<PAGE>
 
________________________________________________________________________________


                                   FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

[X]       Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

For the quarterly period ended September 30, 1997.

[_]       Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

For the transition period from .................... to ....................

                        COMMISSION FILE NUMBER 0-13102


                          THE NOSTALGIA NETWORK, INC.
            (Exact name of registrant as specified in its charter)


                DELAWARE                                   84-0923659       
     (State or other jurisdiction                       (I.R.S. Employer    
     of incorporation)                                  Identification No.)  


650 MASSACHUSETTS AVENUE NW WASHINGTON,  DC                           20001
(Address of principal executive office)                             (Zip Code)
 

                                (202) 289-6633
             (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                                             YES [X]     NO [_]

The number of shares of the Registrant's Common Stock, $.04 par value as of the
close of the period covered by this Report was 20,274,371.

________________________________________________________________________________
 
<PAGE>
 
                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
                                                                                Page No.  
                                                                                --------  
<S>                                                                             <C>       
PART I.   FINANCIAL INFORMATION                                                           
                                                                                          
Item 1.   Financial Statements                                                            
                                                                                          
          Balance Sheets as of                                                            
          September 30, 1997 and December 31, 1996                                   3    
                                                                                          
          Statements of Operations                                                        
          For the Three and Nine Months Ended September 30, 1997 and 1996            4    
                                                                                          
          Statements of Cash Flows                                                        
          For the Nine Months Ended September 30, 1997 and 1996                      5    
                                                                                          
          Notes to Financial Statements                                            6 - 7  
                                                                                          
Item 2.   Management's Discussion and Analysis of                                         
          Financial Condition and Results of Operations                            8 - 12 
                                                                                          
PART II.  OTHER INFORMATION                                                               
                                                                                          
Item 5.   Other Information                                                          13   
                                                                                          
Index to Exhibits                                                                    15   
                                                                                          
Exhibit 27 - Financial Data Schedule                                                 16    
</TABLE>

                                      -2-
<PAGE>

PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

                          THE NOSTALGIA NETWORK, INC.
                                BALANCE SHEETS

<TABLE> 
<CAPTION> 
                                                                              (Unaudited)                           
                                                                          September 30, 1997   December 31, 1996      
                                                                          ------------------   -----------------       
                                                                          <C>                  <C> 
               ASSETS                                                                                                  
<S>                                                                                                
CURRENT ASSETS                                                                                                             
   Cash and cash equivalents                                               $      986,125        $   1,421,011             
   Accounts receivable, less allowance of $485,000                                                                         
      and $1,154,000, respectively                                                510,919              706,634             
   Prepaid expenses                                                               163,566              145,998             
   Cablecast rights                                                             6,392,000            5,866,000             
                                                                          ----------------     ----------------            

          Total current assets                                                  8,052,610            8,139,643             
                                                                                                                           
Programming and cablecast rights - net                                          6,014,095            7,844,907             
Property and equipment - net                                                    1,502,890            1,484,412             
Other assets                                                                       52,740               17,740             
                                                                          ----------------     ----------------            
                                                                                                                           
          Total assets                                                     $   15,622,335        $  17,486,702             
                                                                          ================     ================            
                                                                                                                           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                             
                                                                                                                           
CURRENT LIABILITIES                                                                                                        
   Current maturities of long-term obligations                             $    5,189,765        $   6,517,410             
   Accounts payable                                                             1,548,471            1,356,070             
   Accrued expenses and other liablilities                                        550,598              874,732             
                                                                          ----------------     ----------------            
                                                                                                                           
          Total current liabilities                                             7,288,834            8,748,212             
                                                                          ----------------     ----------------            
                                                                                                                           
LONG-TERM OBLIGATIONS, less current maturities                                                                             
   Notes and interest payable - related parties                                37,113,631           21,815,644             
   Other                                                                          361,794               11,965             
   Cablecast licenses and fees payable                                          3,331,606            6,375,102             
                                                                          ----------------     ----------------            
                                                                                                                           
         Total long-term liabilities                                           40,807,031           28,202,711             
                                                                          ----------------     ----------------            
         Total liabilities                                                     48,095,865           36,950,923             
                                                                          ----------------     ----------------            
                                                                                                                           
