|-------------------------------------------------------------|------------|----------------|------------|------------|------------|----------------|------------|---------------------------------------|------------|
| ** **                                                  | ** ** | **2005**       | ** ** | **2004**   | ** ** | **$**          | ** ** | **%**                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                  | ** ** | **(Restated)** | ** ** | ** ** | ** ** | **(Restated)** | ** ** | **(Restated)**                        | ** ** | ** ** | ** ** |
|                                                        |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Revenues:                                                   |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Advertising                                                 |       | $              | 5,259      |       | $          | 4,812          |       | $                                     | 447        |   | 9.3 | % | 52.3 | % | 52.3 | % |
| Subscriber fees                                             |       | 3,642          |       | 3,161      |       | 481            |       | 15.2                                  |       | 36.2 |   | 34.3 |   |
| Membership income                                           |       | 1,160          |       | 1,232      |       | (72            | )          | (5.8                                  | )          | 11.5 |   | 13.4 |   |
| Total revenues                                              |       | 10,061         |       | 9,205      |       | 856            |       | 9.3                                   |       | 100.0 |   | 100.0 |   |
|                                                        |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Cost of  services:                                          |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Programming                                                 |       | 521            |       | 395        |       | 126            |       | 31.9                                  |       | 5.2 |   | 4.3 |   |
| Satellite transmission fees                                 |       | 633            |       | 591        |       | 42             |       | 7.1                                   |       | 6.3 |   | 6.4 |   |
| Production and operations                                   |       | 993            |       | 698        |       | 295            |       | 42.3                                  |       | 9.8 |   | 7.6 |   |
| Other direct costs                                          |       | 219            |       | 246        |       | (27            | )          | (11.0                                 | )          | 2.2 |   | 2.7 |   |
| Total cost of services                                      |       | 2,366          |       | 1,930      |       | 436            |       | 22.6                                  |       | 23.5 |   | 21.0 |   |
|                                                        |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Other expenses:                                             |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Advertising                                                 |       | 1,694          |       | 1,314      |       | 380            |       | 28.9                                  |       | 16.8 |   | 14.3 |   |
| Selling, general and administrative                         |       | 4,698          |       | 3,387      |       | 1,311          |       | 38.7                                  |       | 46.7 |   | 36.8 |   |
| Depreciation and amortization                               |       | 699            |       | 299        |       | 400            |       | 133.8                                 |       | 7.0 |   | 3.2 |   |
| Total other expenses                                        |       | 7,091          |       | 5,000      |       | 2,091          |       | 41.8                                  |       | 70.5 |   | 54.3 |   |
|                                                        |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Income from  operations                                     |       | 604            |       | 2,275      |       | (1,671         | )          | (73.5                                 | )          | 6.0 |   | 24.7 |   |
|                                                        |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Other income,  net                                          |       | 51             |       | 29         |       | 22             |       | 75.9                                  |       | 0.5 |   | 0.3 |   |
| Income before  income taxes and minority interest           |       | 655            |       | 2,304      |       | (1,649         | )          | (71.6                                 | )          | 6.5 |   | 25.0 |   |
|                                                        |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Income tax  provision                                       |       | 278            |       | 929        |       | (651           | )          | (70.1                                 | )          | 2.7 |   | 10.1 |   |
| Income before  minority interest                            |       | 377            |       | 1,375      |       | (998           | )          | (72.6                                 | )          | 3.8 |   | 14.9 |   |
|                                                        |       |           |       |       |       |           |       |                                  |       |   |   |   |   |
| Minority  interest in net income of consolidated subsidiary |       | —         |       | 262        |       | (262           | )          | (100.0                                | )          | — |   | 2.8 |   |
| Net income                                                  |       | $              | 377        |       | $          | 1,113          |       | $                                     | (736       | ) | (66.1 | )% | 3.8 | % | 12.1 | % |

 

REVENUES

Our revenues include revenues from (1) advertising fees; (2) subscriberfees; and (3) membership income. Advertising revenue is generated from the saleof advertising time on The Outdoor Channel and from the sale of advertisingspace in publications such as the “Gold Prospectors & Treasure Hunters inthe Great Outdoors” magazine. For the three months ended March 31, 2005 and2004, The Outdoor Channel generated approximately 97.3% and 98.1% of ouradvertising revenue, respectively. Subscriber fees are solely related to TheOutdoor Channel. Membership income is generated by our activities other thanthe operation of The Outdoor Channel and includes membership sales, magazinesales, merchandise sales, and sponsored outings and expeditions in connectionwith GPAA and Lost Dutchman’s.

Total revenues for the three months ended March 31, 2005 were$10,061,000, an increase of $856,000, or 9.3%, compared to revenues of$9,205,000 for the three months ended March 31, 2004. This net increase was theresult of changes in several items comprising revenue as discussed below.

Advertising revenue for thethree months ended March 31, 2005 was $5,259,000, an increase of $447,000 or9.3% compared to $4,812,000 for the three months ended March 31, 2004. Theincrease was due, in part, to our improved ability to demonstrate the value ofadvertising on The Outdoor Channel to national advertisers and thus sell alarger percentage of our advertising inventory to these accounts, generally at higherprices. Nielsen reported that we had approximately 24.4 million subscribers atthe end of March 2005 compared

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to26.0 million at the end of March 2004 a decrease of 1.6 million subscribers or6.2%. (Nielsen revises this estimate each month and as of May 2005, Nielsenreported that we had approximately 24.3 million subscribers). Despite thedecline in Nielsen’s universe estimate, having Nielsen ratings and demographicdata enabled us to better utilize our inventory of available advertising timeand increase our effective rates realized on our advertising time on TheOutdoor Channel.

Subscriber feesfor the three months ended March 31, 2005 were $3,642,000, an increase of$481,000 or 15.2% compared to $3,161,000 for the three months ended March 31,2004. The increase in subscriber fees for the period was primarily due to: anincreased number of paying subscribers; both from new affiliates and fromexisting distributors such as National Cable Television Cooperative (“NCTC”),DIRECTV, Comcast, DISH Network and Charter and contractual subscriber fee rateincreases with existing service providers carrying The Outdoor Channel.

Membership incomefor the three months ended March 31, 2005 was $1,160,000, a decrease of $72,000or 5.8% compared to $1,232,000 for the three months ended March 31, 2005. Thedecline is principally a reduction in our GPAA renewal rate in the firstquarter of 2005 compared to the first quarter of 2004.

COST OF SERVICES

Our cost of services consists primarily of the cost of providing our broadcastsignal and programming to the distributors for transmission to the consumer andcosts associated with the production and delivery of our magazine andmerchandise sales. Cost of services includes (1) programming costs; (2)satellite transmission fees; (3) production and operations costs; and (4) otherdirect costs. Total cost of services for the three months ended March 31, 2005was $2,366,000, an increase of $436,000 or 22.6%, compared to $1,930,000 forthe three months ended March 31, 2004. As a percentage of revenues, total costof services was 23.5% and 21.0% in the three months ended March 31, 2005 and2004, respectively. We expect cost of services to continue to increase in thefuture as we expand our existing markets and in-house production to support ouradvertising strategy.