COMMITMENTS AND CONTINGENCIES                                                                                              
                                                                                                                           
STOCKHOLDERS' EQUITY (DEFICIT)                                                                                             
   Preferred stock: $2 par value, 125,000 shares authorized,                                                               
      3,250 issued and outstanding                                                  6,500                6,500             
   Common stock: $0.04 par value, 30,000,000 shares                                                                        
     authorized, 20,274,371 shares issued                                         810,975              810,975             
     and outstanding                                                           30,213,554           30,213,554             
Additional paid-in capital                                                    (63,504,559)         (50,495,250)            
Deficit                                                                   ----------------     ----------------            
                                                                                                                           
         Total stockholers' equtiy (deficit)                                  (32,473,530)         (19,464,221)            
                                                                          ----------------     ----------------            
         Total liabilities and stockholders'equity (deficit)               $   15,622,335        $  17,486,702             
                                                                          ================     ================             
</TABLE> 

              See accompanying notes to the financial statements.

                                      -3-
<PAGE>
                          THE NOSTALGIA NETWORK, INC.
                           STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE> 
<CAPTION> 
                                              For the Three Months              For the Nine Months
                                               Ended September 30,              Ended September 30,
                                           -----------------------------  -----------------------------
                                                1997           1996            1997            1996
                                           --------------  -------------  -------------  --------------
<S>                                        <C>             <C>            <C>            <C> 
OPERATING REVENUES
  Affiliate revenue                             $546,551       $938,866       $1,865,084     $3,034,100
  Advertising sales revenue                      963,715      1,237,646        3,598,639      4,340,394
  Other                                          129,689              -          129,689              -
                                             -----------    -----------     ------------    -----------

    Total operating revenues                   1,639,955      2,176,512        5,593,412      7,374,494
                                             -----------    -----------     ------------    -----------

OPERATING EXPENSES
  Programming, production and transmission       954,341      1,329,665        4,280,351      4,224,165
  Programming amortization                     1,521,239      1,660,009        5,036,662      5,077,586
  Sales and marketing                          1,669,171      1,009,451        5,440,264      3,308,159
  Finance, general and administration            500,389        922,878        2,076,290      2,612,704
                                             -----------    -----------     ------------    -----------

    Total operating expenses                   4,645,140      4,922,003       16,833,567     15,222,614
                                             -----------    -----------     ------------    -----------

LOSS FROM OPERATIONS                          (3,005,185)    (2,745,491)     (11,240,155)    (7,848,120)
                                             -----------    -----------     ------------    -----------

OTHER INCOME AND (EXPENSE)
    Interest and other - net                    (685,435)      (258,235)      (1,769,154)      (542,842)
                                             -----------    -----------     ------------    -----------

LOSS BEFORE PROVISION FOR
   INCOME TAXES                               (3,690,620)    (3,003,726)     (13,009,309)    (8,390,962)

PROVISION FOR  INCOME TAXES                            -              -                -              -
                                             -----------    -----------     ------------    -----------

NET LOSS                                     $(3,690,620)   $(3,003,726)    $(13,009,309)   $(8,390,962)
                                             ===========    ===========     ============    ===========

NET LOSS PER COMMON SHARE                         $(0.18)        $(0.15)          $(0.64)        $(0.41)
                                             ===========    ===========     ============    ===========

WEIGHTED AVERAGE SHARES OUTSTANDING           20,274,371     20,274,371       20,274,371     20,274,371
                                             ===========    ===========     ============    ===========
</TABLE> 

              See accompanying notes to the financial statements

                                      -4-

<PAGE>
                          THE NOSTALGIA NETWORK, INC.
                           STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE> 
<CAPTION> 
                                                                                           For the Nine Months    
                                                                                           Ended September 30,   
                                                                                ----------------  --------------- 
                                                                                     1997              1996      
                                                                                ----------------  ---------------
<S>                                                                             <C>               <C>            
CASH FLOWS FROM OPERATING ACTIVITIES                                                                             
  Net loss                                                                        $(13,009,309)     $(8,390,962) 
  Adjustments to reconcile net loss to net cash                                                                  
   used in operating activities:                                                                                 
    Depreciation and amortization                                                    5,268,038        5,255,486  
    Provision for losses on accounts receivable                                              -         (104,000) 
  Net change in operating assets and liabilities:                                                                
    Decrease in accounts receivable                                                    195,715          757,833  
    (Increase) decrease in prepaid expenses and other assets                           (17,568)          63,463  
    Increase (decrease) in accounts payable                                            192,401         (348,233) 
    Increase in accrued expenses and other liabilities                                  25,695           85,580  
    Increase in interest and other payables - related partie                         1,297,987          607,174  
                                                                                ----------------  --------------- 
                                                                                                                 
      Net cash used in operating activities                                         (6,047,041)      (2,073,659) 
                                                                                ----------------  --------------- 
CASH FLOWS FROM INVESTING ACTIVITIES                                                                             
    Acquisition of programming and cablecast rights                                 (2,492,350)        (483,174) 
    Acquisition of property and other assets                                          (284,854)        (146,957) 
                                                                                ----------------  --------------- 
                                                                                                                 
      Net cash used in investing activities                                         (2,777,204)        (630,131) 
                                                                                ----------------  --------------- 
CASH FLOWS FROM FINANCING ACTIVITIES                                                                             
    Repayment of long-term obligations                                              (5,610,641)      (4,438,665) 
    Proceeds from financing                                                         14,000,000        6,500,000  
                                                                                ----------------  ---------------
                                                                                                                 
      Net cash provided by financing activities                                      8,389,359        2,061,335  
                                                                                ----------------  ---------------
NET DECREASE IN CASH AND CASH                                                                                    
   EQUIVALENTS                                                                        (434,886)        (642,455) 
                                                                                                                 
CASH AND CASH EQUIVALENTS - beginning                                                1,421,011          855,739  
                                                                                ----------------  ---------------
CASH AND CASH EQUIVALENTS - ending                                                    $986,125         $213,284  
                                                                                 ===============   ==============
                                                                                                                 
NONCASH INVESTING AND FINANCING ACTIVITIES:                                                                      
    Vendor financing of programming rights                                          $1,239,500         $404,500  
                                                                                 ===============   ============== 
</TABLE> 

              See accompanying notes to the financial statements.

                                      -5-
<PAGE>
 
                          The Nostalgia Network, Inc.


                         NOTES TO FINANCIAL STATEMENTS

1.   The financial information included herein is submitted pursuant to the
     requirements of Form 10-Q and does not include all disclosures required by
     generally accepted accounting principles. It is suggested that these
     unaudited financial statements be read in conjunction with the financial
     statements and notes thereto included in the Company's annual report on
     Form 10-K for the fiscal year ended December 31, 1996 filed with the
     Securities and Exchange Commission, which are incorporated herein by
     reference. The accompanying interim financial statements reflect all
     adjustments (consisting of normal recurring accruals only) which are, in
     the opinion of management, necessary for a fair statement of the results
     for the interim periods presented. The results of operations for interim
     periods are not necessarily indicative of the results to be obtained for
     the entire year.

2.   Certain reclassifications have been made to the financial statements for
     the comparative period of the prior fiscal year for consistency with the
     presentation for the current period.

3.   For purposes of the Statements of Cash Flows, cash equivalents include
     highly liquid debt instruments with a maturity of three months or less.

4.   During the nine months ended September 30, 1997, the Company executed
     various promissory notes in favor of Crown Communications, Inc. ("Crown")
     in the amount of $14,000,000 at interest rates ranging from 8.25% to 8.5%
     due February 1, 1998. On March 31, 1997, the Company issued two
     substitution and replacement notes to Crown and Concept Communications,
     Inc. ("Concept") (together the "Majority Shareholders") in the amount of
     $6,500,000 and $18,112,194, respectively, at 8.5% interest due February 1,
     1998. These notes require minimum monthly interest payments aggregating
     $60,000 and replace previously issued notes in the aggregate principal
     amount of $23,000,000 plus $1,612,194 in accrued and unpaid interest. These
     notes are covered by the terms of certain Security Agreements between the
     Majority Shareholders and the Company, as amended. The Majority
     Shareholders have committed to provide up to an additional $6,500,000 in
     debt financing during the balance of the calendar year. The Majority
     Shareholders have stated they do not intend to call their outstanding notes
     prior to February 1, 1998 unless replaced by an equity investment.

5.   In June 1997, the Financial Accounting Standards Board issued two new
     disclosure standards. Results of operations and financial position will be
     unaffected by implementation of these new standards.