Programming expenses for the three months ended March 31, 2005 were$521,000, an increase of $126,000 or 31.9% compared to $395,000 for the threemonths ended March 31, 2004. The increase in programming expenses is principallyattributable to producing more of our programming in-house in support of bothof our networks, The Outdoor Channel and Outdoor Channel 2 HD. Programmingexpenses are expected to increase as a percentage of revenue as we pursue ourstrategy to produce more programming in-house as opposed to contracting withthird party producers. As a result, we believe we will control more of ourprograms’ quality, advertising inventory and potential to re-package ourprogramming for other use such as international licensing and production ofDVDs for retail distribution.

Our policy is to charge costs of specific show production to programmingexpense over the expected airing period beginning when the program first airs.The cost of programming is generally first recorded as prepaid programmingcosts and is then charged to programming expense based on the anticipatedairing schedule. The anticipated airing schedule is typically over 2 or 4quarters that generally does not extend more than 2 years. As the anticipatedairing schedule changes, the timing and amount of the charge to expense isprospectively adjusted accordingly. At the time we determine a program isunlikely to air or re-air, we charge programming expense with the remainingassociated cost recorded in prepaid programming.

Satellite transmission fees for the three months ended March 31, 2005were $633,000, an increase of $42,000, or 7.1%, compared to $591,000 for thethree months ended March 31, 2004. This increase reflects an additional chargefor the back-up satellite capability negotiated with our satellite providerduring the fourth quarter of 2004. We are scheduled for a price increase insatellite transmission fees starting October 2005 amounting to $5,000 permonth. However, we currently have plans to build our own broadcast facilityduring 2005 that we anticipate should be operational before the October 2005scheduled increase which broadcast facility is expected to result in anapproximate savings of $12,000 per month.

Production and operationscosts for the three months ended March 31, 2005 were $993,000, an increase of$295,000, or 42.3%, compared to $698,000 for the three months ended March 31,2004. The increase in costs principally relates to increased personnel tosupport our growing infrastructure as we produce more shows in-house and tosupport our new broadcast facility. Small equipment purchases have alsoincreased as a result of pre-launch activity of Outdoor Channel 2 HD.

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Other direct costs for the three months ended March 31, 2005 were $219,000,a decrease of $27,000, or 11.0%, compared to $246,000 for the three monthsended March 31, 2004 primarily due to timing of expenses related to membershipoutings and magazine production expenses.

OTHER EXPENSES

Other expensesconsist of the cost of (1) advertising; (2) selling, general and administrativeexpenses; and (3) depreciation and amortization. 

Total otherexpenses for the three months ended March 31, 2005 were $7,091,000, an increaseof $2,091,000, or 41.8%, compared to $5,000,000 for the three months endedMarch 31, 2004. As a percentage of revenues, total other expenses were 70.5%and 54.3% in the three months ended March 31, 2005 and 2004, respectively. Theincrease in other expenses was due to several factors, but is principallyattributable to increasing personnel costs, costs associated with the launch ofour second channel, Outdoor Channel 2 HD, marketing and promotion costsincurred to support the growth of the number of subscribers of The OutdoorChannel, and other items more fully described as follows.

Advertisingexpenses for the three months ended March 31, 2005 were $1,694,000, an increaseof $380,000 or 28.9% compared to $1,314,000 for the three months ended March31, 2004. The increase in advertising expenses is principally a result of ourincreased spending on consumer and trade industry awareness campaigns designedto build demand for The Outdoor Channel and for Outdoor Channel 2 HD.Advertising expenses will fluctuate as a percentage of Total revenues quarterto quarter but we expect the year-end rate as a percentage of total revenues tobe similar to that of the prior-year.

Selling, generaland administrative expenses for the three months ended March 31, 2005 were$4,698,000, an increase of $1,311,000 or 38.7% compared to $3,387,000 for thethree months ended March 31, 2004. As a percent of revenues, selling, generaland administrative expenses were 46.7% and 36.8% at March 31, 2005 and 2004,respectively. The increase was primarily due to the increase in the number ofemployees from 123 at the end of March 2004 to 151 by the end of March 2005 andtravel costs associated with our larger advertising sales staff, support of ourservice providers and the promotion of The Outdoor Channel and Outdoor Channel2 HD through a stronger presence at trade shows, conferences and seminars.Contributing to these increased costs was the opening of our New York Cityadvertising sales office.

Depreciation andamortization expense for the three months ended March 31, 2005 was $699,000, anincrease of $400,000 or 133.8% compared to $299,000 for the three months endedMarch 31, 2004. The increase in depreciation amortization expense is primarilyrelated to the amortization of intangible assets recorded in connection withthe acquisition of the minority interest in The Outdoor Channel that we did notpreviously own.  Such amortizationexpense aggregated to $260,000 for the three months ended March 31, 2005.  This change did not exist during the threemonths ended March 31, 2004. Also, equipment purchased to support OutdoorChannel 2 HD has contributed to the increase of depreciation and amortizationexpense.

INCOME FROM OPERATIONS

Income fromoperations for the three months ended March 31, 2005 was $604,000, a decreaseof $1,671,000 or 73.5% compared to $2,275,000 for the three months ended March31, 2004. As a percent of revenues, income from operations was 6.0% and 24.7%at March 31, 2005 and 2004, respectively. As we continue to strive to drivegrowth of our subscriber base as we launch of Outdoor Channel 2 HD, we willincur increased expenses and start-up and operating costs in 2005 that areunlikely to be immediately offset by revenues which we anticipate willnegatively impacting our operating margins in the foreseeable future. There canbe no assurance that these strategies will be successful.

OTHER INCOME, NET

Other income, netfor the three months ended March 31, 2005 was $51,000, an increase of $22,000or 75.9% compared to $29,000 for the three months ended March 31, 2004. Thisimprovement was primarily due to increased dividend and interest earned on ourincreased investment in available-for-sale securities and cash balances.

INCOME BEFORE INCOME TAXES AND MINORITY INTEREST IN NET INCOME OFCONSOLIDATED SUBSIDIARY

Income beforeincome taxes and minority interest decreased as a percentage of revenues to6.5% for the three months ended March 31, 2005 compared to 25.0% for the threemonths ended March 31, 2004.

The TOC segment’s income before income taxes and minority interestexpressed as a percentage of revenue decreased to 11.7% for the three months

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endedMarch 31, 2005, compared to 30.5% for the three months ended March 31, 2004.The decrease was due mainly to the growth of our advertising and programmingexpenses and increases in personnel expenses resulting from the increase in theaverage number of TOC employees in the three months ended March 31, 2005compared to the three months ended March 31, 2004. Also contributing to thedecreased profitability is amortization of the intangible assets related to theacquisition of the minority interest of TOC. As noted, we have increased ourspending levels on programming in support of The Outdoor Channel as we bring alarger portion of our programming in-house and we have incurred costsassociated with pre-launch activity of our second channel, Outdoor Channel 2HD. We are also spending at higher levels in pursuit of growing the subscriberbase of The Outdoor Channel.