                                       6
<PAGE>
 
     Statement of Financial Accounting Standards ("SFAS") 130, "Reporting
     Comprehensive Income", establishes standards for the reporting and
     displaying of comprehensive income, its components and accumulated
     balances. Comprehensive income is defined to include all changes in equity
     except those resulting from investments by owners and distributions to
     owners. Among other disclosures, SFAS 130 requires that all items that are
     required to be recognized under current accounting standards as components
     of comprehensive income be reported in a financial statement that is
     displayed with the same prominence as other financial statements.

     SFAS 131, "Disclosures About Segments of a Business Enterprise" establishes
     standards for the way that public enterprises report information about
     operating segments in annual financial statements and requires reporting of
     selected information about operating segments in interim financial
     statements issued to the public. It also establishes standards for
     disclosures regarding products and services, geographic areas and major
     customers. SFAS 131 defines operating segments as components of an
     enterprise about which separate financial information is available that is
     evaluated regularly by the chief operating decision maker in deciding how
     to allocate resources and in assessing performance.

     Both of these new standards are effective for financial statements for
     periods beginning after December 15, 1997 and require comparative
     information for earlier years to be restated. Due to the recent issuance of
     these standards, management has been unable to fully evaluate the impact,
     if any, they may have on future financial statement disclosures.

                                       7
<PAGE>
 
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

This report contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. For a discussion of the
risks that may have an impact on the Company's results, see the Company's report
on Form 10-K for the year ended December 31, 1996.

Results of Operations
---------------------

The Network has continued to experience subscriber losses due to extraordinary
market conditions. Management's plans to reverse this trend and increase cable
system carriage includes a strategy of aggressively developing original
proprietary programming to create consumer value and demand, and to increase
appeal to cable operators and satellite packagers. In connection with the launch
of new original programming, management has launched a consumer marketing
campaign to increase consumer awareness and demand. Accordingly, the results of
operations for the nine months ended September 30, 1997 were not unexpected.

Total revenues decreased $1,781,082 or 24.2% (from $7,374,494 to $5,593,412) for
the nine months ended September 30, 1997 (the "Period") as compared with the
same period during 1996 and $536,557, or 24.6% (from $2,176,512 to $1,639,955)
for the three months ended September 30, 1997 (the "Quarter") as compared with
the same quarter during 1996. The decline resulted principally from decreases in
affiliate revenues of $1,169,016, or 38.5% (from $3,034,100 to $1,865,084) for
the Period and $392,315, or 41.8% (from $938,866 to $546,551) for the Quarter.
Advertising revenue decreased $741,755, or 17% (from $4,340,394 to $3,598,639)
for the Period and $273,931, or 22.1% (from $1,237,646 to $963,715) for the
Quarter. Other revenue, consisting of recovery of bad debts, increased to
$129,689 from $0.

Affiliate revenues decreased by $1,169,016, or 38.5% (from $3,034,100 to
$1,865,084) for the Period and $392,315, or 41.8% (from $938,866 to $546,551)
for the Quarter as a result of declines in the Network's subscriber estimates.
In recent years dramatic forces have reshaped the cable marketplace.
Technological advances heralded to significantly increase system channel
capacity, having just recently been introduced to the marketplace, have fallen
far behind their promised commercial introduction dates. Consumer settop boxes
required to receive and view the new digital compression technology are slowly
being introduced into the market, resulting in still further delays in opening
additional access to potential subscribers. Those delays, however, have not
deterred the launch of numerous new programming services to fill this
anticipated new capacity. Unlike the Network, many of the newer services being
offered have significant strategic alliances with either system operators,
sister channels or program developers which provide them with a competitive
position the Company does not enjoy. Further, these networks are offering
significant per subscriber fees to buy their way onto cable systems. Offers of
$1 to $2 per subscriber are now considered marginal, with current estimates
averaging $5 per subscriber, up to a reported high offered by FOX NEWS of $11 to
$15 per

                                       8
<PAGE>
 
subscriber. These dramatic changes to the cable marketplace have adversely
impacted the Company since it is unable to match the per subscriber fees offered
by many other networks. As a result the Company continues to suffer further
subscriber losses. Until such time as channel capacity increases significantly,
or the Company has the resources to effectively compete in a pay-to-play
environment, the Company will remain vulnerable to additional subscriber
declines.