The MembershipDivision segment’s income before income taxes and minority interest expressedas a percentage of revenues decreased to 4.5% for the three months ended March31, 2005 compared to 11.2% for the three months ended March 31, 2004. Thisdecrease principally reflects the combined effects of the decline in revenue ofthe Membership Division of approximately $22,000 and the increase in expensesof $89,000. We held 5 gold shows in the first quarter of this year compared to4 last year which increased our overall expense. We did not realize as muchrevenue per show as last year as we held shows in areas we have not been to orhave not been to for a while. Often it takes a year or two for shows held innew areas to gain momentum. Our Denver show was highlighted by heavy snow fallwhich kept attendance down.

Corporate incurreda loss before income taxes and minority interest for the three months endedMarch 31, 2005 amounting to $416,000, an increase of $166,000 or 66.4% comparedto $250,000 for the three months ended March 31, 2004. The expenses allocatedto corporate include: professional fees including public relations, accountingand legal fees, business insurance, board of directors fees and expenses and anallocation of corporate officers’ payroll and related expenses. The increase inthe expenses of corporate is principally related to accounting servicesincurred in positioning the Company to be in compliance with the requirementsof the Sarbanes-Oxley Act of 2002 and taxes associated with being incorporatedin Delaware. Increased board fees also contribute to the increase of expensesreflecting the increase in the number of independent board members from two inthe first quarter of 2004 to five in the first quarter of 2005.

INCOME TAX PROVISION

Income taxprovision for the three months ended March 31, 2005 was $278,000, a decrease of$651,000 or 70.1% as compared to $929,000 for the three months ended March 31,2004. The decrease was principally due to the Company earning less taxableincome in the first three months of 2005 as compared to the first three monthsof 2004. The effective income tax rate was approximately 42.4% and 40.3% forthe three months ended March 31, 2005 and 2004, respectively.

MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARY

Minority interestfor the three months ended March 31, 2004 was $262,000. Minority interest waseliminated in September 2004 as a result of our acquisition of the remainingminority interest in TOC we did not already own. Therefore, there was nominority interest for the three months ended March 31, 2005.

NET INCOME

Net income for thethree months ended March 31, 2005 was $377,000 a decrease of $736,000 or 66.1%compared to $1,113,000 for the three months ended March 31, 2004 for reasonsstated above.

LIQUIDITY AND CAPITAL RESOURCES

We used $447,000of cash in our operating activities in the three months ended March 31, 2005,compared to the cash provided by operating activities of $1,800,000 in thethree months ended March 31, 2004 and had a cash and cash equivalents balanceof $11,154,000 at March 31, 2005, which was a decrease of $1,951,000 from thebalance of $13,105,000 at December 31, 2004. Net working capital decreased to$16,455,000 at March 31, 2005, compared to $17,042,000 at December 31, 2004.

Net cash used ininvesting activities was $1,668,000 in the three months ended March 31, 2005compared to $430,000 for the three months ended March 31, 2004. The increase incash used in investing activities was primarily related to additional capitalexpenditures to build our inventory of cameras and edit equipment to supportour increased efforts to produce more of our programming in-house as opposed tolicensing such programming from third parties and in particular to increase ourHD camera and editing equipment. Also included in capital expenditures is“in-construction” related to the build-out of our new broadcast facilitydescribed below.

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                                                Net cash provided by financing activities was$164,000 in the three months ended March 31, 2005 compared to $828,000 for thethree months ended March 31, 2004. The financing activity in both 2005 and 2004is primarily a result of the exercise of employee and service provider stockoptions from our 1995 incentive stock option plan. More options were eligiblefor exercise in 2004 than in the comparable period in 2005.

                                                During 2004, the Company entered into a creditfacility providing for a revolving line of credit of up to $5,000,000 ofavailable borrowings. The borrowings under the credit facility are secured byaccounts receivable, instruments, documents, chattel paper, generalintangibles, contract rights, investment property, certificates of deposit,deposit accounts, letter of credit rights, inventory, and equipment. The creditfacility matures on September 5, 2005 and contains customary financial andother covenants and restrictions including a change of control provision. As ofMarch 31, 2005 and as of the date of this report, the Company did not have anyamounts outstanding under the credit facility.

                                                Driven by a need to increase office space, wereassessed our facilities including floor space utilization, master controlequipment, uplink equipment, and other needs during the year ended December 31,2004. On February 22, 2005 we announced our intention to purchase a 28,000square foot building in Temecula, California for approximately $2.6 million andhave executed a Purchase and Sale Agreement and Escrow Instructions to completethe purchase later this year. We have entered into a lease agreement for thisproperty whereby we are leasing the premises until the expected closing. Thisbuilding is planned to house our broadcast facility including our master control,our uplink satellite dish and various programming personnel. We currentlyestimate that capital expenditures to complete the build-out including updatedequipment could exceed $8 million. While the Company believes that suchestimated capital expenditures can be funded from its cash on hand or cash fromoperations, the Company is currently exploring long-term debt financing andother alternatives with regard to the possible funding of a portion of theseestimated capital expenditures. As of the date of the filing of this report,the Company has not obtained any actual commitments with regard to suchfinancing.

                                                As of March 31, 2005, the Company generatedsufficient cash flow from operations to meet its short-term cash flowrequirements. Management believes that the Company’s existing cash resourcesand anticipated cash flows from operations will be sufficient to fund theCompany’s operations at current levels and anticipated capital requirementsthrough at least April 1, 2006. To the extent that such amounts areinsufficient to finance the Company’s working capital requirements or theCompany’s desire to expand operations beyond current levels, the Company couldseek additional financing. There can be no assurance that equity or debtfinancing will be available if needed or, if available, will be on termsfavorable to the Company or its stockholders.

RISKS AND UNCERTAINTIES

                                                The Company’s business and operations aresubject to a number of risks and uncertainties, and the following list shouldnot be considered to be a definitive list of all factors that may affect theCompany’s business, financial condition and future operating results and shouldbe read in conjunction with the factors risks and uncertainties contained inthe Company’s other filings with the Securities and Exchange Commission. Anyforward-looking statements made by the Company are made with the intention ofobtaining the benefits of the “safe harbor” provisions of the SecuritiesLitigation Reform Act and a number of factors, including, but not limited tothose discussed below, could cause the Company’s actual results and experiencesto differ materially from the anticipated results or expectations expressed inany forward-looking statements.

                                                WE MAY NOT BE ABLE TO GROW OUR SUBSCRIBER BASE,AND AS A RESULT OUR REVENUES AND PROFITABILITY MAY NOT INCREASE.

                                                A major component of our growth strategy isbased 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 The Outdoor Channel, overall growth incable and satellite subscribers, the popularity of our programming, our abilityto negotiate new carriage agreements and maintain existing distribution, andother factors that are beyond our control. There can be no assurance that wewill be able to maintain or increase the subscriber base of The Outdoor Channelon cable and satellite systems or that such carriage will not decrease as aresult of a number of factors. If we are unable to grow our subscriber base,our subscriber and advertising revenues may not increase and could decrease.

                                                IF WE INCREASE OUR LAUNCH SUPPORT COSTS TOSERVICE PROVIDERS IN ORDER TO GROW OUR SUBSCRIBER BASE, OUR OPERATING RESULTSMAY BE HARMED.