Advertising revenue decreased principally due to decreased rates based on the
Network's declining subscriber estimates. Infomercial sales decreased $405,205,
or 14.3% (from $2,829,666 to $2,424,461) for the Period and $183,918, or 23%
(from $798,107 to $614,189) for the Quarter. Conventional advertising decreased
$367,441 or 23.8% (from $1,541,619 to $1,174,178) for the Period and $120,767,
or 26% (from $465,435 to $344,668) for the Quarter. Management anticipates these
trends will continue until such time as the Network's subscriber estimates
increase; however, increases in advertising rates typically occur several months
following increased subscriber estimates.

Management firmly believes that the Company's niche, Post-49 adults, is a
valuable market which currently is not being served by other networks.
Government statistics show that this demographic is the fastest growing
demographic segment and will account for 30% of the population in the year 2000.
As technology continues to change almost daily, management believes the
Company's best approach is to increase branding of the Network and build
consumer demand for its product. It is actively pursuing development of new
original programming which will be unique to the Network and specifically
targeted to Post-49 adults. In 1997, the Network commenced a consumer marketing
campaign in specifically targeted markets as well as other consumer awareness
activities. Repeatedly in consumer market tests the Company's product has been
highly rated. Management believes investment in the Company's product and
consumer awareness advertising will provide greater long-term benefit than
diverting funds for short-term launch opportunities.

Operating expenses, net of $2,608,000 in capitalized production costs for both
the period and the quarter, increased $1,610,953, or 10.6% (from $15,222,614 to
$16,833,567) for the Period and decreased $276,863, or 5.6% (from $4,922,003 to
$4,645,140) for the Quarter. The increase for the Period was primarily a result
of an increase of $2,132,105, or 64.4% (from $3,308,159 to $5,440,264) in sales
and marketing costs, offset by a reduction in finance, general and
administrative expenses of $536,414, or 20.5% (from $2,612,704 to $2,076,290).
The reduction for the Quarter is primarily a result of reductions in finance,
general and administrative expenses of $422,489, or 45.8% (from $922,878 to
$500,389) and reductions in programming, production and transmission expenses of
$375,324, or 28.2% (from $1,329,665 to $954,341), offset by an increase of
$659,720, or 65.3% (from $1,009,451 to $1,669,171) in sales and marketing
expenses.

Programming, production and transmission costs are presented net of $2,608,000
in capitalized costs associated with production of new original programs for
both the period and the quarter. Net programming, production and transmission
costs have increased $56,186, or 1.3% (from

                                       9
<PAGE>
 
$4,224,165 to $4,280,351) for the Period and decreased $375,324, or 28.2% (from
$1,329,665 to $954,341) for the Quarter. The reduction for the quarter is
primarily due to production of longer lived programs requiring capitalizing of
costs versus expensing of production costs for contemporary programming.
Programming amortization costs have decreased by $40,924, or 0.8% (from
$5,077,586 to $5,036,662) for the Period and $138,770, or 8.4% (from $1,660,009
to $1,521,239) for the Quarter as a result of changes in the Network's
programming lineup and programming contracts. The Company expects to incur
additional increases in future programming and studio production costs as a
consequence of upgrading the Network's programming and creation of new original
programs. These additional future expenditures will adversely impact the
Company's results of operations in the short-term; however, management believes
they are critical to the Company's long-term survival and growth.

Nostalgia continues an ambitious schedule of new and original productions in
1997, including the following programs which commenced airing in the third and
fourth quarters of 1997: The Real Me, autobiographies of famous people in their
own words and stories, covering such notable guests as Willard Scott, Wally
"Famous" Amos, Virginia Graham and John Raitt; The Bull and the Bear, stock
market analyses by a "Siskel and Ebert-type" pair of hosts. Nostalgia DanceSport
Competitions, features a fast growing trend in America, ballroom and performance
dancing. Nostalgia Variety Hour, includes Tony Orlando and Dawn, Leslie Uggams
and Jimmy Durante with all new wrap-arounds. Cafe DuArt, an original musical
variety/ comedy series features impressionist Louise DuArt and her cast of
impression characters set in a cabaret club intertwined with a variety of
musical guests.

Sales and marketing expenses have increased by $2,132,105, or 64.4% (from
$3,308,159 to $5,440,264) for the Period and $659,720, or 65.4% (from $1,009,451
to $1,669,171) for the Quarter. Advertising expenses have increased by
$1,318,798, or 353.6% (from $373,008 to $1,691,806) for the Period and $296,045,
or 213.7% (from $138,540 to $434,585) for the Quarter primarily as a result of
consumer awareness advertising as well as increased trade advertising.
Conventions increased by $319,503, or 172.4% (from $185,373 to $504,876) for the
Period and $135,420, or 373.7% (from $36,236 to $171,656) for the Quarter
primarily due to timing of certain trade shows. Salaries and benefits increased
by $188,376, or 17.5% (from $1,078,962 to $1,267,338) for the Period and
$34,514, or 9.4% (from $367,833 to $402,347) for the Quarter as a result of
increased staffing associated with increased sales and marketing efforts.
National programs increased by $120,117, or 170.5% (from $70,436 to $190,553)
for the Period but decreased $7,870 or 27.4% (from $28,749 to $20,879) for the
Quarter primarily as a result of promoting the Network's Lifestage Marketing
program, assisting system operators in the development of effective marketing
techniques specifically targeted to Post-49 consumers. Management anticipates
sales and marketing expenses will continue to increase in the future as the
Network continues to brand itself.

Finance, general and administrative costs decreased by $536,414, or 20.5% (from
$2,612,704 to $2,076,290) for the Period and $422,489, or 45.8% (from $922,878
to $500,389) for the Quarter. This decrease was primarily attributed to bad debt
expense which decreased by $442,567, or

                                       10
<PAGE>
 
98.3% (from $450,000 to $7,433) for the Period and $354,415, or 236.3% (from
$150,000 to $(204,415)) for the Quarter as a result of collections of previously
reserved accounts and additional credit and collections efforts reducing
exposure to bad debt risks. Salaries and benefits decreased by $191,082, or
19.4% (from $982,786 to $791,704) for the Period and $50,545, or 14.6% (from
$345,354 to $294,809) for the Quarter as a result of vacancies and staff
reorganizations. Professional fees decreased by $121,772, or 22.4% (from
$542,488 to $420,716) for the Period and $100,256, or 46.9% (from $213,620 to
$113,364) for the Quarter as a result of reduced legal fees.

As a result of decreased revenues ($1,781,082 decrease); increased sales and
marketing costs ($2,132,105 increase); increased programming, production and
transmission costs ($56,186 increase); offset by decreased programming
amortization costs ($40,924 decrease); decreased finance general and
administrative expenses ($536,414 decrease); the Company's loss from operations
increased $3,392,035, or 43.2% (from $7,848,120 to $11,240,155) for the Period.
As a result of decreased revenues ($536,557 decrease); increased sales and
marketing costs ($659,720 increase); offset by decreased programming, production
and transmission costs ($375,324 decrease); decreased programming amortization
costs ($138,770 decrease); decreased finance general and administrative expenses
($422,489 decrease); the Company's loss from operations increased $259,694, or
9.5% (from $2,745,491 to $3,005,185) for the Quarter.

Other expense increased $1,226,312, or 225.9% (from $542,842 to $1,769,154) for
the Period and $427,200, or 165.4% (from $258,235 to $685,435) for the Quarter,
primarily as a result of interest on additional loans.

Liquidity and Capital Resources
-------------------------------

Cash decreased from $1,421,011 at December 31, 1996 to $986,125 at September 30,
1997, principally due to cash outlays to cover increased operating expenses and
repayments of certain debts offset by $14,000,000 in financing during the
Period. Working capital increased from a deficit of ($608,569) at December 31,
1996 to $763,776 at September 30, 1997 principally as a result of greater
reductions in cablecast debt than in current cablecast rights due to producing
long lived original programming in house compared to long-term licensing
arrangements. Cablecast rights have increased by $22,685 (0.2%) since year-end
as a result of amortization of the Network's investment in its prime-time line
up, offset by $3,731,850 in programming production and acquisitions. Total
liabilities increased primarily due to $14,000,000 in financing reduced by
payments on liabilities related to programming.

Cash flows from operating activities decreased by $3,973,382, or 191.6% during
the Period compared to the same Period in 1996 principally as a result of the
increased loss from operations of $4,618,347. The increased loss was due
primarily to decreases in revenues combined with increased costs. Accounts
receivable decreased $195,715, compared to a reduction of $757,833 during the
same period in 1996 due to 1996 write-offs of certain receivables. Accounts
payable increased $192,401 compared to a decrease of $348,233 during the same
period in 1996 as a

                                       11
<PAGE>
 
result of increased operating expenses. Interest and other payables to related
parties increased by $1,297,987 compared to $607,174 during the same period in
1996 primarily as a result of interest accruing on additional notes payable.