                                                Although we currently have plans to increaseour marketing and sales efforts in an attempt to increase the number of oursubscribers, we may not be

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ableto do so economically or at all. If we are unable to increase the number of oursubscribers on a cost-effective basis, or if the benefits of doing so do notmaterialize, our business and operating results would be harmed. In particular,if we make any upfront cash payments to service providers for an increase inour subscriber base, our cash flow could be adversely impacted, and we mayincur negative cash flow for some time. In addition, if we were to make suchupfront cash payments, we expect to amortize such payments ratably over theterm of the agreements with the service providers. However, if a serviceprovider terminates any such agreement prior to the expiration of the term ofsuch agreement, then under current accounting rules we may incur a largeexpense in that quarter in which the agreement is terminated equal to theremaining un-amortized payments and our operating results could accordingly beadversely affected.

                                                IF THE OUTDOOR CHANNEL IS PLACED IN UNPOPULARPROGRAM PACKAGES BY CABLE OR SATELLITE SERVICE PROVIDERS, OR IF SERVICE FEESARE INCREASED FOR OUR SUBSCRIBERS, THE NUMBER OF VIEWERS OF THE OUTDOOR CHANNELMAY DECLINE WHICH COULD HARM OUR BUSINESS AND OPERATING RESULTS.

                                                We do not control the cable channels withwhich The Outdoor Channel is packaged by cable or satellite service providers.The placement by a cable or satellite service provider of The Outdoor Channelin an unpopular program package could reduce or impair the growth of the numberof our viewers and subscriber fees paid by service providers to us. Inaddition, we do not set the prices charged by cable and satellite service providersto their subscribers when The Outdoor Channel is packaged with other televisionchannels. The prices for the channel packages in which The Outdoor Channel isbundled may be set too high to appeal to individuals who might otherwise beinterested in our network. Further, if The Outdoor Channel is bundled byservice providers with networks that do not appeal to our viewers or is movedto packages with fewer subscribers, we may lose viewers. These factors mayreduce the number of viewers of The Outdoor Channel, which in turn would reduceour subscriber fees and advertising revenue.

                                                CABLE AND SATELLITE SERVICE PROVIDERS COULDDISCONTINUE OR REFRAIN FROM CARRYING THE OUTDOOR CHANNEL, WHICH COULD REDUCETHE NUMBER OF VIEWERS AND HARM 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, and their affiliatemembers. Although we have relationships or agreements with most of the largestMSOs and satellite service providers, execution of an agreement with an MSOdoes not ensure that its affiliated regional or individual cable systems willcarry The Outdoor Channel. Under our current agreements, The Outdoor Channeltypically offers MSOs and their cable affiliates the right to broadcast TheOutdoor Channel to their subscribers, but such contracts do not require thatThe Outdoor Channel be offered to all subscribers of, or any tiers offered by,the MSO. Because certain carriage agreements do not specify on which servicelevels The Outdoor Channel is carried, such as analog versus basic digital,expanded digital or specialty tiers, and in which geographic markets TheOutdoor Channel will be offered, we have no assurance that The Outdoor Channelwill be carried and available to viewers of any particular MSO or to allsatellite subscribers. If cable and satellite service providers discontinue orrefrain from carrying The Outdoor Channel, this could reduce the number ofviewers and harm our operating results.

                                                WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OURFUTURE GROWTH, AND OUR GROWTH MAY NOT CONTINUE, WHICH MAY SUBSTANTIALLY HARMOUR BUSINESS AND PROSPECTS.

                                                We have undergone rapid and significant growthin revenue and subscribers over the last several years, and our strategicobjectives include not only further developing and enhancing our existingbusiness, but also expanding our in-house production capabilities. There arerisks inherent in rapid growth and the pursuit of new strategic objectives,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 thediversion of management’s attention and resources from critical areas andexisting projects; and implementing systems and procedures to successfullymanage growth, such as monitoring operations, controlling costs, maintainingeffective quality and service, and implementing and maintaining adequateinternal controls. 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 signed an agreement topurchase a building near our current headquarters and are currently buildingout this property primarily for use as our broadcast facility in the future. Wecould incur cost overruns, delays and other difficulties with thisconstruction. In addition, moving our broadcast facility and some of our personnelinto this new facility could be disruptive to our operations. We cannot assureyou that we will be able to successfully manage our growth, that future growthwill occur or that we will be successful in managing

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

                                                WE MAY NOT BE ABLE TO SECURE NATIONALADVERTISING ACCOUNTS, AND AS A RESULT, OUR REVENUES AND PROFITABILITY MAY BENEGATIVELY IMPACTED.

                                                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 companies and other media. We cannot assure youthat our sponsors will pay advertising rates for commercial air time at levelssufficient for us to make a profit or that we will be able to attract newadvertising sponsors or increase advertising revenues. If we are unable toattract national advertising accounts in sufficient quantities, our revenuesand profitability may be harmed.

                                                IF WE FAIL TO DEVELOP AND DISTRIBUTE POPULARPROGRAMS, OUR VIEWERSHIP WOULD LIKELY DECLINE, WHICH COULD CAUSE ADVERTISINGAND SUBSCRIBER FEE 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 advertisingrevenue to 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 fee andadvertising revenue.

                                                CHANGES IN THE METHODOLOGY USED BY NIELSEN TOESTIMATE OUR SUBSCRIBER BASE OR TELEVISION RATINGS, OR INACCURACIES IN SUCHESTIMATES, COULD CAUSE 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.

                                                EXPENSES RELATING TO PROGRAMMING COSTS AREGENERALLY INCREASING AND A NUMBER OF FACTORS CAN CAUSE COST OVERRUNS ANDDELAYS, AND OUR OPERATING RESULTS MAY BE ADVERSELY IMPACTED IF WE ARE NOT ABLETO SUCCESSFULLY RECOVER THE COSTS OF DEVELOPING AND ACQUIRING NEW PROGRAMMING.

                                                The average cost of programming has increasedrecently for the cable industry and such increases may continue. We plan tobuild our programming library through the acquisition of long-term broadcastingrights from third party producers, in-house production and outright acquisitionof programming, and this may lead to increases in our programming costs. Thedevelopment, production and editing of television programming requires asignificant amount of capital and there are substantial financial risksinherent in developing and producing television programs. Actual programmingand production costs may exceed their budgets. Factors such as labor disputes,death or disability of key spokespersons or program hosts, damage to filmnegatives, master tapes and recordings or adverse weather conditions may causecost overruns and delay or prevent completion of a project. If we are not ableto successfully recover the costs of developing or acquiring programmingthrough increased revenues, whether the programming is produced by us oracquired from third-party producers, our business and operating results will beharmed.

                                                OUR OPERATING RESULTS MAY BE NEGATIVELYIMPACTED IF OUR OUTDOOR CHANNEL 2 HD NETWORK IS NOT AS SUCCESSFUL AS WEANTICIPATE.

                                                In March 2005, we began providing an HDversion of our channel and plan a formal consumer marketing launch in July2005. There can be no assurances that Outdoor Channel 2 HD will not incurunexpected costs and expenses. Distribution of Outdoor Channel 2 HD will dependon successfully executing 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 Outdoor Channel 2HD from achieving sufficient distribution from service providers to reachprofitability. Competition for quality HD content may increase the costs

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ofprogramming for Outdoor Channel 2 HD beyond our control or expectations. All ofthese factors, combined or separately, could increase costs or restrain revenueand adversely affect our operating results.

                                                THE MARKET IN WHICH WE OPERATE IS 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 basic andpay cable television networks, including the Outdoor Life Network, Spike TV,ESPN2 and others. If these or other competitors, many of which havesubstantially greater financial and operational resources than us,significantly expand their operations with respect to outdoor-relatedprogramming or their market penetration, our business could be harmed. Inaddition, certain technological advances, including the deployment of fiberoptic cable, which are already substantially underway, are expected to allowcable systems to greatly expand their current channel capacity, which coulddilute our market share and lead to increased competition for viewers fromexisting or new programming services. 

                                                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 the Outdoor Life Network, which is owned and operated byComcast. In order to compete for subscribers, we may pay either launch fees ormarketing support or both for carriage in certain circumstances in the future,which may require significant cash expenditures, harming our operating resultsand margins. We may also issue our securities from time to time in connectionwith our attempts for broader distribution of The Outdoor Channel and theamount of such securities could be significant. We also compete for advertisingsales with other pay television networks, broadcast networks, and localover-the-air television stations. We also compete for advertising sales withsatellite and broadcast radio and the print media. We compete with other cabletelevision networks for subscriber fees from, and affiliation agreements with,cable and satellite service providers. Actions by the Federal CommunicationsCommission, which we refer to as the FCC, and the courts have removed certainof the impediments to entry by local telephone companies into the videoprogramming distribution business, and other impediments could be eliminated ormodified in the future. These local telephone companies may distributeprogramming that is competitive with the programming provided by us to cableoperators.

                                                WE MAY NOT BE ABLE TO ATTRACT NEW, OR RETAINEXISTING, MEMBERS IN OUR CLUB ORGANIZATIONS, AND AS A RESULT OUR REVENUES ANDPROFITABILITY MAY BE HARMED.

                                                Our ability to attract new members and retainexisting members in our club organizations, GPAA and Lost Dutchman’s, depends,in part, upon our marketing efforts, including our programming on The OutdoorChannel and such other efforts as direct mail campaigns, continued sponsorshipof gold expositions 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.

                                                CONSOLIDATION AMONG CABLE AND SATELLITEDISTRIBUTORS 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 MAYFAIL OR BE PREEMPTED BY ANOTHER SIGNAL, WHICH COULD IMPAIR OUR ABILITY TODELIVER PROGRAMMING TO OUR CABLE AND SATELLITE SERVICE PROVIDERS.

                                                Our ability to deliver programming to serviceproviders, and their subscribers, is dependent upon the satellite equipment andsoftware that we use to work properly to distribute our programming. If thissatellite system fails, or a signal with a higher priority replaces our signal,which is determined by our agreement with the owner of the satellite, we maynot be able to deliver programming to our cable and satellite service providercustomers and their subscribers within the time periods advertised. We recentlynegotiated for back-up capability with our satellite provider on an in-orbitspare satellite, which provides us carriage on the back-up satellite in theevent that catastrophic failure occurs on the primary satellite. Our contractprovides that our main signal is subject to preemption and until the back-upsatellite is in

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position,we could lose our signal for a period of time. A loss of our signal could harmour reputation and reduce our revenues and profits.

                                                NATURAL DISASTERS AND OTHER EVENTS BEYOND OURCONTROL COULD INTERRUPT OUR SIGNAL.

                                                Our systems and operations may be vulnerableto damage or interruption from earthquakes, floods, fires, power loss,telecommunication failures and similar events. They also could be subject tobreak-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 us forlosses that may occur. Despite any precautions we may take, the occurrence of anatural disaster or other unanticipated problems at our facilities could resultin interruptions in our services. Interruptions in our service could harm ourreputation and reduce our revenues and profits.

                                                OUR OPERATING RESULTS MAY VARY SIGNIFICANTLY,AND HISTORICAL COMPARISONS OF OUR OPERATING RESULTS ARE NOT NECESSARILYMEANINGFUL AND SHOULD NOT BE RELIED UPON AS AN INDICATOR OF FUTURE PERFORMANCE.

                                                Our operations are influenced by many factors.These factors may cause our financial results to vary significantly in the futureand our operating results may not meet the expectations of securities analystsor investors. If this occurs, the price of our stock may decline. Factors thatcan cause our results to fluctuate include, but are not limited to:

·                                          carriage decisions of cable and satelliteservice providers;

·                                          demand for advertising, advertising rates andofferings of competing media;

·                                          changes in the growth rate of cable andsatellite subscribers;

·                                          cable and satellite service providers’ capitaland marketing expenditures and their impact on programming offerings andpenetration;

·                                          seasonal trends in viewer interests andactivities;

·                                          pricing, service, marketing and acquisitiondecisions that could reduce revenues and impair quarterly financial results;

·                                          the mix of cable television andsatellite-delivered programming products and services sold and the distributionchannels for those products and services;

·                                          our ability to react quickly to changingconsumer trends;

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

·                                          changing regulatory requirements.

                                                Due to the foregoing and other factors, manyof which are beyond our control, our revenue and operating results vary fromperiod to period and are difficult to forecast. Our expense levels are based insignificant part on our expectations of future revenue. Therefore, our failureto meet revenue expectations would seriously harm our business, operatingresults, financial condition and cash flows. Further, an unanticipated declinein revenue for a particular calendar quarter may disproportionately affect ourprofitability because our expenses would remain relatively fixed and would notdecrease correspondingly.

                                                SEASONAL INCREASES OR DECREASES IN ADVERTISINGREVENUE 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 ofresults for future periods, and our cash flows may not correlate with revenuerecognition.

                                                WE MAY BE UNABLE TO ACCESS CAPITAL ONACCEPTABLE TERMS TO FUND OUR FUTURE OPERATIONS.

                                                Our future capital requirements will depend onnumerous factors, including the success of our efforts to increase advertisingrevenues, the amount of resources devoted to increasing distribution of TheOutdoor Channel, and acquiring and producing programming for The OutdoorChannel. As a result, we could be required to raise substantial additionalcapital through debt or equity financing. To the extent that we raiseadditional capital through the sale of equity or convertible debt securities,the issuance of such securities could result in dilution to existingstockholders. If we raise additional capital through the issuance of debtsecurities, the debt securities would have rights, preferences and privilegessenior to holders of common stock and the terms of such debt could imposerestrictions on our operations. We cannot assure you that

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additionalcapital, if required, will be available on acceptable terms, or at all. If weare unable to obtain additional capital, our current business strategies andplans and ability to fund future operations may be harmed.

                                                WE MAY NOT BE ABLE TO ATTRACT AND RETAIN KEYPERSONNEL.

                                                Our success depends to a significant degreeupon 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, orWilliam A. Owen, our Chief Financial Officer, or Andrew J. Dale, the ChiefExecutive Officer and Co-President of The Outdoor Channel, Inc., or Thomas E.Hornish, our General Counsel, could adversely impact our business. To attractand retain qualified personnel, we may be required to grant large option orother stock-based incentive awards, which may be highly dilutive to existingstockholders. We may also be required to pay significant base salaries and cashbonuses to attract and retain these individuals, which payments could harm ouroperating results. If we are not able to attract and retain the necessarypersonnel we may not be able to implement our business plan.