Cash used in investing activities increased by $2,147,073, or 340.7% (from
$(630,131) to $(2,777,204)) for the Period principally due to an increase of
$2,009,176, or 415.8% for purchases of programming and cablecast rights as well
as $137,897 in increased property and other asset acquisitions of $137,897, or
93.8% (from $146,957 to $284,854).

Cash flows from financing activities increased $6,328,024, or 307% (from
$2,061,335 to $8,389,359) during the Period compared to the same Period in 1996
due principally to financing increases of $7,500,000, or 115.4% (from $6,500,000
to $14,000,000) offset by increased repayment of long-term obligations of
$1,171,976, or 26.4% (from $4,438,665 to $5,610,641).

The Company has received a total of $34,000,000 in financing from December 1994
through September 30, 1997, from the Majority Shareholders at 8.5%. The Majority
Shareholders have committed to provide up to an additional $6,500,000 in debt
financing during the balance of the calendar year. Management believes that
these funds will be sufficient to satisfy its operating needs for 1997. In
connection with the additional borrowings and the Majority Shareholders'
agreement to extend the due dates on the financing to February 1, 1998, the
Company has entered into security agreements covering substantially all the
Company's assets in favor of the Majority Shareholders.

The Company believes that, in order to survive in the highly competitive market
for cable television programming, the Company will need significant additional
investment over the next four to five years. Such additional investment is
necessary to improve programming and increase distribution which the Company
anticipates will ultimately increase advertising revenues and result in
substantial long term revenue increases.

The Company's Board of Directors has directed its Executive Committee to study
the question of whether the Company should enter into a strategic alliance, and
to make recommendations to the full Board regarding this proposal. The Executive
Committee has actively studied this alternative and has had preliminary
discussions with a number of potential strategic partners. These discussions
were preliminary and no definitive proposals or targeted entities have been
identified. The Executive Committee will continue to consider potential
strategic alliance candidates.

Because of the unpredictable factors involved in the search for a strategic
alliance, and the dynamic changes taking place in the industry, there is
considerable uncertainty about what the Company's needs will be in future years.
There can be no assurance either that the Company will be able to locate
sufficient funding in excess of the funds committed for 1997, or that it will be
able to achieve a strategic alliance.

                                       12
<PAGE>
 
PART II.  OTHER INFORMATION

ITEM 5. OTHER INFORMATION

On August 20, 1997 the Network commenced encrypted scrambling of its programming
signal. Such scrambling requires an affiliate to utilize an authorized
descrambler to receive the Network's programming and provides security against
unlawful pirating of the Network's programming. As a scrambled service, the
Network is now licensing its programming for sale to C-Band consumers through
various national programming packagers.

The Network has entered into a contract with National Digital Television Center
which operates Headend In The Sky ("HITS"), for transmission of a digitally
compressed version of the Network's service. HITS is the service program
developed by TCI to expand channel capacity for its cable systems and compete
with DBS services. HITS also will be marketed by TCI to allow non TCI affiliates
to expand their channel capacity. By entering into this contract, the Network is
positioned to compete for digital channel capacity, which the industry estimates
has the greatest potential for channel capacity expansion.

                                       13
<PAGE>
 
                                  SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


Dated  November 14, 1997


                                        THE NOSTALGIA NETWORK, INC.



                                    By: /s/ SQuire D. Rushnell
                                        -------------------------------
                                    SQuire D. Rushnell, President and
                                    Chief Executive Officer



                                    By: /s/ Martin A. Gallogly   
                                    -----------------------------------
                                    Martin A. Gallogly, Vice President,
                                    Treasurer and Chief Financial Officer

                                       14
<PAGE>
 
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO.                     DESCRIPTION                                          PAGE NO.       
-----------                     -----------                                          --------       
<S>   <C>                                                                            <C>             
3.1   Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the 
      Registrant's Report on Form 10-K for the Year Ended December 31, 
      1994, and incorporated herein by reference thereto)     
                                                                 
3.2   Amended and Restated Bylaws (filed as Exhibit 3.2 to the
      Registrant's Report on Form 10-K for the Year Ended December 31,  
      1994, and incorporated herein by reference thereto)
                                                                 
27    Financial Data Schedule as required by Item  601 (c) of Regulation S-K             16
</TABLE>

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