                                                NEW VIDEO RECORDING TECHNOLOGIES MAY REDUCEOUR ADVERTISING REVENUE.

                                                A number of new personal video recorders, suchas TiVo in the United States, have emerged in recent years. These recordersoften contain features allowing viewers to watch pre-recorded programs withoutwatching advertising. The effect of these recorders on viewing patterns andexposure to advertising could harm our operations and results if ouradvertisers reduce the advertising rates they are willing to pay because theybelieve television advertisements are less effective with these technologies.

                                                CABLE AND SATELLITE TELEVISION PROGRAMMINGSIGNALS HAVE BEEN STOLEN OR COULD BE STOLEN IN THE FUTURE, WHICH REDUCES OURPOTENTIAL REVENUE FROM SUBSCRIBER FEES AND ADVERTISING.

                                                The delivery of subscription programming requiresthe use of conditional access technology to limit access to programming to onlythose who subscribe to programming and are authorized to view it. Conditionalaccess systems use, among other things, encryption technology to protect thetransmitted signal from unauthorized access. It is illegal to create, sell orotherwise distribute software or devices to circumvent conditional accesstechnologies. However, theft of cable and satellite programming has been widelyreported, and the access or “smart” cards used in cable and satellite serviceproviders’ conditional access systems have been compromised and could befurther compromised in the future. When conditional access systems arecompromised, we do not receive the potential subscriber fee revenues from thecable and satellite service providers. Further, measures that could be taken bycable and satellite service providers to limit such theft are not under ourcontrol. Piracy of our copyrighted materials could reduce our revenue fromsubscriber fees and advertising and negatively affect our business andoperating results.

                                                BECAUSE WE EXPECT TO BECOME INCREASINGLYDEPENDENT UPON OUR INTELLECTUAL PROPERTY RIGHTS, OUR INABILITY TO PROTECT THOSERIGHTS COULD NEGATIVELY IMPACT OUR ABILITY TO COMPETE.

                                                We currently license approximately 80% of ourprograms from third-party television and film producers. In order to build alibrary of programs and programming distribution rights, we must obtain all ofthe necessary rights, releases and consents from the parties involved indeveloping a project or from the owners of the rights in a completed program.There can be no assurance that we will be able to obtain the necessary rightson acceptable terms, or at all, or properly maintain and document such rights.In addition, protecting our intellectual property rights by pursuing those whoinfringe or dilute our rights or defending against third party claims 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 INFRINGEMENTCLAIMS THAT COULD BE TIME-CONSUMING, COSTLY TO DEFEND AND RESULT IN OUR LOSS OFSIGNIFICANT RIGHTS.

                                                Other parties may assert intellectual propertyinfringement claims against us, and our products may infringe the intellectualproperty rights of third parties. From time to time, we receive lettersalleging infringement of intellectual property rights of others. Intellectualproperty litigation can be expensive and time-consuming and could divertmanagement’s attention from our business. If there is a successful claim ofinfringement against us, we may be required to pay substantial damages to theparty claiming infringement or enter into royalty or license agreements thatmay not be available on acceptable or desirable terms, if at all. Our failureto license the proprietary rights on a timely basis would harm our business.

                                                OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERSAND DIRECTORS BENEFICIALLY OWN APPROXIMATELY 69.7% OF OUR OUTSTANDING COMMONSTOCK AND THEREFORE EXERCISE SIGNIFICANT CONTROL OVER US, AND THEY MAY MAKEDECISIONS WITH WHICH YOU DISAGREE.

                                                Our principal stockholders, executive officersand directors beneficially own an aggregate of approximately 69.7% of ouroutstanding common stock. See “Principal and Selling Stockholders” below. Theinterests of those parties could differ from those of other stockholders. As aresult of their large holdings of our common stock relative to otherstockholders, these parties, acting individually or together, could have astrong influence over matters requiring approval of our stockholders.

                                                ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OFINCORPORATION, OUR BYLAWS AND UNDER DELAWARE LAW MAY ENABLE OUR INCUMBENTMANAGEMENT TO RETAIN CONTROL OF US AND DISCOURAGE OR PREVENT A CHANGE OFCONTROL THAT MAY BE BENEFICIAL TO OUR STOCKHOLDERS.

                                                Provisions of Delaware law, our certificate ofincorporation 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 of directors to bechanged only by resolution of our board of directors;

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

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

·                                          authorized our board of directors to issuewithout stockholder approval blank check preferred stock that, if issued, couldoperate as a “poison pill” to dilute the stock ownership of a potential hostileacquirer to prevent an acquisition that is not approved by our board ordirectors;

·                                          require that stockholder actions must beeffected at a duly called stockholder meeting and prohibit stockholder actionby written consent;

·                                          establish advance notice requirements forstockholder nominations to our board of directors or for stockholder proposalsthat can be acted on at stockholder meetings;

·                                          except as provided by law, allow only ourboard of directors to call a special meeting of the stockholders; and

·                                          require a 66 2/3% stockholder vote to amendour certificate of incorporation or bylaws.

                                                In addition, because we are incorporated inDelaware, we are governed by the provisions of Section 203 of the DelawareGeneral Corporation Law, which may, unless certain criteria are met, prohibitlarge stockholders, in particular those owning 15% or more of our outstandingvoting stock, from merging or combining with us for a prescribed period oftime.

                                                TECHNOLOGIES IN THE CABLE AND SATELLITE TELEVISIONINDUSTRY ARE CONSTANTLY CHANGING, AND OUR FAILURE TO ACQUIRE OR MAINTAINSTATE-OF-THE-ART TECHNOLOGY 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 be requiredto encrypt our signal. We cannot accurately predict the effects thatimplementing new technologies will have on our

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programmingand broadcasting operations. We may be required to incur substantial capitalexpenditures to implement new technologies, or, if we fail to do so, may facesignificant new challenges due to technological advances adopted bycompetitors, which in turn could result in harming our business and operatingresults.

                                                THE CABLE AND SATELLITE TELEVISION INDUSTRY ISSUBJECT TO SUBSTANTIAL GOVERNMENTAL REGULATION FOR WHICH COMPLIANCE MAY BEEXPENSIVE, TIME CONSUMING AND MAY EXPOSE US TO SUBSTANTIAL COMPLIANCE COSTS ANDPENALTIES FOR FAILURE TO COMPLY.

                                                The cable television industry is subject toextensive legislation and regulation at the federal and local levels, and, insome 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.

                                                The Cable Television Consumer Protection andCompetition Act of 1992, to which we refer to as the 1992 Cable Act, precludesvideo programmers affiliated with cable companies from favoring theiraffiliated cable operators over competitors and requires such programmers tosell their programming to other multi-channel video distributors. Thisprovision benefits independent programmers such as us by limiting the abilityof vertically integrated cable programmers to offer exclusive programmingarrangements to cable companies. This provision was scheduled to expire inOctober 2002. However, the FCC deferred the expiration date to October 2007unless the FCC then determines that another extension is necessary to protectcompetition and diversity. If this provision expires, it could have an adverseeffect on our ability to obtain carriage by service providers.

                                                Regulatory carriage requirements also couldreduce the number of channels available to carry The Outdoor Channel. The 1992Cable Act granted television broadcasters a choice of must-carry rights orretransmission consent rights. The rules adopted by the FCC generally providedfor mandatory carriage by cable systems of all local full-power commercialtelevision broadcast signals selecting must-carry rights and, depending on acable system’s channel capacity, non-commercial television broadcast signals.Such statutorily mandated carriage of broadcast stations, coupled with theprovisions of the Cable Communications Policy Act of 1984, which require cabletelevision systems with 36 or more “activated” channels to reserve a percentageof such channels for commercial use by unaffiliated third parties and permitfranchise authorities to require the cable operator to provide channelcapacity, equipment and facilities for public, educational and governmentaccess channels, could reduce carriage of The Outdoor Channel by limiting itscarriage in cable systems with limited channel capacity. In 2001, the FCCadopted rules relating to the cable carriage of digital television signals.Among other things, the rules clarify that a digital-only television stationcan assert a right to analog or digital carriage on a cable system. The FCCinitiated a further proceeding to determine whether television broadcasters mayassert the rights to carriage of both analog and digital signals during thetransition to digital television and to carriage of all digital signals. OnFebruary 10, 2005, the FCC decided that television broadcasters do not havesuch additional must-carry rights. Broadcasters may seek judicial review of theFCC’s decision or legislative change. The imposition of such additionalmust-carry regulation, in conjunction with the current limited cable system channelcapacity, would make it likely that cable operators will be forced to drop somecable programming services and could reduce carriage of The Outdoor Channel.

                                                If we distribute television programmingthrough other types of media, we may be required to obtain federal, state andlocal licenses or other authorizations to offer such services. We may not beable to obtain licenses or authorizations in a timely manner, or at all, orconditions could be imposed upon licenses and authorizations that may not befavorable 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 the Committee on Energy and Commerce of the House ofRepresentatives, the FCC’s Media Bureau conducted a study in 2004 regarding,among other things, government-mandated a la carte or mini-tier packaging ofprogramming services in which each subscriber would purchase only thosechannels that he or she desired instead of the larger bundles of differentchannels as is typical today. The Media Bureau’s report on November 18, 2004observed that such packaging would increase the cost of programming toconsumers and injure programmers. If, in response to any rate or othergovernment regulation, cable system operators implement channel offeringstructures that require subscribers to affirmatively choose to pay a separatefee to receive The Outdoor Channel network, either by itself or in combinationwith a limited number of other channels, the number of viewers for The OutdoorChannel could be reduced.

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                                                The regulation of programming services, cabletelevision systems and satellite licensees is subject to the political processand has been in constant flux over the past decade. Further material changes inthe law and regulatory requirements are difficult to anticipate and ourbusiness may be harmed by future legislation, new regulation, deregulation orcourt decisions interpreting laws and regulations.

                                                WE MUST COMPLY WITH MANY LOCAL, STATE, FEDERALAND ENVIRONMENTAL REGULATIONS, FOR WHICH COMPLIANCE MAY BE COSTLY AND MAYEXPOSE US TO SUBSTANTIAL PENALTIES.

                                                Our recreational outdoor activity entities,GPAA and Lost Dutchman’s, share the general risks of all outdoor recreationalactivities such as personal injury, environmental compliance and real estateand environmental regulation. In addition to the general cable televisionindustry regulations, we are also subject to various local, state and federalregulations, including, without limitation, regulations promulgated by federaland state environmental, health and labor agencies. Our prospecting clubs aresubject 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 regulations mayhave on these businesses. In addition, failure to maintain required permits orlicenses, or to comply with applicable regulations, could result in substantialfines or costs or revocation of our operating licenses, which would have amaterial adverse effect on our business and operating results.

                                                CHANGES IN CORPORATE GOVERNANCE AND SECURITIESDISCLOSURE AND COMPLIANCE PRACTICES HAVE INCREASED AND MAY CONTINUE TO INCREASEOUR LEGAL COMPLIANCE AND FINANCIAL REPORTING COSTS.

                                                The Sarbanes-Oxley Act of 2002 required us tochange or supplement some of our corporate governance and securities disclosureand compliance practices. The Securities and Exchange Commission and Nasdaqhave revised, and continue to revise, their regulations and listing standards.These developments have increased, and may continue to increase, our legalcompliance and financial reporting costs.

                                                FAILURE TO ACHIEVE AND MAINTAIN EFFECTIVEINTERNAL CONTROLS IN ACCORDANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACTCOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND STOCK PRICE.

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

                                                IF OUR GOODWILL BECOMES IMPAIRED, WE WILL BEREQUIRED TO TAKE A NON-CASH CHARGE WHICH COULD HAVE A SIGNIFICANT EFFECT ON OURREPORTED NET EARNINGS.

                                                A significant portion of our assets consistsof goodwill and other intangible assets. In accordance with Statement ofFinancial Accounting Standards No. 142 “Goodwill and Other Intangible Assets”(“SFAS 142”), we test goodwill and other intangible assets for impairmentduring the fourth quarter of each year, and on an interim date if factors orindicators become apparent that would require an interim test. A significantdownward revision in the present value of estimated future cash flows for areporting unit could result in an impairment of goodwill under SFAS 142 and anon-cash charge would be required. Such a charge for impairment could have asignificant effect on our reported net earnings.

                                                CHANGES TO FINANCIAL ACCOUNTING STANDARDS MAYAFFECT OUR REPORTED OPERATING RESULTS.

                                                We prepare our financial statements to conformwith GAAP, which are subject to interpretations by the Financial AccountingStandards Board, the Securities and Exchange Commission and various bodiesformed to interpret and create appropriate accounting policies. A change inthose policies can have a significant effect on our reported results and mayeven affect our reporting of transactions completed before a change isannounced. Accounting policies

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affectingmany other aspects of our business, including rules relating to businesscombinations and employee stock option grants have recently been revised or areunder review. Changes to those rules or the questioning of current practicesmay adversely affect our reported financial results or the way we conduct ourbusiness. In addition, our preparation of financial statements in accordancewith GAAP requires that we make estimates and assumptions that affect therecorded amounts of assets and liabilities, disclosure of those assets andliabilities at the date of the financial statements and the recorded amounts ofexpenses during the reporting period. A change in the facts and circumstancessurrounding those estimates could result in a change to our estimates and couldimpact our future operating results.

ITEM 3 - QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

                                                At March 31, 2005 and 2004, our investmentportfolio included fixed-income securities of $687,000 and $550,000,respectively. These securities are subject to interest rate risk and willdecline in value if interest rates increase. However, due to the short durationof our investment portfolio, an immediate 10% change in interest rates wouldhave no material impact on our financial condition, operating results or cashflows. Declines in interest rates over time will, however, reduce our interestincome while increases in interest rates over time may increase our interestexpense.

                                                We do not have a significant level oftransactions denominated in currencies other than U.S. dollars and as a resultwe have very limited foreign currency exchange rate risk. The effect of animmediate 10% change in foreign exchange rates would have no material impact onour financial condition, operating results or cash flows.

                                                We do not have any outstanding borrowings onour line-of-credit and as a result an immediate 10% change in interest rateswould have no material impact on our financial condition, operating results orcash flows.

ITEM4.  CONTROLS AND PROCEDURES

                                                We maintain disclosure controls and proceduresdesigned to provide reasonable assurance of achieving the objective thatinformation in our Exchange Act reports is recorded, processed, summarized andreported within the time periods specified and pursuant to the regulations ofthe Securities and Exchange Commission. Disclosure controls and procedures, as definedin Rule 13a-15(e) and 15d-15(e) under the Exchange Act, include controls andprocedures designed to ensure the information required to be disclosed by us inthe reports we file or submit under the Exchange Act is accumulated andcommunicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure. It should be noted that our system of controls, however welldesigned and operated, can provide only reasonable, and not absolute, assurancethat the objectives of the system are met.

                                                As previously disclosed, in May 2005 weamended our quarterly report on Form 10-Q for the quarter ended September 30,2004 and our annual report on Form 10-K for the year ended December 31, 2004 toreflect the restatements of our consolidated financial statements included insuch reports. The errors giving rise to these restatements related to theaccounting for options issued by us to a former employee in connection with ourSeptember 2004 acquisition of the minority interest in The Outdoor Channel,Inc. that we did not previously own.

                                                Our management, with the participation of ourChief Executive Officer and Chief Financial Officer, evaluated theeffectiveness of our disclosure controls and procedures as of March 31, 2005,the end of the period covered by this report, and concluded that our disclosurecontrols and procedures were not effective as of March 31, 2005 solely becauseof the material weakness in our internal control over financial reporting withrespect to accounting for complex and non-standard transactions such as theacquisition of the minority interest in The Outdoor Channel, Inc. describedabove.

                                                To address this material weakness relating tothe accounting and disclosure for complex and non-standard transactions, wehave engaged additional resources to advise our management on the financialreporting and accounting treatment of complex transactions. We are confidentthat, as of the date of this filing, we have fully remediated this materialweakness in our internal control over financial reporting.

                                                In connection with this Form 10-Q/A, ourmanagement, with the participation of our Chief Executive Officer and ChiefFinancial Officer, have evaluated our disclosure controls and procedures ascurrently in effect, including the remedial actions described above. As aresult of the remedial actions implemented by us, we have concluded that, as ofthis date, our disclosure controls and procedures are effective.

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                                                During the fiscal quarter ended March 31,2005, there was no change in our internal control over financial reporting thatmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting. However, subsequent to March 31, 2005, wetook the remedial actions described above.

PART II - OTHERINFORMATION
| ITEM 1. | LEGAL PROCEEDINGS.                                            |
|---------|---------------------------------------------------------------|
|    |                                                          |
|    | None                                                          |
|    |                                                          |
| ITEM 2. | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
|    |                                                          |
|    | None                                                          |
|    |                                                          |
| ITEM 3. | DEFAULTS  UPON SENIOR SECURITIES.                             |
|    |                                                          |
|    | None                                                          |
|    |                                                          |
| ITEM 4. | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS.         |
|    |                                                          |
|    | None                                                          |
|    |                                                          |
| ITEM 5. | OTHER  INFORMATION.                                           |
|    |                                                          |
|    | None                                                          |

 

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ITEM 6.  EXHIBITS.

(a)Exhibits:
| Exhibit Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                          |
|----------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           |       |                                                                                                                                                                                                                                                                                                                                                                                     |
| 2.1            |       | Amended and Restated Agreement and Plan of Merger  among The Outdoor Channel, Inc., Outdoor Channel Holdings, Inc. and Gold  Prospector’s Association of America, Inc. dated as of April 20, 2004, as  amended and restated as of May 12, 2004 (filed as Exhibit 2.1 to the Company’s  Current Report on Form 8-K filed on May 18, 2004 and incorporated herein by  reference) |
|           |       |                                                                                                                                                                                                                                                                                                                                                                                     |
| 2.2            |       | Agreement and Plan of Merger between Outdoor Channel  Holdings, Inc., a Delaware corporation, and Outdoor Channel Holdings, Inc.,  an Alaska corporation, dated as of September 8, 2004 (filed as Exhibit 2.1 to  the Company’s Current Report on Form 8-K filed on September 20, 2004 and  incorporated herein by reference)                                                       |
|           |       |                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.1            |       | Certificate of Incorporation of Outdoor Channel  Holdings, Inc, a Delaware corporation (filed as Exhibit 3.1 to the Company’s  Current Report on Form 8-K filed on September 20, 2004 and incorporated  herein by reference)                                                                                                                                                        |
|           |       |                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.2            |       | By-Laws of Outdoor Channel Holdings, Inc., a  Delaware corporation (filed as Exhibit 3.2 to the Company’s Current Report on  Form 8-K filed on September 20, 2004 and incorporated herein by reference)                                                                                                                                                                             |
|           |       |                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.1           |       | Purchase and Sale Agreement and Escrow Instructions  by and between Temecula Enterprises, LLC, an Ohio limited liability company  and The Outdoor Channel, Inc., a Nevada corporation, dated as of December 16,  2004 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q/A  filed on May 16, 2005 and incorporated herein by reference)                          |
|           |       |                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.2           |       | Outdoor Channel Holdings, Inc. Executive Annual Cash  Bonus Plan effective April 21, 2005 (filed as Exhibit 10.2 to the Company’s  Quarterly Report on Form 10-Q/A filed on May 16, 2005 and incorporated herein  by reference)                                                                                                                                                     |
|           |       |                                                                                                                                                                                                                                                                                                                                                                                     |
| 31.1           |       | Certification by Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                 |
|           |       |                                                                                                                                                                                                                                                                                                                                                                                     |
| 31.2           |       | Certification by Chief Financial Officer                                                                                                                                                                                                                                                                                                                                                 |
|           |       |                                                                                                                                                                                                                                                                                                                                                                                     |
| 32.1*          |       | Section 1350 Certification by Chief Executive  Officer                                                                                                                                                                                                                                                                                                                                   |
|           |       |                                                                                                                                                                                                                                                                                                                                                                                     |
| 32.2*          |       | Section 1350 Certification by Chief Financial  Officer                                                                                                                                                                                                                                                                                                                                   |

 

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*                                         Pursuant to Commission Release No. 33-8238,this certification will be treated as “accompanying” this Quarterly Report onForm 10-Q and not “filed” as part of such report for purposes of Section 18 ofthe Securities Exchange Act of 1934, as amended, or otherwise subject to theliability of Section 18 of the Securities Exchange Act of 1934, as amended, andthis certification will not be deemed to be incorporated by reference into anyfiling under the Securities Act of 1933, as amended, or the Securities ExchangeAct of 1934, as amended, except to the extent that the registrant specificallyincorporates it by reference.

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SIGNATURES

                                                Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|        |   | OUTDOOR CHANNEL HOLDINGS, INC.                                                                 |
|--------|--------|------------------------------------------------------------------------------------------------|
|   |   |                                                                                           |
|   |   | /s/ William A. Owen                                                                            |
|   |   | WILLIAM A. OWEN                                                                                |
|   |   | Authorized Officer, Chief Financial Officer and  Controller (Principal and Accounting Officer) |
|   |   | Dated:   February 12, 2007                                                      |

 

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